GS Paper III

News Excerpt:

Recently, in a bid to spur private investment in India’s mining sector, the representatives of the Vedanta group asked the ministry to consider the adoption of the Joint Ore Reserve Committee (JORC) framework.

About the currently used United Nations Framework Classification (UNFC) framework: 

• UNFC is a useful tool for national governments to see beyond the horizons of an investor’s point of view and allow the formulation of informed policy decisions, country-specific strategic decisions, and maintenance of a national inventory.
• Under UNFC, all resources including mineral occurrences and mineral zones that have reconnaissance level or very low level of confidence in terms of estimation of quantity and quality are reported, under separate categories.
• Drawbacks of UNFC:
  • The UNFC does not mandate disclosures about the economic viability of mining exploration projects.
  • It only allows for the reporting of resources in general, which include undiscovered and uneconomic resources.
  • On the other hand, the Indian Mineral Industry Code (IMIC) and the JORC classification, both aligned with the Committee for Mineral Reserves International Reporting Standards (CRIRSCO) template, require the reporting of reserves, which are economically viable deposits.

About the CRIRSCO framework:

• Globally, CRIRSCO consists of 15 members including the USA, Australia, Brazil, Canada, Chile, South Africa, and the European Union. 
• Membership to CRIRSCO requires countries to produce reporting codes that comply with the CRIRSCO template. 
• In determining the economic viability of mining projects, the CRIRSCO template considers ten modifying factors including legal, infrastructural, processing, metallurgical, marketing, environmental, and governmental factors. 
• India was admitted to CRIRSCO in 2019 following the recognition of the IMIC as a CRIRSCO-compliant code.
• Its primary function is to ensure that investors and their advisors have comprehensive information that is relevant to make financial and technical decisions.
• CRIRSCO also provides a governance system to ensure competent and ethical reporting by industry professionals.
• Resources cannot be reported in the CRIRSCO system unless it is established that there is a reasonable prospect for eventual economic extraction.

Why is a shift towards IMIC or JORC frameworks necessary?

• Unlike other sectors, the mining sector deals with natural processes, the knowledge of which remains incomplete prior to the commencement of mineral extraction. 
• According to experts, India’s current resource classification rules based on the UNFC have made the prospect of mineral exploration unattractive to private companies.
• UNFC has failed to provide any degree of economic certainty, which in turn has hindered the flow of private investment in the sector.
• A resource classification code is necessary to assess resources and reserves in a mineral block, to prepare geological reports to facilitate its auction for both exploration and mining and for a mining company to evaluate its assets.
• Experts point out that India’s mining industry has already developed and recommended the IMIC in 2019, which is based on the same template as the JORC classification, 
• The ministry is yet to formulate rules in line with the IMIC despite informal assurances.
• In 2015, the Mines Ministry notified the Minerals (Evidence of Mineral Contents) (MEMC) Rules, for which they used the CRIRSCO definitions for resources and reserves, while the framework for classification of resources was borrowed from the 1997 UNFC framework. 
• In 2021, the ministry amended the MEMC Rules and removed the definitions stated in the 2015 version. 
• The amended rules totally ignored the CRIRSCO definitions and the UNFC framework. 
• At present, India is also not following the UNFC framework in toto, which was updated in 2019.

How this shift to the IMIC or JORC will benefit the Mining Industry?

• A shift will allow the Indian mineral sector to communicate effectively and transparently with the investment community.
• Adapting India’s mining rules to the IMIC code will attract private investment to the sector by providing greater clarity on the economic feasibility of exploration projects. 
• Under the IMIC, the information available in tenders and for joint ventures and takeovers would comply with the requirements of international banks which require reporting in accordance with one of the major codes for due diligence studies.
• The IMIC also sets minimum public reporting standards for listed mining companies, which can further streamline the process of raising funds from the equity market.
• ​​The Indian mineral sector must communicate effectively and transparently with the investment community using internationally accepted terminology and definitions, which are essential to earn their trust.

Conclusion:

The shift to the IMIC or JORC frameworks is imperative for India's mining sector to attract private investment. These frameworks provide clear guidelines for assessing economic viability, enhancing transparency, and aligning with international standards. By adopting these frameworks, India can communicate effectively with investors and streamline the process of raising funds, ensuring sustainable growth in the mining industry.