 "Vedanta to cut costs by 25% amid worst slump")
Vedanta Resources Plc, India's biggest producer of aluminum, copper and zinc, plans to cut costs by as much as 25 per cent as it battles a global slump that sank industrial metal prices to a six-year low, Vedanta chairman Anil Agarwal said.
The London-listed mining company will "tighten" capital spending and "do whatever is necessary" by way of innovation to help boost profit margins, he said in an interview in the northern Indian city of Jaipur. The prices of the three metals have dropped at least 25 percent in the past year as the latest factory output data from China, the world's biggest consumer, signaled the rout is deepening.
"This is the worst I've ever seen," said Agarwal, 61. "We have to reinvent ourselves to cut costs, bring more efficiency. The fittest will survive and we believe we are the lowest cost quartile in the industry."
Apart from retreating prices, Vedanta has also been slammed by environmental regulations in India. Its inability to mine enough bauxite has forced its aluminum smelters to operate below capacity, while courts have limited the amount of iron ore it can mine. Shares of the company have dropped 50 per cent in the past year in London, compared with the 37 per cent decline in the Bloomberg World Mining Index.
Chile's Codelco
Unlike Glencore Plc, which is cutting output to weather the slump, Vedanta's Agarwal said he would like to increase aluminum production if he could get bauxite. The head of Chile's Codelco, the world's biggest copper miner, said today he would rather rein in costs than curb production.
Three-month aluminum prices on the London Metal Exchange have slid 27 percent in the past year, while copper dropped 30 percent and zinc tumbled 31 percent. Global iron ore prices have slumped at a time when Vedanta ships out its first cargo from Goa after a mining ban was lifted in the state.
Vedanta and units, with a net debt of $7.5 billion as of Sept. 30, are better placed among peers, Agarwal said. The company had $12 billion of debt due till fiscal year 2019, of which $5.2 billion is due in the next two years, according to a company filing. It had cash of $8.9 billion as of Sept. 30, according to data compiled by Bloomberg.
Enough Cash
"Whatever is due we are very comfortable to pay next year," he said. "Refinancing is not a priority. We are generating enough cash to pay our debt."
Industrial metals continued to retreat Wednesday, adding to the rout as data show China's economy is expanding at the slowest pace in a quarter of a century. While Glencore has lost $45 billion in market value this year, Codelco this week slashed the premium it charges Chinese buyers by 26 percent, the most since the global financial crisis.
Commodity prices have room to drop 5 percent to 7 percent further, Agarwal said.
"But, there could be an upside of 30 to 40 percent as no new resource has been opened in the world," he said. "China has not reduced consumption and India is growing at double digits."
