PERFORMANCE: IRON ORE
We successfully integrated Sesa Goa into our fold. Sesa Goa has set itself an ambitious growth vision and has taken several initiatives towards implementing this plan.
BUSINESS OVERVIEW
In April 2007, we acquired a 51.0% controlling stake in Sesa Goa, India’s largest private sector producer-exporter of iron ore. Sesa Goa is engaged in the exploration, mining and processing of iron ore. Sesa Goa’s mining operations are located in the iron ore rich Indian states of Goa, Karnataka and Orissa, backed by iron ore reserves and resources totalling 202.0 million tonnes at 31 March 2008. While the iron ore at Goa contains low iron content deposits, ranging between 58.0% and 62.0% grade, the mines in Karnataka and Orissa comprise higher grade deposits, ranging between 62.0% and 65.0%. Sesa Goa also has a 265,000 tpa pig iron plant and a 265,000 tpa metallurgical coke plant at Goa. Its primary products are iron ore – lumps and fines, pig iron and metallurgical coke.
We successfully integrated Sesa Goa into our fold. Sesa Goa has set itself an ambitious growth vision and has taken several initiatives towards implementing this plan through an accelerated debottlenecking programme, performance improvement measures and capability building with active support from our other Group companies.
Production Performance
Saleable iron ore produced for the full year FY 2008 was 12.440 million tonnes, the highest ever iron ore production by Sesa Goa so far and an increase of 17.0% over FY 2007 production of 10.628 million tonnes.
Vedanta’s attributable production for the post acquisition period was 11.5 million tonnes. This higher production is primarily attributable to a comprehensive improvement programme to increase the operational efficiencies.
Production of pig iron was 271,000 tonnes for the full year FY 2008, an increase of 11.5% compared with FY 2007. Pig iron production during the year was the highest ever production by Sesa Goa so far.
| (in $ million, except as stated) | FY 2008* | FY 2007 | % change |
| Production volumes (kt) | |||
| – Saleable ore | 11,469 | – | – |
| – Pig iron | 248 | – | – |
| Sales volumes (kt) | |||
| – Iron ore | 11.287 | – | – |
| – Pig iron | 244 | – | – |
| Revenue | 888.9 | – | – |
| EBITDA | 585.6 | – | – |
| EBITDA margin | 65.9% | – | – |
| Operating profit | 420.0 | – | – |
* Information is presented for the post acquisition period of 11 months through 31 March 2008 and is not directly comparable with the corresponding prior period.
Sales
Iron ore shipments during the full year FY 2008 were 12.353 million tonnes, consistent with the significantly higher production and highest ever achieved by us. Production and sales attributable to the post acquisition period was 11.5 million tonnes and 11.3 million tonnes respectively. In the last quarter, we had the highest ever quarterly shipment of 4.967 million tonnes of iron ore by Sesa Goa to date. Due to the impact of the seasonal monsoon cycle in the region where our iron ore operations are located, shipment of approximately 9.0 million tonnes were made in the second half of FY 2008, following a broad pattern of one-third and two-thirds respectively in the first and second halves of FY 2008.
During FY 2008, most of the incremental production was placed in the spot market, thereby improving the ratio of spot sales to long-term contract sales compared with the previous year and benefiting from higher spot sale prices. Additionally, we undertook various marketing initiatives to further improve the contribution.
We export primarily to China which accounts for nearly 67.0% of our total exports with remaining quantities exported to Japan, Pakistan and other nearby markets. Out of the total shipments, exports account for nearly 82.0% of total with the remainder being sold in the domestic market on an ex-mine basis primarily from Goa and Orissa.
The global market for iron ore continues to remain tight in the short- to medium-term primarily due to new supply constraints, robust steel demand and logistical constraints associated with rail and port facilities and vessel shortages. As a result of these market conditions, spot prices of iron ore are expected to remain tight, in the short- to medium-term.
We sold 266,000 tonnes pig iron in the full year FY 2008 consistent with the production, primarily in the domestic market.
Financial Performance
Revenues for post acquisition period of 11 months in FY 2008 were $888.9 million with an EBITDA of $585.6 million. The revenues and EBITDA were higher quarter-on-quarter due to higher sales volumes, improved spot sales-to-long-term contract mix and higher sales realisation despite inflationary cost pressures.