Mining companies end with losses on Sensex

Higher payouts and profitability hit lead to selling pressure

As markets continued to price in impact of new mining legislation passed by Parliament on Friday, eight of the 10 mining companies closed with losses at the equity markets. Fears of the impact of higher royalties on margins, and the higher cost to secure mining leases under the auction route contributed to share prices dropping over two per cent on an average.

India’s largest manganese ore producer MOIL was down 2.18 per cent. While Gujarat NRE Coke was down 1.22 per cent, NMDC was down 2.7 per cent. Coal India was marginally up, rising 0.22 per cent.

The fact that mining companies will have to contribute to the District Mineral Foundation (DMF) is a negative from shareholders’ perspective. “The contribution (to DMF) by miners granted leases before commencement of the MMDR Amendment Act will be up to an amount equal to royalty, while the same is up to one-third of the royalty payable for those granted leases after the Act comes into force,” according to Edelweiss Securities’ March 20  report authored by analysts Navin Sahadeo and Salvin Shah. They will also have to contribute to the National Mineral Exploration Trust.

“We expect the operating costs of integrated producers to rise on higher royalty-linked payments (both for DMF and NMET),” said a report of Barclays Securities (India) Private Limited, authored by analysts Chirag Shah and Saket Yadav.

Meanwhile, some companies with a stake in the mining reforms ended with gains. This included Tata Steel, Hindalco Industries and SAIL. They were up between 0.6 and 1.3 per cent; even as the Sensex was down 0.24 per cent.

Gopal Agrawal, chief investment officer, Mirae Asset Global Investments (India), said currency movements have also contributed to the upside in some of the mining stocks. Mining stocks tend to move in line with commodity prices.

“The dollar index is down two per cent because of which there has been a positive impact on commodities, which are up between two and five per cent, since the close of markets on Friday. In the case of some of the players with mining leases, the new regulations have provided clarity that they would continue to have their mining leases for an extended period of time,” he said.

“It could be short-covering. Some of these companies had been trading at one-year lows till last week,” said G. Chokkalingam, founder, Equinomics Research and Advisory. The longer term outlook remains positive for the mining sector as a whole, said experts.