The stock of Sesa Goa, India’s largest iron ore exporter, touched a new high of Rs 471.10 per share on Wednesday.

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The company plans to expand its iron ore output to 50 million tonne per annum (mtpa) by FY14 from about 20 mtpa in FY2010. This would make Sesa Goa one of the largest iron ore producers globally.

However, achieving a target of 50 mtpa would require improving its reserves considerably.

“We believe that Sesa needs to augment its iron ore reserves by at least 300 million tonnes by FY14 when its output hits 50 mtpa, assuming a minimum 10-year mine life,” Abhijeet Naik and Alok Rawat of CLSA Asia-Pacific Markets wrote in a note to clients last month. The company is making extensive exploration efforts at existing mines to increase its reserves.

Sesa Goa may also consider some small acquisitions to improve its reserves.

Meanwhile, iron ore prices have increased, which is a positive for the company.

According to Bloomberg data, for the March quarter, average prices of Chinese iron ore fines increased 79% year on year to $136.27 per tonne from $76.13 per tonne. Moreover, robust demand and lack of major capacity additions over the next two years augur well for spot iron ore prices.

Going forward, analysts foresee a shift to quarterly contracts from the historical annual contract system. This means contract prices are likely to become more volatile, as they will fluctuate in line with the spot iron ore prices.

Vale and BHP Billiton have signed June 2010 iron ore contracts with Japanese steel makers at $110 per tonne, which reflects an increase of about 80% as against the FY10 annual contract prices. Analysts anticipate Sesa Goa’s average price realisations to increase by about 35% in FY2011. Sales volumes are expected to increase by about 25% in FY2011.

At the current market price, the stock trades at 8.5 times its estimated earnings for 2011. The stock has sharply outperformed broader markets in the last one year, increasing 367.5% as against an 80.5% increase in the BSE Sensex during the same period. The stock appears to be a good bet in the space, but near-term upsides look limited as the stock has already run up quite a bit. Investors could consider the stock on declines.