04 Oct 2019 18:55 IST

Tiny change in mining law brings good tidings for NMDC

After the text was tweaked from ‘may’ to ‘shall’, the NMDC stock jumped about 9 per cent on Oct 1

The Centre, on September 27, announced a minor amendment to mining rules for the government-owned companies. It was a small but significant change that could alter the fortunes of mining PSU National Mineral Development Corporation (NMDC).

The modification replaced the word ‘may’ with ‘shall’ in one of the rules under Mineral (Mining by Government Company) Amendment Rules, 2015. This makes it mandatory for State governments to extend the period of mining leases of government companies that are due to expire within a year. It takes away the power from the State to cancel the leases of such companies.

This change comes at a time when NMDC is in a tussle with the Karnataka State government to renew the lease for its Donimalai iron ore mine in Ballari district.

After the change was announced, the NMDC stock jumped by about 9 per cent on October 1. Market players hope this amendment will clear the way for renewal of the Donimalai lease.

The dispute

NMDC’s Donimalai mine, which contributes about 17-20 per cent of the company’s total production of iron ore in a year, was suspended for operations when its lease rights expired in November, 2018. On November 2, while extending the mining lease, the Karnataka government imposed a premium of 80 per cent of the sale value of the ore extracted. NMDC challenged this premium imposition in the Karnataka High Court. The Court set aside this condition, levied by Karnataka, in favour of NMDC.

Meanwhile, the Karnataka government withdrew the extension of mining lease granted to NMDC, which challenged the move with the Union Ministry of Mines. The Centre suspended the State government’s order withdrawing the lease extension.

The matter is still to be ironed out between NMDC and the Karnataka State government. It will now be heard in the mines tribunal, which will decide if NMDC can get the extension of Donimalai mining lease without paying any premium.

Reportedly, the company has been losing iron ore output of about 0.5 million tonnes per month since it shut operations in Donimalai, leading to a revenue loss of about ₹1,000 crore. The uncertainty with the lease renewal at Donimalai has been a major cause of worry for investors.

This, coupled with the sell-off seen across the metal and mining space in the wake of trade tensions between the US and China, weighed heavily on NMDC’s share price. The company’s stock fell by more than 20 per cent since the Donimalai lease expired and was not renewed by Karnataka.

Hopes of revival

The Centre’s amendment of the rules applicable for renewal of mining leases of government companies is expected to have a far-reaching impact on the mining industry, and is likely to help NMDC gain back mining lease rights for the Donimalai mines.

After the amendment, the State governments ‘shall’ (and not ‘may’) extend the period of mining lease of government companies by up to 20 years when an application is made at least 12 months prior to the expiry of the mining lease

The word ‘may’ in the law, so far, left the decision to renew the mining lease with the State government. But with the amendment, mining lease renewal for government companies becomes obligatory. This will ease some of the uncertainties over lease expiry.

However, the September 27 notification specifies that the new rules will come into force from the date of publication in the official gazette. There is no clarity whether this will be applicable retrospectively to NMDC’s Donimalai mines in Karnataka, because its licence expired before the notification was issued.

It is up to the mines tribunal to assess how this change in law will work, and it is unclear how the renewal process of Donimalai mines will unfold. That said, the amendment has cleared the air on the renewal of NMDC’s other iron ore mines in Chhattisgarh, the leases of which are set to end in March 2020.