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Vedanta Resources: Mining profits

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Shobhana Subramanian Mumbai
Last Updated : Jun 14 2013 | 5:49 PM IST
The company's foray into iron ore and, going ahead, into steel should help de-risk the business model.
 
Anil Agarwal says he's a patient man and that's what's helped him come such a long way. It must be true because for his three earlier acquisitions "" Madras Aluminium, Bharat Aluminum and Hindustan Zinc "" the executive chairman, Vedanta Resources, had to deal with the government. For buying out India's second largest iron-ore producer Sesa Goa, however, the 52 year old industrialist didn't have to battle the government. But he did have to contend with the likes of an LN Mittal and a Kumar Mangalam Birla. He surprised everyone by outbidding them and Mitsui's controlling stake of 51 per cent is now his for Rs 2,036 a share. To its interests in copper, aluminium, zinc, Vedanta has now added iron ore. "Iron ore was missing from our portfolio and with this, we'll be among the top global metal players," says Agarwal.
 
And he doesn't intend to stop at this. The Rs 19,750 crore (revenues for nine months till March 2007) Vedanta will scout around for more iron ore reserves, perhaps in Brazil the executive chairman says. "The commodities of tomorrow are iron ore and coal," he says. The move to acquire the Rs 1,870 crore (revenues for FY06) Sesa Goa has been applauded by analysts who believe, the group's earnings will become more stable now. Iron ore will account for just 10 per cent of the group's revenues. Says Rakesh Arora, who tracks metals at Macquarie Securities, "Since base metals like copper are traded on the London Stock Exchange, prices can at times be volatile and that makes the earnings volatile. Iron ore sales are usually made through annual contracts so that should impart some stability to Vedanta's profits."
 
The London-based Agarwal, who started out in life as a scrap collector and later ran a cable company, believes in both forward and backward integration""a severe shortage of copper for cables prompted him to start making copper rods at Lonavala, near Mumbai. And now, with a view to cashing in on the 207 million tonne of iron reserves that he has acquired in Sesa Goa, he plans to start making steel. Says Agarwal, "Steel would be a logical step forward for us." However, the metals magnate believes he should not venture into steel making on his own. "Mining and steel are altogether different businesses. We do not have any expertise in steel-making so we will be looking for a joint venture partner," says Agarwal.
 
Vedanta has plans to foray into coal mining. It has already ventured into the power sector with a 2400 mw independent power plant project located in Jharsuguda in
 
Orissa. The first of the 600 mw units is expected to be commissioned by December 2009. The group sees an opportunity in the nine ultra mega power projects, with capacities of 4000mw each that are proposed to be set up in the country.
 
But metals will remain the focus area for Vedanta. Sesa Goa's capacity is to be upped from the current 10 million tonne per annum to 15 million tonne. Vedanta, which is listed on the London stock exchange, will also target total capacities of one million tonne each for copper, aluminium and zinc and plans to spend around Rs 55,000 crore to achieve this. Says Agarwal,"I want to be the best mining and metals company in the world. I would love to see people calling Vedanta India's CVRD, the Brazilian mining company."No mean ambition that.

 

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First Published: Apr 29 2007 | 12:00 AM IST

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