The last year hasn’t been easy for Sesa Goa investors, a fact its management has acknowledged on many occasions. In this period, the company has been hit by an export tax, mining ban in Karnataka and logistics issues in Goa. All these put together have hurt production and sales volumes.
Sesa Goa’s iron ore production has fallen 11 per cent in Q4, and output for the full year is down 27 per cent y-o-y. Sales volumes for the fourth quarter and entire FY12 have come in even below the pruned estimates of most analysts. The company claims the reason behind the drop in sales volume is the continued mining ban in Karnataka and logistics issues in Goa.
So what’s in store for FY13? As far as the mining ban is concerned in Karnataka, Barclays Capital says although Sesa’s mines have a fair chance of restarting, considering the Central Empowered Committee found only minor irregularities, a delay in reopening would pose a risk to the three-million-tonne volume contribution from Karnataka mines in FY13. A bigger overhang is the outcome of an investigation into mining activities in Goa and the proposed implementation of a draft mining bill in Goa.
Analysts claim Sesa Goa is targeting shipments of nearly 20 million tonnes (mt) from Karnataka and Goa. Kotak Institutional Equities says: “This is contingent on reduction of transport and logistical bottlenecks and no incremental damage from the Shah commission report on illegal mining in Goa and approval to resume mining in Karnataka. Sesa currently has environment clearance to mine 14.5 mt per annum in Goa and 6 mt per annum in Karnataka. As far as Karnataka is concerned, the Supreme Court hearing on grant of relief to mines has been pushed back to April 2013, while in Goa, the Shah commission report has been submitted to the Union ministry in mid-March, having found several cases of illegal mining, and is expected to be tabled in the Parliament within six months.” The near-term outlook on production seems cloudy for the company.
