“India remains a virgin gold mine”

Business Standard,Mumbai, 6 September 2003 :

Charles Devenish, Chairman and Sandeep Lakhwara, MD, Deccan Gold Mines

Deccan Gold Mines is the first gold mining company to be listed in Inda. About 80 per cent of its Rs 25 lakh equity capital is held by shareholders of Rama Mines, Mauritius, which was set up to raise resources for Australian Indian Resources (AIR).

Two AIR subsidiaries hold reconnaissance permits (RPs) for gold and base metal explorations throughout India.

Currently, Deccan Gold shares are trading at Rs 115.15. Charles Devenish, chairman, and Sandeep Lakhwara, managing director, speak about the company’s India plans.

How big is the potential for gold mining in India?

India consumes 600 to 700 tonnes of gold a year – most of which is imported – costing about $6-7 billion. The domestic production of gold is only about two tonnes per annum compared to Australian production of about 280 tonnes. Geologically, areas of Karnataka and Andhra Pradesh are very similar to those in Western Australia where major gold discoveries have been made.

While Western Australia has been substantially explored, India remains a virgin territory from an exploration perspective. Areas geologically similar to places that have been home to major gold discoveries increase chances of the emergence of a gold mining industry in India.

What took companies across the world so much time to realise the potential of India in terms of gold mining?

Government policies prevented companies from entering the mining sector in India. The sector started to open up only after 1994. But there have been regulatory delays. It is only now that we finally have the sector open for exploration.

How long does it take to complete an exploration cycle?

The average time-period the world over for gold mining – from spotting a prospective ground to exploration to the final extraction of gold – is 11 years.

But this is in the context of a totally virgin territory. In India we already have a lot of ground work in place. So our estimate is that we should be able to strike it in three years.

Are you looking at metals other than gold for mining?
Now the focus of our activity is gold. But as and when we spot opportunities in other metals like nickel, zinc and diamond, we shall definitely go ahead with it.

Being a pioneering gold-mining company in India, what kind of growth prospects are you looking at?

Geologically, India’s terrain is very similar to that in other parts of the world where there have been huge gold finds. Here, the level of exploration activity has been very low. This adds to the country’s growth potential in terms of gold exploration.

In Australia, where there are similar terrain, we have dozens of mines operating. Here we have just one – Hutti gold mine. From the work that we have undertaken, we know that there will be at least two-three gold mines around Hutti.

What is the quantum of investment you intend to make in terms of exploration and mining?

We are planning a rights issue – 20 shares for every existing share – to fund developmental activities at the exploration stage. The issue will raise Rs 5 crore.

For all the 26 prospects, we are looking at funds of Rs 20-30 crore for development activities or exploration over a few years. For mining, the figures multiply depending on the size of exploration. We believe Rs 50 crore will be sufficient to establish a mining operation.

What are the costs estimated for mining activities?

We can give you an Australian perspective. All costs including depreciation, write-offs, etc. will come close to $160 per ounce. Costs also depend on how deep we need to go underground while undertaking mining activities.

Being the first gold mining company to be listed in India, what kind of risks do you anticipate?

The biggest risk is that out of those 26 prospects that are identified, many may not develop into gold mines.

When do you expect to break even?

In an industry like this, it is very difficult to predict break-even points.