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Sterlite Industries
Overweight; STRL.BO, STLT IN
STLT completes second zinc mine acquisition; On track for completion of the transaction
• Sterlite completes acquisition of Anglo's second zinc asset-Black
Mountain Mine: Sterlite acquired 74% interest in the Black Mountain
Mine in South Africa from Anglo American for a total consideration of
$348MM, which includes replacing the shareholder loan of $88MM.
The remaining 26% of the mine is held by Exxaro. This acquisition
includes the Black Mountain zinc mine (attributable R&R of 51.7MT;
2009 attributable Zn prodn of 21kt and Pb prodn of 36kt) and the
Gamsberg zinc project (undeveloped Zn mine with R&R of 137.6MT).
This, along with the Skorpion mine (R&R of 8.3MT; 2009 prodn of
150kt) acquisition completed in Dec-10, is part of the proposed
acquisition of Anglo's three zinc assets announced in May-10 for
$1.338bn. The third asset is the Lisheen zinc mine in Ireland (R&R of
8.7MT; 2009 prodn of 191kt), which we believe should be completed
over the next few months.
• Black Mountain mine has volume growth potential: The Black
Mountain mine has the most potential for volume growth given its large
resource base. This underground mine has the highest R&R base among
the three mines of 51.7MT but with low Zn grade (1.5% vs. 11.9% for
Lisheen and 11.3% for Skorpion). However, based on the 2009 rate of
production, the mine has an average life of ~37years. The cost of
production at the Black Mountain mine was $1237 (on Zn equivalent
basis) for 2009, which is higher than $902 CoP at the open cast Skorpion
mine. We expect the Black Mountain mine to contribute EBITDA of
$43MM in FY12E.
• Anglo’s zinc asset acquisition to contribute 11-13% of FY12-13E
EBITDA: As highlighted previously, the acquisition is through Sterlite’s
fully owned subsidiary, Sterlite Infra. We assume that the acquisition
will be completed by end-FY11 and include the profitability from the
mines in our earnings from FY12E. Assuming a Zn price of $2300 for
FY12 and a 15% escalation in the 2009 CoP of the zinc assets, we expect
the full acquisition to contribute $383MM in FY12E. We assume a
modest decline in Zn prices in FY13E, and therefore, expect the assets to
generate $363MM in EBITDA in FY13E.
• Zinc-A key growth driver for Sterlite: We expect Sterlite's Zinc
segment will show operational improvement going forward. First, the
progress in completing the Anglo zinc asset acquisition should start
flowing through from FY12E. Second, Zn production at majority-owned
HZL (Not Rated) should pick up from its current levels of 178kt/quarter
to 200kt/quarter.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries
Overweight; STRL.BO, STLT IN
STLT completes second zinc mine acquisition; On track for completion of the transaction
• Sterlite completes acquisition of Anglo's second zinc asset-Black
Mountain Mine: Sterlite acquired 74% interest in the Black Mountain
Mine in South Africa from Anglo American for a total consideration of
$348MM, which includes replacing the shareholder loan of $88MM.
The remaining 26% of the mine is held by Exxaro. This acquisition
includes the Black Mountain zinc mine (attributable R&R of 51.7MT;
2009 attributable Zn prodn of 21kt and Pb prodn of 36kt) and the
Gamsberg zinc project (undeveloped Zn mine with R&R of 137.6MT).
This, along with the Skorpion mine (R&R of 8.3MT; 2009 prodn of
150kt) acquisition completed in Dec-10, is part of the proposed
acquisition of Anglo's three zinc assets announced in May-10 for
$1.338bn. The third asset is the Lisheen zinc mine in Ireland (R&R of
8.7MT; 2009 prodn of 191kt), which we believe should be completed
over the next few months.
• Black Mountain mine has volume growth potential: The Black
Mountain mine has the most potential for volume growth given its large
resource base. This underground mine has the highest R&R base among
the three mines of 51.7MT but with low Zn grade (1.5% vs. 11.9% for
Lisheen and 11.3% for Skorpion). However, based on the 2009 rate of
production, the mine has an average life of ~37years. The cost of
production at the Black Mountain mine was $1237 (on Zn equivalent
basis) for 2009, which is higher than $902 CoP at the open cast Skorpion
mine. We expect the Black Mountain mine to contribute EBITDA of
$43MM in FY12E.
• Anglo’s zinc asset acquisition to contribute 11-13% of FY12-13E
EBITDA: As highlighted previously, the acquisition is through Sterlite’s
fully owned subsidiary, Sterlite Infra. We assume that the acquisition
will be completed by end-FY11 and include the profitability from the
mines in our earnings from FY12E. Assuming a Zn price of $2300 for
FY12 and a 15% escalation in the 2009 CoP of the zinc assets, we expect
the full acquisition to contribute $383MM in FY12E. We assume a
modest decline in Zn prices in FY13E, and therefore, expect the assets to
generate $363MM in EBITDA in FY13E.
• Zinc-A key growth driver for Sterlite: We expect Sterlite's Zinc
segment will show operational improvement going forward. First, the
progress in completing the Anglo zinc asset acquisition should start
flowing through from FY12E. Second, Zn production at majority-owned
HZL (Not Rated) should pick up from its current levels of 178kt/quarter
to 200kt/quarter.
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