Vedanta Forced to Halt Mining Operations in Goa

on Sep 17, 2012
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London-listed miner Vedanta Resources Plc (LON:VED) has been forced to halt its mining operations in Goa, India, after the state government imposed a temporary ban on all mining activities, The Times reported on 12 September 2012.

Sesa Goa (NSE:SESAGOA, BOM:500295), which is an Indian unit of Vedanta, gets most of its iron ore from Goa-based mines. In a press release, Sesa Goa said that it had stopped ore extraction from all its mines in the State of Goa, following the orders of the Directorate of Mines of the government of Goa.
According to Bloomberg data, as a result of the ban and the suspension of operations, Sesa Goa fell 6.2 percent in Mumbai, the most in six months, whereas Sterlite Industries India Limited (NYSE:SLT, NSE:STER, BOM:500900), which is set to be combined with Sesa Goa, dropped by 4.6 percent, with the company also a unit of Vedanta.

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!m[](/uploads/story/374/thumbs/pic1_inline.png)As noted in The Times article, Vedanta, which also mines copper, aluminium and zinc in both India and Australia, has been hit by controversy related to pollution complaints. It was also recently ordered to suspend operations at one of its plants because of overly high levels of soot emissions.
Goa’s mining ban was implemented after an expert panel formed by the federal government detected “serious illegalities and irregularities” in mining operations, the industry news website Mineweb wrote on September 11. Bloomberg on the other hand reported that the panel in question found out that India’s western province lost an estimated 349.4 billion rupees (£3.9 million) because of illegal mining.

According to Mineweb, the state has not banned the movement of ore, which is already produced and stored at ports or in transit. Transportation and trading, however, will be permitted only following scrutiny. Still, Bloomberg quotes Giriraj Daga, an analyst at Nirmal Bang Equities Pvt. in Mumbai, who pointed out in a note to clients that the permission of trading and transportation would allow Vedanta’s Sesa Goa to sell approximately 3.8 million tons of its stock.

Goa’s ban comes a year after India’s Supreme Court imposed a similar ban on ore mining in the southern state of Karnataka, as noted by Bloomberg. At present, it is not clear how long the new ban will continue, which in turn causes some supply concerns, considering that India is the world’s third-largest exporter of the steelmaking raw material, whereas Goa in particular is India’s second biggest iron ore producer and top exporter. “The rising cases of mining bans may risk the future of steel industry in India,” notes Sajjan Jindal, chairman of JSW Steel Limited (NSE:JSWSTEEL, BOM:500228).

Bloomberg also quotes R.K. Sharma, secretary general at the Federation of Indian Mineral Industries, who noted that the ban could have an impact on global supply and iron ore prices, depending on how long it continues. “We’ll have to cut our forecast if the ban continues,” Sharma explained today in a phone interview. “Goa has some inventory, so there may not be an immediate impact.”

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