Partial reimbursement of exploration expenses: Who are the beneficiaries and what are the implications? MC explains

Centre announces partial reimbursement scheme for exploration of critical minerals

On June 24, the Indian government introduced a  new scheme wherein it decided to provide partial reimbursements to exploration licence holders for their expenses.

As per the scheme, the government will provide 50 percent reimbursement for exploration of critical minerals with a cap of Rs 20 crore. The government also launched the 4th tranche of the auction of 21 critical and strategic minerals.

Moneycontrol was first to report on June 19 about the critical minerals auction and that the government may announce a scheme to partially reimburse the exploration expenses of licence holders.

This move is expected to benefit private exploration agencies involved in the search for critical and deep-seated minerals. MC explains why the scheme is important and who the potential beneficiaries are:

What has the government offered?

Under the scheme, exploration expenditure of up to 50 percent of the cost, subject to the upper limit of Rs 20 crore, will be reimbursed. The provision of exploration licences was introduced through an amendment in the MMDR Act in 2023. The ministry has not yet disclosed the amount allocated for these reimbursements. However, CNBC reported that the ministry is likely to be seeking a higher allocation from the finance ministry.

Why was an incentive needed? 

As India transitions to renewable energy, the demand for critical minerals for batteries, solar panels, and wind turbines is set to increase. Thus,  scaling up exploration is crucial to secure a steady supply of these materials and support the country's clean energy goals.

Exploration companies, however, are cautious about the economic feasibility of projects and the possible financial implications. These concerns likely contributed to the subdued interest from bidders in the auction earlier this year, leading the government to cancel 14 out of 18 blocks that were up for bidding. Mining majors such as Vedanta Ltd stayed away from the bidding.

Thus, the recent move to  provide partial reimbursement is aimed at reducing the financial burden on exploration companies, to encourage more participation.

Who are the potential beneficiaries?

• Private exploration agencies: Accredited agencies engaged in mineral exploration will benefit significantly from this policy. These agencies have been given the green light to conduct exploration activities without a prospecting licence and are eligible for funding from the National Mineral Exploration Trust (NMET).  The ministry has notified 20 such firms, including Natural Resources Division-Tata Steel Limited, GEMS Project Pvt Ltd,  Geovale Services Private Limited etc.
• Junior mining companies: Smaller mining firms that specialise in the initial stages of mineral exploration will also gain from these incentives. By reducing their financial risk, the policy aims to attract these companies to invest in exploration activities in India​. Companies such as Geotechnical Mining Solutions, Ramgad Minerals and Mining Limited, and Geo Exploration and Mining Solutions will stand to benefit from the scheme.
• State governments: Although the reimbursements are directed at private entities, state governments will indirectly benefit through increased revenue from successful mining leases auctioned based on exploration findings. States such as including Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, Telangana and Uttar Pradesh will benefit. These states have been granted  a total of 20 blocks for exploration licences for auction.

• Increased private sector participation: The reimbursements are intended to encourage more private sector involvement in mineral exploration, which has traditionally been a high-risk and capital-intensive endeavor. By mitigating some of the financial risks, the government aims to attract both domestic and international exploration firms.
• Technological and expertise advancements: The involvement of private players is likely to bring advanced technologies and expertise into the Indian mineral exploration sector, which is at a nascent stage. This can lead to more efficient and accurate identification of mineral deposits.
• Enhanced exploration activity: With the introduction of partial reimbursements, it is expected that there will be a surge in exploration activities, particularly for critical minerals such as lithium, cobalt, and rare earth elements. These minerals are crucial for technological advancements and the transition to clean energ​y.