|Hot Pursuit||Tuesday, March 20, 2007 12:31 Hrs IST|
Iron ore export projections spurs Sesa Goa
The surge is expected despite a tax of Rs 300 per tonne imposed by Finance Minister P Chidambaram on 28 February 2007. Data available with Indian Ports Association (IPA) for 1- 15 March 2007, reveals that exports were almost 77% of the last year’s monthly average.
The IPA data shows that exports in January and February stood at 9.74 million tonne and 9.45 million tonne, respectively. They were as high as 6.34 million tonne in the first 15 days of March, the period after the new impost. On a pro rata basis, it can go up to 12.69 MT, 34% more than the average exports in January and February.
The Sesa Goa counter clocked 1.95 lakh shares on BSE. It had also surged to a high of Rs 1713.30, in intra-day trade.
The development is in sharp contrast to the public announcement by the Federation of Indian Mineral Industries (FIMI), the apex mining body, which said the tax would lead to a closure of many small mines and hit exports by as much as 50%.
In 2006, total iron ore exports from India were to the tune of about 90 MT, of which 74 MT accounted for exports to China only.
Though mining industry sources attribute the increase in March exports to prior bookings, analysts said that exports will continue given the sustained Chinese demand. While China produces 250 MT specifically for steel making, it imports 350 MT a year.
Iron ore prices in the past have been highly volatile with peak levels touching $85 a tonne during 2004-05. At present, prices hover around $55 a tonne. Indian Steel Alliance president Moosa Raza said, “China cannot ignore India for iron ore as it has an advantage of about $18 a tonne on freight compared with Brazil. Moreover, global iron ore prices in January 2007 went up by about $10 a tonne, adding to miners’ kitty.” FIMI president RK Sharma, however, said, “The figure is inflated because iron ore was lying at the ports... Fresh supplies have been adversely affected.”
China purchases over 40% of world iron ore exports, while Europe and Japan account for 25% and 20%, respectively.
The steel industry on Monday urged United Progressive Alliance chairperson, Sonia Gandhi, and Prime Minister Manmohan Singh to cap iron ore exports to 90 million tonne this year, and further reduce it 15% every year.
Besides the freeze, the memorandum seeks a complete phase-out of ore exports by 2011, reducing exports by 15% per annum beginning 2007-08. The steel industry promised that the entire quantity of ore diverted to the domestic market will be absorbed by the local steel producers and job losses, if any, would also be absorbed. Besides, the industry is also ready to negotiate iron ore prices with mining companies.
Earlier this month, there were reports that the four-month long bidding race for Mitsui's stake in Sesa Goa is drawing to a close. As per the reports, Mitsui will announce the winner in the next ten days.
Sources say that Arcelor-Mittal is a front-runner with a bid of Rs 2,050 a share. Other prominent contenders such as JSW Steel and CVRD earlier dropped out, citing high valuations. Companies like Vedanta Resources and Essel Mining might also be in the fray. Earlier, there was talk of the deal being finalised at somewhere near Rs 2500 per share.
Mitsui has mandated Morgan Stanley to find a buyer for its 51% holding in Sesa Goa. The Japanese firm is selling this stake as part of a global strategy to exit the mining business. The successful bidder will also have to make an open offer to Sesa Goa shareholders, to buy a further 20% stake.
But Sesa Goa valuations sank after the finance minister levied a duty of Rs 300 per tonne of iron ore exports. The Sesa Goa stock had declined sharply from Rs 1928.70 on 20 February 2007 to Rs 1611.10 by 7 March 2007.
Sesa Goa's gross earnings were expected to take a 10% hit. This may have prompted the six bidders to lower their bids, which Mitsui has agreed to.
Sesa Goa's annual exports amount to around 5 million tonnes out of Marmagao, Chennai and Paradip port. It supplies iron-ore to China, Japan and Europe, and is also the sole supplier of iron ore to Pakistan Steel Mill, the only steel manufacturing unit in that country.
Arcelor-Mittal's bid values Sesa Goa at about Rs 8000 crore, Rs 1700 crore lower than its pre-Budget bid. Besides, Sebi rules state that a winning bidder must make an open offer of another 20%.
For Arcelor-Mittal, bagging Sesa Goa will mean access to mines in Goa, Karnataka and Orissa. Sesa Goa also has an exploratory lease for the Chiria mines in Jharkhand.
Sesa Goa reported a net profit growth of 23% to Rs 194.94 crore for Q3 December 2006 versus Rs 157.85 crore in Q3 December 2005. Net sales for the December 2006 quarter rose 15% to Rs 587.89 crore (Rs 510.37 crore).