Sesa Goa expects SC to lift mining ban by June

Moneycontrol Bureau

Sesa Goa expects the Supreme Court to lift mining ban in Karnataka by June-July this year. The company's iron ore production declined 27% to 13.80 million tonnes (MT) in FY12 due to this mining ban. The SC had banned mining in Karnataka last year due to environmental concerns
Sesa Goa's management in an earnings call today indicated post the ban is lifted, the mining company will be able to boost sales volume by atleast 20%. "Once the ban is lifted, we will be able to produce not less than 6 metric tonnes per annum (MTPA) of iron ore. In Goa too, it will be almost at the same levels,"  managing director P K Mukherjee said while replying to a volley of questions from analysts.
Sesa's production in Goa had been hit by road congestion in the state's mining areas and an ongoing transporters' strike.
But, he said road congestion has eased after several mines extracting iron ore without legal approval have been asked to shut. He also expects the strike to end soon.
Mukherjee expects the Vedanta Group company's output from its mines in Goa to be around 15.0 million metric tons this financial year, compared with 12.7 million tons in 2011-12. Its total output in 2011-12 was 13.8 million tons, with the rest coming from Karnataka.

He also said that the Central Empowered Committee has proposed a penalty of Rs 5 crore to companies which have mining pit outside the lease area and Rs 1 crore for encroachments in the nature of dumps or roads in Bellary region. By that logic Sesa Goa will pay Rs 6 crore towards penalty.
The CEC was mandated by the Supreme Court to probe illegal mining in Karnataka which has submitted a report two months ago recommending cancellation of 49 mining licences in the state and capping of the state's annual iron ore production at about 30 million tonnes.
Mukherjee said Sesa  plans to spend Rs 600 crore on capital expenditure in FY13 which will be mostly used for expanding its mines in India.
The plan doesn't include what it could spend on developing iron-ore mines in Liberia, where it has acquired a majority stake in a mining company.
According to aero-magnetic surveys, the area that the Liberian company holds has 1.0 billion tons of reserves, Sesa said.
"We are undertaking a study of the region at the moment. The broad contours of the [Liberian] project will emerge in the next few months," Mukherjee said.
On Tuesday, Sesa reported a 21% fall in net profit to Rs 1162 crore for the March quarter. Its sales for the period also fell 23% to Rs 2794 crore, due to lower production
Below is an edited transcript of his interview to CNBC-TV18. Watch the accompanying video for more. Q: Can you clarify for us this finance gain of Rs 165 crore that you have reported this time around. How have you accounted for that? Has any forex loss been reversed?
A: This is because of the new regulations that have come as per the accounting standards and consequent to changes in the schedule fix which basically controls the format of the balance sheets. Rs 165 crore gain has been regrouped here, as per the accounting standard and a corresponding charge is there under other expenses. So if you see our expenses Rs 353 crore that includes this Rs 165 crore corresponding to the other side of the coin. This is not a gain as such, this is only a regrouping. Q: What the market like this time around was the good growth that you have seen in realisations at about USD 100 per tonne plus. What kind of trajectory are you hoping to see in terms of your realisations through the course of the next couple of quarters?
A: That will be determined by the market. We are having long-term contracts and spo contracts. Some of these long-term contracts still follow quarter lag prices for the quarter. That means a January to March quarter will follow the average of October to December quarter or so. Those long-term contracts in this particular quarter were higher priced than the spot price – so we will get a higher realisation plus it also depends on the grade mix of a particular quarter. Q: On the volume de-growth that you have seen this quarter around you did not meet your FY12 volume targets of about 20 million tonne or so. Because of the issues that are currently going on in Goa and Karnataka what kind of a target do you have set out for FY13?
A: Except for Karnataka which will depend on as and when we are allowed to start production, we expect around 15 million tonne to do from Goa. Q: Is this by the time FY13 wraps up that’s the target for Goa?
A: Yes. Q: Last week the Supreme Court had allowed mining to restart in certain categories of ‘A’ mines and we understand that perhaps some part of category ‘B’ mines are likely to go ahead as well. When do you think Sesa Goa can start mining operations?
A: All of us have seen the order. Reclamation and Rehabilitation (R&R) has to be done and has to be approved by the Central Empowered Committee (CEC) and then thereafter also Supreme Court’s order says that this has to be cleared by the Ministry of Environment and Forests (MoEF). So post that only then all productions can start whether category ‘A’ or category ‘B’. I do not want to take any guesses but everybody is talking about it starting in two-three months that means by June-July. Q: There is one fear that even if your category ‘B’ mines gets an approval there could be a production limit because of what the CEC has imposed. Do you see that coming through?
A: I cannot guess it. Yes, those are the facts that the CEC has recommended a cap limit and if that is ultimately imposed obviously our capacity also will be restricted. Q: This time around your margins were hit because of that huge surge in the export duty. What kind of recovery if at all do you hope to see through the course of the next couple of quarters? Where do you think Sesa Goa can maintain its margins at?
A: From the next couple of quarters, out of that Q2 is of inconsequence to us because of the monsoon we hardly do any sales at that time. During the monsoon our cost also goes up because of the many maintenance activities that go on. So out of the first quarter also we have effectively one-and-half month. These two quarters are not very significant quantity for Sesa’s total year. Going forward, the cost will remain stable and as far as the market price is concerned it is rangebound. I don’t foresee any significant change in the market price. Q: Don’t you see the margins going below this 35% level?
A: This margin is dependent on the grade mix, the pricing contract you are realising and the cost. As far as the cost is concerned, it will remain at the same level. Q: You have added about 68 million tonne of net reserves. Is this entirely in Goa or is this some part in Karnataka as well?
A: Primarily in Goa.