Sesa Sterlite in Africa: Yo Anil Agarwal, What’s the Liberia Strategy?

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Continued from Part One.

Liberia, ironically, represents the same problems as India does for the Vedanta Group, headed by billionaire Chairman Emeritus Anil Agarwal.

His strategy was to tap western Africa for ore when supply from India, Goa specifically, started to dry up. In October 2012, India’s top court had banned mining in Goa, where Sesa has almost all its mines, curtailing exports of the crucial raw material for steelmaking.

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But SSLT soon realized that Liberia was going to give it similar growing pains as India. Permissions were not coming through to set up infrastructure projects related to the mining activity, delaying the project. Sesa’s mines in Liberia are about 44 miles away from the nation’s capital, the port city of Monrovia, and the company is still awaiting approval from the Liberian government to build a road to the port.

The cash crunch from lack of ore exports from the Goan mines was always there to contend with. Revenue from Sesa’s iron ore business tumbled to about US $218 million in the year ended March 31, 2013.

The proverbial straw that broke the camel’s back was the falling ore prices in the international market.

The price had slumped 35 percent, according to a Bloomberg report, since Sesa agreed to buy the mines from Elenilto Minerals & Mining LLC in August 2011. In December 2012, it bought Elenilto Minerals’ remaining shares for $33.5 million.

The first signs of Liberian trouble could be sensed in a statement during an earnings call in November 2013, when Mahendra Singh Mehta, the then-CEO of Vedanta Resources Plc, had said they planned to develop the Liberia project in a phased manner, and were currently reviewing even the first phase of 2 million tons.

Some analysts say in the run-up to the company’s fourth-quarter 2013-14 figures, Vedanta’s operating profits will be hit with further costs in its African operations. Outside of Liberia, these include the recent announcement by the Zambian government of a 28.8 percent increase in electricity charges for miners.

Now, while everyone awaits the official call from SSLT on its Liberia expedition, there emerged a silver lining in the cloud, which would please investors and the Vedanta chairmen alike. A few days ago, ratings agency Moody’s said it had revised its outlook on Vedanta Resources to ‘stable,’ from ‘negative’ earlier, perhaps indicating the worst was over for the company.

Seems only fair because the first stirrings of resumption in SSLT’s Goa operations are on the horizon, what with a court-appointed panel on March 26 this year recommending an end to the mining ban in Goa, setting a production limit of 20 million tons annually. Though 40 percent less than what the company produced in the year ended March 31, 2012, it will at least inject the SSLT operations with much-needed cash. India’s Supreme Court had, in December last year, lifted a similar ban in the State of Karnataka, paving the way for Sesa to open its only mine in the neighboring state after a gap of more than two years.

With some of Vedanta’s idled iron ore, copper and aluminum assets now operating, or about to do so, Moody’s may not be far off the mark in its assessment that the worst for Vedanta is over.

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