Dear All,
Forwarding you the Event Update on Mining Sector.
Mining bill – Impact analysis
MMRDA draft approved by Group of Ministers (GOM): The Group of Ministers has approved a draft bill for the mining sector making it mandatory for coal miners to share 26% of their profit after tax with project-affected people. Furthermore, the draft bill proposes that companies mining other resources
(such as limestone, iron ore, copper and bauxite) should pay amount equivalent to 100% of the royalty on their production to the local population of the project site. The bill will be taken up by the cabinet in the parliament’s monsoon session for approval.
Other aspects of the bill: The bill also proposes to allocate mining blocks on an auction basis and rationalise royalty rates. However, there is lack of clarity on whether the additional tax burden will be tax deductible and whether the sharing of profits will be for existing mines/new mines/both.
New bill broadly not as bad as the original draft: The original draft of MMRDA had proposed sharing of 26% of profits with the local community. However, the new draft makes a distinction between companies mining coal and companies mining other minerals. With royalty rates on minerals other than coal at 7–10%, the new draft would result in lower cash outflow for companies mining minerals other than coal (compared to the original draft).
Likely impact on companies: As per our estimates, the EPS of mining companies (other than coal mining) is expected to be lower by 8–13%, while for Coal India the EPS could potentially decline by 17%. However, the extent of higher burden could be lower (than the proposed 26% of net profits) for Coal India as it (currently) spends a significant amount towards CSR activities. Also, we believe Coal India has the cushion to pass on the additional burden to its customers as its sells coal at a price lower than global benchmarks. For miners and steel makers, the additional burden will have to be absorbed by them as they sell their products at prices determined by global benchmarks. For steel companies, the impact on EPS could be in the range of 2–8%.
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Fundamental Advisory Desk
Angel Broking
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