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MMDR Amendment Bill 2021 proposes additional duty along expected lines

Key takeaways from NMDC conference call were i) management aiming to reach 35mnte volumes in FY21E, 40mnte in FY22E and 45mnte in FY23E. ii) Demerger of the steel plant should complete in the next 5-6months; integrated steel plant commissioning expected in July-August, ’21 iii) Capex will increase from Rs19bn in FY21E to Rs 25-30bn in FY22E, majority being in the steel plant (~ Rs 15bn) and lion’s share of the rest being on account of the slurry pipeline. What was not discussed in the call were MMDR Amendment Bill 2021 (Link - public opinion on a series of reforms), on which Mining ministry has sought public comments and suggestions by 24th Feb, ’21. The bill proposes to impose additional duty of 1.5 times royalty for PSU iron ore miners, on direct grant of iron ore mines. This is in-line with expectations. The bill also proposes allowing captive miners to sell upto 50% of production by paying additional duty (1.5 times royalty for iron ore fines) – incentive may not be enough to add material supply. Maintain HOLD.

* MMDR Amendment Bill 2021 proposes additional duty on PSU miners. Government of India which has turned to PSUs to sort the current iron ore supply shortage post Odisha auction has had to simultaneously assuage state demand for compensatory premiums from PSUs, as was seen in NMDC’s Donimalai case. PSUs like NMDC will have to pay 1.5x additional royalty (22.5% effectively based on current iron ore royalty of 15%) to states for mining rights granted to them directly. We believe, while this applies to any such lease extended or reserved after the 2015 amendment of MMDR – as is the case for NMDC’s leases in Chhattisgarh – the additional premium will be levied on future dispatches subsequent to the current reforms being turned into law. We have earlier factored in 22.5% additional incidence on the entire sales volume of NMDC.

* Proposed amendments aim to improve domestic supply. With an amendment to mining laws (MMDR Act) in CY15, India decided to auction all mines henceforth. Some of the additional amendments, for which comments and suggestion are being sought before the 24 February,‘21 are: i) Noting that environmental clearances continue to be time consuming the Centre proposes to validate environmental clearances granted to the new lessee for two years until the exhaustion of mineable reserves. On expiry or termination of the lease, these clearances will be transferred and vested to the successful bidder of the mining lease. It will also provide for a mine to be recognised as a mine till it is no longer feasible to produce minerals from the mine and which may have different owners from time to time ii) Captive mines are now allowed to sell 50% of their production. They must pay an additional amount of royalty, depending on the mineral. Taking into account the average sale price and average cost of production, the Mines Ministry proposes this be 2.5 times royalty in the case of iron ore lumps and 1.5 times royalty for fines.

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