Amendments to MMDR Act will help cement and steel industry: India Ratings and Research, Secretary, Ministry of Steel

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 to the acquirer which was acquired by them in the pre-auction era, says India Ratings and Research (Ind-Ra). The amendment, however, has come with a rider of transfer fees, which may lead to higher capital cost for the acquirer.

The amendments to the MMDR Act, approved by the Rajya Sabha on Monday (May 2, 2016), allows for transfer of mining leases which were acquired other than by an auction and used for captive purposes.

The agency said it expects the amendment to the Act to streamline consolidation in the cement industry since companies will now be able to transfer captive mines-- even those not acquired through auction- to the acquirer. Ind-Ra said it believes that this will clear the way for M&A deals that have remained 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, in the cement sector,

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, for instance. Ind-Ra notes the Act empowers the government to charge a transfer fees on such transfer. The government, however, 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 fees could play spoil sport to the consolidation process in the cement industry.