The Indian government’s solution to ensuring no one squats on mineral resources – thereby denying states the premium they committed in the auction – was the Mine Development and Production Agreement.
Under this agreement, a miner must meet a minimum production target or risk being penalised. Consecutive non-compliance will lead to a revocation of the lease. But as has been evident with the 2020’s successful bidders, this clause does not offer the flexibility mining requires to negotiate market, weather and regulatory ups and downs. While miners have cited several other problems, it is also a fact that high premiums at high iron ore prices made meeting MDPAs a costly affair.
With a new set of mines ready for bidders, prospective bidders must weigh in on their MDPA liabilities. Clause 10.1 and 10.2 of the tender document specify that the mining plan must be compliant at all times to the law that requires the reserves to be exhausted within the 50 year lease term. It is also important to note the amended law will now consider dispatch and not production in calculating MDPA compliance.
For greenfield mines two years have been given for the development of the mine, from the third year the rules expect the mine to work on a mining plan that is not less than the estimated reserve divided by 48 years. For a 100 mt reserve that would be a minimum of 2.08mt a year.
Considering that the successful bidder also has five years to explore the deposit to G1 level which in all likelihood will improve the reserve estimates, the mining plan will have to be adjusted upwards accordingly — as will its MDPA.
For greenfield mines, the MDPA is being raised gradually from 30 percent in the third year, 50 percent in the fourth to 80 percent in the fifth. Steelmint has done the math for four iron ore blocks on offer and this works out to:
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