India’s Vedanta group is scripting a success story in mining sector with its brave decisions to acquire new companies even though the global meltdown has wreaked havoc in metal sector.

The credit for this innovative moves goes to Vedanta group chairman Anil Agarwal, who never shied away from taking the company to new heights with his brave decisions.

In a move which had all the risks involved, in 2007 the company acquired a controlling stake in Sesa Goa, a private-sector producer of iron ore, from Japan’s Mitsui. Now, this was seen as a declaration of the group’s intention to occupy space in the steel sector at the appropriate time.

However, the decision will lift the company to new heights in the coming years as Vedanta group knows the demand for the metals will go up in the next wave. By then, the company will be ready with enough production capacity to meet the demand. In fact, everything turned gold when Vedanta group touched it. That is called Midas touch.

After Vedanta 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 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.

Again Vedanta will set up aluminium manufacturing capacities in Burdwan district of West Bengal at an investment of Rs 20,000 crore. A Memorandum of Development in this regard was signed between the Vedanta Group and the West Bengal Industrial Development Corporation Ltd.

As part of its roadmap in this regard, the Vedanta Group has acquired, and will revive, the now-defunct West Bengal Aluminium Corporation that was set up in 1952 with an installed capacity of 30,000 tonnes per annum (tpa).

Along with this, Vedanta will also set up new capacities with a view to taking the total smelter capacity to 6.5 lakh tpa. Additionally, a power plant of 3000 MW capacity would be set up in two phases of 1,500 MW each. The twin projects will require 1,000 acres of land and are scheduled for completion within the next two years.

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 off a huge success in adverse conditions. 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. Same is the case with Hindalco, which acquired 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 leading metal groups, including ArcelorMittal, Rio Tinto Alcan and Chinalco, doing some serious production cuts and shelving expansion programmes till economic activity gains 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 it was time consuming 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.

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