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Vedanta climbs on strong half-year

RESULTS: Vedanta Resources delivers strong half-year with two acquisitions waiting to complete
November 11, 2010
by LiM

Shares in diversified mining and energy group Vedanta Resources climbed 2.6 per cent as it announced higher volumes and improved metals prices across all operations. Cash earnings surged to $1.35bn (£838m), up 81 per cent on the corresponding period last year, driven notably by iron ore (up 232 per cent) and copper (up 105 per cent, within which Zambian copper was 155 per cent higher).

IC TIP: Hold

Refined zinc production hit a record 341,000 tonnes, due primarily to additional volumes from the newly commissioned zinc smelter at Rajpura Dariba. By-product silver production also achieved a record level of 2.81m ounces. Vedanta is on track to become one of the world's top silver producers by 2012, with potential cash earnings of over $400m a year.

Record volumes from Vedanta's iron ore operations were rewarded with higher pricing from the new quarterly pricing system incorporated into certain long-term agreements. These have replaced the annual benchmark pricing system and helped lift long-term contract prices by an average of 90 per cent over the previous year.

Copper production in Zambia rose due to an increase in custom smelting, which helped offset a decline in output from India, which was impacted by a 22-day biannual maintenance shutdown during the period.

The acquisition of a 51 to 60 per cent interest in Cairn India for $8.5bn to $9.6bn is expected to complete in the first quarter of next year, on receipt of regulatory approvals, and would greatly diversify operations. Near-term potential to double production to around 240,000 barrels of oil per day would generate significant earnings and cash flow, on top of which the acquired acreage still offers substantial exploration potential, with over 35 prospects already identified. Vedanta is also on track to complete its $1.33bn acquisition of Anglo Zinc in early 2011, which would consolidate the group's already-strong position in zinc.

The group is also scaling up its power operations to exploit growing Indian demand and has just announced an additional 660 megawatt unit at the Talwandi Sabo project. There are no current forecasts for the group.

VEDANTA RESOURCES (VED)
ORD PRICE:2,376pMARKET VALUE:£6.3bn
TOUCH:2,374-2,377p12-MONTH HIGH:2,967pLOW: 1,795p
DIVIDEND YIELD:1.2%PE RATIO:14
NET ASSET VALUE:1,980¢NET DEBT:13%

Half-year to 30 SepTurnover (US$bn)Pre-tax profit (US$bn)Earnings per share (US¢)Dividend per share (US¢)
20092.980.606917.5
20104.581.1112420.0
% change+54+83+81+14

Ex-div:08 Dec

Payment:06 Jan

£1=$1.611

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