Amendments coming to bar illegal activity by mineral exploration licensees: Ministry

The letter from R.P. Perera, Coordinating Secretary to the Minister of Environment and Renewable Energy, is pursuant to an article in the Sunday Times that said the Government has introduced new rules for mining but left room for abuse by neglecting exploration.

On January 2, 2014, the Government made new regulations to govern the mining, trading in and export of minerals, including graphite, but omitted exploration. It also introduced a committee to determine the market value of mine output and the percentage of royalty payable by those seeking such licences. The changes replaced sections of the earlier Mining (Licensing) Regulations promulgated in November 1993.

“The Geological Survey and Mines Bureau (GSMB) and the Ministry of Environment and Renewable Energy have taken steps to introduce new rules by amendments to the existing gazette notification,” Mr. Perera wrote to the Sunday Times. “Further, steps will be taken to amend the Act to prevent any illegal activity by licence holders of mineral explorations”.

Industry experts warned against ad hoc, overnight changes to existing laws and regulations saying this causes uncertainty and discourages investors. They urged the Government to conduct a more coordinated effort towards streamlining the sector and to consult stakeholders before moving forward.

Sunday Times investigations have revealed that some companies, many of which were floated recently, have secured graphite mining exploration licences for vast tracts of land around the country. There is no evidence of the GSMB having conducted credible due diligence on these companies, some of whom have no boards of directors or no financial statements.

These players have subsequently entered into agreements with junior mining companies abroad to sell their shares and, in the process, transfer exploration rights to them. The figures cited for these transactions run into hundreds of thousands of dollars.

Mining experts say the process is not illegal and that companies such as these are merely using a loophole in legislation. Internationally, however, there is increased focus on “concession flipping” which The Economist magazine recently described as a practice by which foreign mining companies without capacity to exploit sites sell their concessions to larger companies for windfall profits. The same can be said of exploration rights.

The article quoted Leigh Baldwin of the Independent Commission against Corruption of Global Witness—a London-based lobby that fights for fairer deals for local people and their governments from mining and other resources—as saying that concession flipping is widespread in Africa.

Some of the companies that have secured exploration rights from the GSMB have connections with the Supreme Solutions (Pvt) Ltd, which also holds licences in its own name. The company has mining and trading interests in Africa and other parts of the world. In an interview with the Sunday Times, Supreme Group Chairman R. M. Manivannan strongly denied he was flipping concessions.

“Out of the licences we have, more than half are for mineral sands for which the company has completed explorations by itself and is awaiting mining licences,” he said. About his Group’s associations with any other local companies, he said he had authorized a consultant attached to his company to help these entities with the process of securing exploration licences. Australian graphite explorer M.R.L. Corporation has now started exploration in areas for which it secured permits through a “share transfer” agreement with Supreme Solutions.

Sri Lanka graphite is now getting renewed attention. The Coordinating Secretariat for Science, Technology and Innovation (COSTI) held a roundtable discussion on Thursday about adding value to the mineral. Scientists have been urging the Government and the private sector to start developing hitech products out of graphite instead of shipping it out in raw form. The industry argues that this process it too expensive because many of the other ingredients needed for value addition have to be imported at tremendous cost.

“We might not get to the top of the value chain but we have to find appropriate niches in that value chain that we can enter and, from there, develop further,” Technology and Research Minister Tissa Vitarana told participants in the discussion. He said that foreigners who have come into Sri Lanka are seeking to secure control of graphite and to ship it out for “rock bottom prices”.