Mining ministry to use tax incentives...
INDIA hopes to attract more investment in mining and exploration. So the ministry of mines is taking a leaf from its counterparts in Canada, the US and Australia, which have successfully used tax policy initiatives to attract investors into the risky business of mineral exploration, writes MineWeb's Shivom Seth in Mumbai.
The Indian government is considering introducing the facility of flow-through shares and resultant tax benefits, exclusively for the exploration and mining sector, and has decided to adopt several of the schemes of the African Development Bank. The Bank has institutional finance schemes and exploration bonds along the lines of infrastructure bonds, which seem to have generated much interest with senior officials in the ministry.
As a senior official pointed out there exists a dire need to attract capital and technology. "Though India's mineral potential matches resource-rich Western Australia and southern Africa, exploration has only scratched the surface.''
In recent years, India's mining sector has only opened up to a small group of private investors. Moreover, the problems with state-run companies persist, with many lacking the funds and expertise to probe deeper than the top 50 meters or so where the country's iron ore and coal reserves are found.
The intended move is expected to woo and exploration firms who will be eager to tap into the country's large and rich deposits of base metals and diamonds.
As an official pointed out, "A number of areas remain unexplored and the mineral resources in these areas are yet to be assessed. Though the distribution of minerals in the areas known is uneven and varies drastically from one region to another, flow-through shares would be the right choice for investors in both exploration and mining.''
While financing for the mining sector could be through cash flow from shares, the proposal also amounts to extending tax breaks for exploration to the mining sector.
"In many countries, one can set off exploration expenditure against subsequent income from mining. But if the company conducting exploration sells the data to another company which does the mining, the buyer will not be able to take advantage of the exploration expenditure. Thus was born the concept of flow-through shares,'' the official added.
In the case of the exploration firm, a profitable sale of its license and data would become easier, while for investors in the mining firm, the net cost of the buy would be a fraction of the actual value of the shares.
The official added that the government was deliberating on allowing mining companies to list on stock exchanges along the same lines as the Australian and Canadian stock exchanges.
He went on to say that despite certain tax incentives, exploration in the country was comparably low. "We have also decided to adopt the technique of the New African Mining Fund, which is a specialist equity fund created by the African Development Bank''. Based in Johannesburg and Mauritius, the fund invests in early to late stage junior mining firms.
Currently, there is a near absence of exploration firms in India, especially those with the specialized technologies to hunt for rare materials like diamonds, copper, zinc and uranium, which tend to occur at greater depths.
Countries like Canada, Australia, the US, Russia, Mexico, Peru and Chile account for the bulk of the world's exploration expenditure. While over $2 billion was invested in Canada for mineral exploration in 2010, the corresponding figure for India was less than $2 million.
The country has also invited US investors for opportunities worth $1 trillion in infrastructure financing. "There is new opportunity for US investors for work in this area,'' India's finance minister Pranab Mukherjee said at a recent meeting of the US-India Economic and Financial Partnership Summit.
A joint statement issued at the end of the talks said India and the US had agreed to work together to expand trade and investment links between their two economies, and to develop and strengthen their financial systems.
Currently, bilateral trade between the two countries is about $49 billion annually. This is just over a tenth of the US' $456 billion bilateral trade with China, its second largest trade partner after Canada.
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