London-based minerals and metals major Vedanta Resources today announced it would buy UK-based Anglo American Plc’s zinc business for $1.34 billion (Rs 6,011 crore) in an all-cash deal.
The acquisition substantially increases the Anil Agarwal-promoted company’s zinc and lead production capacity to 1,462 ktpa (kilo tonnes per annum) — boosting its production of lead and zinc by 37 per cent.
Vedanta said the group would now have an 11 per cent share of the global zinc market. The deal also increases reserves and resources by 206 million tonnes, increasing Vedanta’s total reserves and resources by 76 per cent.
| HIGH FIVE Top five producers of Zinc - Q1 2010 | ||
| Company | Production* | Country |
| Hindustan Zinc | 730 | India |
| Xstrata AG | 690 | Switzerland |
| Glencore | 356 | Switzerland |
| New Boliden | 323 | Sweden |
| Teck | 300 | Canada |
| *In kilotonnes | ||
Today’s acquisition further consolidates the company’s position as the world’s leading zinc producer. The acquisition will be handled by subsidiary Hindustan Zinc Ltd, in which Vedanta holds a majority stake (through Sterlite).
In a statement issued today, Vedanta said Anglo American Zinc’s operations were highly profitable with long-term development potential. For the year ended December 31, 2009, the company generated, on an attributable basis, a gross revenue of $670 million, Ebitda of $213 million, operating profits of $154 million and had gross assets of $845 million.
Chairman Anil Agarwal said: “These high-quality assets complement Vedanta’s existing portfolio, creating the largest zinc and lead producer in the world. We intend to rapidly develop Gamsberg, one of the largest high-quality zinc projects in the world, leveraging our world-class large project development expertise.”
Anglo American said the sale of its zinc business follows its October 2009 announcement of its strategy to focus on commodities where it holds advantaged positions.
Vedanta will buy the Skorpion mine in Namibia, the Lisheen mine in Ireland and a 74 per cent stake in Black Mountain Mining in South Africa, said Anglo American. Completion of the transaction is expected to be in stages and Vedanta has planned to complete the acquisition of all three within the next 12 months.
Anglo American's zinc business produced 3,50,000 tonnes of zinc in 2009.
Of the total consideration, $698 million relates to the Skorpion mine, $308 million relates to the Lisheen mine and $332 million relates to Anglo American's 74 per cent interest in Black Mountain Mining.
The transaction is subject to customary regulatory approvals as well as competition clearance in the relevant jurisdictions. In addition, Exxaro Resources Limited, Anglo American's black economic empowerment partner in Black Mountain Mining, holds a 26 per cent interest in the company and has a pre-emptive right to match Vedanta's offer in respect of this asset.
The $1.34 billion consideration agreed with Anglo American is based on effective economic ownership, including profits and cash flows, passing to Vedanta as of 1 January, 2010.
"This agreement represents an important milestone in our strategy to focus on our core commodity businesses and on the delivery of our exciting near-term growth from our $17 billion of approved projects," said Cynthia Carroll, chief executive of Anglo American.
With this acquisition Vedanta will be taking on board 1800 employees from Anglo American's zinc business. Rough estimates indicate that Vedanta would get nearly 4 per cent of Anglo American Plc's revenues but would be burdened with only 1.7 per cent of its workforce. "On enterprise value to Ebitda basis, the acquisition appears at a competitive valuation. However, the success of the acquisition will depend on how effectively they develop the undeveloped mines," said Alok Ranjan, head of portfolio management service, at domestic brokerage Way2Wealth. He was referring to the Gamsberg asset.
