With a 21 per cent volume drop in the third quarter, Sesa Goa still managed to post a 29 per cent rise in profits due to high iron ore prices. P K Mukherjee, Managing Director, in an interview with Shubhashish, said that despite the company completely exiting the Orissa mining space and an export ban in Karnataka continuing, it would manage to end the year with flat volumes. Edited excerpts:
Where do you see iron ore prices stabilising from here?
Steel prices are very high and iron ore prices are moving in line with it. Coal, too, is astronomically high due to the demand and the flood situation in Australia. Overall, the commodity prices are very high and iron ore prices are moving in line with them. If you see, freight on board (FOB) prices of iron ore (63 FE) are $170 per tonne, much more than the $155 per tonne of 2008. However, since we have 58 FE grade iron ore, our prices are up to $130 per tonne FOB.
The volumes have taken a severe hit in the quarter due to Orissa and Karnataka issues.
Yes, in Karnataka, the volumes were down 26 per cent quarter-on-quarter, at 700,000 tonnes versus 930,000 lakh tonnes in the same quarter last year. We are trying to sell more domestically, but that is taking place at the cost of margins. In Goa, there is a volume drop of 18 per cent q-o-q, at 4.25 million tonnes as against 5.2 million tonnes. Orissa has seen the maximum drop as we have discontinued our operations there, at 32 per cent. Overall, if you see the volume drop is in the range of 21 per cent.
How will you cover up for the volumes lost?
We can't expect a lot of supplies from Karnataka unless the ban is lifted. In Goa, because of the extended monsoon, we lost about 1-1.5 million tonnes of iron ore sales, but the January-March quarter looks fine and no more hindrances from the weather. In Orissa, we are liquidating our stocks and have some 200,000 -300,000 tonnes of iron ore in inventories, which we would sell in this quarter. Overall, we should be able to match the last year's volumes of 20.5 million tonnes.
You said that margins have taken a hit due to Karnataka export ban. What has been the impact?
We have managed to sell 700,000 tonnes versus 684,000 tonnes in the second quarter. This has happened as we were able to manage the volumes by selling more domestically. However, this has happened on the back of a huge margin loss in the range of $30-35 per tonnes.
What about the strike by truckers in Goa?
Truckers have been demanding a higher rate and were on a two-day strike in the last week of December. It took more time to normalise and that had an impact on the volumes. The trucking cost has gone up as a direct fallout of the high iron ore prices. In Orissa and Karnataka, iron ore is transferred through the railways and because of the export ban, the railways havn't increased the freight charges in the past two to three months.
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Vedanta has already tied up funding for the Cairn buy and you, too, are looking to raise up to $1 billion. By when will this money be raised and how?
We might need to raise around $1 billion to buy the stake in Cairn India and we have around $2 billion in cash and equivalents. In total, we need $3 billion for the Cairn buyout and the rest will come from Vedanta. We are looking to raise the money on a short-term basis as and when the government allows the deal to go through. On the route we have many options like mutual funds, debentures, FCCBs, etc.
What are the plans of re-entering Orissa mining space?
In Orissa, for the time being, there are no operations and thankfully the volumes are not dented for the time being. We made 2 million tonne last year and expect to liquidate inventory and end the year with around 1.7-1.8 million tonnes of iron ore. The dent in volumes from Orissa will come in the next year, but we have some assets in the state and are looking to keep these active. We have a railway siding, two rakes and an allotted port plot at Haldia and Paradip. Moreover, we have a processing plant of our own in Orissa. Therefore, we are looking to keep the assets active by deploying them for others.