Vedanta makes grand moves
AngloGold CEO’s job move gets market antennae twitching
● It came as no surprise to the market when AngloGold and Vedanta announced this week that Srinivasan Venkatakrishnan would take the helm at Vedanta. But it added to the mystery of Indian billionaire Anil Agarwal’s intentions in relation to Anglo American.
The mining mogul, who last year secured a 21% stake in Anglo American through his family trust Volcan Investments, has been playing his cards close to his chest, maintaining that he invested in Anglo purely because he likes the portfolio.
Appointing Venkatakrishnan CEO of Vedanta Resources, the holding company of his business interests, is considered a smart move for Vedanta and a loss for AngloGold Ashanti. Vedanta has been investing in a number of global mining experts, some of whom have a close relationship with Anglo American or previously worked there.
These include former Anglo American CEO Cynthia Carroll and Deshnee Naidoo, who worked at Anglo American’s coal business before she moved into the CEO position at Vedanta Zinc International. Venkatakrishnan worked closely with current Anglo American CEO Mark Cutifani as his chief finance officer when Cutifani was CEO of AngloGold Ashanti.
Leon Esterhuizen, an analyst at Nedbank, said there was nothing more Venkatakrishnan could do at AngloGold at this stage. “If I were him, I’d also be looking for something more challenging as a final push before retirement — and there could be some action between Anglo and Vedanta, so maybe it’s not a bad place to be,” Esterhuizen said.
In the past five years, Vedanta Resources has undergone major changes. Prior to 2013, before Tom Albanese came in as CEO, Vedanta’s safety record was described as “unacceptable”. The number of deaths hit high double digits on an annual basis.
Amit Dixit, an India-based analyst at Edelweiss Financial Services, said that since 2014 the company had made significant changes in safety. You can see Albanese’s leadership in the safety numbers. “Since 2014 Vedanta had only experienced two fatalities.” Albanese resigned last year.
But analysts have not always been as impressed with the business’s strategy.
Gamsberg project
Some London analysts said they had dropped coverage of Vedanta as clients were not interested. One analyst said Vedanta was considered “uninvestable”. It had a “complicated organisational structure” with no “transparency” and was burdened by debt.
The company, which is now the sixthbiggest diversified miner in the world, has assets in aluminium, zinc, copper and oil, to name a few, in India, Australia and several African countries.
Dixit said the strategy had been to acquire troubled businesses and turn them around.
This is evident in the acquisition of the liquidated Electrosteel on Wednesday and in older acquisitions, such as Hindustan Zinc, as well as its zinc assets in South Africa, which the company acquired from Anglo American in 2010.
“We had Hindustan Zinc and our chairman is very bullish about base metals, particularly zinc . . . and the idea of diversifying outside of India excited him. But the biggest attraction was the Gamsberg project [in the Northern Cape]. Today it’s the largest underdeveloped zinc body in the world,” said Naidoo, CEO of Vedanta Zinc.
The Gamsberg zinc greenfields project, which is projected to be operational by June, will be a low-cost open-pit zinc mine. At the time it was being developed in 2015, commodity prices were under water and Naidoo said the banks had refused to fund such a large project. The project was designed to operate with a $1 600-a-ton zinc price. Today zinc prices are $3 266 a ton.
But Vedanta, just like its diversified peers, has been criticised for some of its moves, one of which involves its copper mine investment in Zambia, KCM. The group invested $3-billion in a shaft expansion, but some analysts said they believed KCM was not worth the effort Vedanta was putting in to extend the mine.
Ben Davis, analyst at Liberum, said Agarwal always seemed to want to move forward and gain in size. “I don’t think Vedanta has ever sold off a business. Even when it makes no sense to be there, like Zambia.”
However, Peter Major, an analyst at Cadiz Corporate Solutions, said those who can negotiate in tough environments succeed in Zambia.
Vedanta’s deliberate exposure to base metals has paid off in the past two years as base and bulk commodities took the lead.
An India-based analyst who did not want to be named said Vedanta had adopted a more simplified structure in the past few years. The business had also become more transparent and appealing to investors.
Vedanta had a market capitalisation this week of about of £1.9-billion (R32-billion) while Anglo American had a market capitalisation of £22.9-billion.
This is one of reasons some analysts have taken a cynical view on the possibility of a merger of the two companies — something Agarwal proposed in 2014, only to have his overture rejected by Cutifani.
But in the past two years the company has been a consistent dividend payer. And with Vedanta trading at £7.32 on the London Stock Exchange, it enjoys a buy rating by 50% of the analysts who watch the stock — similar to ratings of Anglo American’s stock.