JOHANNESBURG (miningweekly.com) – In the face of “exceptionally challenging” global commodity markets experienced in the 2015/16 financial year, global diversified metals and mining company Vedanta Resources aims to focus its efforts on reducing net debt in the 2016/17 financial year.
To do so, the miner has pegged its 2017 capital expenditure (capex) at around $1-billion, half of which will be pumped into Vedanta’s high-return zinc projects – Gamsberg, in South Africa, and the Zinc India project, in India.
CEO Tom Albanese hoped the strong cash flows at its Tier 1 assets would buffer the economic impact and help offset the 17% drop in revenue for the year ended March 31, which stood at $10.7-billion, down from $12.9-billion in revenue reported in 2015.
Vedanta also cut its final dividend by half to 30c a share, and reported a narrowed earnings before interest, taxes, depreciation and amortisation (Ebitda) margin of 28%, down ten percentage points year-on-year, reflecting an Ebitda of $2.3-billion in 2016, compared with $3.7-billion for the full year prior.
The London-listed company’s free cash flow, however, was up 63% year-on-year, from $1-billion in 2015 to R1.7-billion in 2016, driven by the company’s optimisation of operational, capex and working capital initiatives, which enabled Vedanta to reduce its net debt by $1.1-billion and its gross debt by $400-million during the year.
With this in mind, Vedanta chairperson Anil Agarwal said the company demonstrated resilience in a volatile economic market.
“We continue to feel the effects of the downward cycle, but we also know that history tells us to be patient. We are optimistic about the longer term and intend to be in the right place for when the upturn begins,” he said in a statement.
Agarwal added that there was “huge opportunity” for Vedanta to support India’s future resources demand, which he believed the company could seize with its low-cost assets.
“We now hope for an improvement in the dynamics of the global commodity markets. Indeed, we are cautiously optimistic for 2017; based on the visibility we have now, we believe a recovery may be emerging, led by zinc,” he said.
Vedanta ramped-up capacities at its aluminium, power and iron-ore operations in 2016, while trying to maintain a disciplined approach to capex and focusing on cost optimisation across its operations.
Agarwal reiterated that the company had already established initiatives to reduce costs, optimise assets and address operational issues, which continued to gain ground throughout the year. “These steps, together with minimal additional capex requirements, helped to mitigate the effects of a depressed world market for commodities,” he said.
The company’s cost of production was lower across all businesses, saving $325-million in the year.
Record zinc, lead and silver production was achieved at the Zinc India project, as well as record production of aluminium, power and copper cathodes at its Copper India business.
FOCUSED ON INDIA
Further, with India forecast to be the world’s fastest-growing economy this year and the government encouraging increased mining activity – by the auctioning of coal and other mineral blocks – Vedanta resumed production at its iron-ore operations in Goa, India, achieving exit run-rate production of 800 000 t/m.
Agarwal noted that, as the only diversified natural resource producer in India, Vedanta was “uniquely positioned” to support India's needs.
“We see encouraging signs. Oil cess, a tax on the production of crude oil, has effectively been lowered at current price levels and export duty on low-grade iron-ore has been removed completely,” he said.
Vedanta had also gained permission to use the power generated from three units of the Jharsuguda power plant for captive use and received environmental clearance for expansion of Lanjigarh alumina refinery capacity to four-million tons a year, which Agarwal believed were all important steps towards increasing the company’s capacity from its well-invested assets.
“In a country where gross domestic product may double in the decade ahead, we look forward to playing our part in unlocking India's wealth of world-class energy and mineral resources," concluded Agarwal.