Vedanta expects value out of zinc for Cairn

Oil and gas ramp-up expected only in 2018

Anil Agarwal-led Vedanta today said that Cairn India’s oil and gas assets are expected to ramp up production only after 2018 and till then both investors and the company see value coming only from the zinc business. This, after the merger happens between the two companies.  

It was in June 2015 that Vedanta Ltd, the flagship firm of Vedanta Resources Plc, announced the merger with its unit Cairn India.  The merger is expected to happen before March 2017, after getting approvals from the ministry of petroleum and the court, Tom Albanese, chief executive officer, Vedanta Resources told Business Standard in an interview.  

 

He said there would be adequate representation of oil and gas on the company's board, post-merger. “The zinc business assets of the group may last for another 30 years, while that of Cairn India may be for another 8 years,” said Sudhir Mathur, chief financial officer and acting CEO of Cairn India.

The Rajasthan asset of Cairn India is considered to be significant to the country, as the company owns over 27% of the domestic crude oil production. During the financial year 2015-16, the average daily gross production from Rajasthan fields was 203,703 barrels of oil equivalent per day. Last year, Cairn India’s  gross contribution to the government exchequer was over Rs 10,000 crore.

“We are expecting to ramp up production from Cairn India assets by 2018. Till then, the shareholders can reap benefits from the zinc business of Vedanta,” said Albanese said.

   

Albanese said that Vedanta was already had a good cash flow with or without the merger of the two companies. The company has seen $1.7 billion of free cash flow last year. He added the group was also planning to ramp up its aluminium production. 

For the last few years, the deep recession in China was a cause of concern for metals, as it is the largest producer and consumer of base metals in the world.  “Worries about China is disappearing. It feels like markets have returned to a stable position. Seems like,  oil at this price can attract a little bit of capital for re-investment. The condition is similar for iron ore, copper, aluminium and all other metals, except zinc,” he added. 

In the non-ferrous basket of Vedanta, zinc is the only metal with a strong price outlook, due to tight supply. Albanese said miners did not invest enough in the mineral over the last 10-12 years.

Cairn India has called a shareholders' meeting on September 12 to seek approval for the company's takeover by its parent Vedanta Ltd under a revised all-share deal. On July 22, 2016, the two companies announced a revised deal under which Vedanta will give minority shareholders of Cairn India one equity share and four redeemable-preference shares with a face value of Rs 10 each. The preference shares will carry a coupon of 7.5% and tenure of 18 months.