India’s federal government has approved an increase in mining royalties for various minerals including iron ore, copper, zinc and lead, government officials said Wednesday.

Two mining ministry officials, who didn’t want to be named, told Dow
Jones Newswires that India’s cabinet committee on economic affairs has
approved the proposal for changes in royalties on minerals other than
coal, and a formal notification with immediate effect is expected this
week.

Mineral-rich states, which get royalties for mining, had been demanding
an increase in taxes on minerals as the rates haven’t been changed
since October 2004.

The change in rates will increase states’ annual revenue from royalties
to 46.3 billion rupees ($968.6 million) from 22.88 billion rupees.

At the same time, it will push up the production costs of miners,
depending on the value of the mineral. Global companies such as Arcelor
Mittal and South Korea’s Posco have lined up steel projects in India
because of the availability of minerals such as iron ore.

The officials said the government will levy a 10% value-added or ad valorem royalty on iron ore mining.

For iron ore miners, the new royalty will mean switching to a tax
regime under which they will be charged based on the market value of
the minerals compared with the existing system of flat rates based on
weight, the officials said.

At present, the government charges a fixed royalty of up to 27 rupees a metric ton on different grades of iron ore.

Iron ore spot prices in the local market may rise by about 10% in the
near future, which could weigh on production costs of local
steelmakers, said Rahul Baldota, president of the Federation of Indian
Mineral Industries.

But he added that iron ore producers in India, the world’s
third-largest supplier of the commodity, will absorb the cost for
exports in order to remain competitive.

India exported over 100 million tons of the mineral in the fiscal year
ended March 2009 out of a total production of 217 million tons.

India already charges value-added royalty rates for zinc, copper and lead, but the rates charged will now increase.

The government will charge an 8% royalty on zinc ore, up from 6.6%
earlier, while the rate on copper will rise to 4.2% from 3.2%. The
royalty on lead ore will go up to 7% from 5%.

On bauxite used for other than alumina and aluminum extraction and
exports, a royalty of 25% will be charged. For use in alumina and
aluminum extraction, the rate will be 0.5%. Previously, no royalties
were charged.

The production costs of local metal producers such as Hindustan Zinc,
Sterlite Industries and Hindustan Copper will also increase because of
the change in royalties.

Source: Dow Jones

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