SESA GOA LIMITED
ANNUAL REPORT 2010-2011
DIRECTOR'S REPORT
To
The Members,
The Board of Directors presents the Annual Report of the Company together
with the Audited Statements of Account for the financial year ended 31st
March, 2011.
This report, therefore, is drawn for the Company on a stand-alone basis.
2010-2011 2009-2010
(Rs. in crore) (Rs. in crore)
Profit before provisions for
depreciation and tax 4,468.93 2,715.47
Less: Depreciation 83.13 57.38
Provision for Tax
- Current Tax 963.00 538.00
- Deferred Tax (10.00) 2.00
Profit after depreciation and tax 3,432.80 2,118.09
Add: Balance brought forward from
the preceding year 297.70 95.57
Transferred on amalgamation of
Sesa Industries Ltd. 283.48 -
Profit available for appropriation 4,013.98 2,213.66
Appropriations
Proposed dividend/final dividend 304.18 270.06
Tax on distributed profit 49.35 45.90
Dividend for 2009-10 in respect of
Foreign Currency Convertible Bonds
converted during the year
(inclusive of dividend tax of
Rs. 0.51 crore) 9.85 -
Dividend to shareholders of erstwhile
Sesa Industries Limited on amalgamation
(inclusive of dividend tax of Rs. 1.83
crore) 12.88 -
General Reserve 2,500.00 1,600.00
Balance carried to Balance Sheet 1,137.72 297.70
4,013.98 2,213.66
In accordance with the requirements of the Listing Agreement, a
consolidated Financial Statement of the Company is included in this Annual
Report. The consolidated profit after tax for the group for the year ended
31st March, 2011 is Rs.4,222.45 crore as against Rs.2,639.04 crore for the
previous year. The basic earnings per share (of Rs.1 each) (excluding
minority interest) works out to Rs.49.17 as against Rs.32.41 for the
previous year.
Amalgamation of Sesa Industries Limited with Sesa Goa Limited
The Hon'ble Supreme Court of India has vide Order dated 7th February, 2011,
upheld the Order of the Single Judge of High Court of Bombay at Goa dated
18th December, 2008 approving the Scheme of Amalgamation of Sesa Industries
Limited (SIL) with Sesa Goa Limited (SGL) with appointed date of 1st April,
2005.
Consequently the Board of Directors, at its meeting held on 12th March,
2011 allotted 9,398,864 equity shares of face value of Rs.1/- each bearing
distinctive numbers 859,702,560 to 869,101,423 to the shareholders of
erstwhile SIL, holding shares as on Record Date, i.e. 28th February, 2011
and approved distribution of dividend to the aforesaid allottees in terms
of the Scheme of Amalgamation equivalent to Rs. 11.75 per share of face
value of Rs. 1/-. As a result of allotment, the paid up share capital of
the Company has gone up from Rs. 859,702,559 to Rs. 869,101,423.
Consequently, the figures of the Pig Iron segment for 2010-11 were
incorporated in the company's results in the quarter ended 31st March,
2011. The figures for 2010-11 are therefore not comparable with those of
2009-10 on stand-alone basis.
Dividend
The board of directors has recommended a dividend of Rs. 3.50 per equity
share of Rs. 1/- each for 2010-11, as against Rs. 3.25 per equity share of
Rs. 1/- each declared in 2009-10.
Operations
A summary on a stand-alone basis of the sales turnover and the working
results is given below:
2010-2011 2009-2010
(All money values are Qty. in Value in Qty. in Rs. crore
net of freight) million Rs. crore million Value in
tonnes tonnes
Sale of Iron Ore* 14.7 6,736 15.2 4,238
Direct Exports 12.5 6,219 14.1 4,027
Other Sales 2.2 517 1.1 211
Sale of metallurgical coke 0.08 141 0.27 357
Sale of Pig Iron 0.27 664 - -
Profit after Tax - 3,433 - 2,118
* Includes 0.312 mt (amounting to f 99.44 crore) transferred to pig iron
division.
Note: Quantitative numbers are reported in DMT basis.
Sesa Goa produced 14.8 million tonnes of iron ore and sold 14.7 million
tonnes of iron ore in 2010-11. This was marginally lower than the 16.0
million tonnes produced and 15.2 million tonnes of iron ore sold in 2009-
10.
The Company's production and sales were adversely affected by the
imposition of ban on exports of iron ore in Karnataka by the Government of
Karnataka (GoK), logistical hurdles and the extended monsoon in Goa which
hampered mining and logistics operations. Logistic hurdles were also faced
in Orissa.
During end July 2010, the Government of Karnataka (GoK) issued a
notification to ban iron ore exports from ten minor ports and in the
process stopped all the iron ore exports from the State. While this was
aimed at curbing illegal mining, it completely stalled operations of
existing regular miners like Sesa in Karnataka. On 5th April, 2011, the
Supreme Court issued a ruling to lift the Karnataka iron ore export ban
from 20th April, 2011.
In 2010, Chinese import of iron ore reduced by 3.7% in terms of volume.
Much of this was on account of supply side constraints in major iron ore
producing countries. Brazil also suffered from production shortfalls due to
heavy rainfall; while in India, the export ban in Karnataka affected
volumes. Both these countries are also facing several environmental
restrictions in increasing iron ore exploration and production. In
addition, development of port capacities and inland logistics in Brazil and
India has not been in pace with growing requirements of the seaborne iron
ore trade.
In an environment of strong demand, these supply-side constraints resulted
in a steady increase in iron ore prices. Consequently, sales realisation
per MT of iron ore sold increased drastically over the course of 2010-11.
This contributed to a increase in external sales revenue of iron ore by 62%
from Rs. 5,170 crore in 2009-10 to Rs. 8,387 crore in 2010-11.
On the cost front, there were some developments that adversely affected
Sesa Goa's operations. The railway freight meant for export has
continuously increased and on 28th February, 2011 Government of India
increased the export duty for iron ore lumps from 15% to 20%, and that on
fines from 5% to 20%. Despite these external adversities, the Company
maintained its margins and delivered strong profits.
Your Company has successfully integrated the Sesa Resources (erstwhile
Dempo) iron ore operations that were acquired in the previous financial
year in our operations.
Exploration
Sesa Group continued its strong focus on exploration activities at its
operations at Goa and Karnataka. During 2010-11, 6 drilling rigs were
deployed across leases in Goa and Karnataka. By 31st March, 2011, over
68,900 metres were drilled which resulted in a gross addition of 53 mt to
its reserves and resources base prior to a depletion of 21 mt during 2010-
11. In November 2010, the Company closed its third party operations at the
Thakurani Mines in Barbil, Orissa as the contract renewal was not on
favorable commercial terms.
Total reserves and resources as on 31st March, 2011 stands at 306 million
tonnes. The reserves and resources position has been independently reviewed
and certified as per JORC standard.
Pig Iron & Met Coke Business
For the pig iron business, sales volumes decreased by 5% to 266,090 MT in
2010-11.
However, with better market prices, sales revenues increased by 22% from
Rs. 552 crore in 2009-10 to Rs. 674 crore in 2010-11. Pig Iron profits
before interest, tax, dividends and other non-recurring or non-allocable
incomes for the pig iron business increased by 21% to Rs. 141 crore in
2010-11
External sales revenues of met coke increased by 6% to Rs. 152 crore in
2010-11 and profits before interest, tax, dividends and other non-recurring
or non-allocable incomes for the met coke business increased by 161% to
Rs.89 crore in 2010-11.
Expansion Progress
The iron ore capacity expansion programme is on track for completion by the
end of 2012-13.
By then your Company aims to produce 40 mt in Goa and Karnataka. Expansion
of the pig iron capacity to 625 ktpa and the associated expansion of
metallurgical coke capacity to 560 ktpa are also progressing well for
commissioning by Q3 2011-12
Acquisitions
During 2010-11, the Company announced two major investment decisions. On
16th August, 2010, your Company announced a potential acquisition of 20%
stake in Cairn India Ltd. And, on 22nd March, 2011, it announced the
acquisition of assets of Bellary Steel & Alloys Ltd ('BSAL').
Cairn India Limited
Your Company announced our participation in the proposed acquisition of
Cairn India Ltd along with our parent Company Vedanta Resources plc. Sesa
Goa will acquire 20% strategic stake in Cairn India under an Open Offer. If
there is insufficient take up in the Open Offer, Sesa Goa will acquire the
balance as part of the Vedanta Group's acquisition of a majority stake in
Cairn India. The total cash consideration for the shares to be acquired is
circa US$3 billion.
Sesa Goa received the clearance from Securities and Exchange Board of India
('SEBI') to proceed with the open offer of up to 20% of the shares of Cairn
India, post which your company launched the open offer from 11th April,
2011 at a price of INR 355 per Cairn India share which closes on 30th
April, 2011.
On 19th April, 2011, your Company acquired 200 million shares amounting to
10.4% stake in Cairn India from Petronas International Corporation Ltd
('Petronas') at a price of Rs. 331 per share through bulk deal on Bombay
Stock Exchange Limited. This acquisition is in addition to the Open Offer
launched by your Company on 11th April, 2011 and ends on 30th April, 2011.
Bellary Steel and Alloys Limited
The Company acquired the assets of the upcoming Steel Plant Unit of BSAL
for an all cash consideration of X 220.00 crore. BSAL was in the process of
putting up a 0.5 mtpa Steel Plant Project at Bellary. The assets of the
under construction plant acquired include a free hold land of around 700
acres, building and structures, plant and machinery and other assets of the
Steel Plant. The assets have been transferred on an 'As is where is' Basis
to SGL.
Your Company is presently conducting a detailed assessment in order to
determine the best way forward for commissioning the steel plant at the
earliest. However, the acquisition has been challenged by JSW Steel Ltd in
the Supreme Court of India, which has asked the parties to maintain status
quo until the matter is decided.
Outlook
The Company remains optimistic on the demand and price outlook for Iron Ore
in the Global Seaborne trade. In fact, the consensus expectations suggest a
global deficit for the next 2 years on the back of supply constraints. In
the longer term, however, prices, will come down as supply picks-up with
several new investments coming on stream.
On the cost front, increased royalty rates, railway and road freight and
export duty continue to exert pressure on the Company's margins. In
addition, uncertain policies and slow progress on logistics infrastructure
development will continue to affect volumes.
In this milieu, your Company reiterates its commitment to the medium term
growth objective of achieving 40 mt of production by 2012-13 subject to
certain statutory clearances. Sesa Goa remains focused on extracting the
maximum internal efficiencies and operational productivity to develop the
Company using its sustainable growth model. As with last year, we remain
cautiously optimistic for overcoming challenges and delivering good growth
in 2011-12.
ISO Certification
All the certificates under ISO: 9001-2008, ISO: 140012004 and OHSAS 18001-
2007 for Quality Management, Environment Management, Occupational Health
and Safety Management respectively, are being maintained by the Company
after periodical surveillance audits.
Sesa Community Development Foundation
The Foundation runs two units, viz. the Sesa Technical School (STS) and the
Sesa Football Academy (SFA). The Company's contribution during the year was
Rs. 3.29 crore to the Foundation.
Conservation of Energy, Technology Absorption, Foreign Exchange Earnings
and Outgo
Particulars prescribed under Section 217(1) (e) of the Companies Act, 1956,
are given in Annexure A, which forms part of this Report.
Ecology and Social Development
Your Company remains focused on improving the ecology and the environment.
Its mine reclamation efforts have significantly improved the bio-diversity
of the working as well as reclaimed mines. Successful replication of proven
biotechnologies for mine land reclamation has become an integral part of
the Company's resource planning process. Trials have also been conducted to
utilise the reject dump area for floriculture and the cultivation of other
forest products.
Sesa Goa accords high priority to the safety of its employees. Conscious
efforts were made to improve safety practices across all the units. DuPont
Safety Services, Internationally best known consultant in safety, were
engaged to undertake the safety culture assessment across all the units.
The Company had published Sustainable Development Report for 2008-2009 and
2009-10 based on International Guidelines of GRI G3 with application level
of A+ and has plans to publish at the same level in 2010-11.
Sesa Goa continued its focus on CSR activities with strong commitment in
Stake holder engagement to understand the community needs. Company has
associated with reputed CSR partners to implement the CSR programs. Notably
among them is University of Agricultural Sciences Dharwad for Alternative
Livelihood Methods for the communities around A. Narain Mine, Chitradurga,
Karnataka, Gram Nirman-Codli with Mineral Foundation of Goa and Government
of Goa and so on. Details on the Company's CSR and sustainable development
initiatives are given in the chapter on Management Discussion and Analysis
that forms a part of this Annual Report.
Awards
Your Company was awarded with the following prestigious awards during the
year 2010-11
* Awarded the Goan Achievers Award for Corporate Social Responsibility at
an award function organised by Navhind Times and Viva Goa Magazine in Goa
on 28th March, 2011.
* Won the Environmental Sustainability Excellence Award 2010-11, by the
Indian Chamber of Commerce at Kolkata on 9th March, 2011.
* Conferred the award of being an 'Excellent Water Efficient Unit - Beyond
Fence' at the Seventh Award for Excellence in Water Management 2010,
organised by the Confederation of Indian Industry (CII), Godrej Green
Business Centre.
* Excellence award for Afforestation for Sanquelim and overall performance
Award for Codli Mines by Indian Bureau of Mines (IBM).
* Sesa Goa received British Safety Councils International Safety Award 2011
for its 5 units.
* Pig Iron Division and Met Coke Division received the 'Gomantak Suraksha
Patra' for safety performance for 2009 during an award function organised
by the Green Triangle Society of Goa, in collaboration with Inspectorate of
Factories & Boilers, in May 2010.
* Received the best performer award instituted by Financial Express-EVI in
the Metals and Mining category for its contributions towards the
environment and the excellence in the area of Green Businesses.
* Won the runners up trophy for the Best Corporate Social Responsibility
Award for its Alternate Livelihood Project by Bombay Stock Exchange at its
Sixth Social and Corporate Governance Awards 2010, on 16th December, 2010
at Mumbai.
Fixed Deposits
As reported last year, the Company has discontinued renewal of its fixed
deposits on maturity. As on 31st March, 2011, all fixed deposits had
matured. 11 deposits amounting to Rs. 1.56 lakhs remained unclaimed. All
these depositors are regularly advised about maturity of their deposits and
urged to claim these as soon as they can.
Safety
The FSI is an index which simultaneously takes into account both the
frequency and severity of accidents. The Company's safety performance is
given below:
Division FSI
2010-11 2009-10
Mining 0.141 0.308
Shipping Division 5.477 0
Shipbuilding Division 0.106 1.019
Metallurgical Coke
Division 0 0
Pig Iron Division 0 1.648
SGL Group 0.561 0.819
Group Structure
The Agarwal Group being a group defined under the Monopolies and
Restrictive Trade Practices Act, 1969, controls the Company. A list of its
group entities is given below:
List of Vedanta Group Companies Country of
incorporation
1. Mr. Anil Agarwal
2. Anil Agarwal Discretionary Trust Bahamas
3. Onclave PTC Limited Bahamas
4. Volcan Investments Limited Bahamas
5. Vedanta Resources Plc Great Britain
Direct Subsidiaries of the
Parent Company
6. Vedanta Resources Holding Limited Great Britain
7. Vedanta Resources Jersey Limited Jersey(CI)
8. Vedanta Resources Jersey II Limited Jersey(CI)
9. Vedanta Finance (Jersey) Limited Jersey(CI)
10. Vedanta Resources Investments Limited Great Britain
11. Vedanta Jersey Investments Limited Jersey(CI)
Indirect Subsidiaries of the Parent
Company
12. Bharat Aluminium Company Limited India
13. Copper Mines Of Tasmania Pty Ltd Australia
14. Fujariah Gold UAE
15. Hindustan Zinc Limited India
16. The Madras Aluminium Company Ltd India
17. Monte Cello BV Netherlands
18. Monte Cello Corporation NV Netherlands
19. Konkola Copper Mines PLC Zambia
20. Sterlite Energy Limited India
21. Sesa Goa Limited India
22. Sesa Resources Limited India
23. Sesa Mining Corporation Limited India
24. Sterlite Industries (India) Ltd India
25. Goa Maritime Private Limited India
26. Sterlite Opportunities and
Venture Limited India
27. Sterlite Infra Limited India
28. Thalanga Copper Mines Pty Limited Australia
29. Twin Star Holding Limited Mauritius
30. Vedanta Aluminium Limited India
31. Richter Holding Limited Cyprus
32. Westglobe Limited Mauritius
33. Finsider International Company Ltd Great Britain
34. Vedanta Resources Finance Limited Great Britain
35. Vedanta Resources Cyprus Limited Cyprus
36. Welter Trading Limited Cyprus
37. Lakomasko BV Netherlands
38. THL Zinc Ventures Limited - Mauritius
Former THL KCM Limited
39. Twinstar Energy Holdings Limited - Mauritius
Former THL Aluminium
40. THL Zinc Limited - Former KCM Mauritius
Holdings Limited
41. Sterlite (USA) Inc. USA
42. Talwandi Sabo Power Limited India
43. Allied Port Services Pvt Ltd India
44. Konkola Resources Plc Great Britain
45. Vizag General Cargo Berth Pvt. Ltd India
46. Twin Star Mauritius Holding Ltd Mauritius
47. Vedanta Namibia Holdings Limited Namibia
48. Skorpion Zinc (Pty) Limited Namibia
49. Namzinc (Pty) Limited Namibia
50. Skorpion Mining Company (Pty) Ltd Namibia
51. Amica Guesthouse (Pty) Ltd Namibia
52. Rosh Pinah healthcare (Pty) Ltd Namibia
53. Black Mountain Mining (Pty) Ltd South Africa
54. THL Zinc Holding BV - Former
Labaume BV Netherlands
55. Lisheen Mine Partnership Ireland
56. THL Zinc Holding Cooperative U.A Netherlands
57. Pecvest 17 Pvt. Ltd. South Africa
58. Vedanta Lisheen Finance Limited Ireland
59. Vedanta Base Metals (Ireland) Ltd Ireland
60. Vedanta Lisheen Mining Limited Ireland
61. Killoran Lisheen Mining Limited Ireland
62. Killoran Lisheen Finance Limited Ireland
63. Lisheen Milling Limited Ireland
64. Killoran Concentrates Limited Ireland
65. Killoran Lisheen Limited Ireland
66. Killoran Lisheen Holdings Limited Ireland
67. Azela Limited Ireland
68. Paradip Port Services Pvt Limited India
69. MALCO Power Company Limited India
70. Malco Industries Limited India
Directors' Responsibility Statement
Your Directors confirm that:
(i) The applicable accounting standards have been followed along with
proper explanations relating to material departures, if any, for
preparation of the annual accounts;
(ii) The accounting policies have been selected and applied consistently
and judgments and estimates have been made that are reasonable and prudent,
so as to give a true and fair view of the state of affairs of the Company
at the end of the financial year ended 31st March, 2011 and of the profits
of the Company for that year;
(iii) Proper and sufficient care has been taken to maintain adequate
accounting records in accordance with the provisions of the Companies Act,
1956, for safeguarding the assets of the Company and for preventing and
detecting fraud or other irregularities;
(iv) The annual accounts have been prepared on a going concern basis.
Directors
Mr. Ashok Kini and Mr. P. G. Kakodkar, Directors, retire by rotation at the
ensuing Annual General Meeting and, being eligible, offer themselves for
re-appointment.
The Board of Directors, at its meeting held on 19th July, 2010 appointed
Mr. Jagdish Pal Singh as Additional Director of the Company. In terms of
Section 260 of the Companies Act, 1956, he will be holding office up to the
ensuing Annual General Meeting, and being eligible, offer himself for
appointment.
Auditors
The Company's Auditors, M/s. Deloitte Haskins & Sells, Chartered
Accountants retire at the ensuing Annual General Meeting and are eligible
for re-appointment.
Compliance Certificate
A certificate from the Auditors of the Company regarding compliance of
conditions of Corporate Governance as stipulated under Clause 49 of the
Listing Agreement is attached to this Report along with report on Corporate
Governance.
Listing
As stipulated under Clause 32 of the Listing Agreement, the names and
addresses of Stock Exchange on which the Company's equity shares are listed
are:
1) Bombay Stock Exchange Limited,
Phiroze Jeejeebhoy Towers,
Dalal Street, Mumbai - 400 001.
2) National Stock Exchange of India Limited,
Exchange Plaza, Bandra Kurla Complex,
Bandra East, Mumbai - 400 051.
Your Company confirms that Annual Listing Fees for the year 2010-11 have
been paid.
Employees
Your Directors express their deep appreciation for the unrelented co-
operation and support rendered by the employees at all levels of the
Company. Your Directors wish to lay emphasis on safe working culture in the
organization and urge all the employees to not only follow safety standards
but also to excel in all safety parameters.
Statement of Particualrs of Employees as required in terms of Section
217(2A) of the Companies Act, 1956 read with the Companies (Particulars of
Employees) Rules 1975, is annexed hereto.
Acknowledgement
Our Chairman, Mr. S. D. Kulkarni, has stepped down from the Board w.e.f.
24th January, 2011 after serving the Company for 10 years. The Board of
Directors would like to thank Mr. Kulkarni for his substantial
contributions, and for guiding Sesa Goa to its pioneering position.
The Directors would like to thank the employees and employee unions,
shareholders, customers, suppliers, bankers, regulatory authorities and all
the other business associates of the Company for their confidence and
support to its Management.
For and on behalf of the Board of Directors
G.D. Kamat P.K. Mukherjee
Director Managing Director
Place: Panaji-Goa
Dated: 25th April, 2011
Annexure-A to Directors' Report
Information as per Section 217 (1) (e) read with the Companies (Disclosure
of particulars in the Report of Board of Directors) Rules, 1988 and forming
part of the Directors' Report for the year ended 31st March, 2011.
(A) Conservation of Energy
Fuel consumption and engine emission levels of the barge fleet, transport
vehicles and earth moving equipment, together with the optimisation of
electrical energy consumption in all activities, remains a focus area of
the Company. Waste heat from the coke ovens is being utilised in the power
plant to generate clean electrical energy.
(B) Technological Absorption
Particulars with respect to Technology Absorption are given below in the
prescribed Form B:
Research and Development (R&D):
1. Specific areas in which R&D have been carried out by the Company:
The Company is looking for new process designs and applications of
efficient machinery for iron ore beneficiation and mining on a continuous
basis. Focus is also on towards process development work on the recovery of
iron from tailings along with optimization of blend of various grades to
achieve customer satisfaction and to conserve the iron ore resources.
While the Company holds a patent in India for the system of producing
metallurgical coke by the non-recovery method based on the technology that
it has developed, the European Patent Office has cleared the innovation for
grant of patent in Europe. The technology is continuously upgraded through
various initiatives.
The US Patent Office has allowed issuance of patent on company's latest
innovation titled 'Reduction of Sulphur-containing gases during conversion
of coal into metallurgical coke'.
The Company has set up a state-of-the art Coal Carbonization Laboratory
that is equipped with 1-tonne pilot non-recovery coke oven, developed in-
house and is first of its kind in the non-recovery coke oven category,
apart from modern facilities for coal characterization and coke quality
evaluation. The facility is used for coal selection and optimization of
coal blend.
2. Benefits derived as a result of the above R & D:
Reductions in operating cost and environmental control improvement, besides
optimizing the product mix as well as conservation of resource are the
results of the above activities. The coke business will also be reaping
benefits through upgrading of technology.
3. Future plans of action:
Developmental work will continue to be carried out in all the above areas
with a focus on cost reduction and quality improvement. The coke-making
technology would be under continuous focus for further design improvements
with an objective to reduce capital cost. Pilot oven facilities shall be
used for maximizing cheaper semisoft coal through coal blend optimization
tests
4. Expenditure on R&D:
2010-2011 2009-2010
(Rs. in crore) (Rs. in crore)
a) Capital - -
b) Recurring (revenue) 0.29 0.29
c) Total 0.29 0.29
d) Total R & D expenditure 0.004% 0.006%
as a percentage of total
turnover
Technology Absorption, Adaptation and Innovation:
1. Efforts made towards technology absorption, adaptation and innovation
are outlined below:
The Company maintains a close contact and continuous interaction with its
principal shareholder, other consultants, its foreign associates, customers
as well as with the suppliers of specialised equipment.
Various innovative initiatives undertaken for enhancement of ecology have
been detailed elsewhere above.
2. Benefits derived as a result of the above efforts are inter alia:
a) Improved mining efficiencies and product quality control.
b) Improvement in pollution control system.
c) New design of coke ovens with better combustion control and improved
conservation of heat energy.
d) Improved and sustainable resource and environment management.
3. On completion of the research project conducted in association with the
Microbiology Dept. of Goa University, Goa, mine land reclamation will
become further effective.
(C) Foreign Exchange Earnings and Outgo
The Company's major foreign exchange earnings and outgo are on account of
export of iron ore and import of coking coal respectively. During the year,
foreign exchange earnings were f 6,281 crore and outgo (including dividend
remittance) f 1,112 crore (details are given in Schedule 19). Hence, the
net foreign exchange earning was f 5,169 crore.
For and on behalf of the Board of Directors
G.D. Kamat P.K. Mukherjee
Director Managing Director
Place: Panaji-Goa
Dated: 25th April, 2011.
MANAGEMENT DISCUSSION AND ANALYSIS
Market Overview
Sesa Goa Limited (or 'Sesa Goa' or 'the Company') is part of the Vedanta
Group, a diversified global metals and mining major. It drives the Group's
ferrous minerals business with a commitment to create a world class
enterprise through high quality assets, competitive cost of production and
superior returns to shareholders.
The Company's core business is iron ore mining. Today, it is India's
largest private sector iron ore producer and exporter. In addition, Sesa
Goa produces pig iron, met coke and provides proprietary technology in coke
manufacturing.
While all these businesses have their focused markets, their performances
have a strong relationship to the prevailing economic environment.
Macroeconomic Developments
2010-11 saw the global economic recovery gaining strength. After a de-
growth of 0.5% in 2009, world economic output rebounded strongly to
register 5% growth in 2010. Much of this impetus came from developing and
emerging economies, which witnessed 7.3% growth in 2010 compared to 2.7% in
2009. Thankfully, even the advanced economies recovered from a 3.4%
contraction in output in 2009 to a growth of 3% in 2010 (see Chart A).
Economic growth has a direct linkage to steel and, hence, iron ore demand.
By October 2010, industrial production in emerging economies such as India
and China had already surpassed the pre-crisis levels. Even some of the
advanced economies witnessed a pick-up in industrial production.
There is, however, some fear of overheating in key emerging markets such as
China and India. In an environment of rising domestic demand, supply side
constraints and increased speculative activities are leading to sharp rise
in commodity prices - such as hydrocarbons, crude oil, minerals, metals and
food. With higher consumer and producer price inflation in all key emerging
markets, especially India and China, it is not surprising that central
banks are raising interest rates and tightening money supply. This carries
two risks: first, higher cost of finance affecting consumer demand, current
profitability and future investments; and second, the possible slowing down
of economic growth.
Having said so, the fact is that two of Sesa Goa's primary markets - China
and India - have continued to grow at high rates. Chart B shows how, from
the third quarter of calendar 2009, both China and India have registered
strong growth rates with the trend continuing throughout 2010. Advanced
estimates suggest that while China grew by around 10% in 2010, India will
register GDP growth of 8.6% in 2010-11.
The Global Iron and Steel Market
The macroeconomic environment has a significant bearing on global steel
demand and supply. Estimates suggest that global steel consumption has
grown by around 1.5x of world GDP growth over the last decade. Steel
consumption has gained traction with global economic recovery. Chart C
shows that after the dip in mid-2008, world crude steel production started
recovering in 2009; and by March 2010 it exceeded the pre-crisis level.
Global steel production rose by 16.8%, to 1,414 million tonnes in 2010.
With a share of over 44%, China continued to be the driving force in the
industry. Crude steel output in China grew by 9.3% to 627 million tonnes.
There were apprehensions in some quarters about a possible long term
slowdown in the output of Chinese steel, on account of the completion of
many government-backed stimulus projects and restrictions levied by the
Chinese government on energy inefficient steel producers. That has not
happened. The first quarter of 2011 has again seen a strong uptick in
Chinese steel production, driven mainly by the demand for social housing in
the interior provinces of China and railways.
In the short- to medium-term, therefore, Chinese steel production is
expected to continue to grow fairly rapidly. However, over a longer
horizon, one could expect China's steel intensity to start declining as the
economy moves away from being investment-driven to being more consumption
determined.
The growth in steel output resulted in strong demand for iron ore and met
coke. This, coupled with logistics and environment related constraints on
the supply side, saw significant increases in prices of these raw materials
during much of 2010-11.
With its low cost production base and focus on growing markets, such as
China and India, 2010-11 has been a favourable year for Sesa Goa. However,
from the supply side, there were some issues, mainly regulatory in nature,
that prevented further growth. These are detailed in the business segment
review.
Financial Highlights
Growing demand and greater operational efficiencies have contributed to
record sales and profits. It should be noted that after the acquisition of
SRL in 2009-10, nine month of its operations were consolidated in the
accounts for the previous year, versus all twelve months in 2010-11. Table
1 gives the summarised consolidated profit and loss account of Sesa Goa.
Table 1: Abridged Consolidated Profit and Loss Account of Sesa Goa
(Rs.in crore)
Particulars 2010-11 2009-10
INCOME
Gross sales 10,151 6,654
Less: Excise duty 64 44
Less: Ocean freight 943 812
Add: Other operating income 61 61
Net Income from Operations 9,205 5,859
EXPENDITURE
Production and operational expenses 3,866 2,616
Administration expenses and
selling expenses 133 94
Exchange (gain)/loss on FCCB 49 (122)
Operating PBDIT 5,157 3,271
Less: Depreciation 96 75
Operating PBIT before other income 5,061 3,196
Less: Interest 42 55
Add: Interest, dividend and other
income 540 304
PBT 5,559 3,445
Less: Provision for taxation 1,337 806
PAT 4,222 2,639
Less: Minority interests - 10
Consolidated PAT after minority
interest 4,222 2,629
Sesa Goa's Financial Performance, 2010-11
* Gross sales increased by 53% to Rs. 10,151 crore in 2010-11. With this,
Sesa Goa has become a company exceeding US$ 2 billion in turnover on a
consolidated basis.
* Net income from operations grew by 57% to Rs. 9,205 crore in 2010-11.
* Operating PBDIT increased by 58% to Rs. 5,157 crore in 2010-11. Operating
PBDIT margin (operating PBDIT divided by net income from operations) was
56%.
* Cash profits (PBDT) for 2010-11 were Rs. 5,655 crore - an increase of 61%
over 2009-10.
* PBT increased by 61% to Rs. 5,559 crore in 2010-11.
* PAT grew by 60% to Rs. 4,222 crore.
* Propose dividend of Rs. 3.50 per equity share of Rs. 1.00 each for 2010-
11
* Diluted earnings per share rose from * 31.62 in 2009-10 to Rs. 48.17 in
2010-11.
* Net worth in 2010-11 grew by 62% to Rs. 12,810 crore.
* As of 31st March, 2011, Sesa Goa had cash and cash equivalents of
Rs.10,682 crore - consisting of Rs. 8,800 crore in debt mutual funds,
Rs.1,000 crore in inter-corporate deposits since repaid, and balance Rs.882
crore in fixed deposits, cash with banks, cash in hand, etc.
Business Development
Having built strong cash reserve over time, the Company has started using
its balance sheet strength to make strategic business investments. In 2009-
10, Sesa Goa planned investment of approximately US$500 million for
investments in Iron ore expansions to support higher growth for the
business.
In 2010-11, Sesa Goa made further commitments to investments, which are
given below.
Investment in Cairn India Limited
In August 2010, Sesa Goa proposed to take a 20% stake in Cairn India
Limited (CIL) under an open offer. Subject to any higher price required to
be paid in accordance with the SEBI rules on takeovers and mergers in
India, the price payable per share in the open offer will be Rs. 355 per
CIL share tendered. This is part of the Vedanta Group's offer to acquire
majority of CIL shares.
CIL is a listed company. It has a unique oil and gas exploration and
production platform with the third largest oil reserves in India, with a
proven management team and a low-cost production set up. Cairn India's
principal asset is its 70% stake in the Rajasthan oil development project,
as well as some 600 km of heated pipeline from Barmer in Rajasthan to
Bhogat on the Gujarat coast.
Currently CIL is producing approximately 125,000 barrels of crude oil per
day, which can be significantly enhanced subject to approvals. The project
represents a significant potential resource base with estimated oil in
place in excess of 6.5 billion barrels. The global oil and gas markets
continue to be demand driven, and low cost producers generate high returns
on investments.
For Sesa Goa, this is a financial investment, which will also support the
Vedanta Group's long term growth objectives. The transaction, which is
estimated to be EPS accretive for Sesa Goa, gives the Company a stake in a
world class asset with significant growth potential.
While the Board of Sesa Goa has cleared this investment, the entire
takeover process is going through regulatory clearances.
In a major development after 31st March, 2011, but prior to the release of
this document, Sesa Goa acquired 200 million shares amounting to 10.4%
stake in Cairn India from Petronas International Corporation Ltd in April
2011, at a price of Rs. 331 per share. This acquisition is in addition to
the open offer launched by Sesa Goa on 11th April, 2011.
The Open Offer for CIL's shares closed on 30th April, 2011. A total of
around 155 million shares representing approximately 8.1% of the share
capital of Cairn India Ltd. have been tendered. The total consideration to
be paid for the tendered shares is Rs. 5,504 crore (approx. US$1,241
million) at the offer price of Rs. 355 per share. Consequently, post the
Open Offer, Sesa Goa will have 18.5% stake in CIL (i.e. 8.1% through the
Open Offer plus 10.4% from Petronas).
Acquisition of the Assets of Bellary Steel and Alloys Limited
In March 2011, Sesa Goa acquired the assets of the upcoming steel plant
unit of Bellary Steel and Alloys Limited (BSAL) for an all cash deal of f
220 crore. The secured creditors to BSAL represented by IFCI Ltd had taken
over possession of the properties of BSAL in association with the official
liquidator. IFCI Ltd then conducted a sale process for the assets of BSAL
under the SARFAESI Act, 2002.
BSAL was in the process of putting up a steel plant project at Bellary. The
acquired properties of the plant include a 0.5 million tonnes per annum
capacity steel plant which is under construction, freehold land of around
700 acres, building and structures, plant and machinery and other related
assets. These have been transferred on an 'as is where is' basis to Sesa
Goa.
Sesa Goa has been looking at value addition in the ferrous metal chain. As
a first step, it had moved into pig iron production. Now, with this
acquisition, the Company is taking its first steps in steel manufacturing.
In the process, it is widening its presence across the ferrous metal
production chain.
The steel plant under construction is located in the rich iron ore belt of
Karnataka, and provides the Company a good opportunity to expeditiously set
up a value adding facility on freehold land which is in close proximity of
state highways, railways and source of water. Moreover, this facility
provides Sesa Goa with better opportunities to add value to the iron ore
extracted within Karnataka - which is in line with the state government's
objective.
The Company is presently conducting a detailed assessment in order to
determine the best way forward for commissioning the steel plant at the
earliest. However, the acquisition has been challenged by JSW Steel Ltd in
the Supreme Court of India, which has asked the parties to maintain status
quo until the matter is decided.
Merger of Sesa Industries Limited with Sesa Goa Limited
In 2010-11, after a long legal process, Sesa Industries Limited (SIL) was
merged with Sesa Goa. On 7th February, 2011, the Company received the order
of Supreme Court of India that upheld the order of a Single Judge of High
Court of Bombay at Goa, dated 18 December 2008, approving the Scheme of
Amalgamation of SIL with Sesa Goa Limited with appointed date of 1 April,
2005.
The Board of Directors, at its meeting held on 12th March, 2011, has taken
the following decisions:
* Allotted 9,398,864 equity shares of face value of Rs. 1, each bearing
distinctive numbers 859,702,560 to 869,101,423 to the shareholders of the
erstwhile SIL, who were holding shares as on the record date, i.e. 28th
February, 2011.
The allotment was done in the ratio of 1:5, with benefits of sub-division
and bonus. As a result of allotment, the paid up share capital of the
Company has gone up from Rs.85.97 crore to Rs. 86.91 crore.
* Approved distribution of dividend to the shareholders of SIL who were
allotted Sesa Goa shares in terms of the Scheme of Amalgamation. This works
out to Rs. 11.05 crore.
Business Segment Review
Sesa Goa's primary business is the exploration, mining and processing of
iron-ore. Its mining operations are carried out in the states of Goa and
Karnataka in India. The Company has also diversified its operations into
manufacturing of met coke and pig iron.
Charts D and E give the share of each of the operating business in Sesa
Goa's consolidated external revenues and consolidated segment profits
(profit before tax, interest, dividend and non-allocable items),
respectively.
Iron ore: This is Sesa Goa's core business segment, and contributed to 91%
of consolidated external revenues and 95% of segment profits in 2010-11.
The Company has a niche positioning with cost competitive ore base, and
mines that have relatively easy access to ports to support the global
seaborne iron ore trade.
Pig iron: This business, carried out through the erstwhile subsidiary SIL,
has now been merged with Sesa Goa. It contributed 7% to total external
revenues in 2010-11, and its share in segment profits was 3%. The business
focuses mainly on the domestic Indian market, especially to foundries and
steel mills in western and southern India. It also exports to the Middle-
East and South East Asia.
Metallurgical Coke (met coke): The met coke business is larger than what it
seems from its 2% contribution to external sales and 2% contribution to
segment profits. This is because 70% of its sales is to the pig iron
division, which is adjusted in inter-segment revenues. This business is
primarily a backward integration initiative to support pig iron. Some of
the production is also sold externally.
Let us look at the developments in each of these businesses in greater
detail.
Iron Ore
Markets
Sesa Goa focuses on the global seaborne trade in iron ore which caters to
the import demand of various countries, especially China. Seaborne iron ore
trade increased by 7.3% to 973 million tonnes in 2010. Chart F plots its
growth over the last 10 years - when it registered a compound annual growth
rate (CAGR) of 9.1%.
During the last decade, China has emerged as the world's leading producer
of steel. However, it relies on imports to substantially meet its ore
needs. Chinese imports of iron ore have increased at a CAGR of 23% from 92
million tonnes in 2001 to 594 million tonnes in 2010. With this growth, its
share in global iron ore imports has risen from 20.7% in 2001 to 61.1% in
2010.
In 2010, Chinese import of iron ore reduced by 3.7% in terms of volume.
Much of this was on account of supply side constraints in major iron ore
producing countries. Brazil suffered from production shortfalls due to
heavy rainfall; while in India, exports were banned from the state of
Karnataka. Both these countries are also facing several environmental
restrictions in increasing iron ore supplies. In addition, development of
port capacities and inland logistics in Brazil and India has not been in
pace with growing requirements of the seaborne iron ore trade.
In an environment of strong demand, these supply-side constraints resulted
in a steady increase in iron ore prices. Chart G shows how prices have
risen since Q2, 2010-11.
Table 2 gives the regional distribution of the Company's sales. While China
remains the core geography, the Company is focusing on developing other
markets. With the growth in the domestic Indian steel industry, there is a
growing emphasis on domestic iron ore sales. India's share of Sesa Goa's
total iron ore sales has risen from 6% in 2009-10 to 10% in 2010-11.
Similarly, the share of Japan and Korea has increased from 7% to 10%.
Table 2: Share of Sesa Goa's Total Iron Ore Sales
2010-11 2009-10
China 77% 85%
Europe 2% 2%
Japan & Korea 10% 7%
India-Domestic 10% 6%
Others 1% -
Regulatory Issues
The performance could have been even better had it not been for some
regulatory issues that affected both volume growth and profitability of the
iron ore business in 2010-11, to which we now turn.
Karnataka Export Ban
In order to curb illegal mining, the state government of Karnataka imposed
a temporary ban on iron ore exports from its ten minor ports since end July
2010. Consequently, a group of miners including Sesa Goa, approached the
High Court of Karnataka to revoke this ban. After the hearing, the High
Court provided six months for the state government to enforce requisite
regulations to mitigate illegal mining. To get faster resolution, this
order was further challenged in the Supreme Court.
The Supreme Court heard the matter on 12th February, 2011. It stated that
the ban could not be for an indefinite period and directed the government
of Karnataka to frame new rules for controlling illegal mining by 31st
March, 2011. Meanwhile, it directed the state government to allow the
exports of iron ore lying at major ports.
On 5th April, 2011, the Supreme Court passed its interim order staying the
government ordinance on issuance of Mineral Despatch Permits for exports by
the state of Karnataka with effect from 20th April, 2011.
Export Duty Structure
On 28th February, 2011, Government of India raised export duty on both
lumps and fines to 20%. The effect of this was restricted to only the month
of March in 2010-11, but going forward this will adversely affect margins.
Operations
The regulatory issues discussed above made it difficult to increase
production and sale of iron ore. In addition, there were natural
disruptions like extended monsoons in Goa. Sesa Goa launched several
internal operational initiatives to overcome these adversities. These have
helped the Company to produce 18.8 million tonnes of iron ore (21.1 million
tonnes on a WMT basis), which is almost in line with the 19.2 million
tonnes (21.4 million tonnes on a WMT basis) of the previous year.
Sesa Goa operates mines in Goa and Karnataka. While for most of the mines,
the Company has direct ownership in the form of mining leases from the
state governments, some of these are under third-party operations. Table 3
gives the Company's production data across different states.
Table 3: State-wise production volumes (in million tonnes)
2010-11 2009-10
Goa 14.4 13.8
Karnataka 3.0 3.7
Orissa 1.4 1.7
Total 18.8 19.2
Note: As international sale prices are quoted in dry metric tonne (DMT),
all our iron ore volumes are reported on a DMT basis, versus the earlier
basis of wet metric tonne (WMT).
The third-party mining contract for the Thakurani Mine in Barbil, Orissa
expired on 30th November, 2010. Sesa Goa did not renew the mining contract
because of unviable commercial terms. Thus, the Company has ceased its
mining operations at the Thakurani mine from 1st December, 2010. With this,
the Company has no mining operations in Orissa.
Iron Ore Mining: A Progress Report
A number of initiatives are being undertaken to expand mining capacity and
logistics at Goa and Karnataka. The goal is to increase production at Goa
and Karnataka to 40 mt. These include additional investment in mining
equipment, processing plants, barges, land and infrastructures at an
estimated capital expenditure of around US$500 million.
We have made substantial progress on the logistics capacity: with a new
railway siding already commissioned in Karnataka and work progressing on
widening of the existing roads and building dedicated road corridors in
both Karnataka and Goa.
We are also adding capacity in river and port logistics with five new
barges already on stream.
Exploration
Any natural resource based business with long term growth priorities must
be backed by strong exploration skills and efforts. At Sesa Goa, the
exploration initiatives are driven by its focus on sustainable growth. With
this objective, the Company is continuously looking to add more resources
through exploration, acquisitions and also through new mine leases.
During 2010-11, six drilling rigs were deployed across leases in Goa and
Karnataka. By 31st March, 2011, over 68,900 metres were drilled. This
resulted in a gross addition of 53 mt to the Company's reserves, and
resources base prior to a depletion of 21 mt in 2010-11. Table 4 gives the
last three years resource addition and depletion.
Table 4: Sesa Goa's Iron Ore Reserves & Resources (R&R), are in million
tonnes
Gross Depletion Acquisition Total R&R
Addition
2008- 09 54 16 - 240
2009- 10 64 21 70 353
2010- 11 53 21 - 306
Note: Total R&R at the end of 2010-11 is excluding Orissa mine which was
included in earlier years.
As on 31st March, 2011, total reserves and resources at the mines that the
Company held on lease and/or right to mine stood at 306 million tonnes. The
reserves and resources position has been independently reviewed and
certified as per Joint Ore Reserves Committee (JORC) standards.
Pig Iron
The Company's pig iron business is operated by its erstwhile subsidiary,
Sesa Industries Limited (SIL), which has been merged with Sesa Goa Limited
and now known as the Pig Iron Division (PID). Having commenced its
operations in 1992, the PID was the first to introduce low phosphorous
foundry grade pig iron in India.
Today, the PID produces several grades of pig iron, including basic,
foundry and spheroidal (nodular) grades that cater to steel mills and
foundries in India and abroad. PID also produces slag as a byproduct which
is sold to the cement industries.
The demand for pig iron fluctuated throughout the year. Overall, production
reduced by 1% from 280,130 MT in 2009-10 to 276,117 MT in 2010-11. However,
market prices improved and the PID managed better sales realisation in
2010-11.
The key data are given below.
* Sales volumes decreased by 5% from 278,747 MT in 2009-10 to 266,090 MT in
2010-11.
* However, external sales revenues increased by 22% from Rs. 552 crore in
2009-10 to Rs. 674 crore in 2010-11.
* Profits before interest, tax, dividends and other nonrecurring or non-
allocable incomes for the pig iron business increased by 21% from Rs. 117
crore in 2009-10 to Rs. 141 crore in 2010-11.
The PID's facility, located in the village of Amona, Bicholim taluka, North
Goa, consists of two blast furnaces - each having a working volume of 173
cubic metres, with a combined annual rated capacity of 250,000 MT of pig
iron, with a consent capacity of 292,000 MT. The plant adheres to the best
standards of quality, environment, health and safety. It is certified to
ISO-9001, ISO-14001 and OHSAS-18001 systems for quality, environment and
safety respectively, through a third party certification agency, Bureau
Veritas Certification (India) Pvt. Ltd., formerly known as BVQI. The PID's
R&D activities have resulted in reduction in operating costs, improvement
of product quality and development of new products for downstream
industries. It has developed special grades of pig iron to cater to the
fast growing niche market of ductile iron castings in India.
The Company's expansion project is progressing well - after which the rated
capacity of the pig iron plant will increase from 0.25 million tonnes per
annum (MTPA) to 0.625 MTPA, along with expansion of the metallurgical coke
plant, a new sinter plant and a 30 MW power plant based on waste heat
recovery. Commissioning is expected in Q3, 2011-12.
Met Coke
Sesa Goa's met coke division is operated as an independent business unit.
The business is primarily a backward integration initiative to support the
pig iron operations 70% of the met coke output was consumed internally in
2010-11.
The met coke plant at Amona produces a range of coke fractions from over 70
mm for foundries, 20 mm to 60 mm for blast furnaces, and 6 mm to 25 mm for
the ferrous alloy industries. The product is mainly of low ash coke. The
principal input, low ash coking coal, is imported. To ensure stable raw
material supply, the Company enters long-term procurement contracts. Coking
coal is carefully blended with accurate controls to produce the desired
high quality low ash met coke, using the cost-effective proprietary Sesa
Energy Recovery Coke Making Technology. This process produces high quality
met coke, and has the lowest pollution levels among comparable
technologies.
There was moderate growth in production and external sales. However, profit
margins increased significantly due to higher sales realisation with an
increase in global prices of met coke.
* Sales volume (internal & external) was at 252,074 MT in 2010-11.
* External sales revenues increased by 6% to Rs. 152 crore in 2010-11.
* Profits before interest, tax, dividends and other nonrecurring or non-
allocable incomes for the met coke business increased by 161% to Rs. 89
crore in 2010-11.
In line with the expansion of the pig iron facility, the Company is also
expanding its met coke production capacity by another 280,000 MT per annum,
which will increase the total production capacity to 560,000 MT per annum.
Sesa Goa has developed a technology for energy recovery in coke making.
This is environment friendly, characterised by low capital and operating
costs, high levels of energy recovery, and has the capability to produce
high quality metallurgical coke. The Company has received a European and an
Indian patent for this technology.
In addition, the Company has introduced a German technology for
densification of coal charge, employing vibro-compaction for producing
stable coal cake with bulk density. The met coke division has also set up a
state-of-the art coal carbonisation laboratory for coal characterisation
and evaluation of coke quality.
Human Resource (HR)
The primary goal from a HR perspective is to a build a robust and agile
world class organisation with a culture of high performance embedded in a
value system that promotes respect for individuals, diversity and
entrepreneurship.
In 2009-10, the organisation was recast into SBUs. The Company has
continued this transformation exercise through various people development
initiatives. In the course of 2010-11, a number of learning initiatives
were carried out. These included management development programmes for
graduate engineers, training on structured problem solving, technical as
well as behavioural aspects, and safety. During 201011, 5,900 man-days of
training was imparted.
The Company has a special focus to identify and nurture leadership talent
within the organisation. Assessment Centers were conducted to identify high
potential employees to be designated as 'Star of Business'. In 2010-11, 34
such stars were identified, and individual development plans were created
to ensure their career progression in the Company with challenging roles
and assignments.
The Gen-next Operational Leadership (GOLD) programme launched in the
previous year continued into 2010-11. The first batch completed the
programme successfully & a second batch of 37 high potential employees has
been inducted.
Equity-based awards in the form of a long term incentive plan (LTIP) are
offered to recognise key, high performing employees of the Company. LTIP
facilitates alignment of the interests of management, including younger
high potential future leaders, with those of the shareholders. It has
proved to be an effective motivational and retention tool for high calibre
people.
The Company has also rolled out web-based initiatives called 'Anytime
Learning' and an e-library. Through self-learning modules, these platforms
encourage knowledge sharing and provide opportunities for employees to
upgrade their technical and managerial skills.
During 2010-11, an innovative method of workforce engagement called the
'Idea Mela' was undertaken, which was aimed at collecting employee
suggestions. Most workforce ideas were related to productivity improvement,
cost reduction, better safety / environment practices, quality improvement
and employee welfare. Over 5,000 ideas were collected from 2,000 employees,
of which 75% were from workmen. Some 600 ideas were considered feasible.
These are being implemented. Already, the ideas have resulted in a cost
saving of R. 2.5 crore.
To promote operational efficiencies and be in tune with global best
practices in mining and other functions, employees attended different
training programmes, conferences and visited some of the world's best mines
during 2010-11. Areas of study included benchmarking, mergers and
acquisitions, sustainable development, mining logistics and climate change.
Risks and Uncertainties
Sesa Goa has a robust system of internal controls that helps protect the
interests of the Company and its assets from unauthorised use or
disposition. This includes a system of documented policies, guidelines and
procedures, reviews by management and extensive internal audits by reputed
international audit firms.
As with any enterprise, Sesa Goa faces several risks. The main macro-level
risks are given below.
Market Risks
Sesa Goa exports over 85% of its iron ore production. Being a player in the
global seaborne iron ore market, the Company's business is exposed to
adversities in demand and supply. Moreover, with 77% of sales being
exported to China, any slowdown in that economy can affect the Company's
business. There are two mitigating factors. First, Sesa Goa's share of
total Chinese iron ore imports is small, and there continues to be various
opportunities in China for the Company to increase its market presence.
Second, Sesa Goa's low operations cost also acts as a significant assurance
of its ability to ride out short term adverse market conditions. The
Company continues to work towards diversifying its customer mix in terms of
geography.
Regulatory Risks
The mining sector in India is subject to an uncertain regulatory
environment. Being a major mining company, Sesa Goa has exposure to these
uncertainties. In the last few years there has been several negative
developments in the export duty on iron ore. In 2010-11, it was increased
to 20% for iron ore lumps and fines. Export bans are periodically applied
to various ores - such as the one that occurred in the state of Karnataka
in 2010-11.
Environmental regulation policies also remain unclear; and case-to-case
administration of such regulations leads to uncertainty and risk in mining
activities.
Production Risks
Sesa Goa adopts a sustainable production platform. Consequently, the
addition of new mineral resources is critical for sustaining growth
oriented mining and production plans. As on 31st March, 2011, Sesa Goa has
total reserves and resources at 306 mt. It continues to focus on adding new
mineral resources through exploration and the grant of new mining leases
from central and state governments. In the last three years, the Company
has added over 170 mt to its gross reserves and resources through
exploration activities and 70 mt through acquisition. There are risks in
terms of getting the final government clearances for increasing our current
production capacities. Besides, delays in allocation of new mineral leases
or changes in the policy on allocation of such leases in favour of captive
steel companies could affect future plans of the Company.
Project Execution Risks
Sesa Goa's aggressive growth plan initiated in 2009-10 has resulted in
investments in several developmental projects. Many of these are linked to
creating the underlying infrastructure to support logistics of ore. In
addition, in 2010-11, the Company has taken over the upcoming steel plant
assets of Bellary Steel and Alloys Limited. All these new investments
require project management skills, and have exposure to project execution
risks.
Currency Risks
With a majority of its iron ore being exported, Sesa Goa's revenues are
primarily quoted in US dollars. This gives the Company significant exposure
to foreign exchange fluctuation risks, particularly in relation to the US
dollar.
Industry Risks
Iron ore production is concentrated in the hands of a few - with the top
three producers accounting for more than 70% of the global seaborne iron
ore trade. Such scale provides these players with a significant ability to
affect competition, and pose a potential threat to the Company's exports.
Sesa Goa continues to focus on building relationships with the major
customers and in geographically diversifying its customer base.
Sustainable Development
Sesa Goa is committed to create value for its stakeholders in a sustainable
manner, minimise adverse environmental impacts, and work in cohesion with
the community, government bodies, non-governmental organisations and other
groups. Health, safety and environment (HSE) and corporate social
responsibility (CSR) are of paramount importance to Sesa Goa. In addition,
the Company's sustainable development model promotes efficient use of
resources such as energy and water, minimises the negative impact on
biodiversity, and reduces waste and emissions including greenhouse gases.
As a part of its sustainable development communication and reporting
system, Sesa Goa produces every year its Sustainability Development Report,
complaint to GRI G3 guidelines and maintaining its appliction level A+
since last 3 years. All the reports are also available on GRI website apart
from the Companies website.
The Company is signatory to UN Global Compact from 2009-10, and submitting
the communication of progress to the principles of UNGC.
Health, Safety and Environment (HSE)
Sesa Goa's top management, through its HSE Committee, steers the Company's
initiatives by setting annual targets and reviewing progress. The emphasis
is on integrating HSE with the decision-making process. Today, all the
Company's locations are certified for ISO 9001, ISO 14001 and OHSAS 18001 -
except Sesa Resources Limited, which is yet to be certified for OHSAS
18001. Sesa Goa has well qualified HSE and CSR teams across all its
operations. At present, there are 54 such professionals.
Occupational Health
The Company aims to provide a workplace that is free from hazards of
occupational illness. The health of all employees is checked annually
across the group companies. In-house facilities for occupational health
monitoring are available in the mines and the factory sites. Dust, noise
and lighting levels are regularly monitored to ensure good workplace
hygiene. Whenever a risk is identified, the Company takes early steps to
quantify, control and prevent it through proactive measures.
The Company's doctors impart awareness about health education and related
issues to the employees and local communities around its operations. The
emphasis is on improving health and hygiene and preventing communicable
diseases. During 2010-11, there were no occupational illnesses reported in
Sesa Goa.
Safety
The Company aims for zero accidents and a safe working environment. This is
promoted through a well established system of checks and balances, and the
reporting of accidents and incidents, including the near-misses. These are
thoroughly investigated to identify systematic safety deficiencies. On
identifying such gaps, preventative measures are put in place.
There is sharing of safety lessons learned and best practices through
exchange of information across the group. The organisation encourages
employee participation in safety committees and safety promotional
programmes. New initiatives are regularly introduced for continual
improvement in safety performance.
Chart H shows that for the Company as a whole, the frequency and severity
of accidents (FSI) has declined from 0.93 in 2009-10 to 0.50 in 2010-11.
FSI increase in the shipping business is because of a fatality occurred at
one of our jetty where a barge sailor lost his life in an unusual accident.
The met coke plant achieved zero lost time injury incidents for the second
consecutive year and the pig iron division has also achieved zero lost time
injury incidents during 2010-11.
Environment
Mining is about exhausting natural resources. Thus, it is important to
replenish as much as possible and extract ore with minimal peripheral
damage to the environment. Sesa Goa is conscious of this challenge. From
planting trees at the mining sites to conserving water, managing solid
waste and reducing energy consumption, the Company takes many steps towards
environment conservation and minimising the impact of mining on the
surrounding environment and society.
The Company's responsibility does not end with operating the mines. It
extends after the mine site is closed. Sesa Goa ensures regeneration of the
earth that has been mined, helps sustain the biodiversity and addresses the
needs of local communities. In the long term, the ] goal is to restore the
land to as close I to its original state as possible.
The Company has a full-fledged environment management team to plan,
implement and monitor environment management programmes. The focus is on:
* Pre-planning of mining operations.
* Adoption of new and efficient technologies.
* Modernisation of equipment.
* Implementing new ways of operating to minimise the negative impact on
environment.
* Conserving natural resources through efficient use.
Energy Conservation
Sesa Goa has established and implemented clear energy conservation targets,
which vary from 3% to 5% reduction of specific energy consumption across
all locations. Projects for energy conservation are identified and
undertaken in a systematic manner and are reviewed every quarter to ensure
the targets are actually achieved.
* In 2010-11, the Company has been able to maintain specific energy
consumptions at 0.106 giga joule per MT (GJ/MT) of output in mining.
* For the PID, it reduced from 0.560 GJ/MT in 2009-10 to 0.501 GJ/MT in
2010-11.
* In met coke, it reduced from 0.139 GJ/MT in 2009-10 to 0.136 in 2010-11.
Water Conservation
The main focus on the water management is on reducing fresh water
consumption, increasing the use of harvested rain water, reducing specific
consumption, and increasing recycling and re-use of treated effluent. The
Company follows the concept of zero discharge, with a robust system to
undertake and monitor tight water conservation targets every quarter. Water
managers are located at each of the sites to identify water conservation
projects in consultation with the operating team.
Water conservation is managed through:
* Continuous use of recycled water for mining operations and for
beneficiating iron ore, thereby reducing freshwater consumption by about
70%.
* The rainwater accumulated in mine pits is used for beneficiation and
spraying. The tailings generated during beneficiation are treated and water
is then recycled back.
* The water requirement of the pig iron and met coke plants is met from
rainwater harvested in the exhausted Sanquelim mine pit and partly through
government supply.
* In case of Karnataka operations, ground water is used to meet dust
suppression requirements. This is supplemented by rainwater harvesting in
ponds during the monsoon, which is also used for the nursery plantations.
Total water consumed in mining operations has reduced from 14.9 million
kilolitres in 2009-10 to 11 million kilolitres in 2010-11.
Climate Change
Climate change is an important aspect to Sesa Goa. The Company has
undertaken steps to measure its impact on the environment by periodically
mapping its carbon footprint. The registration of the 'Waste Heat Recovery
Based Power Plant Project' with the UN Framework Convention for Climate
Change (UNFCCC) has led to generation of carbon revenue - which not only
makes the project sustainable but also creates an additional revenue
stream. 1,00,438 CERs was accrued during 2010-11.
During the year, Sesa Goa was selected as one among the 10 leaders for CDLI
(Carbon Disclosure Leadership Index) shortlisted companies from 200 CDP
(Carbon Disclosure Project) respondents and published in the CDP report
2010, India 200.
Waste Management
Sesa Goa adopts a '4R' waste strategy - reduce, recycle, reuse and reclaim.
The focus is on improving material efficiency; reducing waste generation;
and enhancing recovery and reuse of discarded material. The mining,
beneficiation, metal extraction and coke making activities result in the
generation of both hazardous and non-hazardous waste. An example of waste
management is given below.
Iron ore tailings contain iron concentrations of around 45%. Due to
increasing cost of land and scarcity of mining assets, it makes economic
and environmental sense to reduce the proportion of tailings in the
beneficiation process. This was achieved by adding Wet High Intensity
Magnetic Separation (WHIMS) units to the beneficiation plants. Due to this
innovation, there was a gain of ~11,000 tonnes per year of usable iron ore,
representing around 2% of the feed material.
Corporate Social Responsibility (CSR)
Sesa Goa's approach to community development is holistic and long-term.
Public Private Partnerships (PPP) and community consultation are the core
drivers of the Company's work with communities. It engages with its
stakeholders by a consultation process. This, coupled with base line
studies and need-based assessments, provide the framework for developing
the various social interventions. Sesa Goa partners with like-minded
organisations in most of the projects, such as government agencies, NGOs,
local communities and panchayats.
Sesa Community Development Foundation
The Sesa Community Development Foundation, initiated by the Company, is
registered under the Societies Act. The Foundation's core focus is to
foster the development of the community and youth around Sesa Goa's areas
of operations in Goa through providing technical education and sports
training as well as various community development initiatives. Some
initiatives are listed below.
Sesa Technical School (STS)
The Sesa Technical School was established in 1994 on an old iron ore mining
workshop at Sanquelim. STS aims at providing the youth in and around Sesa
Goa's mining operations with technical skills and knowledge to enable them
earn a living. STS students specialise in becoming machinists, fitters,
electricians or instrument mechanics, and secure placements in various
nearby companies. For the last several years, STS has maintained 100%
results in the Industrial Training Institute (ITI) trade examinations.
Since the inception 16 batches have been rolled out making 726 young Goan's
employable till date on their own merit.
Sesa Football Academy (SFA)
To nurture the talent of Goa's young footballers, SFA was established in
1999 to offer junior level training at Sanquelim, Goa. Its senior level
academy began operations from June 2008 at Sirsaim, Goa.
Junior Academy
It houses 36 Goan boys. Once in two years, boys in the age group of 14 to
16 years are selected on merit and are provided with professional football
training as well as formal education. The team has won many championships
and its graduates play for top teams of the country.
Senior Academy
For the last 3 years, Sesa Goa's Senior Academy has been an active
participant in the Goa Professional League, besides participating in the
Second Division of the I-League, the Governor's Cup and various other
tournaments. Within two years of the senior academy coming into being,
eminent clubs have approached students for recruitment
Sesa has two football grounds in Goa created in restored mining land. To
further nurture the young talent, a new infrastructure at Sirsaim was
inaugurated last financial year. Built at an estimated cost of over *4
crore, it has an all-season football turf, a hostel facility that can
accommodate 30 boys, an in-house gymnasium, indoor sports hall, audio
visual room and sauna bath facilities.
In March 2011, Sesa Football Academy (SFA) signed Mr Terry Phelan, a former
English premier league footballer, who represented his country, the
Republic of Ireland, in the 1994 FIFA World Cup as the chief mentor for
significantly developing the Academy. The SFA has also appointed Libero
Sports - a subsidiary of the US-based Libero Sports LLC - as its strategic
marketing consultants.
Development of Social Infrastructure
Sesa Goa believes that building appropriate infrastructure can help develop
communities. The Company's infrastructure development initiatives include:
* Water pipeline at Bagwada, Pilgaon, Bicholim as a part drinking water
facility to the villagers. The beneficiaries are 102 villagers.
* Constructed 115 metre water canal at Kalsai, Kirlapal Dabal village in
Goa. The beneficiaries were 40 farming families.
* Constructed compound walls and other infrastructure for primary, middle
and high school at Goa and Karnataka.
* Constructed a large community hall in village of Navelim, Goa.
* Constructed concrete cement road connecting the village of Medikeripura
in Karnataka.
* Constructed the Community Medical Centre at the village of Megalahalli in
Karnataka.
* Constructed watershed development and drainage systems at several
villages adjoining the Company's mines in Karnataka.
* Created drinking water facility for around 1,500 people at the village of
Playa in Karnataka.
* Distributed smokeless biomass stoves to around 700 families in Karnataka.
Education
Education has been one of the major focus areas of the Company's CSR
initiatives. Given below are examples of the education initiatives.
* Project Manthan: A school-based intervention for promoting adolescent
health and improving educational outcomes. A total of 13 schools are
covered under the project, with over 2,600 students as beneficiaries.
* Launched a scholarship scheme called the 'Sesa Dnyanjyoti Shishyavritti'
for meritorious students from Standard 5 to Standard 12. It has benefited
292 students from 57 schools.
* Launched the Vedanta Computer Education Programme called 'E-shiksha' in
295 schools in Goa and 250 schools in Karnataka.
* Distributed notebooks to students of several schools in Karnataka and
Goa.
* Conducted vocational tuition classes in Karnataka benefiting over 900
high school students.
* Started evening study centres in villages of Karnataka for Standard 3 to
Standard 7 students.
* Distributed balwadi play equipment to 20 balwadis, involving 400
children.
* Set up an orientation and mobility course for poor, visually impaired
students. 20 students were taught various skills like negotiating steps,
recognising places and daily living skills. During the 75-day course, these
students were offered free boarding and lodging.
Health Initiatives
Some of the key health initiatives of 2010-11 are given below:
* There are 10 community medical centres running around Sesa Goa's mines
and operational areas. Till March 2011, these have benefited around 118,000
people.
* A mobile health unit was launched for the South Goa mines, which covers
over 33,670 people.
* An anaemia detection and treatment campaign was conducted in the villages
of Pissurlem and Advalpal in Goa, which benefited over 300 women.
* Reproductive child health camps were organised at the villages of Mulgao,
Piligaon, Mayem and Surla in Goa, which were attended by 645 women.
* Organised free eye screening camps in Goa and Karnataka, which has led to
eye surgery, cataract operations and free spectacles to those who were
affected.
* Organised a cancer awareness and detection campaign in the villages of
Pissurlem, Cudnem and Surla in Goa, which covered 133 women.
* As in previous years, organised a blood donation camp on 1st December,
2010, the World AIDS Day, where 199 company employees donated blood. |