Amidst potential strategic and operational setbacks, SMCL remains a major contributor to GDP
Since its establishment in November 2014, the State Mining Corporation Limited (SMCL) has emerged as a critical contributor to Bhutan’s economy. The company has generated cumulative revenue of Nu 12.90 billion (B) between 2017 and 2022 and contributed significantly to the government treasury through taxes amounting to Nu 2.01B during this period. The company’s net worth rose dramatically from Nu 0.30B in 2017 to Nu 6.09B in 2022.
Despite these achievements, SMCL has faced challenges in meeting production targets, aligning with strategic financial goals, and addressing domestic market demands.
According to the Field Mine Feasibility Study (FMFS) reports, SMCL was tasked with extracting 4.27 million MT of dolomite, 1.06 million MT of quartzite, 1.95 million MT of gypsum, and 0.66 million MT of coal by 2022. However, significant gaps were observed.
It was reported that Dolomite surpassed its annual production target in 2021 but struggled to maintain that momentum in 2022, while persistent production gaps, with only 5% of mineable reserves of Quartzite was extracted by the end of 2022.
With regard to Gypsum, the company initially achieved targets but faced setbacks in 2020 and 2021, recovering to surpass the 2022 target.
The company produced 51% of the mineable reserves of Coal over seven years, with a production shortfall widening in 2022 due to operational expansions at new mines.
SMCL attributed the discrepancies to evolving market conditions, unforeseen administrative challenges, and the COVID-19 pandemic. The company highlighted that production targets are influenced by consumer demand rather than FMFS estimates, which are based on inferred reserves.
While SMCL set ambitious revenue targets under the Corporate Strategic Plan (CSP) 2019–2023, the company fell short of achieving its cumulative revenue target of Nu 21.87B by 2023. Actual revenue for 2017–2022 totaled Nu 11.66B, missing the FMFS-projected revenue by 10%.
The introduction of dolomite production in 2021 provided a much-needed boost, as it exceeded annual production estimates, but overall trends revealed unrealized potential. The company revised its strategic roadmap in 2022 to address these gaps.
SMCL’s ability to meet domestic market demands has been a contentious issue, particularly for coal.
Coal supply through domestic demand, primarily from cement factories, averaged 183,438 MT annually from 2016 to 2021. SMCL’s average annual coal production of 69,417 MT fell significantly short, compelling domestic industries to rely on imports.
Exacerbating the situation, quality issues like high ash content in coal deposits (exceeding 30% on average) has led to penalties and unsold inventory, further impacting operations.
Although Bhutan supplies only a small share of its gypsum and dolomite to the domestic market (11.22% and 0.67% respectively), international markets such as India and Nepal account for over 90% of sales.
On account of these findings, the Royal Audit Authority (RAA) emphasized the need for SMCL to align production targets with FMFS findings, as these are based on scientific assessments and field studies.
The company was also instructed to develop robust reserve estimation methodologies, particularly for erratic deposits like coal; revise production strategies to factor in future market trends and add value to products; and expand domestic market penetration for gypsum and dolomite through targeted marketing initiatives.
SMCL reported significant improvements in 2023, with dolomite and gypsum meeting production targets of 3.1 MT and 0.57 MT, respectively. Coal production also increased to 163,022 MT, signaling a steady recovery from previous challenges.
“As SMCL continues to navigate its operational and strategic hurdles, its future success will hinge on adapting to market dynamics, improving production efficiencies, and ensuring sustainable resource management,” the report stated.
Since its establishment, SMCL began with Habrang coal mine in Phuntshothang Gewog and Tshophangma coal mine in Samrang Gewog, Samdrupjongkhar for a lease period of 10 years from 2016 to 2026; Dzongthung stone quarry in Bartsham Gewog, Trashigang for a lease period of 10 years from 2017 to 2027; Khabari Dara stone quarry, Tading Gewog, Samtse for a lease period of 10 years from 2018 to 2028; Khothakpa Gypsum mine, Shumar Gewog, Pemagatshel for initial three years interim lease period (2019 to 2021), which was later leased for a period of 15 years from 2022 to 2037; Chunaikhola Dolomite mine, Phuntshopelri Gewog, Samtse for initial two years interim lease period (2020 to 2021), which was later leased for a period of 15 years from 2022 to 2037; Khichangpo and Majuwa coal mines in Phuntshothang Gewog for a lease period from 2020 to 2023 and 2022 to 2032 respectively; and Rishore coal mine, Dewathang Gewog for a lease period of 10 years from 2020 to 2030. However, Khabari Dara stone quarry, Khichangpo and Majuwa coal mines were closed prematurely.
In the meantime, Habrang coal mine is due for premature closure by the end of 2024. This mine is significant as it is the first coal mine operated by SMCL which began operations in 2016, marking a significant milestone for Druk Holdings and Investment (DHI) in the mining sector. Actual mining operations commenced in August 2016, with initial projections estimating a probable deposit of around 600,000 MT of coal. In its first five months of operation, the mine sold approximately 1,000 MT of coal to Dungsam Cement, generating gross revenue of around Nu 67.698M. This successful start helped reduce SMCL’s operational losses significantly.
Habrang coal mine plays a crucial role in Bhutan’s economy by providing coal primarily for domestic industries, particularly the cement sector. The coal mined here is vital as it accounts for about 40% of the total production cost of cement in Bhutan. The mine also contributes to local employment and generates revenue through coal sales. The operational success of Habrang has enabled SMCL to stabilize its financial position and contribute positively to government revenues.
By Tashi Namgyal From Thimphu
