GoM approves 26% profit-sharing

GoM approves 26% profit-sharing for coal companies (Sentiment likely to get affected in the short term for mining companies;

negative for Coal India, GMDC, Sesa Goa, SAIL, Tata Steel, Hindustan Zinc, Sterlite Industries and NMDC)

The new mining Bill — approved by a 10-member Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee on Thursday

— says coal companies will have to share 26% profit with the local population. In case of other minerals such as iron ore, bauxite and

limestone, the miners will have to share with the locals an amount equal to the royalty paid in the previous year. The bill would now go to

the cabinet for approval before being placed in the Parliament. In my opinion, 26% profit sharing with locals for coal companies is a very

steep step. So this could get watered down. Nonetheless, the regulatory uncertainty is likely to affect investor sentiment for coal mining

companies like Coal India and GMDC. Since the royalty paid on other minerals like iron ore and bauxite is less than 10% of the market

price, it has a good chance of getting passed. Thus, this is likely to be negative for Sesa Goa, SAIL, Tata Steel, Hindustan Zinc, Sterlite

industries and NMDC