Hindustan Zinc looking at rare earth opportunity; mining auction process needs reform, says CEO

"In the case of rare earth mines, our exploration team judges every property, and we go in if the mine is viable. However, it is a case of one step forward and one step back. We had a gold block that was taken back, and a tungsten block in Tamil Nadu also went back due to some issues. I think that in a year or so, the auction process, or the expectation from the auctions, will be reset. Unlike expectations of 100-120 percent premiums in iron ore and bauxite mines, governments will probably get 1-2 percent premiums because of the low quantities," Misra said.

For iron ore and bauxite mines, state governments charge premiums and royalties on mines set for allotment through an auction process, with premiums calculated as a percentage of the royalty payable by companies over and above the average sale price in the district in which the mine is located in. The prices are set by the Indian Bureau of Mines.

He added, "In the rare earth mines, the metallurgy is not known, with the companies taking a huge risk at the auction itself. Once we get the mine, the starting up of the mine will take another four to five years. And even after that, the commercial viability of the metallurgy is not known. The mines will also not attract many bidders, because most of these properties are in underground mines, and many corporate houses are quite scared of operating underground mining facilities".

The Anil Agarwal-headed conglomerate is also looking for global partners to execute the significant capital expenditure, and the company has indicated that internal accruals will fund around half of the targeted capital expenditure.

The rare earth minerals crunch

Securing the supply of rare earth and critical minerals, which have extensive uses in electric vehicles, consumer electronics, as well as emerging applications in defence and aerospace, has been of utmost importance to governments globally, as well as corporates, including in India.

China, which controls nearly two-thirds of the global reserves of rare earth minerals, has been stopping the supply of rare earth-made permanent magnets to the US and to India, amid a global trade war. This has sent alarm bells ringing across Indian corporates as well, with the Society of Indian Automobile Manufacturers (SIAM) seeking diplomatic intervention from the Indian government to release various forms of permanent magnets from Chinese export controls. SIAM warned that with permanent magnet reserves running low, some automakers may need to cease production in a matter of days.

Asked about the prospects of rare earth mining blocks to be put up for auction, Misra identified the usual mineral-rich states of Odisha, Chhattisgarh, Rajasthan, Tamil Nadu, and Jharkhand. He also noted the Union government's role in securing rare earth supplies from territories such as Latin America and Africa, where Chinese companies have a large presence. He also added that while the government is working with private entities like Hindustan Zinc/Vedanta in the rare earth minerals space, an earlier push could have helped in securing more supply.

"The whole premise of allowing private companies to mine is fairly recent. Had that been done in the 1990s, the country would have been better placed today. We had the Indian Rare Earths Ltd (now IREL (India) Ltd), but they have their own limitations. They worked in sand processing to look for titanium dioxide or thorium. Had it been privatised by now, there would have been 10 private mining companies exploring rare earth minerals in every corner of India," Misra noted.