Rule change by mines ministry likely to benefit state-run companies

The recent notification of the central government which replaces the word “may” with “shall” on a key mining rule removes all ambiguity regarding renewal of operating leases allotted to state-owned entities.

The ministry of mines has amended the Minerals (Mining) by Government Companies Rules, 2015. In Rule 3, Sub-Rule 2, the phrase, “may, for the reasons to be recorded” has been changed to “shall, for the reasons to be recorded”.

This, in effect, makes it imperative for a state government to renew the mining lease for minerals of a government company, on an application made to it in this regard at least a year prior to the lease’s scheduled expiry. The lease would then be extended for a further period of up to 20 years at a time.

The decision is also an important step towards ensuring raw material security for the steel sector, says Dharmendra Pradhan, Union minister for petroleum and natural gas, and steel. He notes the lease of 31 working mines of iron ore are expiring on end-March 2020. “This will also ensure price stabilisation of raw materials and will have a positive effect on the secondary steel industry. We are committed to ensuring such raw material security,” he said.

The amendment benefits all government-owned mining companies such as Coal India, GMDC and MOIL. NMDC stands to gain more — it is in a legal battle since last year with the Karnataka government, which demanded an 80 per cent higher premium as a precondition for lease renewal of the Donimalai iron ore mine. 

NMDC did not agree and stopped mining operations in November 2018. It got a favourable court order; however, the new government inthe state had decided to cancel the lease. According to Edelweiss Securities, the latest amendments are likely to facilitate resumption of operations at Donimalai and set a precedent for renewal of other mine leases of state firms.

“In our view, the Donimalai resumption would be EPS (earnings per share)-accretive to the extent of 12-15 per cent on an annualised basis (for NMDC),” said Edelweiss. 

Iron ore deposits at Donimalai are estimated at 143 million tonnes. NMDC had leased the mine in 1968 for 50 years. The legal issue had led the NMDC stock to underperform by 34 per cent compared with global iron ore players over the past 12 months.