Amendment in the Mines & Mineral Act to Streamline Consolidation in the Cement Sector

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 acquired in the pre-auction era to the acquirer, says India Ratings and Research (Ind-Ra). The Rajya Sabha cleared the amendments to the Mines and Minerals (Development and Regulation) Act 2016 on 2nd May 2016. The Act allows for transfer of mining lease 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 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 were acquired by them in the pre-auction era. Ind-Ra believes that this will 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.

This Act also defines captive- as the use of the entire quantity of mineral extracted from the mining lease, which will prohibit the sale of excess limestone. Ind-Ra notes the Act empowers the government to charge a transfer fee on such transfers. 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.

Ind-Ra believes that the absence of clear guidelines related to the transfer fee could play spoil sport to the consolidation process in the cement industry.

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