Vedanta Resources in US$8.8 billion India expansion

Having received the go-ahead from India’s supreme court, Vedanta Resources (VED-L), an India-focused resource giant, is proceeding with a bauxite mining project in Lanjigarh, in the Kalahandi district in the state of Orissa. An alumina refinery is already in operation, and the complex will produce 1 million tonnes alumina per year, with the capacity to expand production to 1.4 million tonnes. Capital expenditure, including the refinery, is US$800 million.

Around half of the alumina will be sent to aluminum production facilities at Korba, part of Balco, a company owned jointly by Vedanta and the government of India. Once a short siding to the main railway line is built, alumina could also be shipped to the port of Vizag for export.

The Lanjigarh alumina project is a part of Vedanta’s plan to invest US$8.8 billion to raise production of all base metals to 1 million tonnes per year, and the company is making progress on a number of projects to meet this target.

The second phase of a 500,000 tonne per year aluminum project in Jharsuguda is in progress, after the first phase was completed a year ahead of schedule. Vedanta is also expanding its copper operations in Zambia. Konkola Deeps mine is in the process of raising capacity to 7.5 million tonnes per year, and a 300,000 tonne per year copper smelter is being built in Nchanga.

Integrated zinc and lead production will be raised to 1.07 million tonnes per year by 2012, through investments in Hindustan Zinc, another company jointly owned by Vedanta and the Indian government. At an investment of US$900 million, the expansion will make Hindustan Zinc the largest integrated zinc-lead producer in the world. The expansion will involve a number of projects: production at Rampura Agucha mine will be raised to 6 million tonnes per year; Sindesar Khurd mine will increase production to 1.5 million tonnes per year; and Kayar mine will start producing at 300,000 tonnes per year.

In April, Hindustan Zinc completed a 88,000 tonnes per year zinc de-bottlenecking project at the Chanderiya and Debari smelters. Total metal production capacity is now 754,000 tonnes per year, and ore production 7.1 million tonnes per year. Hindustan Zinc’s JORC-compliant reserves and resources are 232 million tonnes containing a total of 27.5 million tonnes of zinc-lead metal.

A 170,000 tonne per year zinc smelter in Chanderiya was commissioned in December 2007, and two brownfield smelter projects, which will increase annual production capacities of zinc and lead by 210,000 tonnes and 100,000 tonnes respectively, will be constructed at Rajpura Dariba in Rajasthan state. A 160 megawatt coal-fired power plant will be built at Rajpura Dariba, and an 80 megawatt power plant is expected to be completed in 2008 at Zawar. Along with zinc and lead, production of silver byproduct will rise to 16 million oz. per year.

Vedanta is also interested in the commercial power generation business, with a 2,400 megawatt power plant in Jharsuguda due for completion in 2009. The company has also identified coal and bauxite in India as attractive expansion opportunities. With India being the third largest coal producer in the world, Coal India, a government-owned company, currently produces 85% of the country’s coal output. In April 2007 Vedanta acquired 51% of Sesa Goa, India’s largest iron-ore producer and exporter, and it aims to raise production to 25 million tonnes per year.

In 2007, Sterlite Industries, a subsidiary of Vedanta, sold shares in the U.S.A. as ADR’s (American depositary receipts) for US$2 billion. In May 2008 Sterlite bought all the operating assets of Asarco of Tucson, Az., the third largest copper producer in the U.S.A., for US$2.6 billion. Asarco produced 235,000 tonnes of refined copper in 2007, and was under Chapter 11 bankruptcy proceedings. Assets included in the sales are three copper mines, a copper smelter, a copper refinery, and other associated manufacturing facilities.

Vedanta has announced results for the financial year ending March 31. The company’s aluminum and alumina business had revenues of US$1.14 billion, and operating profits of US$307 million. Its copper operations in India and Australia brought revenues of US$3.1 billion, and operating profits of US$285 million, while copper operations in Zambia had revenues of US$1.1 billion, and operating profits of US$251 million. Zinc-lead revenues were US$1.94 billion, and operating profits were US$1.33 billion, while iron ore revenues were US$889 million, and operating profits were US$420 million. Overall revenues for the year were US$8.2 billion, with EBITDA (earnings before interest, tax, depreciation and amortization) of US$3 billion.

The Agarwal family owns 53.5% of Vedanta through a holding company, with the balance owned mostly by institutional investors.