Vedanta group Chairman Anil Agarwal is a brave heart. The global financial crisis, which triggered a meltdown in metals, does not seem to have dimmed his ambition to acquire leadership in aluminium, copper and zinc.
When Vedanta acquired a controlling stake in Sesa Goa, a private-sector producer and iron ore, from Japan’s Mitsui in 2007, it was rightly seen as a declaration of the group’s intention to occupy space in the steel sector at the appropriate time. It can be discounted that Vedanta’s proposed steel project in Orissa has been shelved.
‘Fortune favours the brave’, goes the saying. Agarwal has experienced this more than once.
After he acquired the majority stake in aluminium maker Balco in December 2001, the indifferently performing Balco’s capacity rose by 250,000 tonnes to 350,000 tonnes.
Who could have foreseen that after Sterlite, a Vedanta group company, took control of a non-performing Hindustan Zinc in April 2002, the entity would would come to own a zinc-lead capacity of 1 million tonnes by 2010.
Vedanta group is now well on course to achieve the minimum declared capacity of 1 million tonnes for every non-ferrous metal in its portfolio.
It also has grand plans for Sesa Goa which owns iron ore reserves of 180 million tonnes.
The experience of steel makers here, not to speak of mining groups in acquiring assets overcoming the maze of regulatory hurdles, is not at all encouraging. However, no one doubts Vedanta’s capacity to pull a rabbit out of its hat. This is specially so after Sterlite sewing up the $1.1-billion Asarco deal.
Tata Steel must now be regretting that it acquired Corus in April 2007 by paying the full price in a booming market. So also Hindalco for its acquisition of the world’s largest aluminium rolling company Novelis.
In this regard too, luck has been on the side of Vedanta. Initially, Vedanta made an offer of $2.6 billion for Asarco. But that was a year ago, when copper was commanding over double today’s price. See how much cheaper Asarco assets has now become for Vedanta.
But why should Vedanta be going ahead with all its expansion programmes here and abroad when we find leading metal groups, including ArcelorMittal, Rio Tinto Alcan and Chinalco doing some serious production cuts and shelving expansion programmes till economic activity gains in pace.
According to one school of thinking, if funds are available, a difficult proposition when banks are being bailed out by governments, then a group like Vedanta should not wait for the next spurt in demand to create new capacity. Vedanta officials claim that the group, which is having Rs 30,000 crore in cash, remains committed to investing as much as Rs 60,000 crore in new projects.
In Vedanta’s capacity creation package, alumina and aluminium take the cake. At this point, India’s total aluminium capacity is 1.3 million tonnes in which the share of Vedanta is 385,000 tonnes. But here account has not been taken of Vedanta’s 500,000-tonne smelter in Orissa’s Jharsuguda, which is now getting commissioned.
In a move to make best use of Orissa’s bauxite and coal deposits, Vedanta has decided to finally create 1.6 million tonnes of smelting capacity at Jharsuguda to be backed by a 5 million tonne alumina refinery at Lanjigarh and a power complex of 3,750 MW. At the same time, Balco’s aluminium capacity will be raised to 1 million tonnes.
If Vedanta has its way then all this capacity will be on ground by 2013. But we have seen how time consuming it is proving for Vedanta to start mining operation at Lanjigarh where it owns bauxite deposit of 75 million tonnes but also has the government promise of an equally large deposit nearby.
But all this is to support its 1 million tonne refinery, which sadly now has to be fed with costly bauxite from third party mines. This will be the case till such time Vedanta has got the final set of environmental clearances post Supreme Court assent to start mining.
Building a 5-million-tonne refinery at Lanjigarh will be justified provided linkages to bauxite deposits lasting about 50 years could be acquired. Orissa, where most of Vedanta’s aluminium action is to unfold, has as much as 1.7 billion tonnes of the country’s total 3.3 billion tonnes of bauxite reserves. Even after allotment/earmarking of deposits for different groups, Orissa is left with free bauxite reserves of 640 million tonnes.
Vedanta says it has strong claims to free deposits because of the world’s single largest smelter it is committed to build at Jharsuguda. But whether Vedanta will get all the bauxite it needs will be a toss of dice.
