Khothakpa Gypsum Mine: Sharing benefits with Shumar community

 

Rinzin Wangchuk

It is 8am, Khothakpa Gypsum Mine (KGM), Pemagatshel. Eight heavy earth-moving equipment (EMEs) break the silence. Then come a fleet of 20 tipper trucks.

At the work-site, the excavators dig into the mineral deposits. The trucks ferry the minerals to the crushing site.

Gypsum

Khothakpa Gypsum Mine

Today, the trucks are ferrying raw gypsum from the extraction site pit II to the crusher, which is about 500 metres away. By 5pm, each truck will have made 24 trips.

Given the remoteness of the place, this noisy and dusty environment is almost unusual for the people here but it’s also a business opportunity for them. This benefits about 700 households with 6,900 people of Shumar thanks to State Mining Corporation Limited (SMCL), which offered an opportunity to engage the community in benefits sharing from mining operations.

 

Shumar community group

The interim government on October 22, 2018 granted SMCL the operation of the KGM for an interim period of two years as the 15 years lease term operated by the Druk Satair Corporation Limited (DSCL) expired on December 31, 2018.

Unlike Druk Satair, SMCL outsourced the equipment hiring to the community of Shumar gewog and local people were encouraged to participate in mine operations to share benefits.

The people of Shumar came together to form a community group, Rangjung Norbu Gongphel Tshogpa, on December 8, 2018. The tshogpa decided to collect money to invest in EMEs. Setting the maximum ceiling of Nu 500,000, each family member contributed a minimum of Nu 1,000. Some households that have large family members invested more than Nu 1 million (M). A total of Nu 36M was collected.

The tshogpa, represented by one member each from five chiwogs, applied a loan of Nu 23M from Bhutan National Bank Limited (BNBL). A total of Nu 47.5M was invested to procure eight EMEs and two tipper trucks.

However, the Road Safety and Transport Authority’s regional office in Samdrupjongkhar denied the registration of EMEs since it was not a legal entity.

“This has led the Tshogpa changing the name to Rangjung Norbu Gongphel Private Ltd, (RNGPL) in March 2019,” manager Sangay Gyeltshen said.

He said that RNGPL hired 18 tipper trucks. Today, each truck earns about Nu 15,000 from 24 trips a day from gypsum extraction site to crusher area near weighing bridge. SMCL pays transport charges of Nu 555 to Nu 700 per trip depending on fuel price.

“The mineral transportation cost goes up when fuel price increases,” SMCL’s chief executive officer Kezang Jamtsho said.

Each EME earns Nu 1,765 per hour and another Nu 1,570 per hour from a backhoe. Both excavator and drill machine work eight to nine hours in a day. SMCL pays about Nu 4M to Nu 5M monthly to RNGPL as transportation and mineral extraction charges.

Similarly, transportation of gypsum from Pemagatshel to Samdrupjongjongkhar stockyard is being offered to 250 truckers.

“We even provide fuel to the permanent freelance transporters and recover it from the payment of transport charges,” Kezang Jamtsho said.

 

A sense of ownership

Although the people of Shumar do not have shares with SMCL they feel a sense of ownership. “We are part of SMCL since our equipment and operators are fully engaged at the mining site,” the former Shumar gup, Dorji, who invested Nu 450,000 in RNGPL to procure EMEs said.  “I had 6,000 shares with DSCL and used to get Nu 200,000 to Nu 300,000 annually as dividend. However, we didn’t feel the sense of ownership since a few promoters run the company.”

Shumar Gup Sangay Chophel said not many people from the gewog owned shares during DSCL’s lease period and they had very little knowledge about the value of shares. “Today, people understand more about the mining being a lucrative business which brought the community together,” he said.

RNGPL’s manager Sangay Gyeltshen said that SMCL’s interim gypsum extraction period would end this December. “We are hopeful that the government would not auction the mine but allow the state owned enterprise to continue,” he said, adding that this way of operation benefits the locality like never before and helps RNGPL sustain.

In 2019, SMCL paid Nu 51.83M to RNGPL for outsourcing EMEs and tippers. Sangay Gyeltshen said that RNGPL paid 30 percent corporate tax amounting to Nu 1.213M to the government for the year 2019. RNGPL, however, could not declare dividend to the people of Shumar due to loan the company availed for the procurement of EMEs and trucks.

The manager said that RNGPL paid a monthly loan installment of Nu 520,000 to BNBL. However, RNGPL hasn’t paid loan installment from April this year after His Majesty The King waived loan interest and deferred loan repayment due to Covid-19 pandemic.

Druk Satair, which engaged in extraction and sale of gypsum to local cement industries as well as export to other countries for the last 24 years since 1993 had a total of 913,086 shares with 1,268 shareholders (general public) of which 1,162 were from the eastern region.

Of the total shares, 35 percent or 318,976 shares was held by seven promoters. The Zhung Dratshang had 34 percent or 310,224 shares and the minority shareholders, general public, had owned 31 percent or 283,886 shares. As per the government policy, the promoters were allowed to own 70 percent of the total equity and rest 30 percent was floated to the general public, providing preference to the public of six eastern dzongkhags.

 

Background

The gypsum mine is located at Khothakpa in Shumar gewog covering an area of 26.77 hectares  (64.24 acres). The Geological Survey of India carried out the geological survey in 1960. It has a reserve of 25.942 million metric tonnes (MT) of high-grade gypsum reserve with an average grade of 83 percent as per the detailed exploration done in 1968 to 1973 by the Department of Geology and Mines (DGM).

Gypsum mining dates back to 1983. The government with an objective to utilise the reserve for economic development and optimisation of revenue granted the mining rights and license to Shumar Gypsum Mine. It was then a government undertaking and later operated as a subsidiary to Penden Cement Authority.

Ten years later, the government auctioned Khothakpa mine with an aim to encourage private business in industrial ventures. The mining right was awarded to DSCL for a period of 10 years from 1993 to 2003 with an auction fee of Nu 26.70M.

The corporation also won the second auction in 2003 for the second lease period of 15 years from 2004 to 2018 with a record bid value of Nu 413.50M.

As the geological reassessment for re-auctioning the gypsum mine was not conducted by the DGM, the government granted SMCL to operate and extract gypsum mine for an interim period of two years from January 1, 2019 with the directives to carry out a seamless take over and retain the markets in the region.

The reason for not auctioning gypsum, according to Economic Affairs Minister Loknath Sharma, was due to exhaustion of deposits of the existing mine site. “The boundary of the mine had to be extended and road infrastructure diverted,” Lyonpo Loknath said in an interview with Kuensel last month. “There is a school in the area and about 30 households which requires to be relocated. So SMCL will continue to operate the mine until we are fully prepared.”

With just Nu 55.20M investment in KGM, the company achieved a profit after tax (PAT) of Nu 248M, with a high profit margin of 28.36 percent. The DSCL declared PAT of Nu 201.577M in 2018.

SMCL’s production achieved was 512,218MT surpassing the target of 460,000MT and the sale achieved was 488,000MT surpassing the target of 450,000MT. The SMCL annual report 2019 states that the return on per metric ton of gypsum achieved may be the highest in the history of gypsum business, which was Nu 508M.

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