 "If crude prices fall drastically further, we will be last man standing: Vedanta CEO")
Vedanta Resources, the London-listed $13 billion metals and mining giant, is struggling to wade through a slump in crude oil and iron ore prices, two of its core business interests but sees hope in auctioning of minerals proposed in the new mining ordinance in India. Thanks to lower operating costs, the company is sure to be the “last man standing” in case of a crude price crash but is revisiting spending plans, Chief Executive Officer (CEO) Tom Albanese told Sudheer Pal Singh and Deepak Patel in an interview.
What is your view on the current bearish market conditions owing to the crash in crude oil prices to less than $50 per 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 per barrel range. In addition, Vedanta is a diversified company with a range of other businesses. While oil and iron ore may be weak at the moment, some of the other products like Zinc are quite strong. We are quite focused on protecting business in the current market conditions. We are revisiting our capital spending plans in the current environment. We remain committed to progressive dividend policy and the returns expected by shareholders. If prices fall drastically further, we will be the last man standing.
What are some of the priority areas you are working on currently?
The first priority is ensuring that businesses are running at capacity they are capable of. We have spent a lot of money in the past on projects which are not completed or are 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 that are running well are able to position themselves to greater heights. We are also trying to improve our safety record considerably. Also, our business has grown quite rapidly over the past 10 years, but through acquisitions. As a result, we have a complicated corporate structure. So, simplifying this structure is another priority.
What is the status of the residual stake sale in Hindustan Zinc (HZL)?
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We are awaiting decision by the government on HZL disinvestment. With time, we hope to increase our overall interest in HZL, should the government choose to proceed with the disinvestment and the auction process. The sooner the clarity comes on the matter, the better.
Do you think the provisions of the new mining ordinance will 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 being talked about in the ordinance. The mining sector in India is at a standstill and no new investments or explorations are taking place for mining. This is due to decades of controversy and conflict around allocations processes. Auctioning will break that logjam 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 the revenue generation will be from the employment generation locally and not through auctioning process.
You have been impacted by the mining ban in Goa. How do you see the situation panning out?
The mining ban has been a major negative for the economy. 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 iron 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 extension for the Rajasthan block. What are the expectations?
It is in the government’s interest to be attracting investments in the Indian oil sector. There has to be a secure tenure one can invest under. Anything that the government will do to encourage the super 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 1 million tonne of alumina production capacity per annum. This is based on bauxite resources within Odisha, other parts of India and imports from West Africa. It is unfortunate. Over 25% of the bauxite requirement is being met through imports and the transportation cost is very high. It is not an efficient economic solution.