Likely impact of the new mining bill on companies - Angel Broking,

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Likely impact of the new mining bill on companies
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 an 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.
In case the mining bill is approved by the parliament, the EPS of mining companies 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%.