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METALSANDMINING
Newminingbill:Amineofwoes
IndiaEquityResearch|MetalsandMining
The group of ministers (GoM) has approved a revised draft of the new mining bill (MMDRA), proposing coal companies to share 26% of profits and noncoal companies to share an amount equivalent to royalty for local development. Preliminary analysis indicates that Coal India (CIL) wouldbetheworsthitfollowedbyotherminerssuchasSesaGoa(price taker)andNMDC(partialpricingpower).Onthesteelfront,SAILandTata Steel would face the brunt due to captive mines whereas JSW Steel/BhushanSteelwouldbeleastimpacted.Thebillwouldbetakenup inParliamentintheforthcomingmonsoonsession.
Impactonminingcompanies:CoalIndia,SesaGoatobeaffected
WebelieveCILwillhavetoshare26%ofnetprofit(exofotherincome).However,we are uncertain if it would offset the same against CSR expenses (~INR 22 bn for FY11) besides the profit calculation (e.g. whether at mine level or at subsidiary level). Assuming that CIL sustains the CSR but refrains from an immediate price hike, the potentialimpactcouldbe~20%onFY13Enetprofit(excludingotherincome).Hence,in our view, CIL may reduce its CSR expenses and/or take a price hike to negate this impact.InSesaGoascase,weestimateaminingtaxof~USD7/tresultinginapotential 18%reductioninFY13EEBITDA.
Onsteelcompanies:TataSteelIndiaworsthit
WeestimateapotentialEBIDTAimpactofUSD25/tduetotheminingtaxforTataSteel Indiaconsideringitscaptiveironoreandcoalmines.ForFY13E,theimpactcouldbe ~5% on the consolidated EBITDA (7% on a standalone EBIDTA). The estimate for SAIL andJSWSteelstandsat~USD810/tand~USD56/t,reducingEBIDTAby~7%and3% respectively.JSPLsconsolidatedFY13EEBITDAwouldbetheleastimpacted(34%).We believesteelcompaniesmayattempttohikepricestooffsetthisthoughwedonotsee roomforanincreaseofmorethanUSD10/t,consideringtheslowdemand.
Onnonferrouscompanies:HighestimpactonHZL
Royaltyonzincandbauxiteis 8%and0.5%ofrespectiveLMEmetalprices hencethe impactonzincishigher.WeestimateFY13EEBITDAofHZLandSterlitetobeadversely impactedby~16%and~8%respectively.
PrasadBaji
+912240407415 prasad.baji@edelcap.com
Outlook:Longtermbenefitspossible
Uncertaintiesexistaroundthepossiblecutoffdateforexistingmines,identificationof displacedpersonsforsuchminesandfinalcontoursandtimelinesofthebill.Whilethe direct financial impact on metals and mining companies is negative, utilization of the funds raised is crucial. Potential benefits of local development could be reduced R&R issuesandeasierdevelopmentofnewminesinfuture.
FaisalMemon
+912266233478 faisal.memon@edelcap.com
July08,2011
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EdelweissSecuritiesLimited
MetalsandMining
EdelweissSecuritiesLimited,EdelweissHouse,offC.S.T.Road,Kalina,Mumbai400098. Board:(9122)40094400,Email:research@edelcap.com
VikasKhemani NischalMaheshwari HeadInstitutionalEquities HeadResearch vikas.khemani@edelcap.com nischal.maheshwari@edelcap.com +912222864206 +912266233411
Date
Company
Title
Price(INR)
175 553
Recos
Buy Buy
(INR)
Coal the missing link; Sterlite Industries Company Update Tata Steel Metals & Buy Mining Stake sale in Riversdale a positive; Edel Flash Steel: Mid-cycle blues; Sector Update
Buy
J ul-08 Aug-08 Se p-08 Oc t-08 Nov-08 De c -08 J a n-09 Fe b-09 Ma r-09 Apr-09 May-09 J un-09 J ul-09
EdelweissResearchCoverageUniverse
Hold Reduce Total
132
51
18
203
< 10bn
117
65
21
EdelweissSecuritiesLimited