Untapped resources and unfair policies

By Mukund Padmanabhan

KOLAR GOLD FIELDS, FEB. 13. Is the Bharat Gold Mines Limited inherently unviable or merely a victim of short-sighted Government policy? There is a clutch of reasons to support the latter view.

Perhaps, the greatest folly following nationalisation was to impose a gold pricing policy on the company, which permitted it to realise the prevailing rate on the London metal exchange and not the invariably much higher open market price in India. In the early 1970s, the BGML was paid 40 per cent less than what it might have earned.

A report prepared in the mid-1980s by Mr. K.S.R. Chari, then Secretary to the Ministry of Mines, blamed this very policy for the company's decline and concluded that a ``more helpful pricing policy'' would have prevented the BGML from slipping into a loss- making mode. By virtue of the pricing agreement, the Government had built up a staggering surplus of Rs. 154.88 crores, thus standing the received view about who was subsidising who on its head! As a result of the imposed pricing squeeze, there was hardly any effort in the direction of expansion and modernisation. Although the Kolar Gold Fields belt extends along a strike length of 80 km, the area of gold extraction remains at a length of 8 km - the same as it was in the colonial times when it was managed by John Taylor & Sons.

Till nationalisation, the company was fed power by a captive plant (Sivasamudram) that it had developed. The plant was transferred to the Karnataka Electricity Board which then charged the BGML the same tariff as for other industrial consumers. The unions argue that such a tariff (which accounted for 21 per cent of production costs in the late 1980s) was hardly justified given that the investment in the plant had come from the mining operations.

But, even if the company was forced into the red by unfavourable Government decisions, is it possible to pull it into the black? The BGML management believes not, citing that gold mining is no longer cost-effective in the KGF. It claims that while the grade of available ore has plummeted (to a poor three grams of gold per tonne), the production costs have shot up considerably. According to one recent calculation, while it cost upwards of Rs. 14,000 to produce 10 grams of gold, the market price was just around Rs. 4,000.

The unions say such figures hide more than what they reveal, pointing out that as much as 50 per cent of the production costs are consumed by the interest outgo on earlier borrowings and power tariff. They admit that the recovery rate of gold has fallen drastically over the years - from 41.99 grams of gold per tonne in 1890 to 1900 to 10.23 grams in the decade after Independence to a low of 3.03 grams in the 1990s. But they argue that the mines are not an exhausted resource and that, in the short-term, cost-effectiveness could be achieved with a similar recovery rate. In the long-term, they claim that the company, which is laden with rich veins of lode, can achieve cost- effectiveness, by laying new shafts and tapping new sources.

The BGML's Officers Association is confident that it can churn out profits if the company is handed over to ``a clean State.'' It is prepared to manage the company if all loans and penal interest are written off, if power is furnished at cost and if a working capital of Rs. 10 crores is provided as an overdraft facility.

The association says that in the short-term it could work the tailings (the ore which remains after primary extraction of gold), the existing reserves of which could generate Rs. 7 crores per annum in profits and conduct shallow mining operations lucratively. According to one estimate, about 75 kg of gold could be cashed from tailings in just 15 days. In the long-term, the operations would be sustained by tapping hitherto untapped resources.

The larger argument is how mining in an area with rich and proven reserves of gold can be regarded as uneconomic. Even the company's own reports indicate that the gold-bearing ore can keep the mines operational well into this century.

One recent report described the KGF as ``poorly explored'' but one of the ``seven wonders'' of the gold world. The fields were a ``world class bearing system that rank with Kalgoorlie and a few other major gold-producing centres.''

``If this is correct,'' asks one BGML employee, ``isn't it criminal to ignore its potential?''

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