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Vedanta Profit Soars; To Conclude Minority Buyouts

06 May, 2010

India-focused miner Vedanta Resources Plc posted a forecast-beating 187 percent profit surge on a rebound in metals prices and stronger output, and pledged to conclude a long-awaited buyout of minority stakes.

Investors have complained about the complex structure of Vedanta, in which minorities have holdings in the firm’s units.

London-listed Vedanta expects a final arbitration hearing in coming months about how much to pay the Indian government for its minority stakes in units Bharat Aluminium Co. (Balco) and Hindustan Zinc of 49 percent and 29 percent respectively.

“We expect this matter to be settled sometime in August and once Balco is settled, we expect Hindustan Zinc … should get decided along the lines of Balco,” Chief Executive M.S. Mehta told a conference call on Thursday.

The company was consulting stakeholders on further restructuring, but there were no immediate plans, he added.

Vedanta — with operations in India, Australia and Zambia — has previously looked at how to buy up some of the 40 percent minority interests in units Sterlite Industries and 49 percent in iron ore firm Sesa Goa.

The group was confident about ongoing demand for metals due to buoyant economies in China, India and Brazil.

“The recovery in demand and commodity prices appears well-founded and the medium and long-term outlook for our commodities remains strong,” Chairman Anil Agarwal said in a statement.

Vedanta shares, which have shed 16 percent since April 12, gained 3.1 percent to 2,468 pence, outperforming a 1.6 percent increase in the UK mining index.

Strong Volume Growth

“Best divisional performances came in zinc, iron ore and power in our view, with copper a laggard,” Liberum Capital said in a note. “With the company still on track to deliver best in class volume growth… this feels too cheap for us.”

Aluminium capacity is due to nearly double this year to 1.06 million tonnes, iron ore to grow by 50 percent to 30 million to 32 million tonnes and Zambian copper to double to 350,000 tonnes.

Last month, Vedanta posted record production of iron ore and aluminium in its fourth quarter. Annual production of iron ore gained 34 percent, aluminium climbed 15.4 percent and refined zinc was up 4.7 percent.

Basic EPS for the fiscal year to end-March surged to 219.6 cents, well above a consensus forecast of 186 cents, according to a poll of 14 analysts by Thomson Reuters I/B/E/S.

Profits have been boosted by a rebound in metals prices as demand returns after sharp falls during the downturn. The price of zinc, one of Vedanta’s most profitable products, gained 80 percent during Vedanta’s fiscal year.

The company, which proposed a 10 percent rise in its final dividend to 27.5 cents, said it had a strong balance sheet with over $7.2 billion in liquidity, allowing it to press forward with growth projects.

Capital spending was due to rise to $3.9 billion this fiscal year from $3.5 billion last year, but capex would taper off after that, Mehta said.

One of its projects, a bauxite mine in the eastern Indian state of Orissa, has been delayed since 2005 after tribes people protested, saying they fear losing their homes and livelihood.

Final permits, however, to allow mining were expected soon, after which operations would launch in six months, Mehta said.

Vedanta said it would continue to buy back shares after spending $549 million in doing so during the year.


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Vedanta Profit Soars; To Conclude Minority Buyouts

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