Valuations of companies in the mining sector are set to go up sharply with the government easing the rules for transfer of mining leases in the new Mineral Policy 2007. This also makes it lucrative for companies to transfer the lease by permitting them to charge a mining premium.
Instead of being scattered over various sections of the Mines and Mineral Development and Regulation Act (MMDR Act) 1957, the ministry of mines has decided to combine them in one chapter.
Foreign and domestic mega mining companies looking to develop big mining interests will now be able transfer the leases held by small domestic companies. This will drastically improve the feasibility of several mines where small companies hold the lease but are not able to exploit the ores because of capital constraints.
According to analysts, even after holding leases for as over 20 years, many companies have not been able to start operations due to lack of expertise and capital constraints.
?The ministry proposes to club the rules together so as to make lease transfer faster,? a government official told FE. However, the companies may still have to get some additional permits from the concerned state government for obtaining the transfer.
As a sweetener the government will also allow the companies transferring their mining lease to charge a premium. Currently, companies can only earn a premium on their prospecting lease, which is too small an incentive to transfer the mines.
There is already a big market for transfer of lease in mineral rich states like Orissa and Karnataka. It is estimated that 35% of total mines in production in Orissa are on transferred leases while the figure for Karnataka is 30%. The number of mines with transferred leases in Jharkhand and Chattisgarh it is estimated to be 20%.
The New Mining Policy 2007, based on the recommendations of the group of ministers headed by Shivraj Patil, targets an investment of $2 billion in the country?s mining sector. The policy is likely to come up for the consideration of the Cabinet shortly.