The Centre has amended a key law so that it can specify competitive royalty rates for the mining of three strategically significant minerals — lithium, niobium, and rare earth elements (REEs). The decision comes after the government removed six minerals, including lithium and niobium, from the list of ‘specified’ atomic minerals, which could set the stage for private sector participation through auctioning of concessions for these minerals.
These changes to the rules build on an earlier move to ease the issuing of mining leases and composite licences for 24 critical and strategic minerals, which are vital in key supply chains that include electric vehicle batteries, energy storage devices, and high-end motors.
First of all, what are these minerals?
* Lithium is a soft, silvery-white alkali metal, which is a vital ingredient of rechargeable lithium-ion batteries that power electric vehicles, laptops, and mobile phones. In February, ‘inferred’ lithium resources of 5.9 million tonnes were established in Jammu and Kashmir, the largest deposit in India.
* Niobium is a light grey, crystalline metal with a layer of oxide on its surface, which makes it resistant to corrosion. It is used in alloys, including stainless steel, to improve their strength, particularly at low temperatures.
Alloys containing niobium are used in jet engines, beams and girders for buildings, and oil and gas pipelines. Given its superconducting properties, it is also used in magnets for particle accelerators and MRI scanners.
The main source of this element is the mineral columbite, which is found in countries such as Canada, Brazil, Australia, and Nigeria.
* REEs or rare earths are a group of 17 very similar lustrous silvery-white soft heavy metals. Rare earth compounds are used in electrical and electronic components, lasers, and magnetic materials.
What has the government done, and how does it matter?
The government has specified new royalty rates by amending the Second Schedule of the Mines and Minerals (Development and Regulation) Act, 1957. Currently, Item No. 55 of The Second Schedule of the MMDR Act, 1957, specifies a royalty rate of 12% of the average sale price (ASP) for minerals that are not specifically listed in that Schedule. This rate is much higher than global benchmarks.
The lowering of the royalty rates effectively aligns India’s royalty rates with global benchmarks, and paves the way for commercial exploitation of these minerals through auctions, which can be conducted by the Centre or states. A competitive royalty rate ensures that bidders would be attracted to the auctions.
So what are the lower royalty rates?
After the Cabinet’s decision on Wednesday, lithium mining will attract a royalty of 3% based on the London Metal Exchange price. Niobium too, will be subject to 3% royalty calculated on the ASP, in case of both primary and secondary sources. REEs will have a royalty of 1% based on the ASP of the Rare Earth Oxide (the ore in which the REE is most commonly found).
The Ministry of Mines has laid down the way to calculate the ASP of these minerals, on the basis of which the bid parameters will be determined.
And how is this going to help?
The idea is to encourage domestic mining, so that imports of these minerals can be lowered, and related end-use industries such as electric vehicles (EVs) and energy storage solutions can be set up. These critical minerals are seen as an important prerequisite for India to meet its commitment to energy transition, and to achieve net-zero emissions by 2070.
LITHIUM: India currently imports all the lithium it needs. The domestic exploration push goes beyond the J&K exploration, and includes exploratory work to extract lithium from the brine pools of Rajasthan and Gujarat, and the mica belts of Odisha and Chhattisgarh.
India is a late mover in attempts to enter the lithium value chain. This is a time when EVs are seen as a sector ripe for disruption — the next couple of years are widely expected to be an inflection point for battery tech, with several potential improvements to Li-ion technology.
More than 165 crore lithium batteries are estimated to have been imported into India between FY17 and FY20 for an estimated $3.3 billion. China is a major source of lithium-ion energy storage products that are imported into India.
REEs: The rare earths constitute another hurdle in the EV supply chain. Much of the worldwide production is either sourced from or processed in China, and it can be difficult to secure supplies.
In an EV, the rare earth elements are used in the motors and not the batteries. A permanent magnet motor uses magnets embedded in or attached to the surface of the motor’s rotor — these magnets are used to generate a constant motor flux, instead of requiring the stator field to generate one by linking to the rotor. The magnets used in these motors are made with REEs such as neodymium, terbium, and dysprosium.
But rare earths are typically mined by digging vast open pits, which can contaminate the environment and disrupt ecosystems. When poorly regulated, mining can produce waste-water ponds filled with acids, heavy metals, and radioactive material that might seep into groundwater.
In February, ‘inferred’ lithium resources of 5.9 million tonnes were established in Jammu & Kashmir, the largest deposit of the white alkali metal in India. Lithium is a vital ingredient of rechargeable lithium-ion batteries that power electric vehicles, laptops, and mobile phones. 
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