Chinese whispers fire up Vedanta shares to 12% in LSE
Analysts believe that consolidation will increase in the industry as resource-starved firms hunt for assets in resource-rich locations. 7 ways to avoid the growth traps
By TNN |
MUMBAI: Shares of the Anil Agarwal-promoted Vedanta Resources shot up to a maximum of 12% on the London Stock Exchange (LSE) on Friday on market buzz that a Chinese mining company may buy out the promoters’ stake in the mining giant.
“Traders cited market talk that a Chinese state-owned mining firm would pay 2,700 pence per share for the founder’s stake of more than 50% in the company,” international news agencies reported on Friday. “We also heard the rumour floating in the London stock market, but it is totally wrong,” a senior Vedanta group executive told ET.
“The promoters have 54% in Vedanta. How can anybody buy us out!” wondered another senior executive. On Friday, Vedanta shares rose as much as 220 pence, or 12%, to 2,120 pence on the LSE, and were trading at 2,002 pence as of 10:22 AM UK time, valuing the company at 5.76 billion pounds ($11.9 billion).
Metal and mining cos’ shares sprint
Metal and mining companies’ shares have sprinted in recent months on strong prices and speculation that some of them could become takeover targets. Some months ago, Rio Tinto agreed to buy Canada’s Alcan, which was target of a takeover bid from Alcoa. A few weeks ago, BHP Billiton made a bold offer to acquire Rio Tinto in a mind-boggling $350 billion deal.
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Analysts believe that consolidation will increase in the industry as resource-starved companies hunt for assets in resource-rich locations. China, one of the world’s biggest consumers of metals, does not have the natural resources of India or Australia. Supported by strong base metal prices, Vedanta’s shares have surged over 65% this year. This week, the company reported 4% growth in its first-half profit at $465 million, compared to $448 million of the same period the previous year. Group revenues for the period grew 29.4% to $3.9 billion.
Aluminium revenues surged 43% to $566.7 million, copper revenues grew 30.5% to $2.19 billion and zinc revenues advanced 9.4% to $964.3 million. Vedanta produces copper in Australia, India and Africa. The company is spending more than $1 billion expanding its copper mine and smelter in Zambia. It also smelts aluminum and refines zinc.
The Vedanta group had started its operations with Sterlite Industries (India) in 1986. Since then, the group has grown organically as well as inorganically. In the last two decades, it has acquired several large companies in India such as Madras Aluminium Company (Malco), Bharat Aluminium Company (Balco), Hindustan Zinc (HZL) and Sesa Goa. Vedanta Alumina and Konkola Copper Mines are the other subsidiaries of the company.
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In the past few years, M&A activity appears in the global mining industry on the rise. In 2004-05, the global mining industry witnessed large-scale takeover bids including Switzerland-based Xstrata’s $5.6 billion bid for Australian nickel miner WMC Resources, China Minmetals Corporation’s $5 billion offer for Noranda Inc and Harmony Gold Company’s battle to acquire Gold Fields in a stock deal valued at approximately $6.9 billion.WMC Resources was also a good target for Australian mining giant Rio Tinto. Rio Tinto has fewer projects in the works than rival BHP Billiton, a fact which has been pushing Rio Tinto for aggressive buyouts in the global market. Rio Tinto was also a strong contender for Sesa Goa. Vedanta later won Sesa Goa for Rs 4,070 crore.
According to observers, the global mining industry is in a good position to clinch M&A deals. The demand for mineral assets is high and the mining giants have the resources to pursue acquisitions.
China, in particular, is seeking access to natural resources to meet its rising domestic demand, driven by its booming economy which expanded 11.5% in the third quarter. As the country preparing for Olympics, the steel demand has shot up, which made the country the biggest consumer of steel, copper, zinc and aluminium.
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