Sesa Goa’s Production Hit By Mining Ban

Sesa Goa, one of India's largest private iron ore mining companies, has released its production numbers for the March quarter. The iron ore production has fallen down by 11 per cent on a YoY basis to 4.9 million tonnes while the sales volumes has fallen significantly by 21 per cent on a YoY basis to 5.2 million tonnes as compared to 6.6 million tonnes in the same period last year.  The primary reason for the fall in sales and production has been the ban on mining in Karnataka and the transport and logistics’ bottlenecks in Goa. Karnataka has been facing a mining ban since August 2011 and the miners and steel companies are waiting for some urgent relief since this has hampered their production.

For the fiscal year the sales and production have fallen down by 12 per cent and 27 per cent on a YoY basis respectively. The lower production has resulted in a decline in the topline of the company for the March quarter and for the fiscal year 2012. Sesa Goa’s major revenues come from its exports to China but with the increased duty on exports from 20 to 30 per cent effective from January 2012, the margins have taken a beating. The iron ore mining ban in Karnataka has curtailed the producton of iron ore and fresh concerns have loomed up due to the Shah Commission’s report submitted on March 15 as regards illegal mining in Goa. Sesa Goa has a major mining operation in Goa that contributed up to 80 per cent to its total production in FY11.

The Shah Commission, which has also studied the situation in Odisha and Jharkhand, has blamed Goa’s government for its failure to prevent illegal mining and the rampant export of iron ore abroad. “The mining activities carried out in Goa are beyond the permissible limits, thereby leading to environmental degradation,” it states. All this has to further uncertainty for the iron ore mining and steel companies in India. Companies highly impacted are Sesa Goa, JSW Steel, etc. A hearing on the issue of opening a few mines in Karnataka is scheduled for April 13 and one expects the Supreme Court to announce some relief as the steel companies in the concerned regions are going through a production crisis.