Source: Streetwise Reports 05/17/2018
Jayant Bhandari, host of the “Capitalism and Morality” seminar, discusses with Maurice Jackson of Proven and Probable the state of mining in India, as well as some mining companies that offer arbitrage opportunities.
Maurice Jackson: Joining us is Jayant Bhandari, the host of the highly acclaimed “Capitalism and Morality” seminar and a prominent, sought-out advisor to institutional investors. Today, we will discuss the mining industry in India and arbitrage opportunities.
Let’s begin our discussion in India. There are some new reform laws taking place in the mining industry that could really have a significant impact on India. For those that may not be familiar with India and its natural resources, can you share what India produces and how it has been extracting those resources historically?
Jayant Bhandari: India produces about 40,000 ounces of gold and should be able to produce a lot more ounces of gold in that country, but the problem is no one cares to explore for gold in that country. This is mostly because the land rights are not properly defined, and the bureaucratic procedure to get from reconnaissance permit to mining permit is virtually impossible. It takes a huge amount of time, and at every step in the process the bureaucrat has the right to take away the project from you. So you might invest hundreds of millions of dollars on these projects, but at the end of the day, the government might just take that project away from you. That is the very reason why the Indian mining industry is extremely backward.
Coal mining is a monopoly run by the government of India. Iron mining takes place in a very confined space in that country in which private operators operate iron mining as a part of the steel industry. In virtually every case, these companies are in bed with the government in a corrupt way, and they are in bed with the mafia. When you have corrupt regulations, you also empower mafia kind of organizations to come in and exist, who then exploit the local people.
So Indian mining industry is almost an impossible industry. You might be able to operate that as a mafia-run industry, but even then Indian companies prefer to own coal mines and iron mines in Brazil, Africa, Indonesia, Papua New Guinea or Australia. They prefer not to operate in India not only because of the cost, but also because the bureaucratic regulations are very difficult or impossible, plus land rights are very difficult obtain, and on top of that, costs of making mining happen in that country is extraordinarily high.
Maurice: For someone not familiar with India, are the mines there nationalized, and if so, what changes is India trying to implement to change this course?
Jayant: Coal India is a nationalized company. It is run by the government of India. It is listed on the stock exchange, but the majority of the shares are owned by the government, which means that the government runs the company based on what looks beneficial to the government.
The government of India has made many attempts to liberalize coal mining. The problem is that India has among the highest and the largest reserves of coal mining in the world. However, Indian coal-powered electricity generating stations must import a huge amount of coal from Brazil and Australia and Indonesia because Coal India is an extraordinarily corrupt organization, which means that it cannot supply the required coal to the electricity generating power stations, and when it does supply coal to the power stations, it is mixed with a huge amount of waste, which creates a massive amount of efficiency problems at the power stations.
This means that people and electric generating companies find it much easier to import coal from outside of India than buy it domestically. That is how difficult mining has been in India. Mostly because there’s no rule of law in that country, and mostly because these bureaucrats who have zero experience of real life assume that they must be trusted by companies and citizens, and they reserve the right to steal your property when they wish to take it away for the so-called greater good of the society and that so-called greater good of the society always translates into more bribes and more corruption in that country.
Maurice: Sounds as if there’s a number of inefficiencies within the industry. As a champion of liberty, I assume you’re in favor of the privatization of the mining industry in India, but is there a catch on India’s initiatives on this legislation?
Jayant: Nothing will change because of the new law. The government of India is trying to liberalize the coal production in that country, and again the reason is very simple. It will make some superficial changes as it has consistently made over the last 30 years, but nothing significant, nothing material will change to make it attractive for outsiders to invest in that country. In fact, not much will change for even Indian companies to invest a lot more money in that country. As I said earlier, even Indian companies prefer to invest their capital in Africa or Papua New Guinea or Indonesia, which are by themselves very difficult jurisdictions. But India is such a tough jurisdiction that no one really cares to invest in mining in that country.
Maurice: Jayant, if India is not a good place to put our capital, do you have any names and/or arbitrage opportunities that have your attention at the moment?
Jayant: Well, there’s certainly one Indian company, a mining company, that I follow. I don’t invest in that company. However, it is run by some good people. The name of the company is Australian/Indian Resources and its sister company is Deccan Gold Mines. Deccan Gold Mines is listed on the Bombay Stock Exchange. Again, it is run by people I like, but I don’t necessarily think this will lead to a …read more
From:: The Gold Report