Sesa Goa: Mining for better prospects

For Sesa Goa, once the jewel in the crown of the Vedanta Group, the task of regaining its lost glory is all uphill. The recent blanket ban on iron ore mining in Goa poses a severe challenge even as the company tackles a similar situation in Karnataka.

In September, the Goa government suspended mining at all 91 mines which have leases in the State, till further orders. However, it allowed trading in iron ore that was already mined. Subsequently, the Supreme Court ordered companies not to sell their inventory till further instructions. Sesa currently has an inventory of about two million tonnes (mt) in Goa.

However, all is not bleak, with analysts saying the ban in Goa may not prolong like the ban in Karnataka, since the levy collected from mining companies accounts for a major chunk of the Goa government’s revenue.

Sesa generates much of its revenue from the State. For instance, of Sesa’s total iron ore production of 2.9 mt in the June quarter, Goa accounted for 97 per cent.

Even before the mining ban was imposed, the company faced huge local resistance against the expansion of its metallurgical coke capacity at Bicholim in Goa. Sesa Goa operates iron ore mines at Codli in South Goa and has pig iron and metallurgical coke plants at Amona in Bicholim taluka in North Goa.

Other challenges

The company has been fighting other challenges too. The local District Collector banned the movement of iron ore from mines to curtail mishaps during the monsoon. The industry protested and filed a writ petition in the High Court.

On considering the representation made by various stakeholders, the District Collector allowed transportation of iron ore, though with several restrictions. Though the ban on iron ore transportation has been lifted, there are various clauses in the order which have created a lot of ambiguity. “We are in dialogue with the officials concerned to seek clarity,” P.K. Mukherjee, Managing Director, Sesa Goa, had told Business Line .

The company is also in the process of investing Rs 150-200 crore in Goa for laying separate roads for transporting iron ore from the mines to the nearest sea port, he said.

In July 2010, Sesa was hit by the Karnataka government’s ban on iron ore export. The Supreme Court later banned mining in the State completely, following a petition filed by various environmentalists. Sesa has the capacity to process six million tonnes of iron ore in the Chitradurga district of Karnataka. It was one of the largest exporters of iron ore, before the export ban was imposed.

Despite the setbacks in Karnataka, the company managed to retain its pivotal position within the group due to a cash pile of Rs 10,682 crore on its books in FY’11. Net profit jumped 60 per cent to Rs 4,222 crore in FY’11, even as production dipped 11 per cent to 19 million tonnes. However, the prolonged ban in Karnataka took a heavy toll on the company the following fiscal, with net profits plunging in FY12.

Acquisitions

Despite being involved in one skirmish after another in its core business, the company has set out on an aggressive acquisition spree.

Acting in tandem with its parent, Vedanta Resources Plc, Sesa acquired a 10.4 per cent stake in Cairn India from Petronas International Corporation for Rs 6,620 crore in April last year. It paid another Rs 5,504 crore to buy an 8.1 per cent stake through the open offer the same month. In December, it acquired another 1.5 per cent stake for Rs 146 crore from Cairn UK Holding, taking its total stake in Cairn to 20 per cent.

Sesa bought over Bellary Steel and Alloys for Rs 220 crore in a competitive bidding process conducted by the Industrial Financial Corporation of India (IFCI) in March, 2011. This acquisition was not free of controversy either. IFCI had taken over the Bellary Steel assets after the company defaulted on its loan.

At the auction, competitor JSW Steel was reportedly the top bidder in December 2010. The following month, this was contested by Sesa in the Delhi High Court on the ground that the JSW offer was accepted after the deadline. The High Court allowed Sesa to re-bid and it emerged the winner in March. Unhappy with the entire process, JSW Steel secured a ‘status quo’ order from the Supreme Court. Now the plant is in Sesa’s hands, but it cannot start work because of the apex court order.

The acquisition spree continued overseas too. Sesa Goa acquired a major stake in Western Cluster, a Liberian iron ore mining company, in an all-cash Rs 400-crore deal. Iron ore reserves at the Western Cluster are estimated at over a billion tonnes.

Anil Agarwal, Chairman of Vedanta Group, however brushes off these concerns. “In a democratic set-up, these sort of hurdles are common. In the olden days, we had only public sector companies developing mineral resources of the country,” he had told Business Line , on an earlier occasion. “If India has to leapfrog in this global arena, we need active private partnership. We are not in a hurry to get things done,” he added.

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