'Sesa Goa is looking for mines close to the growth markets'

Q&A: P K Mukherjee, Managing Director, Sesa Goa

As the global economy picks up, the demand for steel and, in turn, its raw material, iron ore, is expected to see a surge. India’s largest iron ore exporter, Sesa Goa, has raised Rs 2,400 crore in the last quarter and has taken board approval to raise another Rs 3,600 crore, as it gets aggressive on both inorganic and organic growth plans. In a telephonic interview, Managing Director P K MUKHERJEE talks to Abhineet Kumar on these plans. Edited excerpts:

You are targeting 50 million tonnes per annum of production in the next two to three years. How do you plan to achieve this?
We ended last year with above 15 million tonnes of sales. Then, we acquired 4 million-plus tonnes of capacity from Dempo. So, we already have proven production capacity of about 20 million tonnes. We will develop our existing assets (mines) in Goa, Karnataka and Orissa which, along with some new projects and acquisitions, would help us achieve this target.

You raised about Rs 2,400 crore in the last quarter for acquisition purposes. There are several Brazilian assets available: Is that on your radar?
We are looking for mines close to the growth markets, which are China and India. It normally does not make economic sense to acquire far away from these markets. Currently, we have not finalised any location or asset for acquisition.

But, you are also looking at assets in Madagascar. Any success?
We looked for the opportunity there for some time, but the quantum of reserve and infrastructure conditions were not favourable. So, we are no more looking at it.

How is your expansion plan shaping up in Jharkhand?
According to the state government policy, no mining lease would be given unless there is a plant in the value-added segment. Besides, land acquisition is a big challenge. The process is on and it will take time.

Around 84 per cent of your volumes come from shipment to China. Most of your organic expansions are out of Goa, which means high cost of development. How well can you compete with Australian miners, who have lower cost, and Brazilian ores which have better grades?
Our ore is low-cost. The cost of greenfield (new project) development in those countries is anywhere between $80 to $100 per tonne. The cost of production, including the capital recovery, is $40-50 per tonne. The easy ones have been already developed globally. But, Indian mines have hardly been tapped, so we are still at an advantage.

Rupee appreciation would be a concern. How much have you hedged?
The rising rupee is definitely a concern. But we had our share of bad experience last year when the rupee depreciated sharply (the company had hedged for an appreciation, and lost). We have not hedged any amount so far in the current year.

You are trying to integrate vertically by getting into pig iron and steel. How fruitful would that be when iron ore mining yields better returns?
Definitely, the resource business is always profitable compared with manufacturing. Our expansion of pig iron capacity in Goa is for incremental earnings. In Goa, we had all the approvals and land available; moreover, growth of the foundry-grade pig iron market is in Southwest India, where our existing plant is situated and expanded capacity is coming up. In states like Jharkhand, it is the enabler to mining.