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Profits to dip as mining cake has shrunk: Vedanta official

Codli mine, which was Asia's biggest iron ore extraction site till 2012 before the state government suspended the leases, is getting ready for iron ore extraction, which can begin only when monsoon is over in the state.

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As Vedanta Ltd, formerly known as Sesa Sterlite, gets down to resuming mining operations in Goa after three years, the company's iron ore business CEO Kishore Kumar said the mining cake has shrunk.

"If you want to come into mining, each one of us has to believe that the cake has shrunk, and each one will have a lesser portion of the cake. The profit margins would be much lesser," Kumar told PTI before resumption in mining at its Codli mine site here.

Codli mine, which was Asia's biggest iron ore extraction site till 2012 before the state government suspended the leases, is getting ready for iron ore extraction, which can begin only when monsoon is over in the state.

Kumar said with the prevailing conditions, the market will all depend on quality, grade and prices of the ore.

"It's all about quality, grade and prices. Buyers will look at these three constantly... they will not be looking at only auctioned ore... there will be stiff competition for Goa which has lost out on market share. It will be a challenge for Goa to sell its ore to Chinese mills, which I presume is an uphill task," he said.

"We have represented to all the stakeholders that the entire price meltdown is a global phenomenon. Next 2-3 years, there will be surplus supply (of ore) in the market.

Due to this, you can expect softness in pricing," said Kumar whose company has managed to get nod for five of its mining leases.

"In this situation, what you can only manage is the cost.

So, our cost management whether in the taxation duty, or mining or logistics... every bit of element has gone through meltdown. You have an opportunity, and also you have a challenge too," he said. 

Kumar added that the mining is not expected to resume immediately.

"For the next month and a half, we have to ensure that the mine is getting ready. We will wait for the monsoon (to end) before we start," the CEO said.

The mine at Codli, which had an Environment Clearance limit of 7 million metric tonnes a year before operations came to standstill, now has a revised limit of 3.1 million metric tonnes.

Kumar said Vedanta at present possesses three million metric tonnes of ore, which is mined and yet to be exported.

"Today, we are sitting on three million tonnes of ore, which are already mined and kept on floor, which is government property. The process to auction it has already begun. In 6-9 months, most of the auctioned ore should start moving out," he said.

From the export perspective, the CEO said, the extraction of fresh ore will depend on economic conditions.

"The market prices (of ore) have gone down. So, mine with good scale and good cost structure can last," he noted.

He was categorical that entire mining in the state can start only if the government clears the ore which is e-auctioned and lying at various locations. "We are expecting the government to clear this ore in six months," he added.

Kumar said the company during its lean days offered voluntary retirement scheme, which was accepted by 400-500 employees.

"Sesa during its peak used to employ 10,000 people, almost half of them on contract. In total, we have 5,500 own employees. Some 400-500 have opted for VRS and we have also lost employees who look for prospects outside the state, he added. 

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