Shares of metal companies including Tata Steel, JSW Steel, SAIL and Hindalco gained in early trade on Thursday after the government eased norms with respect to coal mining.

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The Cabinet on Wednesday approved an ordinance to amend Mines and Mineral (Development and Regulation) Act 2015 (MMDR) and Coal Mines Act that will open up coal mining to firms other than those in the steel and power sectors, clearing the way for the first phase of commercial coal auctions within this financial year.

The Nifty Metal index rose almost 2 percent, with JSW Steel rallying 4 percent, Jindal Steel up 2.3 percent, Hindalco adding 1.95 percent while Tata Steel gaining 1.81 percent.

Analysts believe that this will limit iron ore supply disruption due to upcoming merchant mining leases expiry.

“This is incrementally positive for JSW Steel and negative for iron ore miners. Removal of end-use restriction for coal block auctions sets the stage for commercial coal block auctions,” Jefferies said in a note.

The amendments will allow domestic and foreign steel companies and local power companies to take part in the auctions to be held to reallocate the captive blocks cancelled by the Supreme Court in 2014.

Around 46 operational (total 334 mines) merchant mining leases including iron ore mines with aggregate production of 50-60 mn tons would expire on March 31, 2020.

The proposed amendment should smoothen the transition process somewhat and limit potential iron ore supply disruption, the brokerage added.

However, existing merchant mine leaseholders have seven months to remove existing mining infrastructure or equipment or to negotiate with the winning bidder. This could still delay the winning bidder from accessing mines and commencing production, Jefferies said.

The removal of the end-use sector restriction would set the stage for auction of coal blocks for commercial mining purpose. While commercial mining is viewed as a threat to Coal India, Jefferies believes the concerns are overdone as it sees limited fundamental impact over 3-5 years as supply ramp-up would be back-ended and incremental supply should bridge widening demand-supply gap and prevent imports from rising further.

First Published:Jan 9, 2020 10:15 AM IST