2012-13 was a year of unprecedented challenges for your Company. As I
had said earlier, in 2011-12, the Indian iron ore mining industry was
adversely affected by regulatory and environmental concerns. Debate on
illegal mining practices occupied centre stage with heightened activism
driving government action and judicial intervention leading to a
complete halt in mining. The business environment for the industry
deteriorated during 2012-13. Sesa''s Karnataka mining operations were
suspended due to ban on mining since 2011. In September / October
2012, the Goa mining operations came to a complete halt by an abrupt
imposition of ban on mineral extraction and transportation by the State
Government and subsequently by the Supreme Court. With both Karnataka
and Goa operations suspended, Sesa''s entire iron ore mining business
was at a standstill.
Sesa and its teams are working tirelessly to mitigate impact, to ensure
an early resolution of the impasse while continuing to respond
proactively to all agencies. Sesa enhanced its engagement with
stakeholders during the year to dispel myths and to reinforce and
reiterate its responsible mining practices. Notwithstanding these
challenges, Sesa made significant progress in its journey towards
becoming a diversified global resource champion.
Sesa increased its equity in WCL to 100%, acquiring the remaining 49%
in December 2012. This consolidates our presence in Liberia and
reaffirms our faith in the significant potential for the Western
Cluster Project. With a large resource potential and its proximity to
the port, it is one of the most exciting upcoming iron ore projects.
Both the people of Liberia and our team are looking forward to the
start of Phase I in the next financial year, which will be the first
step in building a global iron ore mining giant.
The merger of Sterlite Industries (India) Limited (and other associated
companies), announced last year through two schemes, has received
approval of the companies'' shareholders, Stock Exchanges in India,
Competition Commission of India, Foreign Investment Promotion Board and
Supreme Court of Mauritius. While the Goa Bench of the High Court of
Bombay has accorded its approval, the scheme awaits approval of the
High Court of Madras, where hearings are over and the order is awaited.
The Value Addition Business achieved a new landmark in August 2012 when
the new 450m3 blast furnace was commissioned, enhancing pig iron
production from 0.25 to 0.625 mtpa, making us the largest low
phosphorous pig iron facility in India. A 0.28 mtpa metallurgical coke
plant, a 0.8 mtpa sinter plant and a 30 MW power plant were also
commissioned as part of the project.
Despite adverse events, Sesa looks ahead to a hopeful early resolution
of challenges. We continue to further our systemic robustness and
strengthen our processes to handle future challenges. In 2012, Sesa
became the 1st Indian mining company to implement automation using RFID
technology, wherein RFID tags on trucks register movement across
operations in Goa and Karnataka and link truck information with forest
passes and Dept. of Mining & Geology permits (in Karnataka), providing
assurance and control. Sesa received the Supply Chain Technology
Advancement award at the 2nd Asia Manufacturing Supply Chain Summit for
Global GDP growth rate is estimated to be 3.2% in 2012 (3.9% in 2011).
China and India exhibited slower growth in 2012, than previous years,
of about 7.9% and 4.5% respectively. World crude steel production
reached a record 1,548 mt in 2012, up by 1.2%, driven by growth in Asia
and North America. World trade in iron ore increased in 2012 by 3.7% to
1.12 billion tonnes, despite decrease from India.
As indicated last year, albeit temporary glitches, the emerging market
super cycle theme remains unchanged. Despite emerging markets
exhibiting slower growth, and a decade of trying to catch up with
developed economies, with both China and India continuing in their
commodity-intensive urbanisation, the gap is expected to continue for
at least two more decades. Temporary slowdowns in growth and dips in
infrastructure investment will only extend the investment horizon. The
scale of urbanisation in China, urbanisation potential of India, and
potential of other developing countries, with significant populations,
makes the manifold increase in metal demand and absolute metal
Given this long-term robustness of demand, in the iron ore
demand-supply equation, the risk emanates on the supply side. Supply
forecasts continue to remain complex owing to disruptions due to
regulatory concerns as in India, weather as in Australian ports, cost
inflations, grade depletion and large uncertainty of project timelines.
Due to recent dip in iron ore prices and project cost blowouts, many
new projects either failed to meet original forecasts or continue to
remain on the drawing board. However, the big four iron ore players,
have enhanced, or are in the process of expanding, their production
levels in the light of favourable market conditions and, as per
forecasts, are expected to lead to a surplus market in the long term.
Faced with extraordinary challenges, volumes have significantly
declined during the year. Iron ore production and sales were 3.7 and
3.1 mt in 2012-13 compared to 13.8 and 16.0 mt in the previous year.
Gross sales revenue from iron ore decreased by 77%, from Rs. 7,516
crore in 2011-12 to Rs. 1,697 crore in 2012-13
Pig iron and met coke production increased by 24% and 29% to 307,775
and 331,000 tonnes respectively due to new capacities commissioned in
Q2 of FY2013. The pig iron business'' sales volume increased by 10%
from 250,571 tonnes in 2011-12 to 275,119 tonnes in 2012-13, while
sales revenue grew by 7% to Rs. 784 crore in 2012-13 from 730 crore in
2011-12. Sales volume of met coke increased by 20% to 301,889 tonnes in
2012-13 from 251,264 tonnes in 2011-12. Gross sales revenue remained
even at Rs. 558 crore in 2012-13 as against Rs. 551 crore in 2011-12.
Sesa''s net income from operations fell by 69% from Rs. 8,310 crore in
2011-12 to Rs. 2,554 crore in 2012-13. Operating cash profit (PBDT)
declined by 99% to Rs. 23 crore from Rs. 3,235 crore in 2011-12. PAT
(including associate income) decreased 15% from Rs. 2,696 crore in
2011-12 to Rs. 2,280 crore in 2012-13, and diluted earnings per share
were Rs. 26.24 in 2012-13.
Despite the tough climate, we begin 2013-14 with renewed hope and a
fresh outlook. The expansion projects in the value added business are
commissioned and we have acquired the balance equity in wcL. More
importantly, our drive for growth continues to be underscored by our
strong performance on resource addition.
True sustainable development in the mining industry is in the continued
discovery of new resources through scientific exploration and Sesa
continues to be at the forefront of investment into mineral
exploration. though mining operations were restricted for a significant
part of the year, consequent to which exploratory drilling too was
halted, the Exploration team added 59 mt of additional resources in
India during the year.
The Liberia Project progressed well during the year culminating in a
JORc-compliant resource estimate of over 966 mt. exploration is
expected to continue aggressively for years to come and the
indications, so far, point to a significant resource potential. The
Liberia project is a very exciting growth opportunity for Sesa and we
hope to commence mining at Liberia during FY2014 with the first
shipment by end of FY2014. The project will be expanded in a phased
manner in due course.
Sesa remains committed to sustainable development, which focuses on
maintaining a pre-eminent position in health, safety and environment
practices, and contributing to the development of communities where it
Health and safety are always a priority for Sesa, and we continue to
play a proactive role in providing employees a safe working environment
through responsibility, training, monitoring and implementing the best
safety practices across all locations.
In 2012-13, Sesa''s overall Lost Time Injury Frequency Rate (LTIFR)
reduced from 0.81 in 2011-12 to 0.54 per million manhours worked. I am
also happy to report that, during the year, the shipbuilding, met coke,
pig iron and energy divisions achieved a zero-accident record.
During the year, two unfortunate incidents of soot emissions, due to
misfiring by two high capacity burners, occurred during the
commissioning of the second battery of met coke expansion project. The
root cause of the soot emissions was immediately addressed and
corrective actions were taken in earnest. the unit''s activities were
suspended for about 2 months as a result of this incident.
Sesa has an integrated approach to the management of health, safety and
environment systems in all its units, which are certified for ISO
9001:2008, ISO 14001: 2004 and OHSAS 18001:2007. Sesa has been
certified for SA 8000 for all its units on a standalone basis.
Our community development work, through the Sesa community Development
Foundation, Mineral Foundation of Goa and other specific need-based
initiatives, continues to focus on social projects in line with our
overall sustainability objectives. Further details, on health, safety
and environment and corporate social responsibility, are outlined in
the ensuing relevant chapters.
The longer-term business environment of the iron ore market remains
stable with a gradual move towards equilibrium. Notwithstanding
multiple cost and regulatory pressures, Sesa''s strategic positioning
as a low-cost producer, coupled with accessibility to ports and strong
customer relations, remains key to mitigating downside risks and
exploiting opportunities. On the cost front, royalty rates, railway and
road freight and export duties are expected to continue to put pressure
on the company, while volumes would continue to be challenged by
regulatory actions and hurdles in logistics. We remain confident that
the industry will emerge stronger out of the current turmoil with a
strict, robust and stable regulatory environment and we continue to
remain optimistic of overcoming the current and any future obstacles.
The following will continue to be our strategic thrust areas for the
- To be alert and ensure a state of readiness to restart efficient
operations in Karnataka and Goa, whenever we are permitted to resume
- To identify opportunities to leverage and introduce technology to
improve our performance, be it in operations, people management,
knowledge management or CSR
- To better our safety record and performance and achieve / maintain
standards of zero-accidents in all operations
- To strengthen proactive stakeholder relations
In 2009-10, Sesa was subjected to an investigation by the Serious Fraud
Investigation Office (SFIO) of the Ministry of Corporate Affairs. In
2011, Sesa received a copy of the SFIO report, wherein certain
allegations were made relating to violations under the Indian Companies
Act, during 2001 to 2008. The report had recommended, inter alia, that
action be taken against the directors of Sesa Goa Limited during the
aforementioned period. Sesa filed representations to all concerned
explaining in detail its position on the allegations and denying the
allegations made in the SFIO report. Subsequently, the Union of India
through the Ministry of Corporate Affairs filed three cases against
Sesa Goa Limited, its erstwhile subsidiary, Sesa Industries Limited,
and some of their officials. The Company is defending itself and its
directors / officials against these cases. However, the Ministry has
dropped all allegations of under / over invoicing of iron ore / coal
and excess payment of commission.
I would like to take this opportunity to thank all our employees, my
colleagues on the executive team of Sesa, the Group Management and the
Board of Directors for their unwavering support. I thank our
shareholders for reposing faith in our business in increasingly adverse
times. Let me reassure our shareholders that we will not get bogged
down by the tough environment that surrounds us today, that we are
geared up to face challenges as they arise and, through our tireless
collective efforts, we will continue to propel our Company forward on
its path of growth.
P K Mukherjee