After a shutdown of more than three years Vedanta Resources subsidiary Sesa Goa has received necessary government approvals to this week resume iron ore mining at Codli in the Indian state of Goa.
“The company has received relevant consent, licence and approvals to commence iron ore mining operations in Goa for some of its leases. The company is likely to recommence operations from August 10, 2015, at its biggest mine at Codli in Sanguem taluka,” Vedanta said in a statement. It is the first company to restart iron ore mining in Goa.
It also said that it has been granted approval for total extraction of 5.5 million tonnes, of which Codli has 3.1 million tonnes. "To date, five plans and schemes for company’s mines have been cleared by the Indian Bureau of Mines and we are awaiting clearance for further 15 plans.
“Over the balance monsoon period, we anticipate receiving these approvals and expect a full-scale resumption, post monsoon,” Vedanta added.
Despite the restart, the company is likely to find it tough to scale-up its operations from Goa as low iron ore prices, lower demand and loss of market to Australian iron ore miners are expected to be major impediments to run operations profitably in Goa, where iron ore is generally of lower quality.
The Goa iron ore cannot be used in Indian steel mills and is fully exported. The ores also claim less realization on each tonne of iron ore sold due to poor quality. In the last three years of a Supreme Court-imposed ban in Goa, most miners lost their export market to Australian miners and this situation has worsened due to a fall of more than 50% in the cost of iron ore.
Vedanta's CEO Tom Albanese recently acknowledged these issues and said the company would have to work really hard to regain market share and maintain margins once operations started in Goa.
Currently, Vedanta is producing iron ore from its mines in Karnataka which contributed only 10% to its overall iron ore production in 2012, when mining was banned. Goa's iron ore mines played the primary role in the company’s business.
In 2014-15, Vedanta produced 600,000 tonnes of iron ore due to resumption of mining in Karnataka and generated an operating profit of Rs135 crore, just more than 1% of the overall operating profit of the group.
Vedanta said: “Even as India in general and miners from Goa in particular look to regain lost markets, iron ore markets/prices are weak and the international trade environment remains challenging. We continue to work with the central and state governments to improve competitiveness of Indian exports.”