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Vedanta Resources raises dividend

May 6, 2011

“Vedanta Resources is banking on robust metal consumption in Asia to drive growth in 2011 as it announced a bumper dividend on the back of higher commodity prices in its full-year results. The FTSE 100 listed resources company anticipates ‘continued growth’ in zinc and copper demand from India and China in particular as it announced a final dividend of 32.5 cents per share for the year ending 31 March 2011. That brings the total dividend to 52.5 cents, up 16.7 per cent on the year before.

A year ago Vedanta announced it would boost its operations with the $1.5bn acquisition of Anglo American’s mostly African zinc assets. Vedanta declined to give specifics on the timing of a planned London flotation of its Zambian copper business. The business increased earnings by 190 per cent to $440m last year.”

Source: Financial Times, May 5 2011

Observations:

  • Vedanta’s fiscal year ends on March 31. EBITDA increased from $2.3bln in 2009-2010 to $3.6bln, mainly driven by increased iron ore and zinc income. The full profit increase was price-driven, with a small volume increase offset by an operational cost increase.
  • Zinc production in India still is the key pillar for Vedanta’s operations, contributing over 1/3 of total EBITDA. The Zinc India operations are controlled via Sterlite Industries, in which Vedanta holds a 55% interest.

Implications:

  • Vedanta lists 3 strategic priorities: growth; long term value; and sustainability. After completion of the Cairn India acquisition growth will mainly need to come from organic growth while debt is reduced. The company hopes to create long term value by cutting costs and rationalizing the complex group structure.
  • Sustainability has become a hot theme for the company after it was criticised heavily for social and environmental practices. An independent review by Scott Wilson was done at the end of 2010, resulting in a set of recommendations that will be implemented. The recommendations mainly focus on implementing the necessary policies, procedures, and governance structure to ensure compliance.

©2011 | Wilfred Visser | thebusinessofmining.com

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