Lower copper demand and a ban on iron ore mining weighed on Vedanta Resources as the India-based conglomerate relied on bumper oil revenues to boost earnings.
The FTSE 100-listed group’s earnings before interest, tax, depreciation and amortisation rose 43 per cent to $3.67bn in the nine months to December 31 – over half of which was down to the company’s oil and gas business that Vedanta bought in December 2011.
Mike van Dulken, head of research at Accendo Markets, said the update exposed a worrying slowdown in the company’s traditional mining activities.
“It’s a muddy situation,” he said. “Once you break down the figures the growth in ebitda was heavily weighted to oil and gas . . . if you take that away you end up with about a 20 per cent drop [in earnings] – so the headline is great but the mining business is ultra-reliant on this new business.”
Overall revenues increased 11 per cent to $11.02bn over the period but earnings across three of Vedanta’s four mining businesses all fell.
Iron ore earnings declined 80 per cent year on year to $101.1m, zinc 18 per cent to $992.4m and copper by a third to $372.3m due to weak demand in spite of increased production. The company’s aluminium subsidiary provided a relative silver-lining with a 60 per cent increase in earnings to $151.7m.
Vedanta’s iron ore business has suffered following statewide mining bans in Karnataka and Goa, which the company is challenging in India’s Supreme Court, while zinc was hit by a 13 per cent drop in production.
However, $2.4bn in oil and gas revenues accounted for $1.9bn in earnings, buoyed by a production jump of a fifth during the third quarter. The company said more oil from its Rajasthan field, the company’s biggest by production, saw average daily production for the nine months climb 21 per cent rise to 206,405 barrels of oil equivalent (boepd).
The update underlines Vedanta’s reliance on its majority-owned oil and gas venture Cairn India, which helped the company deliver a 16 per cent increase in interim pre-tax profit last November.
Vedanta, which is controlled by the Indian billionaire Anil Agarwal, announced last February that it would pursue a merger of various subsidiaries as the next step of its founder’s plan to build India’s first global natural resources company.
Vedanta added that it was waiting for authorisation from regulators to complete the consolidation of its businesses – aimed at simplifying its complex asset holdings – by the end of the financial year following shareholder approval.
Vedanta shares rose 36p, or 3 per cent, to £12.00 in mid-afternoon London trading.