Sarda bets on iron ore mine if it can't win back coal block

Nagpur-based Sarda Energy & Minerals declared a robust set of financials with revenue rising 25 percent to Rs 3,851 crore while operational profit jumped from Rs 106 crore to Rs 760 crore. (The company posted a net loss due to an exceptional expense of Rs 1075 crore, arising out of the penalty levied by the Supreme Court on firms that were allocated coal blocks that were recently cancelled by it.)In an interview with CNBC-TV18’s Reema Tendulkar and Ekta Batra, director GD Mundra said the company would take all efforts to win back the Gare Palma IV/7 coal block in Chattisgarh that got de-allocated by the Supreme Court, when it is put up for auction by the government.“We already have end-use plant and employment is generated there, financial commitment is made and we are waiting for retail guidelines to come out,” he said.Mundra, however, said that in case the company fails to win back the coal block, it should be able to make up for the loss through renewed activity in its iron-ore mining operations.“We have started an iron ore mine, which was closed for almost five-and-a-half year and the benefit of that will start coming from Q3 onwards,” he said.Below is the transcript of the interview on CNBC-TV18.Reema: There is no taking away that operationally the numbers are strong: revenue grew 27 percent, margins have risen to 25 percent, profit got hit on the back of one time exceptional loss of the penalty that you had to make but let’s talk at the operational level. Is this 25 percent operating margin sustainable going ahead?A: I think major challenge is to win back our coal mine because that is contributing to our operational performance but you will also appreciate that we have started an iron ore mine, which was closed for almost five-and-a-half year and the benefit of that will start coming from Q3 onwards. So we are trying to compensate whatever loss in case we lose the mines and do not get in case of bidding then we compensate with our iron more performance. So now iron ore normalcy has started and as we increase the iron more mining optimisation and increase the productivity, I think to that extent we will be compensated for our operational performance.Ekta: I wanted to talk about the re-auctioning process: can you give our viewers an idea of which are the coal blocks in question for Sarda at this point in time and what has the company possibly internally strategised at this point to alleviate itself from the upcoming stress?A: We had an operational mine that is Gare Palma IV/7 and one was closed where we had the joint venture – that has not started up that is Madanpur South. In the first phase [of the auction], the government is coming out 74 blocks out of which 42 are running while 32 are ready to start production.

We are trying and working hard [to see] if we are able to win back our own mine. We already have end-use plant and employment is generated there, financial commitment is made and we are waiting for retail guidelines to come out because there is no clarity about the floor price or reserved price because the government would like to have the entire payment upfront and each tonne we produce, they will have some levy or some additional royalty. Once that is out, we will just work out what way we have to bid for it and to what extent we have to do the bidding.Reema: You said that you are hoping that the iron ore business can offset the hit on your books. In case the company does not win back its blocks, can you tell us in Q3 as well as in Q4 what can be the contribution of iron ore business as well as in FY16?A: We have started our iron ore mines in the month of July, August and it was monsoon period, so we could not start normal activities. However, from November onwards, we will start normal activity and we hope that soon we stabilise or optimise our operations and within one or two months we will be able to work out how fast we can optimise the iron ore operations.Reema: Any number because from what it appears in Q3 your iron more mines will kick start but they could stabilise only in Q4, any numbers for Q4 as well as the next year?A: One thing to appreciate is that the coal mine will be with us till Q4 because the Supreme Court has given six months time. So, we can expect the operational performance till Q4 to remain more or less the same, and next year if we do not win back our coal mine, we should be in a position to compensate the iron ore operation with coal mine operation.Ekta: Have you figure out internally within the company how much are you ready to possibly put into the re-auctioning process, what is your upper limit in terms of the amount and do you think that you are going to face competition from other companies or any other players, which are around your coal block in particular and hence maybe the bidding process could see higher prices?A: We will appreciate because our 74 iron mines are already linked to end-use product and there are lot of [companies with] plants waiting for coal linkage or fuel linkage, that will certainly like to bid for it. So there will be more bidders than the total mines available.But looking at the overall scenario, since 1993, only 42 were made operational and government is coming out with efforts to make the entire 204 mines operational before putting them up for bidding -- so anybody who is bidding can start the mines from the next day.If 204 mines are coming for bidding in next two-three years and that much amount of coal is available, we will have sufficient coal available. The country has coal reserves of 300 billion metric tonnes while we mine only half a billion. So total reserves are available for 600 years. Ekta: What is your balance sheet look like, for example what would be your debt on books be at this point in time?A: We had consolidated as on March 31, 2014 about 1,100 crore and this year we will be repaying almost Rs 250 crore, so that will come down by the year end to about Rs 900 crore.

Nagpur-based Sarda Energy & Minerals declared a robust set of financials with revenue rising 25 percent to Rs 3,851 crore while operational profit jumped from Rs 106 crore to Rs 760 crore. (The company posted a net loss due to an exceptional expense of Rs 1075 crore, arising out of the penalty levied by the Supreme Court on firms that were allocated coal blocks that were recently cancelled by it.)In an interview with CNBC-TV18’s Reema Tendulkar and Ekta Batra, director GD Mundra said the company would take all efforts to win back the Gare Palma IV/7 coal block in Chattisgarh that got de-allocated by the Supreme Court when it is put up for auction by the government.“We already have end-use plant and employment is generated there, financial commitment is made and we are waiting for retail guidelines to come out,” he said.Mundra, however, said that in case the company fails to win back the coal block, it should be able to make up for the loss through renewed activity in its iron-ore mining operations.“We have started an iron ore mine, which was closed for almost five-and-a-half year and the benefit of that will start coming from Q3 onwards,” he said.Below is the transcript of the interview on CNBC-TV18.Reema: There is no taking away that operationally the numbers are strong: revenue grew 27 percent, margins have risen to 25 percent, profit got hit on the back of one time exceptional loss of the penalty that you had to make but let’s talk at the operational level. Is this 25 percent operating margin sustainable going ahead?A: I think major challenge is to win back our coal mine because that is contributing to our operational performance but you will also appreciate that we have started an iron ore mine, which was closed for almost five-and-a-half year and the benefit of that will start coming from Q3 onwards. So we are trying to compensate whatever loss in case we lose the mines and do not get in case of bidding then we compensate with our iron more performance. So now iron ore normalcy has started and as we increase the iron more mining optimisation and increase the productivity, I think to that extent we will be compensated for our operational performance.Ekta: I wanted to talk about the re-auctioning process: can you give our viewers an idea of which are the coal blocks in question for Sarda at this point in time and what has the company possibly internally strategised at this point to alleviate itself from the upcoming stress?A: We had an operational mine that is Gare Palma IV/7 and one was closed where we had the joint venture – that has not started up that is Madanpur South. In the first phase [of the auction], the government is coming out 74 blocks out of which 42 are running while 32 are ready to start production. We are trying and working hard [to see] if we are able to win back our own mine. We already have end-use plant and employment is generated there, financial commitment is made and we are waiting for retail guidelines to come out because there is no clarity about the floor price or reserved price because the government would like to have the entire payment upfront and each tonne we produce, they will have some levy or some additional royalty. Once that is out, we will just work out what way we have to bid for it and to what extent we have to do the bidding.Reema: You said that you are hoping that the iron ore business can offset the hit on your books. In case the company does not win back its blocks, can you tell us in Q3 as well as in Q4 what can be the contribution of iron ore business as well as in FY16?A: We have started our iron ore mines in the month of July, August and it was monsoon period, so we could not start normal activities. However, from November onwards, we will start normal activity and we hope that soon we stabilise or optimise our operations and within one or two months we will be able to work out how fast we can optimise the iron ore operations.Reema: Any number because from what it appears in Q3 your iron more mines will kick start but they could stabilise only in Q4, any numbers for Q4 as well as the next year?A: One thing to appreciate is that the coal mine will be with us till Q4 because the Supreme Court has given six months time. So, we can expect the operational performance till Q4 to remain more or less the same, and next year if we do not win back our coal mine, we should be in a position to compensate the iron ore operation with coal mine operation.Ekta: Have you figure out internally within the company how much are you ready to possibly put into the re-auctioning process, what is your upper limit in terms of the amount and do you think that you are going to face competition from other companies or any other players, which are around your coal block in particular and hence maybe the bidding process could see higher prices?A: We will appreciate because our 74 iron mines are already linked to end-use product and there are lot of [companies with] plants waiting for coal linkage or fuel linkage, that will certainly like to bid for it. So there will be more bidders than the total mines available.But looking at the overall scenario, since 1993, only 42 were made operational and government is coming out with efforts to make the entire 204 mines operational before putting them up for bidding -- so anybody who is bidding can start the mines from the next day. If 204 mines are coming for bidding in next two-three years and that much amount of coal is available, we will have sufficient coal available. The country has coal reserves of 300 billion metric tonnes while we mine only half a billion. So total reserves are available for 600 years. Ekta: What is your balance sheet look like, for example what would be your debt on books be at this point in time?A: We had consolidated as on March 31, 2014 about 1,100 crore and this year we will be repaying almost Rs 250 crore, so that will come down by the year end to about Rs 900 crore.