Goa Miners Hoping for Boom After Bust Turn to Guevara Fan

Apr 22, 2014 7:10 am ET

(Closes shares in 13th paragraph.)

April 22 (Bloomberg) -- Christopher Fonseca is decked out in his signature military-green uniform, his back to a giant poster of childhood hero Che Guevara as he fields questions from angry mine workers in his cluttered office.

“I have idolized Che and Fidel (Castro) since my student days,” says Fonseca, 61, the local general secretary of the All India Trade Union Congress, a wing of the Communist Party of India. He sports a trim grey beard and a full head of thick black-grey hair. His uniform is old and faded, but neatly pressed.

Fonseca’s ceiling fan is losing the fight with the heat as more workers crowd in, asking for jobs and telling tales of debts they cannot pay, despair that won’t ease. Welcome to another side of paradise.

This is India’s Goa state, which attracts millions of visitors a year to its beaches, temples and World Heritage 16th century Portuguese churches. Not to mention the hashish. Tourism is Goa’s biggest industry and made it one of India’s richest regions. The second biggest industry is much grimier.

Inland from its palm fringed coast on the Arabian sea, Goa has huge deposits of iron ore buried in hills that snake down into the neighboring state of Karnataka. Mining and exporting the ore, essential to making steel, accounted for 25 percent of the state’s revenue, until they were shut down over a year ago.

The mines had made Goa and Karnataka India’s largest exporters of iron ore, much of it shipped to China to be turned into the steel that’s now the backbone of skyscrapers, factories, office buildings and homes built during the country’s construction boom.

Lost Jobs

When the mines went quiet, about 100,000 people lost their jobs, including the truck drivers, mechanics, port workers and barge deckhands that supported the industry, according to the Goa government. Those thrown out of work equaled 7 percent of Goa’s population, though the actual figure is in dispute and may be higher.

Goa closed the mines in September 2012 after a federal- government panel said rampant illegal mining siphoned off an estimated 349.4 billion rupees ($5.8 billion). The illegals were also dumping toxic waste in rivers and on farmland, as well as destroying forest habitat.

The following month, responding to a petition by Goa Foundation, a non-profit environment group, the nation’s Supreme Court upheld the ban. The court had closed mines in Karnataka for similar reasons.

“We are not interested in stopping of mining, all we are asking is it should be done in a sustainable way and in a manner that benefits the public,” said Claude Alvares, a director at Goa Foundation. The state should handle sales of the ore, not private companies, he said.

Limited Restart

Yesterday, the court announced a partial lifting of the ban, now into its second year, to allow some mining to restart. Yet officials in the industry say Goa’s iron ore mines may take months to make a comeback because the infrastructure has collapsed and former customers have gone elsewhere.

All mining in the state after 2007 will be considered illegal, the court said in its order, because the licenses expired that year. The miners, who continued to operate pending renewal, will have to seek fresh licenses before resuming work. Mining may not start before October, said Giriraj Daga, a Mumbai-based analyst at Nirmal Bang Equities Pvt.

Sesa Sterlite Ltd., the biggest miner in the state, dropped 4 percent to 193.65 rupees in Mumbai, its biggest decline in five months. The shares reversed a gain of as much as 7.4 percent after the court’s order yesterday.

“The Supreme court order is too little too late,” said Fonseca, referring to the 20 million ton-a-year mining cap imposed by the top court. “The threat of job cuts still looms large and we have to remain eternally vigilant to protect workers’ interests.”

Kishore Gadekar’s 10-ton rusting truck sums up the problem for workers and mining companies such as Sesa Sterlite, once India’s biggest iron ore exporter, and Fomento Resources Group.

Gadekar’s truck hauled ore until it rolled to a halt when the ban was imposed in October 2012, along with about 18,000 other vehicles in the industry.

Wilted Flowers

Gadekar picked at rust on the vehicle as he said he’d spent 40,000 rupees servicing his truck just two weeks before the ban. The money was wasted, he said. The grass has grown tall under the chassis. Inside the cabin, wilted marigold flowers are scattered around a small idol of Ganesha, the Hindu god of wisdom and good fortune.

“We’re surviving on a prayer,” he said.

Flat tires, peeling paint, dead batteries and unpaid insurance and road tax is the state of the ore truck fleet, said Suresh Venkatesh Desai, vice-president of the Goa Truck Owners’ Association.

About 300 barges, used to carry the ore from jetties to larger ships, are also lying idle, their owners trying to fend off lenders, said Atul Jadhav, president of Goa Barge Owners’ Association.

Restarting the mines would just be a first step, according to P.K. Mukherjee, Sesa’s former executive director. The next would be trying to win back customers, who now buy more iron ore from Australia and Brazil.

Unreasonable Discount

“Our longstanding customers have readjusted their blast furnaces to a different mix of iron ore,” Mukherjee said in an interview last month, weeks before leaving the company. To win them back would require an unreasonable price discount, he said.

“Large international buyers need reliability of supply and that’s exactly what they can’t find in India now,” Ambar Timblo, managing director of Fomento Resources, said in an interview at Panaji, the state capital.

India’s exports of iron ore peaked at 117 million tons in the year to March 2010, the year before mining was banned in Karnataka. By March 2013, shipments had fallen to 18 million tons.

A drop off in steel demand in China saw prices for iron ore arriving at Tianjin Port fall 18 percent in the past year to $113.3 a ton as of yesterday. The price decline would have been much steeper had India been in the market, Bloomberg Industries analyst Kenneth Hoffman said.

‘Price Crash’

“The decline in ore exports from India has significantly supported global prices at a time when low-cost capacity ramp- ups in Australia and Brazil are putting prices under pressure,” said Hoffman, global head of metals and mining research at Bloomberg Industries. “There’s a concern that rising supplies may lead to a crash in iron ore prices.”

The over-supply scenario, coupled with China’s preference for high-grade ore to curb pollution, will make the typical lower grade and higher sulfur content of Indian ore, unattractive, Hoffman said.

Fonseca, meantime, continues his efforts to save jobs. His appeal to India’s labor secretary in January to block a Sesa Sterlite plan to lay off workers succeeded.

“Transport providers are in great distress and mining companies may have to consider some financial assistance for them,” said Timblo at Fomento Resources. “Without them, starting the mines will make no sense.”