Indian Gold Mining Reserves Underexploited

India has only explored a fraction of its mineral reserves...

INDIA is the world's largest consumer and importer of gold, but domestic Gold Mining remains at very low levels, writes MineWeb's Shivom Seth in Mumbai. 

The production of gold decreased at a compound annual growth rate of 2.5% from 3.1 tonnes (3,100 kilograms) in 2005, to 2.8 tonnes in 2010. However, in 2009, the country bucked the trend and production increased by 3.7% year on year.

In a new report on mining, highlighting the fact that India has only explored 2% to 3% of its mineral reserves as against almost 100% geophysical and geochemical surveys in countries such as Australia, global consultancy firm Ernst & Young has noted that the country needs to adopt a strategic vision and long term planning to address key issues of securing certain minerals, including gold.

"India is well endowed with several mineral resources with high global shares. However, much of that has remained unexplored or undiscovered due to various reasons or challenges over decades. The time has come to move fast forward and leverage the opportunity of a high economic cycle and rising domestic demand to put some resources to enhance the pipeline of mineral resources,'' the Ernst & Young (E&Y) report has noted.

Stating that an investment of $1 in exploration is estimated to give a return of around $15, the E&Y report notes while in Canada, more than $2 billion was invested for mineral exploration during 2010, the corresponding figure for India was less than $2 million.

Specifically with regards to gold, during 2009-10, the report notes some significant discoveries were made in India. Exploration in the Ajjanahalli Block in Tumkur district in Karnataka revealed a resource of 0.0995 million tonnes of gold.

Exploration also increased the resource in the Delwara West Block, in Banswara district in Rajasthan by 1.62 million tonnes of gold. The total inferred resource in this area stands at 43.73 million tonnes, says the report.

Similarly, prospecting stage investigation continued for gold in Sindauri East block, Ranchi district in Jharkhand, where the current available data reveals a total inferred resource of 3.10 million tonnes with an average grade of 1.81g/t gold at a cut off of 0.5g/t.

Interestingly, India's gold imports rose 60% in April-June 2011 from a year ago period, as people snapped up the time-tested hedge against inflation. India has always been a huge gold consumer, but not much of it is mined here.

Anjani Agarwal, partner and national leader, metals & mining, E&Y India, has been quoted as saying India is largely unexplored and, therefore, offers good opportunities for mining exploration and development companies to be a part of the Indian growth story for the next decade.

The E&Y report however notes that the mining exploration model in the country needs to be changed. For decades, the Geological Survey of India (GSI) has been the only agency in India looking into exploration issues at the national level. Agarwal says resource nationalism, which is picking up across the globe, may actually turn out to be a silver lining for the domestic mining industry in India, if dealt with judiciously.

In India, the central government and the respective state governments have different legislature and policies to deal with different minerals. There is an urgent need to increase the funds allocated to Indian exploration agencies such as GSI and Mineral Exploration Corporation Limited.

Across the globe, around $5.4 billion was spent on gold exploration, attracting the maximum budget in 2010, denoting a rise of $1.9 billion year on year. The E&Y report notes that uncertain global economic fundamentals and historically high Gold Prices have prompted gold explorers to increase their budgets.

Canada, Australia, the US, Mexico, Russia, China, Peru, Columbia, Brazil and Chile were the 10 major countries accounting for more than two-third of the total gold exploration budget for 2010.

At the end of 2010, the total global reserves of gold were estimated to be around 51,000 tonnes. Australia has the largest reserves at 14%, followed by South Africa at 12% and Russia at 10%. India has around 67 tonnes of gold reserves, accounting for only 0.1% of global reserves, notes the report.

"Over the last few years, production has been stagnant due to the lack of adequate investments in the sector. Regulatory policies acted as resistance to investments from private and foreign companies that impacted the exploration and mining of gold reserves,'' adds the report.

The report notes that in 2010, China was the largest producer of gold (at 345 tonnes), followed by Australia (at 255 tonnes) and the US (at 230 tonnes).

In an earlier report, E&Y has said India was a better choice for global companies to enhance their sales than China. The report notes roughly 47% of high performing global companies consider India as the most important market for sales, while 44% named China. 

The survey, conducted by the Economist Intelligence Unit in January and February 2011, showed that although global companies headquartered in different regions may have their respective preference for emerging markets, India and China have dominated both in terms of sales and production.

Over 87% of companies worldwide have actually increased their product portfolio over the last three years in order to exploit the potential needs of their current customers. "Even as economic growth and demographic profiles continue to be the main factors for investment strategies by global companies, India's impressive annual GDP growth and massive consumer base is set to become a major driver of worldwide product development,'' say the report.

Companies are dedicating increasing research and development investment to rapid growth markets, with India clearly on their radar.

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