Sesa Goa stock has been drifting down as cloud of uncertainty continues to hover around its operations. On Monday, the Re 1 stock closed at Rs 180, down 2 per cent and some 14 lakh shares changed hands on the BSE and the NSE. The stock crashed 21.7 per cent in the last one-year period, despite favourable stock market conditions.
The Vedanta Resources Plc-controlled iron ore miner is facing a number of challenges.
During the Q3, it reported a 28 per cent drop in net profit; sales of iron ore from Karnataka were 0.03 million tonnes and in nine months period of FY13 it sold 0.1 mt through e-auctions of inventory. According to analysts, Sesa’s third quarter results were weak because of the continued ban on iron-ore mining in both Karnataka and Goa.
The situation in Karnataka appears to be close to a resolution (Supreme Court may take up the matter later this month). However, there is still no clarity on when the mining operations in Goa would restart.
“While Sesa has shared its capex and production targets with investors regarding its project in Liberia, we believe it is overly early to start getting positive on the project,” Nomura said. Its EBITDA loss of around Rs 100 crore was primarily due to fixed costs. According to management, the fixed cost for the iron ore business is Rs 25 crore in Goa and Rs 5 crore in Karnataka.
Fresh clearance
While Sesa’s mining capacity in Karnataka has been capped at 2.29 mtpa (from earlier capacity of around 3.5 mtpa), the Goa Government recommended capping the mining capacity at 45 mtpa (60 mtpa earlier).
However, as Sesa’s Karnataka mining lease expired in October last year, it has to seek fresh forest clearance before restarting mining. An approval from the Central Empowered Committee implied that most of the issues have already been resolved.
Uncertainties also dogged the pig iron and coke facilities. The new furnace was shut down due to shortage of iron ore. Nevertheless, the new coke oven batteries, whose environmental permits were suspended, recently got the permits to restart.
Liberia project
Sesa expects to start 4 mtpa iron ore production in Liberia by next year. Total capex in the next 18 months would be around $350-400 million or $80-90/t and operational expenses would be $30-35/t.
The Sesa-Sterlite merger proceedings proposed in last February are on. Overcoming the legal objection of a minority shareholder, Sesa expects it to complete by end of this month.
jayanta.mallick@thehindu.co.in