MAC: Mines and Communities

Vedanta's top dog is biting on coal

Published by MAC on 2009-11-09

Vedanta Resources plc spent $1.8bn in the six months to September 30, to expand capacities in aluminium, zinc, copper, iron ore and electricity. Since March this year, the company has raised $3.35bn for expenditure in 2010 - which it calls a "peak year" for growth.

Since it landed on London in late 2003, Vedanta has become the eighth biggest mining outfit registered on the capital's stock exchange.

Nonetheless, though generally recognised as the most acquisitive global miner during the past ten months, Vedanta has suffered as much as most other extractive companies from the financial meltdown. Its pre-tax profits tumbled by almost half between September 2009 and September 2009 - down from $1.14billion to $605 million; while revenues fell by a quarter ($4bn to $3 bn).

The Financial Times' William MacNamara commented last week that "Vedanta has now shifted to power generation" in India, intending to generate 10,000MW in the country by 2014. Half of this will feed smelters; the rest will be sold to the country's grid.

Although Vedanta's executive chairman, Anil Agarwal, has mooted investing in nuclear power, this would be a fanciful "solution" to meeting India's energy needs - and that of his own - at any point over the next 15-20 years.

So, in practice, Vedanta will be using coal - and a heck of a lot.

The largest single chunk of finance the company raised during 2009 was aimed at getting a coal-fired power plant up and running, to feed its Jharsaguda aluminium smelter in Orissa, now under (arguably illegal) construction.

The chimney that collapsed in late September, burying more than 40 workers alive, was to serve another coal-fired plant as Vedanta embarked on a massive expansion of its Korba aluminium complex in the neighbouring state of Chhattisgarh. See:

More electricity per unit of production is required to power aluminium refineries and smelters than for any other industrial sector - with the exception of the enrichment of uranium.

No one has, it seems, yet calculated the greenhouse gas emissions that will result from Vedanta's designed aluminium output when running at full pelt.

But there's no doubt these will contribute significantly to India's total carbon burden.
[Comment by Nostromo Research, London, 6 November 2009]

Vedanta awaits ruling on Asarco

By William MacNamara, Financial Times

6 November 2009

Vedanta, the Indian mining group, is expecting a court-ordered resolution this month of its $2.56bn (£1.55bn) bid for Asarco, the bankrupt US copper miner, and yesterday executives gave the bid a "50-50" chance of success.

A controversial August 31 ruling indicates Asarco may be handed to Grupo Mexico, the Mexican miner that is Vedanta's rival in the year-long bidding war. But Anil Agarwal, Vedanta's founder and controlling shareholder, was nonchalant about the possibility his company could lose this chance to jump to the US.

"We have a huge project pipeline," he said. "We have our hands full for the next three years."

In spite of the group revealing first-half profits that had almost halved, Vedanta continued to set itself apart among blue-chip miners for its pace of expansion. Growth accelerated as the financial crisis deepened, largely because India's economy and metals demand remained healthy.

The company spent $1.8bn in the six months to September 30 to expand capacity in aluminium, zinc, copper, iron ore and electricity. It has raised $3.35bn since March to spend in 2010, which it calls "the peak year" for growth.

Vedanta bucked an industry trend by paying an interim dividend of 17.5 cents, up 1 cent.

Pre-tax profits almost halved from $1.14bn to $605m, reflecting the collapse in metals demand that began in September 2008. Revenue fell from $4bn to $3bn. Expanded zinc production made the metal Vedanta's most valuable commodity in the first half.

Net debt of $969m widened from $200m in March after capital raisings at the group level and at its Sterlite unit. Earnings per share fell from 114.4 cents to 61.4 cents. The shares dropped 48p to £22.42.

* FT Comment

The Vedanta growth story has now shifted to power generation and in energy-starved India the company intends by 2014 to generate 10,000MW - half of which will power its smelters. The other half will be sold to the grid. However, minority shareholders will be looking for an end to the controversies that accompanied its recent growth. Vedanta is investigating the power-plant construction disaster that killed more than 40 workers in September. Furthermore, social groups remain up in arms over its plans to build bauxite mines over a mountain range sacred to a local tribe. Such controversies caused bad press but Vedanta remains in far higher standing among Asarco shareholders. The company trades on a multiple of 20 times this year's full-year earnings, on par with emerging diversified peers ENRC and Kazakhmys. But its higher growth trajectory suggests the shares are undervalued.

Vedanta Resources dismisses human rights abuse claims

Campaigners sceptical as controversial British mining company lists farming, education and nutrition programmes

Kathryn Hopkins, Guardian

5 November 2009

Vedanta Resources, the controversial British mining company, today defended its environmental and human rights record, insisting its work has had a positive impact on the lives of 2.5 million villagers in India and Zambia.

In a Vedanta's statement for its interim results, Anil Agarwal, the company's chairman, said: "Our sustainable development efforts have positively impacted 427 villages [which] include 2.5 million people. We remain committed to working with all our stakeholders to ensure that Vedanta has a net positive effect on the communities and the environment in which we work."

He said that some of the schemes the company has implemented in the two countries include agricultural tuition for farmers, pre-school education and health and nutrition supplementation. However, his comments angered many campaigners who believe that Vedanta's actions in certain areas are having a detrimental effect on villagers and their surroundings.

Stephen Corry, director of charity Survival, which helps indigenous people, said: "The British government has recently investigated Vedanta and exposed the company's chronic habit of ignoring people's basic rights, saying a change in Vedanta's behaviour is 'essential'. It's clear that the only 'positive impact' Vedanta is interested in is feeding Mr Agarwal's burgeoning bank balance."

The company is currently facing controversy over its plans to open a bauxite mine in Orissa, a sacred part of East India. Activists believe the mine will have catastrophic effects on the region's ecosystem and threaten the future of the 8,000-strong Dongria Kondh tribe.

A UK government agency recently ruled that Vedanta "did not respect the rights" of Orissa's indigenous people, "did not consider the impact of the construction of the mine on the [tribe's] rights" and "failed to put in place an adequate and timely consultation mechanism".

However, Vedanta insisted today that it is "working closely" with the Dongria Kondh development agency "for the social-economic development of indigenous people".

Vedanta, which is listed on the London Stock Exchange and included in the FTSE 100 index, also defended its record on fraud. Its iron ore subsidiary, Sesa Goa, has been under investigation by India's serious fraud investigation office for financial and other irregularities, but Vedanta's chief executive, M.S. Mehta, said that the probe related to issues in 2003, four years before Vedanta bought its 51% stake in Sesa.

"It is our understanding it is a very old matter, and not of great significance," he said.

Meanwhile, the companyposted a 41% drop in EBITDA earnings and a 25% fall in revenue for the six months to 30 September. But Agarwal remained upbeat, saying that there are "early signs of economic recovery globally".

Shares in Vedanta closed 48p down, at 2,242p.

Sesa Goa slides on report of accounts probe


27 October 2009

MUMBAI - Shares in miner Sesa Goa, a unit of London-listed Vedanta Resources, slumped more than 13 percent to a 3-week low on Tuesday after a newspaper reported that a government agency was probing the firm's accounts.

The Serious Fraud Investigation Office (SFIO) was investigating the last eight years financial accounts of India's top private sector iron ore exporter, the Business Standard newspaper said, citing an unidentified government official.

Moves in Sesa Goa's share price would also be investigated, the official told the paper.

Sesa Goa could not be immediately reached for comment.

Vedanta said in a statement that neither it nor Sesa Goa had received any notification from the SFIO.

The Business Standard also quoted Sesa Goa Managing Director P.K. Mukherjee as saying the company was not aware of the SFIO probe.

Sesa Goa shares closed down 12.4 percent at 276.35 rupees.

(Reporting by Pratish Narayanan; Editing by John Mair)

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