The Finance Ministry's decision to hike the export duty on iron ore from 20 per cent to 30 per cent within the space of a year spells bad news for iron ore miner Sesa Goa whose profit margins could take a further knock.
The shares, which slipped in Monday's trade, rose by 4.3 per cent on Tuesday.
Sesa Goa exports medium-grade iron ore from its Goa mines to China . The company hawks low grade ore compared with international players and as such does not command pricing power. Its ability to pass through the higher levy (to end consumers) therefore remains doubtful. The 30 per cent export duty would translate to further margin pressures for the company.
The iron ore producer paid Rs 660 crore in export duties on Rs 8,586 crore of iron ore exports in FY11. During this period, export duties on iron ore fines averaged five per cent.
Paying out 30 per cent export duty could cripple Sesa Goa's domestic operations, which are struggling to raise output. Over the past year, the company has faced setbacks in the form of a ban on exports from its Karnataka mines and closure of Odisha mines.
Both the closures have hit volumes, which slipped by nearly 14 per cent to 5.8 million tonnes during the first half of FY12.
The new mining Bill may require Sesa Goa to pay a charge equivalent to royalty, which currently stands at 10 per cent of the final price.