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Posts Tagged ‘Vedanta’

Doubts on Coal India’s coal reserves

September 13, 2010 Comments off

“Coal India is set to begin a roadshow to promote what is expected to be India’s biggest stock listing, even as tightened environmental regulations and a Maoist insurgency threaten to render much of the state-owned miner’s reserves inaccessible. …

Coal India hopes to raise up to Rs150bn ($3.2bn) from the sale of a 10 per cent stake. That would make its initial public offering bigger than India’s largest completed listing, the $3bn offering of domestic electricity producer Reliance Power in early 2008. Coal India claims to be the world’s largest coal producer and accounts for 85 per cent of production in India, which has the fourth-largest reserves on the globe. But it recently revised down its annual production target from 520m tonnes to 486m tonnes, citing delays in environmental clearance for mine expansion. Meanwhile, Indian coal imports are surging, with KPMG estimating a domestic shortfall of 189m tonnes a year by 2015.”

Source: Financial Times, September 13, 2010

Observations:

  • The capital aimed to raise with the proposed IPO is $0.4bln higher than initially targeted. However, the uncertainty caused by changes in legislation have delayed the process by months since the rumours in June.
  • Coal India has 471 mines (March 2010) of which 273 are underground, 163 opencast and 35 mixed mines. CIL further operates 18 coal washeries, (12 coking coal and 6 non-coking coal). The many small operations are organized into 8 core geographical business units.

Implications:

  • A recent ruling on mining in areas populated by tribal people affected the plans of Vedanta to develop an iron ore mine in the state of Orissa. The Indian government is stepping up its efforts to protect the environment and human rights, changing the way many local mining companies have to operate. The amount of capital Coal India will be able to raise depends on the availability of its reserves in areas protected by these rulings.
  • Once a larger part of Coal India is made available to the public, large corporates in the Indian power industry and heavy industry (especially steel: ArcelorMittal, Reliance and Tata) are likely to acquire strategic stakes in the company to secure supplies.

©2010 | Wilfred Visser | thebusinessofmining.com

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India Bars Mine in Big Ruling

August 26, 2010 Comments off

“In a landmark decision that could bode ill for dozens of other mining and steel projects in India’s remote forests, the country’s environmental minister Tuesday blocked Vedanta Resources PLC from mining in an area considered sacred by its tribal population.

A law passed in 2008 says companies can only locate on forest land after first obtaining the permission of tribal people living there. The committee report says Vedanta was illegally occupying tribal land and the company had failed to obtain the consent of the locals for the planned operation.”

Source: Wall Street Journal, August 25, 2010

Observations:

  • Vedanta planned to invest $1.7bln in development of the mine. The processing plant has already been constructed at a cost of $5.4bln. The company is also charged for buying ore from illegal mines in order to use the processing plant at efficient capacity.
  • This week miners in Vedanta’s Zambian operations called off protest actions against an outsourcing program, because the company decided to halt the program “for the sake of industrial harmony”.

Implications:

  • Delhi announced strengthening the ethics law for mining companies in May of this year. Although the discussions at that time focused on education and development for the region, this ruling shows land rights are on the government’s radar too.
  • The state of Orissa, which has supported Vedanta in the development so far, has various other bauxite deposits. Vedanta is likely to receive access to alternative deposits quickly, as the state will benefit significantly from increased employment and higher tax revenues.

©2010 | Wilfred Visser | thebusinessofmining.com

Mining groups target West Africa / A richer seam

May 22, 2010 1 comment

The Financial Times published two articles this week on the increasing impact of international mining companies in Africa. The combination of articles provides a good insight into the political sensitivity and the importance for the development of the region:

Mining groups target west Africa (Financial Times, May 18 2010)

Six of the world’s biggest mining and steel companies have converged on an unprecedented scale on a mineral-rich corner of west Africa beset until recently by civil war. The companies plan to spend billions of dollars in Guinea, Liberia and Sierra Leone, where some of the world’s richest deposits of iron ore, the raw ingredient of steel, are found.
The groups are Vale, the Brazilian iron ore miner, Rio Tinto and BHP Billiton, the Anglo-Australian mining houses, ArcelorMittal, the UK steel company, Russia’s Severstal, and Chinalco, the state-owned Chinese mining company.”

Strategic resources: A richer seam (Financial Times, May 21 2010)
“China has vied with western groups in Africa for oil and minerals for the best part of a decade. But it also has ambitious nuclear power targets and its quest for uranium – repositories of which are few and far between – has thrown the rivalry into sharper focus. …

In the past three years, as China embarked on its new thrust into Africa, relations between Niamey and Paris plunged. The award of uranium concessions to China’s Sino-U and other prospectors broke the de facto 40-year monopoly of Areva, France’s state-controlled nuclear group.
The competition has seen work start on Niger’s first refinery and a $700m hydroelectric barrage, not to mention hundreds of millions of dollars in “signature bonuses”, courtesy of Beijing. It helped the country wring tougher terms from France before granting permission for Areva’s vast new mine, which will make the country the world’s second-biggest uranium producer after Kazakhstan.”

Observations:

  • This month’s acquisitions of Vale and Vedanta and earlier investments by Bellzone in Guinea count up to over $5 bln of investments. Over 50% over these investments will be in infrastructure, helping not only the resonsible mining company, but as well contributing to development of the country.
  • Total development aid to Africa in 2008 was $26 bln. Foreign Direct Investment in infrastructure related to mining is quickly bypassing this figure. Total FDI in Africa was $88 bln in 2008 (UNCTAD WIR), of which a very significant part is related to mining & metals.

Implications:

  • Although the Chinese approach of buying resource access by offering infrastructure development and more symbolic gifts is still regarded to be unethical by many westerners, western companies are working hard to catch up with the Chinese, trying to secure access to the good resources in central and west Africa.
  • Infrastructure developments are arguably the most important capital investments required for economic development of a country (J. Sachs).
  • Key problem for African leaders is the vicious circle of the resources trap they are in. Africa needs the infrastructure investment to develop the economy, but needs the resources that are shipped abroad in exchange for the infrastructure development in order to create an industry of value adding services.

Vedanta buys Anglo’s zinc mines for $1.34bn

May 12, 2010 1 comment

“Vedanta, India’s biggest mining group, expanded its international operations yesterday when it agreed to buy Anglo American’s zinc mines in Namibia, South Africa and Ireland for $1.34 bn.
The all-cash transaction will help Anglo pay down year-end net debt of $11bn and bring its gearing level lower.”

Source: Financial Times, May 11 2010


Observations:

  • Anglo American announced the sale of non-core assets in October last year. The company is trying to regain momentum by focusing more on the core competencies around iron ore, coal and platinum.
  • Vedanta will pay all cash from a war chest of over $7 bln, enabling them to make more moves like this in the near future.
  • Anglo American is burdened by its high gearing and resulting interest expenses.

Implications:

  • Anglo’s strategy of announcing non-core assets seems to be paying of. Five serious parties were bidding for the Zinc-assets, with Vedanta finally paying a large premium. Other companies bidding are likely to include Vale, Xstrata and Chinese companies.
  • Vedanta is betting on a strong zinc-price due to demand for galvanization (coating steel with zinc to prevent corrosion). With this transaction zinc accounts for over 50% of the companies profits, which makes it very sensitive to volatility. The company will need to choose to continue its focus on zinc and copper or try to invest additionally in aluminium and/or iron ore in order to become more diversified.
  • Vale will be likely be prepared to pay a larger premium for Anglo’s potash asset in Brasil. The company declared the potash business to be a key priority, recognizing the fertilizer business will drive growth in this are in the coming decade.