Metals & Mining: MMDR ordinance - may bring cheer to miners :: Kotak Sec,report

Please Share::

MMDR ordinance—may bring cheer to miners. The MMDR ordinance provides
deemed extension of existing mine leases to the later of (1) March 2030 for
captive/March 2020 for merchant or (2) end of 50 years from the date of the initial
grant of lease or (3) the actual expiry of the mining lease. The existing mines will be put
on auction after this period. The transition period provided by the bill may bring cheer
to miners and end uncertainty about mining operations (except in Odisha). Payment to
the District Mining Fund and National Mineral Exploration Trust has been set at 33%
and 2% of royalty, respectively. Non-integrated mills like JSW Steel can gain from
expedited mine auctions.

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

--> MMDR ordinance gets presidential nod; incorporates the auction of other minerals, as well
The MMDR ordinance incorporates the auction process for mine awards of other minerals as
well after inclusion of coal. New leases will be awarded through auctions but the ordinance also
introduces a transient clause, aimed at terminating the existing leases after a certain number of
years and putting them up for auction. Such a transition is more tolerant of mines catering to
captive needs rather than merchant ones. We detail the main inclusions.
 Existing leases get moratorium. The MMDR ordinance is lenient towards captive mines
versus merchant mines as it allows existing captive mines to operate at least until March 31,
2030 and merchant mines until March 31, 2020 or the later of (1) the end of 50 years
from the date of first grant of the lease, or (2) the actual expiry of the lease period
(for lease renewals).
 Pending mining leases likely to be covered, too. The ordinance states that a moratorium
provision will not apply only to leases for which renewals have been rejected or the
leases lapsed. The ordinance states that such cases would remain eligible where the state
has issued a letter of intent for grant of mining lease; the mining leases will be granted
within two years.
 Auction process. All new leases to private companies will be granted through a competitive
bidding process compared to the allotment route earlier while government companies will
continue to receive allotments. The auctioning process for (1) explored minerals will entail
direct auction of mining leases based on the procedure laid by the Central Government, and
(2) unexplored minerals (inadequate evidence of existence) will be through auction of
prospecting license-cum-mining leases with a right to subsequent mining leases on success.
 District Mining Fund. A District Mining Fund will be created for people affected by mining
operations and will be funded by an additional levy on the mines for a maximum amount of
a third of existing royalty payouts. An additional amount equal to 2% of royalty on minerals
will be paid to National Mineral Exploration Trust. This effectively means a 35% increase in
royalty. For example, royalty on iron ore will rise to 20.3% from the existing 15%.
Implication on miners in Odisha and Goa
Mines that that were closed in Odisha/Jharkhand due to applicability of the second deemed
renewal and mines whose leases were not renewed can operate till March 2020/March 2030
(merchant/ captive). The ordinance states the moratorium clause will not only be applicable to
mining leases for which renewal has been rejected, or lease has lapsed. However, uncertainty
exists for 18 mines that were closed under the second deemed renewal provision since the
Odisha government indicated its intention to auction the mines. The Goa government renewed
31 mines that can function until expiry of lease renewals (2027). We estimate moderate cost
increases for NMDC, Tata Steel, Jindal Steel and Power and Hindustan Zinc due to the effective
increase in royalty rates. We believe JSW Steel stands to benefit as the ordinance paves the way
for expediting new mine auctions.

LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily14012015bb.pdf