Vedanta looks at gold and phosphate to widen its offerings

A bird flies by the Vedanta office building in Mumbai
Vedanta Resources plans to add gold and phosphate to its mineral portfolio. The London-based natural resource company that added oil to its business after acquiring Cairn India in 2010 is looking at bidding for gold mines coming up for auction in India.

Three gold mines had been put up for auction in Jharkhand and Chhattisgarh, a mines ministry official said.

Speaking to Business Standard, Anil Agarwal, chairman, Vedanta Resources, said the company was keen on the mines being auctioned under a new law. "The government is planning to auction the Kolar gold mine. We will definitely look at it," he said.

The group produces oil, zinc, aluminium, copper, lead and silver. Zinc contributes the largest, 29 per cent, to its Ebitda (earnings before interest, taxes, depreciation and amortisation), closely followed by crude oil. "At present, all our businesses are under pressure. We used to sell oil at above $110 a barrel; now, it is $35. Iron ore used to sell at $120 a tonne; now, it is $25. Aluminum was $2,600 and today it is $1,600," Agarwal said.

Lower commodity prices had a $1-billion adverse impact on the group last year. Agarwal anticipates prices will stabilise in early 2017. The group generated Ebitda of $1.3 billion in the first half of 2015-16, 39 per cent less than in the same period last year, though increased volumes and cost and marketing savings helped keep Ebitda margins at 30 per cent.

The group has re-phased its short and medium-term capital expenditure. This year's capital expenditure has been reduced to $0.7 billion from the $1 billion announced previously and $1.6 billion announced initially. Capital expenditure for 2016-17 is expected to be around $1 billion.

Agarwal said the country had gold, rock phosphate and potash reserves, which it should produce. "Today the price is low but tomorrow we may again have a problem on the trade deficit front because of imports," he added.

He said production of rock phosphate and potash could help in domestic production of fertilisers and reduce import dependence. The Rajasthan government had granted one rock phosphate mining lease to Hindustan Zinc when it was still a government-owned company. In 2002, shortly after the lease was renewed for 10 years, Hindustan Zinc was acquired by Sterlite Opportunities & Ventures Limited, promoted by Sterlite Industries, a subsidiary of Vedanta. Later, the state government revoked the licence.

In the case of gold, the central government controls the Kolar gold fields, which it wanted to hand over to the Karnataka government, so that the latter could initiate exploration through Mineral Exploration Corporation and then conduct a mine auction.

"We have written a letter to the Karnataka government on this some three months ago. They have not responded yet," said the official. According to the Centre's estimates, the Kolar fields have Rs 4,000-5,000 crore worth of gold dumps. Three gold mines have been put up for sale in the first phase of mineral auctions. Of these, notices inviting tenders have been issued for the Pahadia gold mine in Jharkhand, which has an estimated 1.162 million tonnes gold, and the Baghmara gold block in Chhattisgarh, which has 4,000 kg gold.

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