Sesa Goa reserves rise, but rules fog future

Beleaguered iron ore exporter Sesa Goa added around 68 million tonne (mt) to its iron ore reserves last fiscal, taking the total to 374 mt.

Most of the reserves added are in the Goa mining region, the company said during a conference call after announcement of annual results on Wednesday.

However, analysts do not see any significant impact of the additional reserves on the company’s sales numbers for the current fiscal, mainly because of a raft of time-consuming approvals the company needs to secure before it can develop the mines.

“Sales are likely to be more or less flat this financial year as Karnataka will still be an overhang,” said an analyst with a leading domestic brokerage, seeking anonymity.

Sesa Goa posted sales of 5.2 mt of iron ore in the quarter ended March compared with 6.6 mt (6.4 mt excluding Orissa) in the corresponding quarter last year.

The company attributed the drop mainly to the mining ban in Karnataka, and transport and logistics bottlenecks in Goa.
For the full year, sales were 16 mt, compared with 18.1 mt (16.4 mt excluding Orissa) last year.

PK Mukherjee, managing director, iron ore business, Sesa Goa, said the company can ramp up production from Karnataka to 6 mt once the ban is lifted, though analysts doubt the claim.

The company expects the ban on category B mines to be removed by June-July.

However, said Mukherjee, the ramp-up will take time and regulatory bottlenecks will keep the volumes down at almost 2 mt.
“While the yearly production capacity of these mines is 6 mt, there is a cap on the volume of iron ore that could be produced in Karnataka at 5 mt by the Supreme Court,” said an expert with an international brokerage, who did not wish to be named.

With so many variables impacting the stock, investors should avoid it altogether or treat it as value investment over the long-term, he said.

For the year ended March, Sesa Goa reported a drop of almost 50% at Rs2,108 crore as net sales fell 10% to Rs8,275 crore.
Production for the full year was 13.8 mt compared with 18.8 mt (17.4 mt excluding Orissa) the previous year. Volumes were lower primarily due to the Karnataka mining ban and the discontinuation of Orissa operations.