Description
This is a documentation is about company analysis of SESA GOA.
SESA GOA – Company Analysis As nations around the world industrialize and populations strive to improve their standards of living, mining has come to take a more central role on the world stage. Demand continues to be stoked by strong growth in emerging markets. The cost base of the industry has permanently changed as lower grades and shortages of labor take effect. Social, economic and political trends are affecting the mining sector to an unprecedented extent, requiring mining companies to incorporate more complex scenarios in their strategic planning. Following are 10 trends that are shaping the mining sector: • Costs of business: The pace of production has picked up and overall costs are up. The report sets out various cost-control strategies • Commodity prices: Are we at a new benchmark high or in the middle of a bubble that is ready to burst? • Profits: Government taxes are targeting the mining sector and go above and beyond the introduction of new tax laws • Corporate social responsibility: Demand is intensifying for corporate social responsibility which can translate into smoother project roll-out • Talent shortages: Looking at how to bridge the talent gap and find willing workers • Capital projects: As commodity prices fluctuate and the gap between supply and demand gets wider, companies will need to adopt more innovative solutions • Non-traditional financing: new financing sources require new levels of knowledge and cultural engagement • Risk: Big is getting even bigger: countering unexpected risk as companies diversify • Volatility: Planning for the unpredictable • Legislation: countries are competing to become the most vigilant regulators in the world. Companies need to take proactive steps to implement stronger compliance processes and policies. SESA GOA Competitors One of the major competitors of Sesa Goa is NMDC Ltd. NMDC is a public sector enterprise that was incorporated in 1958 and is under the administrative control of Ministry of Steel and Government of India. It is involved in the exploration of wide range of minerals that includes iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, and tin. It is India's single largest iron ore producer and exporter with a current production capacity of around 30 MTPA from its 3 fully mechanized mines. It also has the only mechanized diamond mine in the country with a capacity of 100,000 carats annually at Panna (MP). The company has been recently categorized by the Department of Public Enterprises as "NAVA RATNA" Public Sector enterprise.
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Stock Pricing of Sesa Goa and NMDC Ltd. as on 20th July, 2012 are as below: SESA GOA 192.25 NMDC LTD. 190.70
PEST Analysis of Mining Industry Political Factors
•
•
•
Difficulty in obtaining clearances and leases from the state governments There are various clearances which need to be obtained from different ministries stated below which is a cumbersome and time consuming process: o Department of Mines o Indian Bureau of Mines o Goa State Pollution Control Board o Geological Survey of India o Ministry of enviromental and forests o Central Board of Excise and Customs o Department of Heavy Industry o Ministry of labour The contribution of iron ore to inflation Domestic inflation has also been rising since December 2007. The iron and steel products constitutes 3.64 per cent of the wholesale price index (WPI). Hence, controlling the sharp rise in domestic steel prices, and thereby containing inflation, had become a priority for the government. The government had since been taking measures to soften the iron ore prices. Government’s approach of giving priority to the domestic players To curb the increasing pressure on the domestic steel industries due to increasing global prices after recession, the Government used duties and royalty as tools to keep the supplies in the domestic market. An ad valorem duty of 15% was imposed on all grades of ore export in June 2008, as against a specific duty applicable earlier.
Economic Factors • The fluctuations in the exchange rates impact the performance of the mining Industry Indian iron ore industry thrives on exports. Goa exports 96% of its iron ore production and 84% of revenues is accounted for by exports to China.
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• • •
As per mining legislation of India there is no restriction on foreign equity holdings in mining sector companies registered in India. China being the highest buyer of iron ore, it is the key driver of the global iron ore industry. Its economic scenario impacts the entire industry. Change in the scale of steel production The free on board (FOB) price of reference grade Indian iron ore dropped from US$ 140US$ 145 per MT in the beginning of August 2008 to US$ 52 in March 2009. However, now the scenario is changing. China’s crude steel production increased 12.6% y-o-y in July 2009 to 50.7 mmt. This increase in steel demand is expected to result in higher demand for iron ore, thus keeping the iron ore prices firm.
Social Factors • The problem of mining-induced displacement and resettlement (MIDR) poses major risks to societal sustainability. • The closure and suspension of work in more than 50 iron ore mines in Orissa over the past few months has hit supplies for export. • The unrest among local residents due to landlessness, joblessness, homelessness and changes in population dynamics. Technological Factors • In India, there are no exploration programmes undertaken for locating new additional deposits of iron ore. Many technological improvements have helped the mining industry in cost controls, emission controls, and mineral conservation and in bringing down the alumina content of the ore.
SWOT Analysis of Indian Mining Industry Strengths: 1. The government offers a wide range of concessions to investors in India, engaged in mining activity. The main concessions include, inter alia: • Mining in specified backward districts is eligible for a complete tax holiday for a period of 5 years from commencement of production and a 30 percent tax holiday for 5 years thereafter. • Environment protection equipment, pollution control equipment, energy saving equipment and certain other equipment eligible for 100 percent depreciation. • One tenth of the expenditure on prospecting or extracting or production of certain minerals during five years ending with the first year of commercial production is allowed as a deduction from the total income.
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• • •
•
Export profits from specified minerals and ores are eligible for certain concessions under the Income tax Act. Minerals in their finished form exempt from excise duty. Low customs duty on capital equipment used for minerals; on nickel, tin, pig iron, unwrought aluminium. Capital goods imported for mining under EPCG scheme qualify for concessional customs duty subject to certain export obligation.
2. World's largest producer of mica; third largest producer of coal and lignite & barytes;
3.
4.
5. 6.
7.
ranks among the top producers of iron ore, bauxite, manganese ore and aluminium. Labours easily available Low labour and conversion costs Large quantity of high quality reserves Exports iron-ore to China and Japan on a large scale Strategic location : Proximity to the developed European markets and fast-developing Asian markets for export of Steel, Aluminium
Weakness: 1. Coal mining in India is associated with poor employee productivity. The output per miner per annum in India varies from 150 to 2,650 tonnes compared to an average of around 12,000 tonnes in the U.S. and Australia; and 2. Historically, opencast mining has been favored over underground mining. This has led to land degradation, environmental pollution and reduced quality of coal as it tends to get mixed with other matter; 3. India has still not been able to develop a comprehensive solution to deal with the fly ash generated at coal power stations through use of Indian coal. Clean coal technologies, such as Integrated Gasification Combined Cycle, where the coal is converted to gas, are available, but these are expensive and need modification to suit Indian coal specifications. 4. Poor infrastructure facilities 5. Mining technology is outdated 6. Low innovation capabilities 7. Labor force is highly un-skilled and inexperienced 8. High rate of accidents 9. Lack of R&D programs and training and development 10. Most of the Indian mining companies do not have access to Indian capital market 11. There is a lack of respect for the mining industry and it suffers from the incorrect perception that ore deposits are depleted. 12. There is limited access to capital, and mines are increasingly more costly to find, acquire, develop and produce.
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There are long lead times on production decisions. 14. The Indian mining industry suffers from an out-dated, unattractive approach to mining education that is partly to blame for insufficient human resources. 15. Improvement in operational efficiency of the mining companies - Mining companies are in need of an organizational transformation to gradually align its operating costs to international standards. Mining costs of Indian companies are at least 35 percent higher than those of leading coal exporting countries such as Australia, Indonesia, and South Africa. To match productivity, they will need to invest in new technologies, improve processes in planning and execution of projects, and institutionalize a comprehensive risk management framework. 16. Mining operations are not environment friendly. Least importance is given to environment concerns. 17. High rate of illegal mining
13.
The Opportunities India has an estimated 85 billion tonnes of mineral reserves remaining to be exploited. Besides coal, oil and gas reserves, the mineral inventory in India includes 13,000 deposits/ prospects of 61 non-fuel minerals. Expenditure outlay on mining is a meager sum when compared to other competing emerging mining markets and the investment gap is most likely to be covered by the private sector. India welcomes joint ventures between foreign and domestic partners to mobilise finances and technology and secure access to global markets. 1. Potential areas for exploration ventures include gold, diamond, copper, lead, zinc, nickel, cobalt, molybdenum, lithium, tin, tungsten, silver, platinum group of metals and other rare metals, chromite and manganese ore, and fertiliser minerals. 2. The main opportunities in the mining sector (excluding coal and industrial minerals) are in the development and production of surplus commodities such as iron ore and bauxite, mica, potash, few low-grade ores, mining of small gold deposits, development of placer gold resources located on the frontal belt of the Himalayas, mining known deposits of economic and marginal categories such as base metals in Bihar and Rajasthan and exploitation of laterite for nickels in Orissa, molybdenum in Tamil Nadu and tin in Haryana. 3. Considerable potential exists for setting up manufacturing units for value added products. 4. There exists considerable opportunities for future discoveries of sub-surface deposits with the application of modern techniques. 5. Current economic mining practices are generally limited to depths of 300 meters and 25 percent of the reserves of the country are beyond this depth 6. Strengthening of logistics in coal distribution - In India, the logistics infrastructure such as ports and railways are overburdened and costly and act as bottlenecks in development of free market. Privatization of ports may bring the needed efficiencies and capacities. In addition, capacity addition by the Indian Railways is necessary to increase freight capacity from the coal producing regions to demand centers in the northern and
Page |5
central parts of the country. On the Indian rail network, freight trains get a lower priority than passenger trains, a problem that promotes delays and inefficiency. Special freight corridors would raise speeds, cut costs, and increase the system's reliability. 7. Focusing on technology for future - India's numerous technology research institutes are working on energy related R&D. However, there is a possibility that they are operating in a fragmented fashion. The Government may get improved recoveries on its investment by concentrating on few important technology areas. To start with focus may be applied for tighter emission standards and development of inexpensive clean-coal technologies viz. extraction of methane from coal deposits. 8. Estimated 82 billion tonnes of reserves of various metals yet to be tapped 9. While India has 7.5% of the world's total bauxite deposits, aluminium production capacity is only 3% of world capacity, indicating the scope and need for new capacities Threats: 1. Foreign Investment in the Mining Sector During 1999, the Government had cleared 7 more proposals of leading international mining companies for prospecting and exploration in the mineral sector to the tune of US$ 62.5 million. 65 licenses have been issued till date for prospecting an area of around 90,142 sqkms in the states of Rajasthan, Maharashtra, Gujarat, Bihar, Haryana and Madhya Pradesh. Prospecting licenses have been granted in favour of Indian subsidiaries of well-known mining companies. These include BHP Minerals, CRA Exploration supported by Rio Tinto (RTZ-CRA), Phelps Dodge of USA, Metmin Finance and Holding supported by Metdist Group of Companies UK, Meridien Minerals of Canada, RBW Mineral Industries supported by White Tiger Resources of Australia, etc. 2. Large integrated international metal manufacturers including POSCO, Mittal Steel and Alcan have announced plans for expansion in India 3. Mining companies and equipment suppliers are under the constant threat of being taken over by foreign companies. 4. A heavy tax burden discourages further investment. 5. Politicians undervalue the industry's contributions to the economy. 6. Stricter environment rules restricting mining activities
We will now analyze the business of SESA GOA LTD.
Page |6
Introduction Sesa Goa Limited is India's largest producer and exporter of iron ore in the private sector. For more than five decades, Sesa is engaged in the business of exploration, mining and processing of iron ore. In fiscal 2011, it produced 18.8 million tonnes and 18.1 million tonnes (DMT) respectively of iron ore. In the same year, its turnover was above US$ 2 billion. Sesa is among the low-cost producers of iron ore in the World and is well placed to serve the growing demand of Asian countries. Sesa's iron ore markets/customers are primarily in China, India, Japan, Korea, Europe and other Asian countries. Sesa has mining operations in Goa and Karnataka in India. While iron ore from its Goa mines is shipped through the Mormugoa port, the ore from Karnataka mines is exported through the ports of Goa, Mangalore and Krishnapatnam. Sesa Goa's operations is organised into Iron Ore Division, Metallurgical Coke Division, Pig Iron Division and a technology business, each of which operates independently. Sesa Goa Limited, the leading private-sector exporter of Iron Ore in India, has enjoyed the respect of both, Goans as well as the world wide iron-ore industry since its inception in 1954. The number of employees is 4,690 as on 31 March 2012. Top Management - Sesa Goa Name Prasun K Mukherjee Kuldip K Kaura Gurudas D Kamat Amit Pradhan Jagdish P Singh Ashok Kini
Designation Managing Director Ind. Non-Executive Director Ind. Non-Executive Director Whole Time Director Ind. Non-Executive Director Ind. Non-Executive Director
Share Holding Pattern of Sesa Goa Ltd. As on 30th June, 2012
Page |7
No. 1 2 3 4 5 6 Total
Category Promoters Institutional Investors Private Corporate Bodies Indian Public NRI Others
Shares 479,113,619 265,301,432 17,619,710 103,000,023 2,060,596 2,006,043 869,101,423
% 55.13% 30.52% 2.03% 11.85% 0.24% 0.23% 100.00%
FINANCIAL PERFORMANCE OF SESA GOA
Page |8
Page |9
Size of balance sheet has gone up by Rs.3641 Crores. As the company has raised short term borrowing of approx. Rs.2487 Crores during the year 2011-12. The company has converted current asset into non-current asset by investing in subsidiaries. The profit of the company has gone down by Rs.1793 Crores probably due to investment in subsidiary which is under gestation period and hence not earning income at the moment. Segment-wise Performance Sesa’s primary business is iron ore. It is engaged in exploration, mining and processing of iron ore, with domestic mining operations carried out in the states of Goa and Karnataka in India. However, the Company has diversified operations into manufacturing of metallurgical coke and pig iron, operated as independent businesses of Met Coke Division (MCD) and Pig Iron Division (PID) respectively. It embarked on a capacity expansion programme during 2010-11 in both these businesses; the completion of this new pig iron facility will make Sesa the largest producer of low phosphorus pig iron in India.
P a g e | 10
Different Strategies With a commitment to create a world-class enterprise through high quality assets and competitive costs of production, the company pursues its consistent strategy of owning and operating low-cost, expandable, upstream assets and delivering more predictable business performance over time which, in turn, underpins the creation of value for their shareholders, customers, employees and, importantly, the communities in which they operate. Exploration, which is the pillar of strength for their growth strategy added 68 mt of additional resources during the year, about 5 times what they have extracted during the year. Their operations strategy is focused on asset optimization and continuous improvement through the implementation of best practices and latest technology. With this objective, the Company introduced a slew of modern technology based solutions over the last two years. Further to the successful implementation of the proven Supervisory Control and Data Acquisition (SCADA)
P a g e | 11
system at the plants (enabling engineers to monitor and control processes), RFID trackers (for tracking ore laden trucks within and outside the mining areas) and online real-time barge monitoring system (enabling logistics managers to optimize and track the movement of every single ton of ore being shipped by the Company), this year, the Company rolled out the Command and Control Centre (C&C), during the year, modernizing the entire mining operations and integrated the monitoring and optimization of the entire value chain.
P a g e | 12
doc_594273762.doc
This is a documentation is about company analysis of SESA GOA.
SESA GOA – Company Analysis As nations around the world industrialize and populations strive to improve their standards of living, mining has come to take a more central role on the world stage. Demand continues to be stoked by strong growth in emerging markets. The cost base of the industry has permanently changed as lower grades and shortages of labor take effect. Social, economic and political trends are affecting the mining sector to an unprecedented extent, requiring mining companies to incorporate more complex scenarios in their strategic planning. Following are 10 trends that are shaping the mining sector: • Costs of business: The pace of production has picked up and overall costs are up. The report sets out various cost-control strategies • Commodity prices: Are we at a new benchmark high or in the middle of a bubble that is ready to burst? • Profits: Government taxes are targeting the mining sector and go above and beyond the introduction of new tax laws • Corporate social responsibility: Demand is intensifying for corporate social responsibility which can translate into smoother project roll-out • Talent shortages: Looking at how to bridge the talent gap and find willing workers • Capital projects: As commodity prices fluctuate and the gap between supply and demand gets wider, companies will need to adopt more innovative solutions • Non-traditional financing: new financing sources require new levels of knowledge and cultural engagement • Risk: Big is getting even bigger: countering unexpected risk as companies diversify • Volatility: Planning for the unpredictable • Legislation: countries are competing to become the most vigilant regulators in the world. Companies need to take proactive steps to implement stronger compliance processes and policies. SESA GOA Competitors One of the major competitors of Sesa Goa is NMDC Ltd. NMDC is a public sector enterprise that was incorporated in 1958 and is under the administrative control of Ministry of Steel and Government of India. It is involved in the exploration of wide range of minerals that includes iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, and tin. It is India's single largest iron ore producer and exporter with a current production capacity of around 30 MTPA from its 3 fully mechanized mines. It also has the only mechanized diamond mine in the country with a capacity of 100,000 carats annually at Panna (MP). The company has been recently categorized by the Department of Public Enterprises as "NAVA RATNA" Public Sector enterprise.
Page |1
Stock Pricing of Sesa Goa and NMDC Ltd. as on 20th July, 2012 are as below: SESA GOA 192.25 NMDC LTD. 190.70
PEST Analysis of Mining Industry Political Factors
•
•
•
Difficulty in obtaining clearances and leases from the state governments There are various clearances which need to be obtained from different ministries stated below which is a cumbersome and time consuming process: o Department of Mines o Indian Bureau of Mines o Goa State Pollution Control Board o Geological Survey of India o Ministry of enviromental and forests o Central Board of Excise and Customs o Department of Heavy Industry o Ministry of labour The contribution of iron ore to inflation Domestic inflation has also been rising since December 2007. The iron and steel products constitutes 3.64 per cent of the wholesale price index (WPI). Hence, controlling the sharp rise in domestic steel prices, and thereby containing inflation, had become a priority for the government. The government had since been taking measures to soften the iron ore prices. Government’s approach of giving priority to the domestic players To curb the increasing pressure on the domestic steel industries due to increasing global prices after recession, the Government used duties and royalty as tools to keep the supplies in the domestic market. An ad valorem duty of 15% was imposed on all grades of ore export in June 2008, as against a specific duty applicable earlier.
Economic Factors • The fluctuations in the exchange rates impact the performance of the mining Industry Indian iron ore industry thrives on exports. Goa exports 96% of its iron ore production and 84% of revenues is accounted for by exports to China.
Page |2
• • •
As per mining legislation of India there is no restriction on foreign equity holdings in mining sector companies registered in India. China being the highest buyer of iron ore, it is the key driver of the global iron ore industry. Its economic scenario impacts the entire industry. Change in the scale of steel production The free on board (FOB) price of reference grade Indian iron ore dropped from US$ 140US$ 145 per MT in the beginning of August 2008 to US$ 52 in March 2009. However, now the scenario is changing. China’s crude steel production increased 12.6% y-o-y in July 2009 to 50.7 mmt. This increase in steel demand is expected to result in higher demand for iron ore, thus keeping the iron ore prices firm.
Social Factors • The problem of mining-induced displacement and resettlement (MIDR) poses major risks to societal sustainability. • The closure and suspension of work in more than 50 iron ore mines in Orissa over the past few months has hit supplies for export. • The unrest among local residents due to landlessness, joblessness, homelessness and changes in population dynamics. Technological Factors • In India, there are no exploration programmes undertaken for locating new additional deposits of iron ore. Many technological improvements have helped the mining industry in cost controls, emission controls, and mineral conservation and in bringing down the alumina content of the ore.
SWOT Analysis of Indian Mining Industry Strengths: 1. The government offers a wide range of concessions to investors in India, engaged in mining activity. The main concessions include, inter alia: • Mining in specified backward districts is eligible for a complete tax holiday for a period of 5 years from commencement of production and a 30 percent tax holiday for 5 years thereafter. • Environment protection equipment, pollution control equipment, energy saving equipment and certain other equipment eligible for 100 percent depreciation. • One tenth of the expenditure on prospecting or extracting or production of certain minerals during five years ending with the first year of commercial production is allowed as a deduction from the total income.
Page |3
• • •
•
Export profits from specified minerals and ores are eligible for certain concessions under the Income tax Act. Minerals in their finished form exempt from excise duty. Low customs duty on capital equipment used for minerals; on nickel, tin, pig iron, unwrought aluminium. Capital goods imported for mining under EPCG scheme qualify for concessional customs duty subject to certain export obligation.
2. World's largest producer of mica; third largest producer of coal and lignite & barytes;
3.
4.
5. 6.
7.
ranks among the top producers of iron ore, bauxite, manganese ore and aluminium. Labours easily available Low labour and conversion costs Large quantity of high quality reserves Exports iron-ore to China and Japan on a large scale Strategic location : Proximity to the developed European markets and fast-developing Asian markets for export of Steel, Aluminium
Weakness: 1. Coal mining in India is associated with poor employee productivity. The output per miner per annum in India varies from 150 to 2,650 tonnes compared to an average of around 12,000 tonnes in the U.S. and Australia; and 2. Historically, opencast mining has been favored over underground mining. This has led to land degradation, environmental pollution and reduced quality of coal as it tends to get mixed with other matter; 3. India has still not been able to develop a comprehensive solution to deal with the fly ash generated at coal power stations through use of Indian coal. Clean coal technologies, such as Integrated Gasification Combined Cycle, where the coal is converted to gas, are available, but these are expensive and need modification to suit Indian coal specifications. 4. Poor infrastructure facilities 5. Mining technology is outdated 6. Low innovation capabilities 7. Labor force is highly un-skilled and inexperienced 8. High rate of accidents 9. Lack of R&D programs and training and development 10. Most of the Indian mining companies do not have access to Indian capital market 11. There is a lack of respect for the mining industry and it suffers from the incorrect perception that ore deposits are depleted. 12. There is limited access to capital, and mines are increasingly more costly to find, acquire, develop and produce.
Page |4
There are long lead times on production decisions. 14. The Indian mining industry suffers from an out-dated, unattractive approach to mining education that is partly to blame for insufficient human resources. 15. Improvement in operational efficiency of the mining companies - Mining companies are in need of an organizational transformation to gradually align its operating costs to international standards. Mining costs of Indian companies are at least 35 percent higher than those of leading coal exporting countries such as Australia, Indonesia, and South Africa. To match productivity, they will need to invest in new technologies, improve processes in planning and execution of projects, and institutionalize a comprehensive risk management framework. 16. Mining operations are not environment friendly. Least importance is given to environment concerns. 17. High rate of illegal mining
13.
The Opportunities India has an estimated 85 billion tonnes of mineral reserves remaining to be exploited. Besides coal, oil and gas reserves, the mineral inventory in India includes 13,000 deposits/ prospects of 61 non-fuel minerals. Expenditure outlay on mining is a meager sum when compared to other competing emerging mining markets and the investment gap is most likely to be covered by the private sector. India welcomes joint ventures between foreign and domestic partners to mobilise finances and technology and secure access to global markets. 1. Potential areas for exploration ventures include gold, diamond, copper, lead, zinc, nickel, cobalt, molybdenum, lithium, tin, tungsten, silver, platinum group of metals and other rare metals, chromite and manganese ore, and fertiliser minerals. 2. The main opportunities in the mining sector (excluding coal and industrial minerals) are in the development and production of surplus commodities such as iron ore and bauxite, mica, potash, few low-grade ores, mining of small gold deposits, development of placer gold resources located on the frontal belt of the Himalayas, mining known deposits of economic and marginal categories such as base metals in Bihar and Rajasthan and exploitation of laterite for nickels in Orissa, molybdenum in Tamil Nadu and tin in Haryana. 3. Considerable potential exists for setting up manufacturing units for value added products. 4. There exists considerable opportunities for future discoveries of sub-surface deposits with the application of modern techniques. 5. Current economic mining practices are generally limited to depths of 300 meters and 25 percent of the reserves of the country are beyond this depth 6. Strengthening of logistics in coal distribution - In India, the logistics infrastructure such as ports and railways are overburdened and costly and act as bottlenecks in development of free market. Privatization of ports may bring the needed efficiencies and capacities. In addition, capacity addition by the Indian Railways is necessary to increase freight capacity from the coal producing regions to demand centers in the northern and
Page |5
central parts of the country. On the Indian rail network, freight trains get a lower priority than passenger trains, a problem that promotes delays and inefficiency. Special freight corridors would raise speeds, cut costs, and increase the system's reliability. 7. Focusing on technology for future - India's numerous technology research institutes are working on energy related R&D. However, there is a possibility that they are operating in a fragmented fashion. The Government may get improved recoveries on its investment by concentrating on few important technology areas. To start with focus may be applied for tighter emission standards and development of inexpensive clean-coal technologies viz. extraction of methane from coal deposits. 8. Estimated 82 billion tonnes of reserves of various metals yet to be tapped 9. While India has 7.5% of the world's total bauxite deposits, aluminium production capacity is only 3% of world capacity, indicating the scope and need for new capacities Threats: 1. Foreign Investment in the Mining Sector During 1999, the Government had cleared 7 more proposals of leading international mining companies for prospecting and exploration in the mineral sector to the tune of US$ 62.5 million. 65 licenses have been issued till date for prospecting an area of around 90,142 sqkms in the states of Rajasthan, Maharashtra, Gujarat, Bihar, Haryana and Madhya Pradesh. Prospecting licenses have been granted in favour of Indian subsidiaries of well-known mining companies. These include BHP Minerals, CRA Exploration supported by Rio Tinto (RTZ-CRA), Phelps Dodge of USA, Metmin Finance and Holding supported by Metdist Group of Companies UK, Meridien Minerals of Canada, RBW Mineral Industries supported by White Tiger Resources of Australia, etc. 2. Large integrated international metal manufacturers including POSCO, Mittal Steel and Alcan have announced plans for expansion in India 3. Mining companies and equipment suppliers are under the constant threat of being taken over by foreign companies. 4. A heavy tax burden discourages further investment. 5. Politicians undervalue the industry's contributions to the economy. 6. Stricter environment rules restricting mining activities
We will now analyze the business of SESA GOA LTD.
Page |6
Introduction Sesa Goa Limited is India's largest producer and exporter of iron ore in the private sector. For more than five decades, Sesa is engaged in the business of exploration, mining and processing of iron ore. In fiscal 2011, it produced 18.8 million tonnes and 18.1 million tonnes (DMT) respectively of iron ore. In the same year, its turnover was above US$ 2 billion. Sesa is among the low-cost producers of iron ore in the World and is well placed to serve the growing demand of Asian countries. Sesa's iron ore markets/customers are primarily in China, India, Japan, Korea, Europe and other Asian countries. Sesa has mining operations in Goa and Karnataka in India. While iron ore from its Goa mines is shipped through the Mormugoa port, the ore from Karnataka mines is exported through the ports of Goa, Mangalore and Krishnapatnam. Sesa Goa's operations is organised into Iron Ore Division, Metallurgical Coke Division, Pig Iron Division and a technology business, each of which operates independently. Sesa Goa Limited, the leading private-sector exporter of Iron Ore in India, has enjoyed the respect of both, Goans as well as the world wide iron-ore industry since its inception in 1954. The number of employees is 4,690 as on 31 March 2012. Top Management - Sesa Goa Name Prasun K Mukherjee Kuldip K Kaura Gurudas D Kamat Amit Pradhan Jagdish P Singh Ashok Kini
Designation Managing Director Ind. Non-Executive Director Ind. Non-Executive Director Whole Time Director Ind. Non-Executive Director Ind. Non-Executive Director
Share Holding Pattern of Sesa Goa Ltd. As on 30th June, 2012
Page |7
No. 1 2 3 4 5 6 Total
Category Promoters Institutional Investors Private Corporate Bodies Indian Public NRI Others
Shares 479,113,619 265,301,432 17,619,710 103,000,023 2,060,596 2,006,043 869,101,423
% 55.13% 30.52% 2.03% 11.85% 0.24% 0.23% 100.00%
FINANCIAL PERFORMANCE OF SESA GOA
Page |8
Page |9
Size of balance sheet has gone up by Rs.3641 Crores. As the company has raised short term borrowing of approx. Rs.2487 Crores during the year 2011-12. The company has converted current asset into non-current asset by investing in subsidiaries. The profit of the company has gone down by Rs.1793 Crores probably due to investment in subsidiary which is under gestation period and hence not earning income at the moment. Segment-wise Performance Sesa’s primary business is iron ore. It is engaged in exploration, mining and processing of iron ore, with domestic mining operations carried out in the states of Goa and Karnataka in India. However, the Company has diversified operations into manufacturing of metallurgical coke and pig iron, operated as independent businesses of Met Coke Division (MCD) and Pig Iron Division (PID) respectively. It embarked on a capacity expansion programme during 2010-11 in both these businesses; the completion of this new pig iron facility will make Sesa the largest producer of low phosphorus pig iron in India.
P a g e | 10
Different Strategies With a commitment to create a world-class enterprise through high quality assets and competitive costs of production, the company pursues its consistent strategy of owning and operating low-cost, expandable, upstream assets and delivering more predictable business performance over time which, in turn, underpins the creation of value for their shareholders, customers, employees and, importantly, the communities in which they operate. Exploration, which is the pillar of strength for their growth strategy added 68 mt of additional resources during the year, about 5 times what they have extracted during the year. Their operations strategy is focused on asset optimization and continuous improvement through the implementation of best practices and latest technology. With this objective, the Company introduced a slew of modern technology based solutions over the last two years. Further to the successful implementation of the proven Supervisory Control and Data Acquisition (SCADA)
P a g e | 11
system at the plants (enabling engineers to monitor and control processes), RFID trackers (for tracking ore laden trucks within and outside the mining areas) and online real-time barge monitoring system (enabling logistics managers to optimize and track the movement of every single ton of ore being shipped by the Company), this year, the Company rolled out the Command and Control Centre (C&C), during the year, modernizing the entire mining operations and integrated the monitoring and optimization of the entire value chain.
P a g e | 12
doc_594273762.doc