Sesa Goa has received a showcause notice from the Jharkhand government asking it why its prospective licence for iron ore mines in the state should not be cancelled.
In the letter, the district mining officer of Chaibasa has said the company seemed more interested in keeping the 7 square km of mining area in its fold rather than developing it.
The notice, dated April 12, comes as the second jolt to the valuation of the company, which is in the final stages of being sold by its Japanese promoter Mitsui & Co. The company has been asked to reply to the showcause notice in a month's time.
Sesa's valuation received the first blow when the Centre imposed an export levy of Rs 300 a tonne on iron ore on February 28. The company exports one-tenth of its 9.6-million-tonne output to Japan and 58 per cent to China and Taiwan.
Sesa Goa managing director P K Mukherjee was not available in his office on Saturday. Sesa Goa received the prospective licence for the mines in Jharkhand's West Singhbhum district in early 2005.
Industry sources said the letter gains significance because the valuation of the country's second-largest iron ore exporter would be determined by its reported 150 million tonne of iron ore reserves in Orissa, Karnataka and Goa and the prospective mining licence in Jharkhand (government-owned MMTC is the country's largest iron ore exporter).
Three bidders - the world's largest steel company, Arcelor Mittal, Anil Agarwal-controlled Vedanta Resources, and the Aditya Birla Group's closely-held Essel Mining & Industries - have submitted bids for Mitsui's 51 per cent stake in Sesa Goa.
Despite expectations, Brazilian miner CVRD did not submit a bid. Two others to withdraw from the race were the world's second-largest mining and natural resources company, Anglo American, and Brazil's mining firm Rio Tinto. Morgan Stanley is the advisor to Mitsui.
The Sesa Goa stock gained 1.72 per cent to close at Rs 1,691.75 on Friday. Mitsui would have fetched a better premium for its controlling stake had there been no export duty on iron ore. In fact, the stock had touched its 52-week high on February 27, a day before the export duty was imposed.
The company posted a net income of Rs 1,697 crore (Rs 16.97 billion) and net profit of Rs 531 crore (Rs 5.31 billion) for the year ended March 31, 2006.
Analysts said the levy of tax on overseas iron ore sales would hit the company's earnings by 20-25 per cent next year. The levy will cut Sesa's 2008 earnings to Rs 161 a share, CLSA Asia Pacific Markets wrote in a note immediately after the Budget, which was 24 per cent below the brokerage's previous estimate.