Vedanta’s Ahead in Oil And Gas, But Trips Up On Copper And Iron Ore

Despite reported increases in oil, gas, and zinc output, the outlook for mining group Vedanta Resources’ copper and iron operations remains pessimistic.

As part of its second quarter results, billionaire Anil Agarwal’s conglomerate reported that its crude oil production reached a record 2,13,299 barrels of oil equivalent per day (BOEPD) in the quarter that ended September 30, but lower iron ore, copper, and power sales affected its overall performance. Vedanta runs the crude oil exploration business through group firm Cairn India. The latter had reported a daily production of 2,07,245 barrels in the July-September quarter of the last fiscal year. Vedanta also reported a rise in production of refined zinc (21 percent), refined lead (17 percent), silver (7 percent), and aluminum (2 percent).

Vedanta has gone through a rough patch in recent times. The mining group produces copper, zinc, silver, aluminum, iron ore, and power through its operations in India, South Africa, Zambia, Ireland, and Australia. In February of this year, Vedanta began a group restructuring exercise, which they recently announced has been completed. Over the past five years, Vedanta’s aggregate market value has risen at a CAGR of only 8 percent, mostly because of regulatory hurdles.

Much of Vedanta’s second quarter report reflects the overall pattern displayed by India’s economy of late. The iron ore mining industry has taken a serious hit in the past two years due to court-imposed bans in most of the Indian states. What’s more, India’s economy has come to a halt as a result of the government’s policy paralysis.

Vedanta’s alumina refinery in India’s eastern state of Odisha, which reported a 43 percent decline, has been embroiled in one such bitter battle with the authorities. The refinery continues to operate at a lower capacity for want of bauxite, as we reported earlier on MetalMiner. Despite this, the company had managed to push up its overall aluminum production by 2 percent to 2 lakh ton.

But, thanks to the iron ore ban, Vedanta’s iron ore mining operations in the states of Goa and Karnataka are suspended, though the company does expect to resume mining in Karnataka shortly. And while the copper (mined metal) production at its Indian and Australian operations decreased by only 4 percent, the production at Konkola Copper Mines in Zambia is down 26 percent due to the suspension of mining operations at some of its facilities.

In a fresh move, Vedanta has now asked shareholders to renew their backing for an offer of up to $3.48 billion to buy the Indian government minority stakes in two of its subsidiaries, as it seeks to streamline its structure. India had been hoping to raise about $9 billion USD from selling state-owned assets this year, and according to a report in the Economic Times, it plans to sell these stakes, which include 29.5 percent of Hindustan Zinc and 49 percent of aluminum producer BALCO.

Last year, Vedanta offered $2.94 billion for the shares in Hindustan Zinc and $338 million for the government’s stake in BALCO. As of August last year, it had a mandate to offer, in Indian rupees, the equivalent of $3.38 billion USD for the Hindustan Zinc shares and $550 million for BALCO, but that mandate, too, expired. Now, because of the weak rupee, Vedanta has decided to pitch for the residual stakes in both companies. What happens next remains to be seen, but seeing that there will be a shareholders’ meeting on October 30, expect new developments soon.

by Sohrab Darabshaw