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N e w M i n i n g B i l l : T e s t i n g t i m e s …
The Group of ministers (GoM) has approved the draft Mines and Mineral
(Development & Regulation) bill. The new approved draft makes a
distinction between companies mining coal and other minerals. The bill
proposes that coal mining companies share 26% of profits with the
locals. Furthermore, for non-coal mining companies, the bill proposes
an amount equal to 100% of the royalty to be shared with locals. The
bill is likely to be taken up by the Cabinet within the next three weeks
and is then expected to be introduced in Parliament during its Monsoon
Session. If the bill is implemented, among our coverage universe we
expect Hindustan Zinc (HZL), Sesa Goa, SAIL, Usha Martin (UML),
Adhunik Metaliks (AML) and Tata Steel to be impacted most with the
impact being in the range of ~2.0% to ~13.6%, if this bill is
implemented.
Clarification needed
We believe there are a few key points which require clarity, such as:-
• Methodology to be adopted to determine the profitability of
captive coal mines
• Will CSR expenses that the company incurs be allowed as a
deduction/offset?
• Tax shield available if any?
Likely impact of companies if the bill is implemented
If the bill is implemented, we expect HZL to be severely impacted due its
exposure to zinc, lead and silver where royalty rates are on the higher
side. Royalty on zinc (metal in concentrate) is 8.4% (of LME) whereas for
lead (metal in concentrate) is 12.7% (of LME) while for silver royalty is 7%
of its sales value. As a result, HZL’s FY13E net profit is likely to be
impacted by ~13.6%. AML’s earnings are also likely to be considerably
impacted (by ~9.4%) due to its wholly-owned subsidiary OMML (Orissa
Manganese & Mineral), which has exposure to iron ore and manganese
ore mining. Within the ferrous pack, assuming royalty rate of ~| 225 per
tonne on iron ore and a profit of | 2500/tonne for coking coal operations
(in absence of clarity on the profit computation methodology). If the bill is
implemented, Tata Steel’s consolidated FY13E net profit is likely to be
impacted by ~ 6.1%. Similarly, SAIL’s FY13E net profit is likely to be
impacted by 9.2%, UML’s FY13E net profit is likely to be impacted by
8.5% and JSW Steel’s FY13E net profit is likely to be impacted by ~2.0.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
N e w M i n i n g B i l l : T e s t i n g t i m e s …
The Group of ministers (GoM) has approved the draft Mines and Mineral
(Development & Regulation) bill. The new approved draft makes a
distinction between companies mining coal and other minerals. The bill
proposes that coal mining companies share 26% of profits with the
locals. Furthermore, for non-coal mining companies, the bill proposes
an amount equal to 100% of the royalty to be shared with locals. The
bill is likely to be taken up by the Cabinet within the next three weeks
and is then expected to be introduced in Parliament during its Monsoon
Session. If the bill is implemented, among our coverage universe we
expect Hindustan Zinc (HZL), Sesa Goa, SAIL, Usha Martin (UML),
Adhunik Metaliks (AML) and Tata Steel to be impacted most with the
impact being in the range of ~2.0% to ~13.6%, if this bill is
implemented.
Clarification needed
We believe there are a few key points which require clarity, such as:-
• Methodology to be adopted to determine the profitability of
captive coal mines
• Will CSR expenses that the company incurs be allowed as a
deduction/offset?
• Tax shield available if any?
Likely impact of companies if the bill is implemented
If the bill is implemented, we expect HZL to be severely impacted due its
exposure to zinc, lead and silver where royalty rates are on the higher
side. Royalty on zinc (metal in concentrate) is 8.4% (of LME) whereas for
lead (metal in concentrate) is 12.7% (of LME) while for silver royalty is 7%
of its sales value. As a result, HZL’s FY13E net profit is likely to be
impacted by ~13.6%. AML’s earnings are also likely to be considerably
impacted (by ~9.4%) due to its wholly-owned subsidiary OMML (Orissa
Manganese & Mineral), which has exposure to iron ore and manganese
ore mining. Within the ferrous pack, assuming royalty rate of ~| 225 per
tonne on iron ore and a profit of | 2500/tonne for coking coal operations
(in absence of clarity on the profit computation methodology). If the bill is
implemented, Tata Steel’s consolidated FY13E net profit is likely to be
impacted by ~ 6.1%. Similarly, SAIL’s FY13E net profit is likely to be
impacted by 9.2%, UML’s FY13E net profit is likely to be impacted by
8.5% and JSW Steel’s FY13E net profit is likely to be impacted by ~2.0.
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