Vedanta Group’s Sesa Sterlite Resumes Iron Ore Mining: So What?

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The collective sigh of relief was almost audible from the billionaire Anil Agarwal’s Vedanta Resources Plc. Group as an Indian court allowed one of its unit companies, Sesa Sterlite Ltd., to resume mining operations in the southern Indian State of Karnataka.

Agarwal’s Vedanta has US $9 billion of repayments due in the five years through 2018, according to data compiled by Bloomberg, and this court order has perhaps come just in time for the company. It is expected to boost Vedanta’s credit quality to some extent and lower its cost of borrowing.

Sesa Sterlite got clearance from India’s Supreme Court to restart its iron ore mines in Karnataka in the last week of December. On Jan. 3, it resumed its mining operation there after a gap of more than two years. Prior to this, Sesa Sterlite’s iron ore mining operations in India were closed primarily due to Supreme Court-imposed mining bans in Goa and Karnataka.

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So what else does this portend for the company – and for metal purchasers?

The mining bans had affected the company’s financials, as reported by MetalMiner, with oil and gas saving the day for the Group. The resumption of iron ore mining is expected to increase production of the raw material from the southern state by 14 percent a year, easing supplies to local steelmakers.

A report by news agency Bloomberg in Live Mint quoted Sankalp Baid, senior analyst in Mumbai at India Ratings and Research, a local unit of Fitch Ratings, said that though the resumption was expected to improve the company’s cash flow on a standalone basis from current levels, incremental cash flow generated was not expected to come through as Goa operations remained shut.

However, the company will be operating at a much-reduced capacity of 2.29 million tons per year as Karntaka’s total iron ore production had been capped at 30 million tons per year by the Supreme Court. Sesa Sterlite was the largest ore-producing mine in the state before the ban.

Sesa Sterlite came to being by the combination of the units Sterlite Industries (India) Ltd. and Sesa Goa Ltd. It also transferred Vedanta’s ownership of Cairn India Ltd., along with $5.9 billion of debt raised to acquire the energy explorer in 2011, to Sesa Sterlite, cutting the parent’s liabilities by 61 percent.

What This Means for Metal Buyers

The resumption in mining is expected to partially ease iron ore shortages faced by Indian steelmakers, and may even halt the moves by some steel producers to hike up steel prices in the coming days. MetalMiner now provides steel price forecasts.

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