 "Auctioning will break the standstill in mining: Tom Albanese")
Vedanta Resources, the London-listed $13-billion metals and mining giant, is struggling to wade through a price slump in crude oil and iron ore, two of its core business interests. It sees hope in the auctioning of mineral leases, proposed in the new mining ordinance. Thanks to lower operating costs, the company says it is sure to be the "last man standing" in case of a crude oil price crash but is revisiting spending plans, Chief Executive Officer Tom Albanese tells Sudheer Pal Singh & Deepak Patel. Edited excerpts:
What is your view on the current bearish market conditions, owing to crude oil's price crash to less than $50 a barrel? What are you doing to ensure margins?
We have some of the lowest costs of production in the world for all our businesses. We are making profits in our oil and gas business even at the current level of low prices. Our lifting cost is in the $5 a barrel range. In addition, Vedanta is a diversified company, with a range of other businesses. While oil and iron ore are weak at the moment, some of the other products like zinc are quite strong. We are quite focused on protecting the business in the current market conditions. We are revisiting our capital spending plans and remain committed to a progressive dividend policy and the returns expected by shareholders. If prices fall drastically further, we will be the last man standing.
The first is ensuring the businesses are running at capacity they are capable of. We have spent a lot of money in the past on projects which are not complete or not running at full capacity. These have to be ramped up. The idea is to resolve regulatory or operational matters. The other priority is to ensure the businesses running well are able to position themselves to greater heights. We are also trying to improve our safety record. Also, our business has grown quite rapidly over the past 10 years but through acquisitions. We have a complicated corporate structure. Simplifying this is a priority.
What is the status of the (government's) residual stake sale in Hindustan Zinc (HZL)?
We are awaiting a decision by the government. With time, we hope to increase our overall interest in HZL, should the government choose to proceed with the disinvestment and auction process. The sooner the clarity on the matter, the better.
Will the provisions of the new mining ordinance lift the sector out of its woes? With commodity prices down globally, is this a good time to auction reserves?
We support the provision of auctions in the ordinance. The mining sector in India is at a standstill and no new investments or explorations are taking place. This is due to decades of controversy and conflict around allocation processes.
Auctioning will break that jam and get the industry moving. Auctioning is not meant to raise revenues. It is to ensure transparency in the transfer of mineral rights. The bulk of revenue generation will be from the employment generation locally, not through auctioning.
You have been impacted by the mining ban in Goa. How do you view the situation?
It has been a major negative for the economy and mining must resume in Goa as soon as possible. Since the closure of mining, iron ore prices have more than halved. So, the government must support the export of ore, particularly low grade ore, rather than the approach of having punitive export duties. This is the right time to abolish the high export duty on iron ore.
The government is working on a transparent policy for giving extensions to oil and gas blocks. You have sought such an extension for the Rajasthan block. What are the expectations?
It is in the government's interest to be attracting investments in the oil sector. There has to be a secure tenure one can invest under. Anything the government will do to encourage the major companies to come to India will be good for us.
With auctioning being adopted for allocation of reserves, would you be able to secure a mining lease in Odisha? From where are you sourcing bauxite for the Lanjigarh refinery?
Currently, Lanjigarh is running at one million tonnes of annual alumina production capacity. This is based on bauxite resources within Odisha, other parts of India and imports from West Africa. It is unfortunate. Over 25 per cent of the bauxite requirement is being met through import and the transportation cost is very high. It is not an efficient economic solution.
What is your view on the current bearish market conditions, owing to crude oil's price crash to less than $50 a barrel? What are you doing to ensure margins?
We have some of the lowest costs of production in the world for all our businesses. We are making profits in our oil and gas business even at the current level of low prices. Our lifting cost is in the $5 a barrel range. In addition, Vedanta is a diversified company, with a range of other businesses. While oil and iron ore are weak at the moment, some of the other products like zinc are quite strong. We are quite focused on protecting the business in the current market conditions. We are revisiting our capital spending plans and remain committed to a progressive dividend policy and the returns expected by shareholders. If prices fall drastically further, we will be the last man standing.
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What are some of the priority areas you are working on?
The first is ensuring the businesses are running at capacity they are capable of. We have spent a lot of money in the past on projects which are not complete or not running at full capacity. These have to be ramped up. The idea is to resolve regulatory or operational matters. The other priority is to ensure the businesses running well are able to position themselves to greater heights. We are also trying to improve our safety record. Also, our business has grown quite rapidly over the past 10 years but through acquisitions. We have a complicated corporate structure. Simplifying this is a priority.
What is the status of the (government's) residual stake sale in Hindustan Zinc (HZL)?
We are awaiting a decision by the government. With time, we hope to increase our overall interest in HZL, should the government choose to proceed with the disinvestment and auction process. The sooner the clarity on the matter, the better.
Will the provisions of the new mining ordinance lift the sector out of its woes? With commodity prices down globally, is this a good time to auction reserves?
We support the provision of auctions in the ordinance. The mining sector in India is at a standstill and no new investments or explorations are taking place. This is due to decades of controversy and conflict around allocation processes.
Auctioning will break that jam and get the industry moving. Auctioning is not meant to raise revenues. It is to ensure transparency in the transfer of mineral rights. The bulk of revenue generation will be from the employment generation locally, not through auctioning.
You have been impacted by the mining ban in Goa. How do you view the situation?
It has been a major negative for the economy and mining must resume in Goa as soon as possible. Since the closure of mining, iron ore prices have more than halved. So, the government must support the export of ore, particularly low grade ore, rather than the approach of having punitive export duties. This is the right time to abolish the high export duty on iron ore.
The government is working on a transparent policy for giving extensions to oil and gas blocks. You have sought such an extension for the Rajasthan block. What are the expectations?
It is in the government's interest to be attracting investments in the oil sector. There has to be a secure tenure one can invest under. Anything the government will do to encourage the major companies to come to India will be good for us.
With auctioning being adopted for allocation of reserves, would you be able to secure a mining lease in Odisha? From where are you sourcing bauxite for the Lanjigarh refinery?
Currently, Lanjigarh is running at one million tonnes of annual alumina production capacity. This is based on bauxite resources within Odisha, other parts of India and imports from West Africa. It is unfortunate. Over 25 per cent of the bauxite requirement is being met through import and the transportation cost is very high. It is not an efficient economic solution.