Sesa Goa :Iron ore mining suspended in Goa:Nomura research

Goa government suspends iron ore mining in the state …
The state government of Goa has suspended iron ore mining in Goa, as
recommended by the Justice Shah committee constituted earlier to
probe the allegations of mining irregularities. Please note that the
government has allowed movements of iron ore already produced and
stored at ports or in transit.

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Little impact on steel production in India – majority of iron ore was
exported
Goa produced close to 50mn tonnes of iron ore in FY11, of which 40-
45mn tonnes were exported, as per industry sources. Not more than 2-
2.5mn tonnes of iron ore produced in Goa are for domestic use (largely
for sponge iron).
Therefore we believe the impact of mining ban in Goa will be different
from that in Karnataka, as domestic steel production would be largely
unaffected by this. Indeed, seeing the global iron ore scenario we believe
the event could help to provide temporary support to global iron ore
prices which in turn may help steel prices.
Closure of mines in Goa may be short lived unlike Karnataka
Our interactions with industry sources suggest that iron ore mining
suspension in Goa is likely to be short lived and mining should start in
the next 1-2 months. The key reasons for the above belief are: 1) mining
irregularities reported are not as severe as in Karnataka; and 2) iron ore
mining is much more important for Goa compared to Karnataka.
Goa has total GDP of close to USD6.5bn and iron ore exports tend to
contribute near 50% of it. At the same time the ban has been imposed by
the current government which will be affected more by popular sentiment
(which supports mining).
Negative SESA GOA, but no major value impact
In our opinion, the news is certainly negative for SESA GOA, given that
the company will not have any operational iron ore mine now under the
new directive and its Karnataka mines are yet to restart production. The
iron ore business, which is close to 15% of total EBITDA and 19% of
total profit of the merged SESA Sterlite, will now cease to contribute to
earnings.
Since we don’t expect the ban to continue for long and thing are
improving in Karnataka, we believe value impact from the above would
not be significant. Our interactions with traders in Goa suggest that
SESA GOA’s mines would not be involved in any major irregularity and
hence we don’t expect any loss of reserves for the company.
The iron ore business contributed INR40/share to our target price of
INR220/share (of the merged entity SESA Sterlite).