Metals & Mining – GoM approve draft MMDR bill: RBS

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CNBC TV-18 reported that the GoM have revised and approved the draft MMDR bill. The bill is
proposing sharing of 26% of profits for coal miners and 100% of royalty for non-coal miners. Coal
India will be the most hit, in our view. The bill is to be sent to the cabinet next and then to
parliament before it becomes law.


􀀟 A Group of Ministers (GoM) were scheduled to discuss today the Government's draft Mines
and Minerals Development and Regulation Act (MMDR) bill, 2010.
􀀟 CNBC TV-18 reported that the GoM have now approved the draft bill. The news report
indicates that the bill is proposing sharing of 26% of profits for coal miners and 100% of
royalty for non-coal miners. The payment will be tax-deductibile, in our view.
􀀟 If the bill were to be passed in its current form, Coal India will be significantly impacted in our
view. We estimate an impact of 17% of FY12F earnings for Coal India.
􀀟 For iron ore miners including steel makers with captive iron ore resources, the incremental
liability due to the proposal will be 100% of the royalty. Iron ore miners like Sesa Goa and
NMDC pay royalty of 10% of the sale price on an ad-valorem basis. We estimate an impact of
6% and 11% respectively for Sesa Goa and NMDC on FY12F earnings.
􀀟 For steel majors, due to the significant value addition, we estimate an impact of less than 5%
for Tata Steel, JSW Steel, and Jindal Steel and Power. For SAIL, we estimate the impact on
FY12F earnings to be at 17% due to the 40% decline in FY12 earnings we forecast.
􀀟 In the non-ferrous space, Hindustan Zinc and Sterlite will be impacted to the tune of 9% of its
FY12F earnings due to the higher royalty structure of 8.4% for zinc and 12.7% for lead.
Hindalco and Nalco will be relatively insulated due to the significant value addition made to
the base bauxite mineral.
􀀟 We note that the current draft is a change from the earlier draft of 26% profit sharing for all
miners. The bill is now due to go to the cabinet for approval before it can be placed in the
monsoon session of parliament.
􀀟 We have a Buy rating on Hindalco, HZN, Sterlite, Jindal Steel and Power, Tata Steel, Sesa
Goa and NMDC. We have a Hold on Nalco and a Sell on JSW Steel, SAIL and Coal India.