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 macrolevel risks are given below.
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.
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 caseto- case administration of such regulations leads to uncertainty and risk in mining activities.
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.
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.
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.
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.