India mining stocks hit by profit-sharing draft bill

Shares of Coal India and other mining firms tumbled on Friday after a ministerial panel approved a draft bill which would force miners to share profits with displaced local communities.

If enacted the Mines and Mineral Development and Regulation would make it obligatory for coal miners to share 26

percent of their profits with locals affected by coal projects.

The bill is a bid by the Congress-led government to ease opposition to land acquisition for mining projects from locals in mineral-rich tribal districts that are beset by chronic poverty which often fuels support for Maoist rebels.

Opposition to land acquisition has stalled several big-ticket projects including a $12 billion steel venture by South Korea's Posco in eastern India.

Companies mining other resources such as iron, bauxite and copper will be required to pay an amount equal to the royalty tax they give state government to the original inhabitants of the mining site.

Typically, royalty taxes represent 10 percent of the mineral price.

"It is a progressive decision with an aim to provide additional resources to hasten development in forest and tribal rich mineral districts," Environment Minister Jairam Ramesh was quoted as saying by the Hindustan Times newspaper.

The bill, which received the cabinet panel's approval late Thursday, now must go to the full cabinet. The legislation would then be tabled for passage in the next session of the Indian parliament.

State-run Coal India, the world's biggest coal producer which listed on the Indian stock market last November, tumbled by over eight percent percent to 362 rupees.

Iron ore miner Sesa Goa dropped 4.2 percent to 281.85 rupees while NMDC Ltd., India's largest iron ore miner, fell by 2.6 percent to 258 rupees.

The total burden on mining companies from profit and royalty payments was estimated by the government at around 110 billion rupees ($2.5 billion) a year.

The Confederation of Indian Industry has said the legislation goes against international norms under which people affected by mining projects are given "upfront compensation."

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