Mines and Mineral Development and Regulation Bill (MMDR) 2011

A ministerial panel approved a draft bill for the mining sector – the draft Mines and Mineral Development and Regulation (MMDR) Bill, 2011, proposes to make it mandatory for coal miners to share 26% of their net profits with project-affected people. Non-coal miners ( iron, bauxite, manganese, copper, aluminium, gold, silver) will be required to pay 100% of the royalty on their production to those who were displaced due to the project. This rule applies to metal companies too, which also have their own mines.

This is Corporate Social Responsibility (CSR), only in India, it needs to be forced. As a lay man, for someone who does not own the stocks of any mining company, this is very good news.

For eg: Coal India, in FY11 posted a consolidated net profit of Rs.10,867 crore and 26% of this would mean Rs.2825 crore which will have to be distributed to the local community directly affected or displaced by its mines.

This sounds good that the displaced people, will continue to get annually a payment of Rs.2000 crore or more (or even less) depending on the net profit earned by Coal India.

The compensation could be given either in cash or maybe asking companies to directly plough back the money to build schools and hospitals, building infrastructure for the community would have been a much better option. Or even providing employment to some of the displaced locals would empower them for life, instead of making them dependent on annual handouts.

The major research houses, Indian and foreign have stated that unless the mining companies hike their prices, the hit on their bottomlines and EPS would average anywhere between 8 to 15%. Coal India’s NPM for FY11 was at 22%, which in FY12, assuming it parts with a 26% share in net profit, is expected to come down to around 16% if the same growth rate is taken. But given the high prices of coal, profit growth is expected to be much stronger and though there will be a fall in margins, it may not be too acute.