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Billionaire Agarwal Said to Cut Ore Project in Liberia

Sesa Sterlite Ltd. plans to cut an iron ore project in Liberia by 80 percent after approval delays halted infrastructure plans and a mining ban in India sapped cash flows, people familiar with the matter said.

Initial capacity at the Western Cluster mines may be slashed to 400,000 metric tons a year from 2 million tons, according to three people, who asked not to be identified pending an announcement. Sesa, India’s most valuable metals producer, based in the western state of Goa, had expected to ship its first consignment from Liberia last month and spend $2.4 billion to reach 30 million tons by 2017.

Billionaire Chairman Emeritus Anil Agarwal’s strategy to tap western Africa, dubbed “the new Pilbara,” referring to the Australian region where BHP Billiton Ltd. and Rio Tinto Group have mines, have been foiled by falling ore prices and a cash-crunch arising from Sesa’s mines lying idle for more than 18 months. In October 2012, India’s top court banned mining in Goa, where Sesa has almost all its mines, effectively shutting down India’s biggest exporter of the steelmaking material.

“This is a negative surprise,” said Abhisar Jain, an analyst at Mumbai-based Centrum Broking Pvt., who has a sell recommendation for the stock. “The management was quite gung-ho about the Liberia project, but it seems there still are significant challenges.”

Shares Fall

Sesa fell 0.3 percent to 190.10 rupees at close of trade in Mumbai. The stock has declined 5.9 percent this year, compared with a 5.6 percent gain in the benchmark S&P BSE Sensex. Parent Vedanta Resources rose 1 percent to 907 pence as of 11:42 a.m. in London.

Pavan Kaushik, a spokesman at Sesa, didn’t respond to an e-mail and two calls to his mobile phone seeking comment on the company’s Liberia plans.

Sesa’s mines in Liberia are located about 70 kilometers (44 miles) away from the port city of Monrovia, the nation’s capital. The company is awaiting approval from the Liberian government to build a road to the port.

“Sustaining 2 million tons of output in Liberia with limited infrastructure will be very difficult,” said Chirag Shah, an analyst at Barclays Plc in Mumbai. “The question is, does Sesa want to invest at the current rate of iron ore?”

Ore with 62 percent iron content arriving at China’s Tianjin Port declined 15 percent in the past year to $115.5 a ton. The price has slumped 35 percent since Sesa agreed to buy the mines for $90 million from Elenilto Minerals & Mining LLC in August 2011. In December 2012, it bought Elenilto Minerals’ remaining shares for $33.5 million.

ArcelorMittal, the world’s biggest steelmaker, runs Liberia’s largest iron ore operations. It plans to more than triple production capacity there to 15 million tons a year by 2015, according to a March 19 presentation on its website.

Series of Bans

A concerted effort by India to stop illegal mining and prevent environmental breaches by mining companies prompted the Supreme Court to order a series of bans in the last couple of years in the nation’s most productive states. Those sanctions, coupled with difficulties in acquiring land and a renewed threat from leftist Maoist rebels in India’s mineral-rich regions have led companies to look overseas.

“We plan to develop the Liberia project in a phased manner and are currently reviewing even the first phase of 2 million tons,” Mahendra Singh Mehta, then chief executive officer at parent Vedanta Resources Plc, said in an earnings call on Nov. 15. The company had planned to spend $230 million to $250 million to develop the initial capacity.

Revenue from Sesa’s iron ore business tumbled to 13.1 billion rupees ($218 million) in the year ended March 31, 2013 from 56.8 billion rupees the previous year.

Court Panel

A supreme court-appointed panel on March 26 recommended ending the ban in Goa, setting a production limit of 20 million tons annually, 40 percent less than the state produced in the year ended March 31, 2012, the last full financial year before the ban. The top court in December lifted a similar ban in Karnataka, paving the way for Sesa to open its only mine in the neighboring state after a gap of more than two years.

Should the court accept the panel’s suggestions on mining in Goa, it could lead to trimming of capacity at Sesa’s mines, which produced 13.3 million tons in the fiscal year before the ban, one of the people said.

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