Sesa’s Ore Output to Drop 10% as Orissa Contract Ends

Sesa Goa Ltd., India’s largest iron- ore exporter, faces a 10 percent output drop in the next fiscal year after ending a mining contract in the eastern state of Orissa because of terms it said were not viable.

The company will lose 2 million tons of production in the year starting March 31 as the agreement for the Thakurani mine lapsed yesterday, Managing Director P.K. Mukherjee said today in a telephone interview. Sesa is seeking other mines in the state to fill the gap, he said.

The production loss will be a setback for Sesa, which plans to more than double its capacity to 50 million tons by March 2013. The company, which also operates mines in southern Karnataka state and the western state of Goa, faced expansion delays following a ban on iron ore exports in Karnataka and hindrances in securing environmental clearances in Goa.

“The halt in Orissa output and a ban on ore exports from Karnataka may force the company to further revise the guidance for volume growth,” Niraj Shah, an analyst with a “sell” rating at Fortune Equity Brokers Ltd. in Mumbai, said today by phone. “I am expecting a negative growth in volumes in the current and next fiscal years. It’s unlikely the company will achieve its target to more than double output.”

Sesa Goa shares declined as much as 3.5 percent to 297 rupees and traded at 305 rupees as of 11:27 a.m. in Mumbai today. The benchmark Sensitive Index of the Bombay Stock Exchange rose 1.2 percent.

The company mined about 1.5 million tons from the Thakurani reserves as of yesterday, Mukherjee said.

The provincial government of Karnataka on July 26 banned exports of iron ore from the state, prompting miners to appeal to the court. An Indian court on Nov. 19 upheld the ban in the nation’s second-biggest iron ore producing state, according to trade body Federation of Indian Mineral Industries.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs in Sydney at ahobbs4@bloomberg.net

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