In the last quarter of 2014 major natural resources miner Vedanta Group has spoken frequently about its strong prospects in India. Chairman Anil Agarwal has gone on record to say that the company had plans to create an Indian natural resources conglomerate that could compete with the likes of Rio Tinto.
Vedanta, a London-listed $13 billion collection of metals and mining concerns has companies within it such as Cairn India, Hindustan Zinc and Sesa Sterlite. Previously Agarwal had also spoken of making fresh investments of as much as $30 billion in India “if the investment climate in the country remains positive.”
But there’s a flip side to Vedanta’s interest. Globally sliding commodity prices — including copper and crude oil — have forced executives there to re-examine the Indian expansion plan. In January, Moody’s Investors Service revised Vedanta Resources itself. The group’s outlook turned to negative from stable. Moody’s said the sharp drop in crude oil prices could impact the company’s credit profile.
Group Chief Executive Officer (CEO) Tom Albanese told The Economic Times a few days ago that Vedanta would cut its 2016 capital expenditures by “multiples of hundreds of million of dollars.”
Vedanta has $2 billion in debt due in 2016, which could pose a problem to its balance sheet if copper prices continue to remain low in the coming months.
Meanwhile, on the other side of the world the slump in metal prices, among other reasons, has affected operations in Vedanta’s Zambian copper mining interests. Vedanta Resources Plc was said to be reviewing operations at this unit, not only because copper prices fell to their lowest in the last 5 years, but also because of the introduction of a new tax system by the Zambian authorities that was bound to hike mineral royalties to 20% from the present 6% for open-pit operations and to 8% for underground mines. The Zambian government also stopped more than $600 million in value-added tax refunds to mining companies including Vedanta, which had only added to its parent multinational’s woes.
There was no explanation forthcoming on what exactly would the “review” entail, but from various ground-level reports coming in, it is evident the company is trying to stem its negative cash bleed.
The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.