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Management gave an overview of the various business segments in the analyst meet. Following
are the key highlights of the same.
Sindesar Khurd mine expansion one year ahead of schedule
�� Management highlighted that work at the Sindesar Khurd Mine project is progressing one
year ahead of schedule. The current ore production capacity of the Sindesar Khurd mine is
0.5mt (0.44mt production in FY10) and this is being expanded to 1.5mt capacity. The mine life
is expected to be upwards of 25 years. This is a silver rich mine and is key to meeting
management's target of 600 tonnes of silver by FY13 from current capacity of 180 tonnes.
Management noted that it did not have an hedge on silver as in other commodities as a
policy.
Hindustan Zinc surplus cash unlikely to be paid as a dividend
�� With US$3.5bn of cash at Hindustan Zinc and minority buy-out of government stake unlikely
to happen anytime soon, a special dividend could theoretically be given by Hindustan Zinc.
However, management is not considering it at the moment.
With completion of acquisition of Anglo zinc assets, zinc-lead capacity is 1.5mt
�� With progressive completion of acquisition of each of the three Anglo Zinc assets, Sterlite's
total zinc capacity has now increased from 1.1mt to 1.5mt. Total zinc production by the Anglo
assets were 350kt while lead production was 71.2kt in CY2010. Total revenues were
US$773mn and EBITDA was US$341mn for CY2010. We estimate this will add US$419mn to
FY12F earnings for Sterlite. We note that management was highly bullish on zinc prices due
to supply side issues globally with depletion at two large mines.
US$1bn over 3-5 years to be spent developing Gamsberg mine, South Africa
�� The Anglo zinc assets include the 74% stake in Gamsberg project, South Africa, which is one
of the world's largest undeveloped zinc deposits, located near the Black Mountain mine. Total
resources is 186mt and management sees a potential to produce 400kt of zinc. The company
will be investing US$1bn capex over a period of 3-5 years to develop the mine.
Aluminium at US$2500/t makes production at Vedanta Aluminium viable
On the aluminium front, Vedanta Aluminium continues to source about 50% bauxite from
BALCO and the rest from the third party mines in Maharashtra, Andhra Pradesh, Orissa etc.
Aluminium cost of production continues to be high with high transportation costs incurred for
bauxite. However, with aluminium at US$2,500/tonne, management finds it viable to produce
aluminium with imported alumina. On the Niyamgiri mining ban, management is expecting the
Orissa state government to appeal against the ban in the Supreme Court and is confident of a
favourable outcome.
2nd unit of 4*600MW Jharsuguda being stabilized
The first 600MW of the 2400MW Jharsuguda power plant is up and running and the second
unit is currently under stabilization. The remaining two units are expected to be commissioned
in the following two quarters. Management, on an average, expects to get 65% of its coal
requirements through linkage and the balance through e-auction (25-30%) and imports (5-
10%). For BALCO's 1200MW captive, the company has 65% linkage with Coal India and
expects to develop captive coal block for the rest. The company plans to sell 600MW of
BALCO's output under PPA with the rest being at the spot market. The 1980MW Talwandi
Saboo plant is on schedule and coal linkage is being worked out.
Captive coal block development remain a concern
Public hearings are currently going on for the Balco coal block. As per the 2006 Ministry of
Environment and Forests (MoEF) notification, the local administration must conduct public
consultations to ascertain the concerns of people affected by large projects. At such
gatherings, villagers are invited to discuss the potential environmental impact of projects. The
company seeks to acquire 1,070 hectares of land, of which about 700 hectares is owned by
farmers. We remain cautious on timely development. The HZL Madanpur coal block falls
under the MoEF's No-Go area. The coal block allotted for Sterlite Energy is seeing slower
progress, being a consortium of developers.
We have a Buy on Sterlite with target price of Rs207.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Management gave an overview of the various business segments in the analyst meet. Following
are the key highlights of the same.
Sindesar Khurd mine expansion one year ahead of schedule
�� Management highlighted that work at the Sindesar Khurd Mine project is progressing one
year ahead of schedule. The current ore production capacity of the Sindesar Khurd mine is
0.5mt (0.44mt production in FY10) and this is being expanded to 1.5mt capacity. The mine life
is expected to be upwards of 25 years. This is a silver rich mine and is key to meeting
management's target of 600 tonnes of silver by FY13 from current capacity of 180 tonnes.
Management noted that it did not have an hedge on silver as in other commodities as a
policy.
Hindustan Zinc surplus cash unlikely to be paid as a dividend
�� With US$3.5bn of cash at Hindustan Zinc and minority buy-out of government stake unlikely
to happen anytime soon, a special dividend could theoretically be given by Hindustan Zinc.
However, management is not considering it at the moment.
With completion of acquisition of Anglo zinc assets, zinc-lead capacity is 1.5mt
�� With progressive completion of acquisition of each of the three Anglo Zinc assets, Sterlite's
total zinc capacity has now increased from 1.1mt to 1.5mt. Total zinc production by the Anglo
assets were 350kt while lead production was 71.2kt in CY2010. Total revenues were
US$773mn and EBITDA was US$341mn for CY2010. We estimate this will add US$419mn to
FY12F earnings for Sterlite. We note that management was highly bullish on zinc prices due
to supply side issues globally with depletion at two large mines.
US$1bn over 3-5 years to be spent developing Gamsberg mine, South Africa
�� The Anglo zinc assets include the 74% stake in Gamsberg project, South Africa, which is one
of the world's largest undeveloped zinc deposits, located near the Black Mountain mine. Total
resources is 186mt and management sees a potential to produce 400kt of zinc. The company
will be investing US$1bn capex over a period of 3-5 years to develop the mine.
Aluminium at US$2500/t makes production at Vedanta Aluminium viable
On the aluminium front, Vedanta Aluminium continues to source about 50% bauxite from
BALCO and the rest from the third party mines in Maharashtra, Andhra Pradesh, Orissa etc.
Aluminium cost of production continues to be high with high transportation costs incurred for
bauxite. However, with aluminium at US$2,500/tonne, management finds it viable to produce
aluminium with imported alumina. On the Niyamgiri mining ban, management is expecting the
Orissa state government to appeal against the ban in the Supreme Court and is confident of a
favourable outcome.
2nd unit of 4*600MW Jharsuguda being stabilized
The first 600MW of the 2400MW Jharsuguda power plant is up and running and the second
unit is currently under stabilization. The remaining two units are expected to be commissioned
in the following two quarters. Management, on an average, expects to get 65% of its coal
requirements through linkage and the balance through e-auction (25-30%) and imports (5-
10%). For BALCO's 1200MW captive, the company has 65% linkage with Coal India and
expects to develop captive coal block for the rest. The company plans to sell 600MW of
BALCO's output under PPA with the rest being at the spot market. The 1980MW Talwandi
Saboo plant is on schedule and coal linkage is being worked out.
Captive coal block development remain a concern
Public hearings are currently going on for the Balco coal block. As per the 2006 Ministry of
Environment and Forests (MoEF) notification, the local administration must conduct public
consultations to ascertain the concerns of people affected by large projects. At such
gatherings, villagers are invited to discuss the potential environmental impact of projects. The
company seeks to acquire 1,070 hectares of land, of which about 700 hectares is owned by
farmers. We remain cautious on timely development. The HZL Madanpur coal block falls
under the MoEF's No-Go area. The coal block allotted for Sterlite Energy is seeing slower
progress, being a consortium of developers.
We have a Buy on Sterlite with target price of Rs207.
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