Vedanta takes the low road, with highly dubious expectationsPublished by MAC on 2015-08-17
Source: mydigitalfc, Mining.com, Financial Express, PTI
Among the Indian iron ore producers hit hardest by restrictions on extraction over the past three years, is Vedanta Resources plc.
With a "measured" resumption of mining allowed by the Modi government, the London company has become the first Indian enterprise to re-open two mines in Goa which, along with Karnataka, suffered most from the 2012 embargos.
Many communities in both these states have not forgotten the numerous examples of illegal and destructive actions for which Vedanta was responsible in the years leading up to the previous government's decision to close the mines.
Now, recently-appointed CEO, Tom Albanese, is counting on a revival in foreign demand, to justify digging up a further 5.5 million tonnes of iron ore by the end of the current financial year.
This decision will not only anger local people, as it threatens a revival of appalling environmental practices - specifically at the Bicholim mine in Goa (See: Goan farmers fear environmental disaster, courtesy Vedanta)
It's also one which makes little economic sense, since Goan iron ore is notoriously low-grade.
How is Vedanta to make a profit in a market awash with iron ore, without cutting corners by dumping wastes on rural land and damaging villagers' rights to clean air, water, and agriculture resources?
Meanwhile, along with other Goan iron mongers, the company still faces a 10% export tariff on ouptut - aimed at encouraging them to supply domestic markets.
Two government measures are also in place, compelling miners to siphon part of their profits into community "welfare" schemes.
So, has Mr Albanese done the necessary maths? Or has his hubris taken over?
No need, surely, to remind readers that it was precisely his reckless market gambles , while CEO of Rio Tinto, that landed it in massive debt, and led to his being unceremoniously sacked. See: Albanese's ignomious new role in Vedanta
Not to mention that Vedanta itself is still trying to fathom out how to cut its own unprecedented level of debt.
[Comment by Nostromo Research]
Vedanta restarts Goa mining, but has fewer buyers
By Jharna Mazumdar
10 August 2015
Mumbai - Vedanta on Monday resumed mining of iron ore in Goa after nearly three years, becoming the first company to do so. The miner has received all approvals to restart operation at its Codli and Bicholim mines. Final clearances to other mines are expected by the end of August.
After the monsoon season, the company plans to fully resume mining and utilise its entire annual production allowance of 5.5 million tonnes by the end of this financial year.
“While iron ore prices continue to be low, we would focus on costs and look at the best possible ways to make the business viable and profitable,” Vedanta chief executive officer Tom Albanese said in a conference call from London.
“While it is a difficult task since we are starting after a gap of almost three years and iron ore prices are low globally, we expect positive cash flow from our Goa business nonetheless. We will need to work hard to regain market share in very difficult markets. It will require close cooperation among the industry, the government and other stakeholders to ensure that we can reopen on a competitive basis,” he said.
Albanese said while the company would like to sell the iron ore in the domestic market, but the scope is very low. So, it plans to focus on exports.
Analysts said resuming the mines would not be of much help, as China, the main consumer of Goa iron ore, is witnessing an oversupply situation.
Iron ore prices have fallen over 50 per cent in the last one year due to poor demand.
Gautum Chakraborty, an analyst at Emkay Global, said: “It would be difficult for the company to report profit, as Vedanta’s main focus is on the Chinese market, which has been witnessing a significant decline in demand. In the domestic market, not many Indian firms have the technology to use low-garde iron ore for manufacturing and it is not viable for them to ship it from Goa.”
Vedanta (erstwhile Sesa Sterlite) had a capacity of 15 to 16 million tonne in Goa and it was producing around 14 million tonne before the ban. In Karnataka, the company had a capacity of 6 million tonne but was producing around 4 million tonne. In Karnataka, the company started mining from the last quarter and is currently producing around 2.29 million tonne. In Goa, the company will be producing around 5.5 million tonne for the time being, Chakroborty said.
Umesh Patel, an analyst with Sharekhan, said: “It is unlikely that the company would benefit much by resuming iron ore mining in Goa, as prices are significantly low globally.”
However, he said it would be beneficial for Vedanta in the long run once demand starts picking up.
“India was the world’s third-largest exporter of iron ore until 2012 when export duty was raised to 30 per cent. The high duty, along with the mining ban, impacted exports, which came down to 6.5 million tonne in 2014-15 from a high of 117 million tonne in 2009-10. In the domestic market, iron ore shortage forced steel firms to import over 10.32 mt,” said RK Sharma, president of the Federation of Indian Mineral Industries.
Sharma said although prices of iron ore and steel have declined in China, the country still continues to import around 925 million tonne of ore and India has a lot of opportunity in that market. However, the Indian environment is not in favour of exports.
The government has since cut export duty on low-quality ore to 10 per cent from 30 per cent, mainly to help companies sell Goa’s ore, which contains less than 58 per cent iron.
Most Indian steel firms either do not have the technology to use low-grade iron ore competitively or are located far off, thus making it unviable to ship the iron ore.
Goa chief minister Laxmikant Parsekar inaugurated the mining operation at Vedanta’s Codli mine, the company said in a statement.
“We have done all we could to restart mining and will continue to do whatever is required. I had set an October date to restart mining and Vedanta has surprised me by reopening its mine two months earlier. I hope all other miners will restart operation soon. The government will do all it can to support those affected by the mining ban. We can now say that ‘achchhe din aa gaye hain’,” Parsekar said.
The Supreme Court of India banned mining in Goa in 2012 as part of a clampdown on illegal mining, which also froze shipments that had reached 50 million tonne in 2010-11. The apex court lifted the ban in April last year, but the companies had to wait to get environmental and other clearances from the government to resume mining.
Kishore Kumar, CEO of Vedanta’s iron ore business, said the resumption of mining would provide employment to many mining-dependent people and the government would benefit from increased revenues .
Iron ore production in Goa is currently capped at 20 million tonne per annum.
Vedanta shares closed at Rs 127.75, down 1.31 per cent from previous close. Since the ban on mining was imposed in 2012, Vedanta shares have fallen 26.16 per cent.
India picks worst time to resume iron ore mining — analysts
14 August 2015
India's private iron ore producers are likely to suffer the effects of high costs, low prices and a poor export market, says BMI.
Adding to an ever-increasing global oversupply of iron ore from Australia and Brazil, India's top ore exporting state of Goa resumed production on Monday, led by Vedanta Resources, after an almost three-year hiatus.
The move, however, couldn’t come at a worst time, analysts say, especially when it comes to private firms. According to the latest report from BMI Research, production from restarted mines will be hit by high costs, low prices and a poor export market. Instead, the firm is predicting that state-owned miners will be the ones leading the nation’s production growth, which it estimates at 3.8% a year from now until 2019.
Iron ore mining resumption from the private sector will be hampered by several factors, says BMI:
First, high taxation costs will limit output growth. Although the government has cut the export duty from 30.0% to 10.0% for iron ore below 58.0% grade in April 2015, further supportive measures could still be implemented in the current environment of low prices.
Second, a three-year hiatus in production has resulted in a shift in iron ore consumption patterns by Chinese steel mills. This will create some difficulty in finding buyers of Goa's iron ore products. According to anecdotal evidence, steel mills in China, which before the ban used low-grade iron ore from India, have now become accustomed to using medium grades of iron ore from Australia.
Third, environmental clearances and other bureaucratic hurdles will continue to hinder mine production growth.
The Supreme Court of India banned mining in Goa in 2012 as part of a clampdown on illegal mining, freezing shipments that reached about 50 million tonnes in 2010/11. It lifted the ban in April last year, but companies had to wait to get environmental and other clearances from the government.
India has cut the export duty on low-quality ore to 10% from 30%, mainly to help companies sell Goa's ore that contains less than 58% iron.
India picks worst time to resume iron ore mining — analysts
Most Indian steel companies either do not have the technology to use low-grade iron ore competitively or their location makes transportation costs prohibitive.
On a global level, iron ore prices have weakened considerably over the last twelve months, though have recovered slightly in the past few weeks. Ore delivered to China's Qingdao port reached Friday a fresh six-week high, according to The Metal Bulletin. The index calculated to $57.02 per tonne whilst the MBIOI-58 Premium Index saw a smaller rise to $53.06 per tonne, also a six week high. After falling yesterday, the MBIOI-65-BZ has recovered strongly, pushing up to $64.50/tonne, the indexes highest level since the July 2.
But the rally is not likely to last, many believe, as miners continue to be at the brink, with breakeven prices that gives them little room to move. UBS estimates the breakeven of BC Iron at $52 a tonne, Mount Gibson at around $49, and Fortescue Metals Group at $44 a tonne. Gina Rinehart's Roy Hill, expected to ship its first ore this September, has an assumed break-even price of $41 a tonne.
On the supply side, output expansions by major iron ore mining companies such as Vale (NYSE:VALE), Rio Tinto (LON:RIO), and BHP Billiton (ASX:BHP) keeps feeding a global oversupply. The worldwide surplus of seaborne iron ore supply is expected to rise to 437 million tons in 2018, from an expected surplus of 184 million tons in 2015. A combination of weak demand and oversupply is likely to result in weak iron ore prices in the near term.
Goa miners seek export duty cut on low-grade iron ore
15 August 2015
Amid a sharp fall in global prices of iron ore, miners from Goa have sought a further reduction in the 10% export duty on low-grade ore produced in the coastal state as well as removal of what they call duplication of certain (welfare) levies.
Finance ministry sources said any decision on lowering export duty will have to be taken in a holistic way keeping in mind the need for supporting domestic consumption of the raw material.
Vedanta Resources has resumed mining at its Codli and Bicholim mines in Goa this week, while Salgaocar, Fomento Resources, Chowguel Mines and Bandekar Brothers are in the process.
Industry majors want removal of both central and state-level levies impacting their competitiveness at a time global price of the ore, especially of the low-grade, have crashed by more than 60% in last six months to about $32 per tonne. The price fall was in line with the diminished appetite for the resource from China, a major purchaser.
According to sources, export realisation at present after all the central and state levies and other costs is a profit after tax of R24 tonne.
Miners are also hit by the dual levies of 10% towards Goa Permanent Fund (GPF) mandated by the Supreme Court while lifting the mining moratorium in the state. The levy was introduced as a means of ensuring inter-generational equity, with the state being allowed to access only the interest from this fund to be used for sustainable development of the state.
Mining companies say they are already required to contribute an amount equal to a specified percentage of the royalty payable, to District Mineral Foundations to be set up in each state under the MMDR Act. Since this fund is for the benefit of the affected community, miners want the GPF payment requirement to go. Vedanta’s plea for its lifting is pending in the apex court.
SC seeks govt’s response on Vedanta’s plea challenging double taxation
Vedanta Ltd has sought exemption from contributing twice towards social impact funds set up in Goa
15 August 2015
New Delhi: The Supreme Court on Friday sought responses from the Centre and the Goa government in a plea by Vedanta Ltd seeking exemption from contributing twice towards social impact funds set up in Goa.
After the amendments to the Mines and Minerals (Development and Regulation) Act, the Goa government had set up a District Mineral Foundation (DMF) for collecting funds to ensure sustainable development in mining activities. Vedanta (formerly Sesa Goa Ltd and Sesa Sterlite Ltd) said that the DMF should replace the court-directed 10% of sale proceeds to the Goan Iron Ore Permanent Fund.
A bench comprising justices F.M.I. Kalifulla and U.U. Lalit directed the Goa government, the court-appointed central empowered committee and the environment ministry to furnish compliance reports of the court’s directions in the Goa mining judgment last year. The court had directed that appropriate action be taken against illegal mining activities in Goa.
Vedanta to issue Rs 2,000-crore NCDs to refinance debt
Press Trust of India
17 August 2015
NEW DELHI: Vedanta Ltd today said it will issue non-convertible debentures (NCD) worth Rs 2,000 crore [around £2 billion] as the mining conglomerate aims to refinance its debt.
In a BSE [Bombay Stock Exchange] filing, the Anil Agarwal-led firm said: "Subject to favourable market conditions... in the process of issuing secured, rated, non-cumulative, redeemable NCDs of Rs 10 lakh [each up to Rs 2,000 crore on a private placement basis."
The issuance of NCDs is part of the overall debt refinancing of the company to substitute short-term liabilities and/or to retire higher cost debt, the filing added.
The NCDs are proposed to be listed on BSE, it said.
"This issue is part of the overall approval of Rs 8,000 crore by the Board and the shareholders at the 50th AGM of the company held on July 11, 2015, permitting issuances in one or more series/tranches on a private placement basis during 12 months," Vedanta said in the filing.
The stock was down 2.24 per cent at Rs 104.80 in the afternoon trade on BSE.
For the quarter ended June 2015, Vedanta said its gross debt rose Rs 1,778 crore to Rs 79,530 crore on account of funding project payments and temporary working capital requirements, adding that debt levels are expected to come down as working capital is repaid in Q2 of 2015-16. Out of the total debt of Rs 79,530 crore, debt in Indian currency is Rs 8,616 crore and the balance Rs 40,914 crore in US dollars.
The gross debt comprises loans of Rs 64,825 crore for the long term and Rs 14,705 crore for short-term working capital.
However, the firm said finance cost at Rs 1,358 crore was lower by Rs 179 crore, primarily due to debt refinancing at a lower cost for the June quarter.
In May, Vedanta's parent company London-based Vedanta Resources had said it's eyeing likely low interest rates in India to refinance its short-term loans of up to $1.6 billion (about Rs 10,200 crore) with long-term options this fiscal.
The mineral and mining major has loans worth $2.5 billion maturing in 2015-16, of which $2.1 billion is with the subsidiaries and the remaining $0.4 billion the group firm Vedanta Resources.