New law disallows sale of excess mineral by captive users: Ind-Ra

Acquisition costs during transfer of mines to increase, says the ratings agency

Under the new mining law, the entirety of minerals extracted under a lease will have to be utilised by a single company. This is likely to impact the cement industry since it will be prohibited from the sale of surplus limestone, India Ratings said in a report today.

The amendments to the Mines and Minerals (Development and Regulation) Act will streamline the consolidation process in the cement and steel industry, as companies will be able to transfer captive mines, bought by them in the pre-auction era, to the acquirer, India Ratings and Research (Ind-Ra) said in a report.

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The Rajya Sabha cleared the amendments to the Mines and Minerals (Development and Regulation) Act 2016 on Monday. The Act allows for transfer of mining leases, which were acquired other than by an auction and used for captive purposes. The amendment, however, has come with a rider of transfer fees, which may lead to higher capital cost for the acquirer. Ind-Ra notes the Act empowers the government to charge a transfer fees on such transfer. However, the government has not specified the calculation method which will be used for the transfer fee, and thus clarification for the same is awaited, which will lead to the smoothening of the process of transfer of mines.

The consultancy expects the amendment to the Act to streamline the consolidation process in the cement industry as companies will now be able to transfer captive mines to the acquirer which was acquired by them other than through the auction process. Ind-Ra believes this would clear the way for large merger and acquisition transactions that have been stuck due to the restriction on the transfer of mines as per the amendment of mines and mineral act January 2015.
 
This could also trigger acquisitions in the steel sector, primarily by medium and small players since the larger players are well placed with captive mines.
 
Ind-Ra believes that the absence of clear guidelines related to the transfer fees could play spoil sport to the consolidation process in the cement industry.