MAC: Mines and Communities

Vedanta update

Published by MAC on 2007-04-25

Vedanta update

25th April 2007

If "hubris" has a name today in India, that name is Anil Agarwal. The chairman and majority owner of Vedanta Resources plc has just beaten Lakshmi Mittal (controller of the world's largest steel maker, Arcelor-Mittal) and the Birlas, in acquiring India's biggest exporter of iron ore, Sesa Goa.

Rio Tinto (the world's second biggest iron ore exporter) dropped from the bidding a couple of months back, as did Anglo American. After over-reaching itself in the recent takeover of Corus (and now having to forage for new finance) Tata Steel wasn't even in the final running.

Vedanta says it will finance the Sesa Goa acquistion through " newly committed bank debt facilities of US$1.1 billion and existing cash resources." The obvious immediate question is: where does this leave its further financing of the huge planned expansion of bauxite-to-aluminium facilities in Orissa? (Goa's iron ore has a high alumina content, while bauxite is also mined in the state; did this have any bearing on Vedanta's corporate play for Sesa Goa?)

However, by now waving its card as indisputably India's largest and most diversified mining company, and with last week's deal increasing its market capitalisation to around £4.1 billion, Vedanta is not likely to be overwhelmed by trying to raise further debt funding from its old US and European banking accomplices.

As for the communities in Goa which have faced Sesa Goa's depradations for many years - or those in the iron-rich Keonjhar district of Orissa * which now have India's most ruthless exploiter on their very doorstep - they arguably face an even more parlous future than they did before last week

But this isn't the only coup apparently just scored by Vedanta. Last year it was rumoured that the highly respected Wildlife Institute of India (WII) had been pressured into diluting its unequivocal recommendtion that there be no bauxite mining of the Nyamagiri hills, under pressure from the company and its polticial henchpeople.

Now, according to the Times of India, that fear was real: the WII has just presented a "mitigation" plan that would allow Vedanta to plunder the hills, even though the impacts would be "irreversible."

[Comment by Nostromo Research, London, 27 April 2007]

* See our Indian update this week for a story from Keonjhar

Vedanta buys 51 percent of India's Sesa Goa

By Mark Potter and Emi Emoto, The Scotsman

24th April 2007

LONDON/TOKYO (Reuters) - Miner Vedanta has bought 51 percent of Indian iron ore exporter Sesa Goa and said on Tuesday it planned to buy a further 20 percent, bringing the total cost of the deal to $1.37 billion (686 million pounds).

Vedanta said it had bought Mitsui & Co's <8031.T> 51 percent stake in Sesa Goa for $981 million, or 2,036 rupees a share, and that it was launching an open offer to buy a further 20 percent of the firm at the same price.

The deal marks India-focused Vedanta's entry into the lucrative iron ore market, adding to its existing strengths in aluminium, copper and zinc. Iron ore has been in strong demand in recent years as rapid growth in China and India has fuelled a surge in global steel production.

"This appears to be a typical 'Vedanta-style' acquisition with expected quick de-bottlenecking and ability to leverage its capital, operating and regional expertise as well as providing diversification," JP Morgan analysts said in a research note.

At 10:15 a.m., Vedanta shares were up 1.8 percent at 1,435 pence, the second-biggest rise on the FTSE-100 index and valuing the business at about 4.1 billion pounds. Shares in Sesa Goa, India's biggest private sector iron ore exporter, were down 2 percent at 1,707 rupees.

Sources familiar with the matter earlier told Reuters that Vedanta had agreed to buy Mitsui's stake in Sesa Goa. Other sources said it beat off rival bids from the world's biggest steelmaker, Arcelor Mittal , and India's Aditya Birla group. Mitsui is shifting its business emphasis to investment, moving away from its traditional role as a middleman earning modest agent commissions.

"It's a symbolic deal," said Takashi Murakami, analyst at Credit Suisse. "It would be the first time that Mitsui has sold a big, highly profitable business to gain a profit. It's a nice step for an investment company."

Mistui said in a statement that the sale would generate 50 billion yen (211 million pounds) in profit and that it would use the proceeds to invest in other natural resources.


Vedanta deputy chairman Navin Agarwal told reporters that under India's takeover rules his firm was required to launch an open offer for at least a further 20 percent of Sesa Goa shares.

He declined to say whether Vedanta might eventually seek to raise its stake beyond 71 percent. But his brother, Chairman Anil Agawal, who owns about 54 percent of Vedanta, later said there were no plans to delist Sesa Goa. "Sesa is a natural fit for Vedanta; it is an efficient, low cost miner with growth opportunities in one of the world's fastest growing economies," Anil Agarwal said in a statement.

"This transaction is immediately earnings and cash flow accretive and we believe it will create significant long term value for all our stakeholders."

Sesa Goa currently sells around 10 million tonnes of iron ore and made a pretax profit of $193.8 million in the year to March 2006.

Navid Agarwal said Vedanta aimed to boost production to around 15 million tonnes in one to two years time and that the firm might also look to expand into steelmaking, with a partner.

"Our current sense is that this is something which we do not want to do on our own and possibly we would look at a joint venture partner," he told a conference call. "There's no decision at this point of time. It's just something we will look at as we progress this company."

Vedanta said it would pay for the deal through a mix of newly committed bank debt facilities of $1.1 billion and existing cash resources.

It expects to complete the open offer by July 2007.

Nomura advised Vedanta on the deal.

(additional reporting by Yuko Inoue in Tokyo and Davidutta Tripathy in Mumbai)

Sesa Goa served show-cause in Jharkhand over progress reports


17th APRIL 2007

MUMBAI: The district mining officer of West Singhbhum, Jharkhand, has issued a 30-day show cause notice to iron ore major Sesa Goa for not submitting progress reports on its prospective licence for mines in the resource-rich area in 2005.

The notice asks the company to explain why its licence should not be cancelled for "not following the guidelines." More so, since two years of the three-year licence have expired.

Indicting the company for "inaction", the mining officer has asked it to consider the notice as "a strict warning". The notice adds: "It's clear that you (Sesa Goa) have blocked the specified area and you have no interest in developing it... Your only objective is to have control over the area."

The show cause notice, a copy of which is with ET, was sent to Sesa Goa on April 12. The licence gives the company, the biggest private exporter of iron ore in the country, the right to conduct studies to determine reserves over a 7 sq km area in the district, known for its abundance in natural resources. When contacted, Sesa Goa's managing director PK Mukherjee refused to either confirm or deny the development and declined to comment.

The development comes at a time when the bidding for Mitsui Corp's 51% stake in Sesa Goa has reached the last leg. The iron ore exporter is believed to have iron ore reserves of at least 150 million tonne in Goa, Karnataka and Orissa. "The company's valuation is partly based on Sesa Goa's present reserves of 150 million tonne, which have a 30-year life, and partly on the prospective licence for the ore-rich mines in Jharkhand," said an industry analyst.

Sources close to the development said that Arcelor Mittal, Aditya Birla Group and Vedanta Resources are in the race for the Sesa Goa stake. Though Arcelor Mittal is said to have put in the highest bid, the Japanese trading major is giving equal importance to the share purchase agreements submitted by the other bidders as well.

A decision on the winner is expected to be made "anytime between now and the end of the month", said sources close to the development.

The mining officer has referred to the Mineral Concession Rules, 1960, while sending his three-point notice. According to section 16 (1) of the Rule, a "licensee shall submit to the state government six-monthly reports... disclosing in full the geological, geophysical or other valuable data collected during the period". Sesa Goa, according to the notice, is yet to submit a report.

Neither has the company submitted monthly progress reports nor details of its future plans to develop the area, says the notice. A copy of the show cause notice has been sent to the mines and minerals department of the state, asking it to take "necessary action"

Vedanta Resources plc (official statement)

24 April 2007

Mumbai and London

Vedanta Resources Plc Acquires Sesa Goa Limited


. Substantial entry into highly attractive iron ore business . Natural fit for Vedanta delivering further diversification . Strong growth potential . Immediately earnings and cash flow accretive

Vedanta Resources plc ("Vedanta") announces that it has acquired 100% of Finsider International Ltd, UK, (which owns a 51% controlling stake in Sesa Goa Limited ("Sesa")) from Mitsui & Co. Limited, Japan ("Mitsui") for US$981 million, implying a price of Rs. 2,036 per share.

"This acquisition provides us with an industry leadership position in the attractive iron ore business in India." said Mr. Anil Agarwal, Chairman, Vedanta Resources plc. "Sesa is a natural fit for Vedanta; it is an efficient, low cost miner with growth opportunities in one of the world's fastest growing economies. This transaction is immediately earnings and cash flow accretive and we believe it will create significant long term value for all our stakeholders."

Vedanta will also make an open offer to the public shareholders of Sesa to acquire an additional 20% of Sesa (the "Open Offer") as per Indian regulations. Completion of the Open Offer is expected by July 2007.

The total cash consideration for 71% of Sesa is US$ 1.37 billion. The acquisition will be financed through a mix of newly committed bank debt facilities of US$1.1 billion and existing cash resources.

Sesa is India's largest private sector iron ore producer-exporter and is globally cost-competitive.

A well established company for over 50 years, Sesa was previously under Italian management before being acquired by Mitsui in 1996. Its mining operations are located in the iron ore rich states of Goa, Karnataka and Orissa. It currently sells c10 million tonnes of iron ore, of which over 95% is exported to leading global steel companies in China, Europe and Japan. At current production rates, Sesa's iron ore reserves and resources of 207 million tons will support over 20 years of mined production. Sesa's fully integrated pig iron and metallurgical coke facilities each have the capacity to produce c250,000 tonnes per annum.

Sesa is a highly profitable and debt free company. It reported group turnover of US$ 423.2 million, EBITDA of US$ 194.8 million and Profit Before Tax of US$ 193.8 million at 31 March 2006, with a net cash position of US$120.4 million on that date. Its gross assets as at 31 March 2006 were US$ 276.2 million.

Vedanta believes this acquisition will create significant long term value for all stakeholders through:

. the creation of India's largest diversified mining group, with leading market positions in

aluminium, copper, zinc and iron ore together with an industry leading pipeline of expansion projects; . further diversification through a substantial entry into the attractive iron ore business with

industry leadership in India; . an ideal position to capitalise on India's huge iron ore reserves, the world's third largest; . access to long life, low cost, cash generative assets; . excellent debottlenecking/expansion opportunities at a low cost to significantly increase production of iron ore and pig iron by leveraging Vedanta's proven mining and project management skills; . longer term organic growth opportunities to increase production and resources by exploiting existing and accessing additional prospecting and mining licences; . optionality to participate in industry consolidation in India's highly fragmented iron ore industry; and . financial flexibility provided by a cash generative asset and a strong balance sheet.

NOMURA, the Japan headquartered investment bank are the exclusive financial advisors and Khaitan and Co., India and Travers Smith, United Kingdom are the legal advisors to Vedanta in this transaction.

For further information, please contact:
Sumanth Cidambi Associate Director - Investor Relations Tel: +44 20 7659 4732 / +91 22 6646 1531

Tribals protest refinery plans in eastern India

25th April 2007

BHUBANESWAR, India, April 25 (Reuters) - Thousands of tribal men and women armed with bows and arrows marched in eastern India on Wednesday to protest against an alumina refinery owned by Britain's Vedanta Resources Plc, police said.

Dongria Kondh tribals vowed to stop Vedanta starting the refinery in the mineral-rich Lanjigarh area of Orissa state, about 475 km (300 miles) southwest of the state capital Bhubaneswar.

Large bauxite deposits had lured the company to this remote and impoverished corner of Orissa, where they have already built the $900 million alumina refinery.

At issue is Vedanta's plan to turn the top of the nearby Niyamgiri mountain into open-cast mines. Tribals say the project will rob them of their homes.

"Niyamgiri or no Niyamgiri, Vedanta go back," shouted several tribal men, wearing colourful headgear as they prepared to wage mock battle with spears and arrows.

"We want development and not disaster," the women chanted.

Vedanta officials have said they would go ahead with the company's plans.

Under pressure, institute eats own words

Nitin Sethi, Times News Network

25th April 2007

NEW DELHI: The Wildlife Institute of India, Dehra Dun, has joined the ranks of ''experts'' who tailor their recommendations to suit the government's needs. The prestigious body has made a shocking U-turn on its original study on the adverse impact of proposed bauxite mining in Lanjigarh, Orissa, after the ministry of environment and forests, which funds the institute, asked it to reconsider the findings.

The Orissa Mining Corporation Ltd has entered into an agreement with Vedanta Aluminium Ltd to develop this bauxite mine, which falls in an elephant reserve. In its first report, filed in June 2006, the institute had said that ''the threats caused by the proposed project to this important eco-system will lead to irreversible changes in the ecological characteristics of the area''.

But in its second report, the institute has backed a mitigation plan to take care of these 'irreversible' changes. In a clever use of words, it has diluted its original stand that the area has a substantial elephant presence, and said that elephants existed only in the folds of the hills and not on the hill top (where the mining is proposed), indirectly supporting the state's contention that mining on the hill top would not affect elephants.

While the first report was written on the basis of a field survey conducted by researchers of India's premier wild-life research institute as well as survey of all literature, the second, what the institute has called a supplementary report, has been filed purely on the basis of presentations made by Orissa forest department.

Co-author of the report, Sushant Chowdhry, however, defended the turnaround. He told TOI, ''The second report is only a supplementary one. Maybe when read alone it seems to be a dilution but when read with the first report, it shows that we have not changed our stand.'' He added, ''We need to be realistic.''

''We have commented on the mitigation plan presented before us, we have not made our own,'' said Chowdhry. When asked if the irreversible damages could also be mitigated, he said, ''These things are going on all over the country.''

WII was asked to conduct the study by the controversy-riddled Forest Advisory Committee of the environment ministry after SC instructed the committee to get impact studies done. The SC is hearing a case filed by three petitioners on the forest clearance for the mining proposal.

The bauxite mine in the Niyamgiri hills of Lanjigarh is to supply bauxite to an aluminium refinery plant of Vedanta located at the base of the hills. Upon receipt of a report that came out strongly against allowing mining, the FAC asked the WII to let the Orissa government ''apprise the institute with their observations on the report''. After state officials met WII, the institute filed this second report.

WII had filed an unambiguous first report. It said the Niyamgiri hill range had an average forest cover density of around 60% (anything above 40% is classified as dense forest by the government). It recorded the presence of elephants and tigers. It said that contrary to the environment impact assessment report of the project, the hilltops are ''very productive with high occurrence of several herbivore and carnivore species... elephants visit these areas... these areas are also breeding and fawning ground for four horned antelopes, barking deer and several other species''.

But in a quick retake, it has used the pretext of socio-economic condition of the people in the region to say in its 'supplementary' report that the state's contention that the area earmarked for elephant reserve would jeopardise socio-economic development was valid. The supplementary report has also accepted the fact that on the hill top, the forest cover is low.


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