(Adds detail and background.)
By Alex MacDonald
LONDON--Vedanta Resources PLC (VED.LN) plans to materially
reduce its capital expenditure plan, the company's chief executive
said Friday, amid concerns about the company's ability to pay down
debt after the recent commodities price slump.
The India-focused natural resources company expects to cut
hundreds of millions of dollars from its forecast $2 billion
capital budget for the financial year ending March 31, 2016, CEO
Tom Albanese told analysts on a call. "It will be material" he
added.
The U.K.-listed miner, like many others, spent billions of
dollars expanding its business during a decade-long commodities
boom. That period has lost its luster after a sudden ramp up in new
production capacity for many commodities and slower-than-expected
demand growth. This has caused commodities prices to slump. For
some of Vedanta's key products, particularly oil, copper and iron
ore, prices are now hovering at more than-five year lows.
Credit ratings agency Moody's Investor Services responded to the
lower prices by downgrading Vedanta's outlook to negative from
stable. It raised concerns that a lower oil price could crimp the
firm's ability to pay down debt.
Vedanta reported earnings before interest, taxes, depreciation
and amortization of $1.02 billion in the financial third quarter,
down 11% from the corresponding year-earlier period. Oil and gas
earnings, typically the company's largest, fell 44% after oil
prices more than halved from June to now.
The company also produced negligible earnings from its iron ore
division and generated no earnings from its majority-owned Zambian
copper unit in the third quarter. This more than offset higher
earnings from its zinc, aluminum, and other copper assets in India
and Australia. Revenue rose 1% to $3.36 billion.
Vedanta sought to allay concerns about its debt by pointing out
that it only needs to repay about $1.3 billion of its $16.8 billion
in gross debt by end-March and about $1.5 billion the following
fiscal year. The company has about $8.85 billion in liquid assets
and untapped credit facilities and is in talks to refinance this
financial year's maturing debt at a lower rate. "We are comfortable
on our [debt] covenants at current commodity prices," Chief
Financial Officer DD Jalan told analysts.
Vedanta's planned capital expenditure cut should also help
conserve cash. Vedanta didn't provide further details, but RBC
Capital Markets analyst Tim Huff estimates the company may seek to
cut it annual capital expenditure to or below the $1.4 billion
spent in fiscal 2014.
Vedanta is also working on a turning around its Zambian copper
division where half of its operations are operating in the red due
to balooning production costs and a falling copper price. Analysts
expect the division to hemorrhage even more cash this quarter after
the Zambian government introduced higher royalties this month.
The firm also said it renewed its iron ore mining leases in
Karnataka and Goa, India's two largest iron ore producing states.
The company expects to start producing iron ore in Goa from April
and in Karnataka by February, after securing necessary approvals
following the repeal of mining bans in those two states.
The company had net debt of $8.8 billion as of the end of
December, down from $9 billion at the end of September.
Write to Alex MacDonald at alex.macdonald@wsj.com
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