Vedanta Swings to Loss After Rupee Raises Borrowing Costs

Vedanta Resources Plc, the mining and energy group focused on India, will increase earnings from its oil acquisition and bet on zinc as global reserves of the metal decline, Chief Executive Officer Tom Albanese said.

“Among metals, zinc is one of the most attractive,” Albanese, who was hired from Rio Tinto Group in March, said today in a phone interview. “We have a very strong position in zinc as we begin to see large portions of world supply becoming naturally exhausted over the next several years. We have a 25 year-mine life in zinc.”

Vedanta, mainly a mine operator, gained access to India’s biggest onshore oilfield in 2011 after billionaire Chairman Anil Agarwal bought a controlling stake in Cairn India Ltd. for $8.67 billion. Oil and zinc account for the biggest portion of capital investment as Vedanta bets on future demand, Albanese said.

Vedanta cut its capital expenditure 29 percent to $1.42 billion last year even as it increased investment in zinc 3.3 percent to $243 million, with a target to keep it at about $250 million over the coming years, it said. The company seeks to increase its output at Cairn India by 7 percent to 10 percent by 2017 with an investment of $3 billion.

“I’m pleased to see further progress on our goal to discover more than we mine out,” Albanese said. “During the year we delivered a 100 percent reserve replacement at oil and gas and Zinc India” businesses, he said, referring to unit Hindustan Zinc Ltd.

Triple Returns

The company, which tripled returns to shareholders since its listing in London 10 years ago, plans to continue the progress by focusing on investment in “low risk, phased developments, with an emphasis on those businesses that generate the highest returns,” Albanese said.

Albanese’s near-term priorities are to ramp up aluminum production and obtain access to bauxite, resume iron ore mining at Goa, India and improve the business at Konkola Copper Mines in Zambia, he said. Vedanta dropped plans to mine bauxite in India’s Niyamgiri hills after protests by local tribes, who believe their god resides in the hills.

The company will continue to search for the aluminum raw material in Odisha and other regions while purchasing alumina to increase production at its “low-cost” smelter, Albanese said. The company is supplying its alumina refinery with bauxite from other regions, including western Africa.

Zinc Stake

Vedanta, which is also seeking to acquire the Indian government’s stake in Hindustan Zinc Ltd., will have to wait until a government is formed after elections results tomorrow, Albanese said. The Indian cabinet in January approved the sale of the 29.5 percent stake, worth about $2.8 billion.

“There’s a valuation mechanism and an auction process expected,” Albanese said. “And realistically given the sensitivity about privatization, the auction process is the most transparent way to conduct that divestment. We look forward to working with the government.’”

Vedanta today turned to a loss of $196 million in the year ended March 31 from a profit of $162 million a year earlier. Five analysts surveyed by Bloomberg had estimated an average loss of $148.8 million.

Free cash flow in the period was $3.02 billion before capital expenditure and $1.6 billion after the investment, Vedanta said. The company reduced net debt by $696.1 million to $7.92 billion at the end of March, while gross debt was $16.9 billion, it said.

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