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Sesa Goa / Sterlite Industries: 4QFY12 production - on expected lines
` Hindustan Zinc - higher strip ratio to lead to decline in mined metal
production 1HFY13E
` Silver - strong production on the back of marginal grade improvement and
ramp-up of SK mines
` Iron ore business - hampered by logistics and mining ban in Karnataka
Sesa Goa / Sterlite Industries (SESA/ STLT)
Metals & Mining
4QFY12 production—on expected lines. Key highlights include decline in mined
metal production in HZ, record silver production and commissioning of third unit of
Jharsuguda IPP. Increase in strip ratio may lead to marginal adjustments in our
Hindustan Zinc estimates for FY2013E. PLF for two units of Jharsuguda IPP continues to
be a modest 65%; an improvement requires clarity on availability of coal. We maintain
ADD rating on Sesa/Sterlite due to inexpensive valuations.
Hindustan Zinc—higher strip ratio to lead to decline in mined metal production 1HFY13E
HZ expects mined metal production to decline in 1HFY13E despite lower base of 1HFY12. Likely
increase in strip ratio as the mining moves to narrow ore body in 1HFY13E could be the key reason.
HZ expects mining to move to wider ore body in 2HFY13E that will result in growth in production for
FY2013E. Our estimates of 1.04 mn tonnes (11% growth) of mined metal production may be cut by
1-2%. Cost of production will peak in 2QFY13E that will be the likely peak of strip ratio before
declining again. Mined metal production of 830 kt declined 1.2% in 4QFY12.
Refined lead production grew 105.6% yoy, in line with commissioning of a new 100 ktpa lead
smelter. HZ may resort to customer smelting of lead concentrate since capacity is in excess of own
ore production. HZ produced 5 tonnes of silver in 4QFY12 on custom smelting basis.
Silver—strong production on the back of marginal grade improvement and ramp-up of SK mines
Silver production was 88 tonnes (including 5 tonnes on custom smelting), a qoq improvement of
53%. Growth is led by ramp-up of Sindesar Khurd mine and marginal improvement of silver grade
in ore to 120-130 ppm range versus 115-120 ppm in the Sep and Dec 2011 quarters. The
management has guided for 11 mn ounces production target for FY2013E, implying 350 tonnes
of production. Note that this number is before captive consumption (which could be
approximately 35 tonnes) and does not include production from custom smelting operations.
Iron ore business—hampered by logistics and mining ban in Karnataka
Sesa has targeted FY2013E shipments of around 14-14.5/6 mn tonnes from Karnataka/Goa
respectively. However, this is contingent on reduction of transport and logistical bottlenecks and
no incremental damage from Shah Commission report on illegal mining in Goa and approval to
resume mining in Karnataka. We believe this is optimistic and build in around 18.5 mn dmt
shipments in FY2013E. Sesa currently has environment clearance to mine ~14.5 mtpa in Goa and
6 mtpa in Karnataka. As far as Karnataka is concerned, the Supreme Court hearing on grant of
relief to mines has been pushed back to April 13, while in Goa, the Shah Commission report had
been submitted to the Union Ministry in mid-March having found several cases of illegal mining
and is expected to be tabled in the Parliament within six months.
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