London Calling examines Vedanta's "exit mode"Published by MAC on 2013-07-15
Source: Nostromo Research, Mineweb (2013-07-11)
Yet again, Vedanta Resources plc is destined for a troubled run at its forthcoming annual general meeting.
This year, the most criticised of all London-listed mining companies is just as likely to face flak for financial mismanagement as its continued violations of just about every acceptable environmental and social compliance standard you care to mention.
Surely the appropriate term to describe how chairman Anil Agarwal has dug his enterprise into several ditches, is "hubris"
That's the style of arrogance which brought some ancient Greek gods to their knees. Not that Mr Agarwal would qualify for a seat in any pantheon, much as he might fancy elevation to its Asian variety. (The title he chose for his company reflects a distinctly theocratic bent)
His decision, two years ago, to acquire Cairn India was recklessness of a very mundane nature. Vedanta has no previous experience in exploiting oil and gas. And, even though it now boasts of having created an 80% growth in India's oil and gas supplies, we forsee numerous problems ahead on the ground.
That particular foray has cost Vedanta not far short of US$9 billion. According to Mineweb [11 July 2013], the company's debt is currently US$16.7 billion. Nonetheless, on 23 July, Cairn announced that it would plunge another US$3 billion into the Rajasthan drilling programme.
Notwithstanding the debtload carried by Rio Tinto in the years following its foolhardy acquisiition of Alcan, Vedanta is nowproportionately the worst fiscal manager among all UK mining enterprises.
But there's obviously someone with half an ounce of sense within the Agarwal camp.
Vedanta has decided not to pay out US$4 billion for a majority stake in Rio Tinto's Iron Ore Company of Canada (IOC).
There's also somejustification to selling its 9.5% share in Hudbay Minerals.
It's sobering to realise that Vedanta's significant stake in Hudbay has passed by unnoticed by many of its long-standing critics.
The company has never referenced it in annual reports, and (to our recollection) the investment has never been questioned at an annual general meeting.
For once, Mr Agarwal has escaped relatively unscathed from backing yet another gross offender in the field of mining-related human rights. (see: http://www.minesandcommunities.org/list.php?r=1531).
Debt-heavy Vedanta in exit mode
Severe fall in commodity prices and poor global economic conditions have seen Vedanta Resources taking some cautious steps.
10 July 2013
MUMBAI - It's exit time for Vedanta Resources. The Indian mining conglomerate has not just backed away from a purported $4 billion acquisition of Rio Tinto's 59% interest in the Iron Ore Company of Canada, it also recently sold its 9.5% stake in Hudbay Minerals for about $151.8 million.
Though financial considerations are said to have motivated both the decisions, officials said, with the Indian rupee falling sharply against the dollar, the company had taken the call on both counts after several deliberations.
Moreover, Vedanta's annual report shows that the company has to repay over $3.5 billion debt this year. Thus, taking on a $4 billion asset at this time does not make sense.
Vedanta has amassed debt of around $16.7 billion, mainly due to its $8.76 billion acquisition of a controlling stake in Cairn Energy's Indian subsidiary Cairn India in 2011.
The group has transferred its $8.76 billion loan from its London-listed parent company to newly created Sesa Sterlite in India.
Incidentally, Hudbay Minerals primarily produces zinc, copper and other precious metals like silver and gold. In 2012, it had produced about 39,500 tonnes of copper and 80,800 tonnes of zinc and was sitting on a cash and cash equivalents of $1.3 billion.
Vedanta had acquired about 14.5 million shares in Hudbay Minerals, through a privately held Netherlands-based subsidiary Lakomasko BV for an undisclosed sum and, at the time there was speculation that Vedanta may use the company as its gateway to North America.