Sesa Taps African Ore on Output Drop: Corporate India

Reserves at Liberian mines owned by billionaire Anil Agarwal’s Sesa Goa Ltd. may be triple the original estimate, improving prospects for India’s biggest iron ore exporter struggling to boost output at home.

Mines at Western Cluster Ltd., 51 percent owned by Sesa, a unit of Vedanta Resources Plc, may have as much as 3 billion metric tons of the magnetite variety, up from an estimated 1 billion tons, Managing Director Prasun Kumar Mukherjee said in an interview. The company, India’s biggest iron-ore exporter, has 374 million tons of reserves at home. Output fell last quarter because of a mining ban in Karnataka state.

Sesa plans to spend as much as 4.5 billion rupees ($81 million) to tap the mine in the West African nation this year after failing to double output in India. The Liberian mine may help the company, established in 1954 as Scambi Economici S.A. Goa, meet demand from steelmakers in India, where consumption of the alloy is forecast by the government to rise an average 9 percent annually till 2017, as well as Europe and China.

“The Liberian reserve can prove to be a big boost for the company’s earnings,” said Giriraj Daga, an analyst at Nirmal Bang Securities Ltd. in Mumbai, who recommends buying the stock. “At current reserve and resource estimates, we assume the output can be about 25 million tons a year or double the India production.”

Sesa Goa rose 2.6 percent to 182.95 rupees in Mumbai, its biggest gain in more than a week. The shares have gained 12 percent this year, compared with a 10 percent drop in the Bloomberg World Mining Index.

The company forecasts shipments from Liberia to start by March 2014, Mukherjee said on July 25.

Increase Stake

Sesa has applied to buy the shares it doesn’t own in the Liberian mine from Elenilto Minerals & Mining LLC, according to a statement on the website of the African nation’s Ministry of Information, Cultural Affairs and Tourism. Sesa spokesman R. Krishnagopal declined to comment about the company’s plan to increase stake in the venture.

With an iron content of 35 percent, the ore in Liberia will help Sesa produce 1 billion tons of iron ore concentrate, Mukherjee said. The company spent $90 million in acquiring stake in the mine in 2011, joining ArcelorMittal, OAO Severstal and Chevron Corp. in investing to develop mining, rubber and oil industries.

The African nation, which has been rebuilding its economy after civil wars between 1989 and 2003, has attracted more than $16 billion in investments since Nobel laureate Ellen Johnson-Sirleaf became president in 2005.

Regulatory Hurdles

The mine in Liberia “has huge reserves but the company may face regulatory hurdles in the country,” said Ashish Karana, a broker at K. Motiram Vakil in Mumbai. “We can’t say with certainty that Sesa won’t face a situation” similar to what Jindal Steel & Power Ltd. is facing in Bolivia, he said.

Jindal Steel on June 17 said it terminated a contract to build the $2.1 billion El Mutun mine in Bolivia. Authorities in the Latin American country also arrested two Jindal Steel employees, the company said.

Tata Steel Ltd. and Steel Authority of India Ltd. have also failed to develop projects overseas. Tata Steel’s proposed $5 billion factory in Vietnam has been delayed for more than five years by regulatory hurdles.

Falling prices of the ore may also discourage mining. Iron ore for immediate delivery declined for the 12th consecutive day yesterday to the lowest since Oct. 28.

Chinese Demand

The price of ore with 62 percent iron content delivered to the Chinese port of Tianjin slipped 1.1 percent to $117.30 a ton, according to data compiled by the Steel Index Ltd. The price has fallen to its lowest level in more than eight months on concern that demand in China, the world’s biggest buyer, is declining and Europe’s worsening debt crisis will curb global growth.

Profit at Sesa, which is in the process of combining with Agarwal’s Sterlite Industries Ltd., fell 76 percent to 2 billion rupees after excluding gains from its investment in Vedanta’s Cairn India Ltd. unit.

Output at Sesa’s mines tumbled 23 percent to 3.4 million tons last quarter because of transport restrictions in Goa state, where the company is based, and a mining ban in the southern state of Karnataka. Sesa, which had planned to raise capacity to 50 million tons by March 31, saw its ability to excavate drop 18 percent to 16.8 million tons following a Supreme Court order.

Environmental Norms

Trouble began in July 2010 after Karnataka , which produces 20 percent of the nation’s iron ore, halted exports to clamp down on illegal mining and tax evasions in the state. India’s top court banned mining in parts of the state a year later, pending probes into breaches of environmental norms.

Steelmakers are cutting output because of the lack of availability of the ore. Demand from steelmakers without their own iron-ore mines may increase 24 percent to 136 million tons this fiscal year, according to India’s steel ministry.

Sesa and Elenilto Minerals last year pledged to jointly invest more than $2.6 billion in the Liberian mine, with Sesa bringing in about $2.5 billion, according to a statement sent by Elenilto on Aug. 9. The project that may create more than 2,000 jobs over 25 years, also includes developing rail network to transport the ore.

“Liberia drilling is in full swing and there are positive signs about reserve and resource,” Mukherjee said.

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