Golden opportunity for old Indian mines

With gold prices at a dizzying high, Indian miners are turning to innovative ways to extract valuable ore

India is the world's biggest importer of gold, buying a record 960 tonnes last year alone.

According to one estimate, Indian household vaults hold gold equivalent to 50% of the country's GDP.

Technology of Business

You would think with those kind of figures, the nation must produce a significant amount of the precious metal domestically.

But domestic production is very low. The biggest problem is that India has consistently underinvested in gold exploration.

It was not always like this.

Historically, India was one of the great mining regions - and is home to one of the world's deepest gold mines.

Kolar of gold

In the southern Indian state of Karnataka, about two hours away from the city of Bangalore is a region called Kolar Gold Fields.

A hub of activity for over a century, the mines here shut in 2001 when gold prices fell to unprofitable levels.

The area is now in a state of neglect. Rusted rail wagons that once used to carry gold-bearing ore lie by the roadside.

The paths are overgrown with weeds, and buildings that used to house the mine workers and equipment are now derelict.

Mining apparatus used in Kolar New techniques are used to mine for traces of gold - even tiny amounts are worth a fortune

Old "headframes" - metal structures above the entry to the actual mine shafts - are the only indicator of the once thriving mining activity in the region.

Bharat Gold Mines Limited used to own the lease to mine an area that was about 16km long by 3km wide.

It was shut down nearly a decade ago as it became too expensive to continue operations.

Ignored ores

With little use of technology, only high-grade ores were mined to extract gold. Deeper ores which had smaller amounts of gold were ignored as the companies couldn't afford to mine them.

Also, as the mining sector was tightly controlled by the Indian government, it was difficult for private investors to bring in capital or technical expertise to the region.

Until now, only one government agency, Geological Survey of India, has been involved in exploration across the country.

So India has explored only 7-9% of their mineral resources, while countries such as Australia have achieved almost 100% geophysical and geochemical surveys.

India produces three tonnes of gold a year, while Australia mines 280 tonnes.

A cross atop a tower in Kolar The community's church is dedicated to the 'Mother of Mines'

New evidence suggests that this gold belt is an underdeveloped resource.

Also in India's favour is the price of gold. As prices have jumped nearly 40% in the last year, many here feel that it makes economic sense to restart operations and revive the old mining town around it.

In 2001 the price of gold was at one of its lowest levels at $280 a troy ounce. But it has since risen dramatically and reached a record high of $1,920 a troy ounce in September 2011.

Diamond core

Drilling in test sites around the hills, exploration company Kolar Gold is mapping potential mines.

Using a process which uses diamond core drills, they take long cylindrical samples of rock.

These samples are then checked thoroughly for any evidence of of minerals, and some are sent to laboratories for further study.

Some even have visible specks of bright shiny gold.

While the main mining area is still owned by the defunct state-run company, the surrounding hills too could hold a lot more metal.

Listed on the Alternative Investment Market (AIM) of the London Stock Exchange, Kolar Gold says it has the international investors and technical expertise to extract even low-grade ores.

Richard Johnson is chief operating officer. Having spent many years in similar mines in Australia and South Africa, he says Kolar looks positive.

"Using a method called Induced Polarization (IP) survey, we lay out extensive wires in shallow pits across this vast area.

A dilapidated miner's carriage in Kolar The old machinery, like this carriage down to the mine, has been left in disrepair

"We then send electrical current through it so the ground and the surfaces of metallic minerals get charged.

"Once we calculate the stored energy, we get clues into what minerals are there in the area."

Using this method, Kolar Gold has completed 40km of detailed surveys over its South Kolar area and found three significant anomalies.

This has given them "highly prospective" targets for follow-up drilling, rather than blindly looking for targets in the area.

10 grams

With technological advances in the mining industry, and the high price of gold, even finding six to eight grams per tonne would be worthwhile financially.

Kolar Gold hopes to find an average of 10 grams per tonne.

But mining is an expensive business.

It costs around $100 to drill about a meter of earth and an additional $50 to pay for a geologist to analyse the sample rock.

Workers at a labour camp in Kolar Local workers want the government to bring in buyers for the old mines

After paying £2.2m for a prospecting licence for South Kolar, the company also paid £4.7m for 13 licences around the Kolar mine.

They are investing more money for drilling in the north and the south of the outer Kolar area.

The company estimates there is between 1m and 10m ounces of gold in this outer belt, including deep underground mines and shallow pits.

Although drilling has yielded positive results, Mr Johnson says the company doesn't expect to find gold overnight as it is a slow process.

"But with the next five to six years, we hope to find some new mines."

Re-opening

But the prized catch would be the old mines itself.

That's because they have a proven record - producing approximately 25m ounces of gold at an average grade of 15.9g per tonne over 120 years.

So Kolar Gold has tied up with 17 BGML mine workers unions to petition the courts to revive the defunct mines.

While the Supreme Court of India is yet to reach a decision, former miners still living in old labour camps are hopeful.

An old abandoned mine shaft It is at the still-plentiful old mines where the real gold rush can restart

If the government goes ahead with the plan, these men have the first right to the mines.

Yeshwanth Raj was a supervisor at BGML. He says that for the community, the mines were the only source of livelihood.

Once they shut down, basic services in the area - like sanitation, healthcare, water supply and education - also closed.

"The government should put out a global tender to find bidders to revive the company. There is still a lot of gold left here.

"We need international companies to come with the right technology and money to get back the earlier golden days of this place."

Unexplored resources

But the precious metal is not just underground, it's also in the "tailings" - heaps of grey-white residue left behind by old mining activity. Some estimates suggest as much as 20 tonnes of gold.

Experts reckon over 90% of mineral resources in India are unexplored and need investment.

Yeshwanth Rajm, a former miner Yeshwanth Raj says the closure of the old mines also hit local services

Anjani Agrawal, a specialist in metals and mining from Ernst & Young, says India needs better technology both the the exploration and production stages.

He says the main reason why India remains under-explored is that mining leases and exploration licenses have not been given for large areas, even when there are indicative gold reserves.

There are also serious technological challenges in exploring deeper, as well producing gold from low grade ores.

The government seems to have realised gold mining in the country has potential.

The Mining Ministry is now proposing to raise domestic gold production five-fold to 45 tonnes a year.

They want to provide a series of incentives to mine owners and firms which make gold as a by-product of smelting copper ore.

Karnataka state government-owned Hutti Gold Mines is the biggest operational mining firm in the country.

They too want to reopen some of their closed mines to look for low-grade ore, and plan to expand production through joint ventures with international players.

Another listed private gold miner, Deccan Gold Mines, also wants to speed up operations.

Back in the Kolar Gold Fields, the employees pray for their future at the local church dedicated to the Mother of Mines.

If the government of India decides to reopen the mines, it will not only add lustre to this town, but could also kick-start a new gold rush in the country.

More on This Story

More from Technology of Business

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    STARBUCKS 09:14:
    File photo dated 13/08/2013 of Starbucks takeaway cups at a Starbucks in central London,

    Starbucks is moving its European head office from Amsterdam to London. It says half of its European cafes are in the UK, so it makes sense. Last year the firm paid corporation tax in the UK for the first time since 2009 following pressure from politicians and campaigners.

     
  2.  
    Via Twitter Douglas Fraser Business and economy editor, Scotland

    tweets: "Metso of Finland rejects Weir Group merger proposal. Weir reassures with commitment to Finnish base, but no certainty it'll revise offer"

     
  3.  
    CHINA GROWTH Via Blog Linda Yueh Chief business correspondent
    Graduates in Beijing

    blogs: "By the gauge of incomes and not the headline GDP figure, the economy is doing better, not worse, than last year. Rural incomes are growing more quickly than urban incomes, which reduces the rural-urban income gap and improves the consumption prospects of half of the Chinese population."

     
  4.  
    TESCO 08:54: Radio 5 live
    Tesco shop and trolleys 16/04/2014

    "They (Tesco) are trying to be all things to all women and men... it's realising that model is not working any more," says Andrew Saunders, Deputy Editor of Management Today on 5 live. The supermarket business is polarising and "the bit in the middle is going away," Andrew says. It needs to get closer to Aldi and Lidl.

     
  5.  
    MARKET UPDATE 08:42:

    The benchmark FTSE 100 index in London rose 0.7%, with Tesco up 3.9% as traders said Tesco's fall in profits was not as steep as some had feared. Hargreaves Lansdown was up 2.5% after an upbeat trading update. Germany's Dax index rose 1% and France's Cac 40 rose 1%.

     
  6.  
    Via Twitter Victoria Fritz Business reporter, BBC News

    tweets: "UK figs at 9.30 could show pay increases finally outstripping inflation for the 1st time since the crisis. Exp. 1.8%av pay v 1.7%inf."

     
  7.  
    TESCO Via Email Louse Cooper, analyst from CooperCity

    "Looking at the charges and write downs, international expansion has cost Tesco dear. There is an European asset impairment charge of £734m and a write down of £530m for the Chinese business (now deemed "discontinued")."

     
  8.  
    UK UNEMPLOYMENT 08:29:

    Just a reminder, in a little over an hour's time the Office for National Statistics reports labour market data. It includes the latest unemployment and average earnings data. This is what happened last month.

     
  9.  
    TESCO 08:22: BBC Radio 4

    More from Tesco chief executive, Philip Clarke, on the Today Programme. How will he fix it? "We can reach every postcode," he says. Customers can get their hands on their shopping at stores, through deliveries and by collecting their order. "I am sure Tesco will be a leader again." Tesco shares are up 4.3% in early trading.

     
  10.  
    TESCO 08:18: BBC Radio 4

    Tesco chief executive, Philip Clarke, is on the Today Programme. Why are sales down? "Consumers are feeling the long-run impact of lower income," he says. He will change the supermarket and get customers back to the middle market, challenging cheaper rivals like Aldi and Lidl, he said. "Discounters will never allow you to be cheaper than them but you can get closer to them," he said.

     
  11.  
    TESCO Richard Hunter, from the stockbrokers Hargreaves Lansdown

    tweets: "Over the last 10 years, the Tesco share price has risen 32p. Every little helps."

     
  12.  
    RECKITT BENCKISER 08:00:
    gaviscon double action

    Amid the excitement about Tesco, Reckitt Benckiser, which makes Gaviscon heartburn medicine, releases first-quarter sales. Revenue excluding currency swings rose 3% to £2.37bn. The company is on track to meet its target for 2014 of increasing sales 4-5%, it said.

     
  13.  
    TESCO Via Twitter Adam Parsons Business Correspondent

    tweets: "Clarke tells me "Aldi and Lidl are formidable...we need to be much, much closer to them, or at the same price. But we have to be different.""

     
  14.  
    HOME BUILDING 07:49:
    File photo dated 05/01/14 of houses

    Homebuilder Persimmon is giving the market an update on its progress. The firm says forward sales for 2014, which includes homes not yet completed, is 38% ahead of last year, with an average selling price of £200,400, which is about 3% higher.

     
  15.  
    Via Twitter Adam Parsons Business Correspondent

    tweets: Tesco's Clarke: "Now have 1,750 Click and Collect locations, including 6 Tube stations"

     
  16.  
    HEADLINES
     
  17.  
    CREDIT SUISSE 07:34:
    Credit Suisse, Zurich

    Swiss banking giant, Credit Suisse, says first quarter profits fell by more than a third. It made $979m in the quarter. Group revenue fell by 8%. The bank blamed less activity in its bond-trading division.

     
  18.  
    TESCO 07:29: Radio 5 live

    Reacting to Tesco's profits on Radio 5 live James Bevan from CCLA Investment Management says: "The tanker is slowly beginning to turn." Asked about Tesco's international business he says: "It's important that they are expanding in clothing in the United States." And he reminds us that "the value of its property book is well in excess of its market value".

     
  19.  
    TESCO 07:18: BBC Radio 4

    BBC Business Editor Kamal Ahmed has been examining Tesco's earnings report for the Today Programme. He said, "supermarkets have been built on the idea they will sell more and more and more" and large ones including Tesco are suffering "the shock of the discounters". He notes that Tesco are now expanding beyond food. "They do have the bank and are about to offer current accounts, and restaurants."

     
  20.  
    TESCO 07:00: Breaking News
    tesco

    Tesco annual profits have fallen by 6% to £3.3bn and like-for-like sales, which strip out the effect on new store openings, have fallen by 1.4%. Tesco also also announced a £734m loss of value in its European business which has been hit by the Eurozone crisis.

     
  21.  
    RAIL 06:53: BBC Radio 4

    Sim Harris, managing editor of Railnews is talking about figures from the Office for Rail Regulation on the Today Programme. Total government support for railways in the UK was £4bn for the 2012-13 financial year. It's a bit of a myth the railways system is fully privatised, said Mr Harris. "A little bit of railways are in the private sector, while most is in the public sector," he says. Network Rail, which owns the track, is publicly owned.

     
  22.  
    TESCO 06:41: BBC Radio 4

    Plenty of advice for Tesco this morning. On the Today Programme Laura Lambie at Investec Wealth & Investment says: "People are shopping with their feet". Customers are buying cheap food at Aldi or treating themselves at Waitrose or Marks & Spencer with less money spent between, she says. Tesco "must try to get their strategy right".

     
  23.  
    TESCO 06:33: BBC Radio 4

    "The real problem for Tesco is it hasn't moved with the times," says Bruno Monteyne, a senior analyst at Sanford C. Bernstein on the Today Programme. "If you really want some great prices you can go elsewhere," he says. The company is facing "what we call a value-quality duopoly," says Mr Monteyne. Either people want cheap food or high-quality food "a bit of everything isn't good enough," says Mr Monteyne.

     
  24.  
    CHINA GROWTH 06:22: Radio 5 live
    China flag

    China's economy expanded by 7.4% in the first quarter of the year, better growth than many were expecting. But it is a slowdown from 7.7% growth in the final quarter of last year. On Radio 5 live, Oliver Barron, head of the Beijing office at the investment bank NSBO says the growth is "a little bit lacklustre". Policy makers are starting to worry "a little bit".

     
  25.  
    CHINA CURRENCY 06:20:
    Mainland China 100 Yuan notes

    The US has told China its currency must be allowed to rise if it, and the global economy, are to see stable growth. Unlike the euro and the dollar, the value of the yuan is not set by the market but is kept within certain limits of other world currencies. The US Treasury's twice-yearly report to policymakers says the yuan is "significantly undervalued".

     
  26.  
    TESCO 06:13: Radio 5 live

    On Wake Up to Money John Coll, an analyst at Kantar Worldpanel, puts Tesco's problems into some perspective. He remind us that they have more than double the market share of their nearest competitor. He says the are trying hard to be "dynamic and innovative".

     
  27.  
    JET FUEL 06:08: BBC World News
    Handout photo dated 15/07/13 issued by British Airways of a British Airways Airbus A380 flying over the cliffs at Dover

    Willie Walsh, chief executive of British Airways' parent company IAG, has been talking to the BBC about his company's project to buy jet fuel made from waste. The GreenSky fuel plant, in Thurrock, Essex, will supply about 2% of the fuel needed by the company. He denied the project was mere "greenwashing" and said it will have a real environmental impact. "This is turning waste that would have been producing methane into fuel," he said.

     
  28.  
    TESCO 06:03: Radio 5 live

    Expect to hear a lot today about the "Watford model" from Tesco's chief executive, Philip Clarke according to retail analyst Phil Dorrell on Wake Up to Money. Watford has a giant Tesco mega-store. It is a "step-change" but is a costly model, according to Mr Dorrell. He warns that chief executive Philip Clarke has just 16-18 months to improve Tesco's performance.

     
  29.  
    TESCO 06:00: Radio 5 live

    Some stinging words on Wake Up to Money for Tesco's management from Phil Dorrell who runs a consultancy called Retail Remedy. "The senior team is stumbling around looking for a code to get market share to where it should be," says. "Innovating is not going to get them out of the current troubles," he says. They need "a clear strategy of where they are going" and how they will "improve the vast majority of their stores," Philip says.

     
  30.  
    06:00: Howard Mustoe, Business Reporter

    Good morning! Get in touch via twitter @BBCBusiness and via email bizpagelive@bbc.co.uk

     
  31.  
    06:00: Ben Morris Business Reporter

    Tesco reports annual results at 07:00 and analysts are talking about a 10% fall in profits. Check-in with the Business live page for the details. And good morning!

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.