All the news surrounding the mining ban in Karnataka has increased fears of a similar ban in Goa as well, affecting companies like Sesa Goa which operate in the area. “Because of the ban in Karnataka, we are seeing FY12 production target fall short by almost 4-5 million tonne,” said PK Mukherjee, managing director of Sesa Goa. The FY12 target now stands at 17-18 million tonne.
Another negative factor that may impact Sesa Goa’s margins is the possibility of an increase in the export duty of iron ore. “We have not factored in this possibility, but we do not see any issue in iron ore pricing,” said Mykherjee.
In regards to the e-auction process for mines in Karnataka, Mukherjee says that they are participating in the process, but they are getting lower realizations from that. “Currently, we have less that one million tonne as inventory in Karnataka,” he added.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: While you have clarified that the ban on the Pirna Mines may not be very material for Sesa Goa, it has aggravated fears that the mining ban could extend to Goa next after Karnataka. Do you think these fears are legitimate?
A: First of all this is not a ban. I do not know why this word ban is getting used. This Pirna issue has been reported two years back also, I do not know whether your channel has carried that subject. But Sesa got the Pirna MOU permission almost three years back. However, we still have not started the production there because it was a small area and we are still thinking about the business economy.
But now we have learnt that there are certain deficiencies in our application itself and so we have withdrawn our application on our own. So I do not know why Pirna Mine is becoming such a big issue at this stage.
Q: Is it not true that the commission has recommended a similar exercise as was conducted in Karnataka to be conducted on the Goa mines to figure out whether or not they have been the same discrepancies?
A: It has got nothing to do with the Pirna; Pirna is a separate issue altogether. But yes, Shah Commission is looking at various irregularities in Goa. They have come to the Goa and inspected various mines; teams are still checking various documents. I am sure we will keep up whatever cleaning of the operations or other things are required in Goa.
Q: How soon are you expecting to hear what the report’s findings are and does it include mines in which Sesa Goa has a presence?
A: Yes. When they are looking at the mines, it includes every mine. I believe Justice Shah or somebody from Shah Commission has stated that by the end of October they will submit the report to the Parliament.
Q: Originally you were targeting 21 million tons of sales in FY12. What do you think is a more realistic target now after all the developments of the last few months?
A: 21 million ton was the target including production from Karnataka. Out of the 6-7 million tonne target from Karnataka, we have done roughly about 2 million until July end. Assuming that Karnataka production will not come out until 31st of March, we will lose 4-5 million tonne totally.
Q: That’s the only impact do you see?
A: Yeah, at the moment I don’t see any other impact.
Q: There has also been the suggestion that the iron ore export duty be increased to about 30%. Is that something that Sesa Goa has factored in already or will that have to be taken into account?
A: No, we have not factored in any such duty increase. Actually what is left for duty increase now? Karnataka has gone, Orissa is struggling to put the material in the port and now only Goa is left. I do not know who is ultimately getting benefited with this export duty increase or export ban because even a company like NMDC is losing thousands of crore per year.
Q: Is this the toughest patch Sesa Goa has gone through in terms of such regulatory issues? And has the industry as a body sought any representation with the government?
A: Yes, we are representing to the government. This cleansing of the system was overdue, but in the process of cleansing everybody is being painted in the same colour and that is a very unfortunate situation.
Q: I believe you have an inventory of 2 million tons of iron ore in Karnataka. Are you participating in the recent e-auctions which might start off?
A: No. Sesa doesn’t have the inventory of 2 million tons. Sesa has an inventory of less than 1 million ton, roughly about 800,000 tonne. And there is no question of my participation in the auction as it is per Supreme Court direction. Our material has also been put up into the auction yesterday.
But, what is happening in the process of auction is that only the high grade material is being chosen. Sesa Goa is getting hurt because of this; even government is getting hurt because the total revenue will be ultimately less. In this process, I am getting lower realizations on the materials. So who is getting benefited is for everybody to see.
Q: You have seen the process of inspections in Karnataka and the subsequent ban. Going by those observations, do you think your mines in Goa and the way operations had been carried out are similar to the Karnataka experience, in which case the case for some kind of ban or clamp down exists in Goa in your facilities?
A: See in Karnataka the good and bad has not been distinguished. Honorable Supreme Court has said that they will not look things at micro level but at a macro level. Until the detailed process of Indian Council of Forest Research and Education (ICFRE) comes up with their report and the CEC completes the survey, the total production has been stopped. So if there is a macro level view taken because of some bad people, nothing is possible.
But I think in Goa the scenario is little different in the sense that Goa is much, much more dependent on mining number one and Goa is also having a long, long tradition of iron ore mining unlike Karnataka. So there are traditional miners in Goa who are doing the business for last 60 years and they are doing the business with keeping all the balances intact.
Q: In a situation where production is clamped down this much, what kind of pricing outlook would Sesa Goa have for the next year and how much elbow room do you have on that front?
A: No as far as pricing is concerned, I don’t think there is an issue. Actually because of India’s situation, the ore price is looking robust and Australian, Brazilian and South African players are getting benefitted. So they are happily going to their bank because of the India clamp down.
Q: If there is an observation similar to the one that was made in Karnataka with respect to mining irregularities, can you at all seek legal counsel? Will that be the final word if the committee says so or will you have to represent yourself in court and then litigation will take it the way it has to?
A: We are continuously representing in the court; Sesa is present with the senior counsel in each day of hearing. But unfortunately individual cases have not been looked into so far. It has been looked into at a macro level admittedly by the honorable Supreme Court because they still are waiting for the detailed recommendation and reports from ICFRE and the CEC.