Goldman Backs Vedanta Ltd. as Glencore Cuts Zinc Production

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  • Vedanta posts sharpest two-day increase since May 2009
  • Zinc made up 37% of parent Vedanta's 2014-15 pre-tax earnings

Is Glencore Selling Mines at the Market Bottom?

Vedanta Ltd., India’s biggest zinc miner, posted its sharpest two-day surge in six years after Glencore Plc announced cuts in its production of the metal last week, sparking a rally in prices.

Shares of Vedanta Ltd., controlled by billionaire Anil Agarwal’s London-listed Vedanta Resources Plc, rose 7.1 percent at close in Mumbai on Monday, extending an advance of 12 percent on Oct. 9. The stock, which posted a sixth day of gains, was the best performer on the benchmark S&P BSE Sensex, which fell 0.7 percent.

Glencore, the world’s biggest miner of zinc, said Friday it will cut output by one-third. Zinc rose $151, or almost 9 percent, last week on the London Metal Exchange. A $100-a-ton increase in prices will boost Vedanta Ltd.’s pretax earnings for the next fiscal year by at least 3 percent, according to the Indian unit of Goldman Sachs Group Inc.

“We believe the cuts announced by Glencore will lead to tightening of the demand-supply situation and could provide support to zinc prices,” Goldman Sachs analysts Navin Gupta and Indrajit Agarwal said in note dated Oct. 11. Vedanta is well-placed to take advantage of the price rally, they said.

Zinc made up 37 percent of Vedanta Resources’ 2014-15 pretax earnings, and the parent may benefit from the supply cutbacks, Bloomberg Intelligence analyst Eily Ong said on Monday. Vedanta Resources’ total refined-zinc production in the first half of the year ending March 31 rose 15 percent from a year earlier due to higher smelter efficiency and ore output, she said.

Goldman Sachs reiterated a buy rating for the company with a 12-month target of 135 rupees, implying an increase of 30 percent from the close on Oct. 9. Three-month zinc on the LME rose 1.9 percent to $1,870 a metric ton on Monday, while copper gained 0.7 percent and aluminum advanced 0.7 percent.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.