Vedanta says output rises at Indian zinc, oil and gas units

Is expected to resume mining in K'taka in few weeks

Vedanta Resources Plc reported a rise production at its Indian oil, gas and zinc units in the second quarter and said it expected to resume mining iron ore in the southern state of Karnataka in a few weeks.

However, shares in the company fell as much as 5% after Morgan Stanley cut its rating on the stock to "underweight" from "equal weight" citing a stretched valuation for its Konkola Copper Mines (KCM) assets in Zambia.

"Vedanta has re-rated strongly versus peers since January 2012...As a result the implied valuation of its KCM copper asset is now at a premium to the global copper peer group," Morgan Stanley analysts said in a note to clients.

Copper cathode production at its India unit fell about 6% to 82,000 tonne in the second quarter. Mined metal production at its Zambia unit fell 26% to 34,000 tonne.

The company also cut its full-year copper production outlook from Zambia to 140,000 tonne from 160,000 due to the ongoing suspension of its Chingola F&D pits and slow ramp-up at the Konkola mine.

The stock was down 4% at 1027 pence at 0855 GMT on the London Stock Exchange.

Vedanta has been hurt by the ban on iron ore mining in Karnataka and Goa over the last few quarters. The company received clearance from India's top court in September to resume mining in Karnataka, but is still awaiting a decision to permit mining in Goa.

The company said average daily gross operated production of oil and gas at Cairn India , in which Vedanta acquired a majority stake for almost $9 billion in 2011, rose to 213.3 million barrels of oil equivalent in the quarter ended September 30.

Gross production at the Rajasthan block rose 2% to 175,478 barrels of oil equivalent per day.

Mined metal production at Zinc India increased 16% to 222,000 tonne in the quarter. The company said its Kayad and Rampura Agucha underground mine projects in Rajasthan were progressing well and would start commercial production this fiscal year.

The conglomerate, controlled by Indian scrap dealer-turned-billionaire Anil Agarwal, recently got legal and regulatory approval to consolidate its web of subsidiaries and simplify its structure.

However, Vedanta said its smelter in southern India had restarted in end June and was operating at full capacity.

The smelter, operated by Vedanta's unit Sterlite Industries , has long been the target of protesters and politicians who call it a risk to fisheries in the coastal town of Tuticorin, near the southern tip of India.

Under the consolidation plan, Sterlite Industries was merged into its iron ore unit Sesa Goa to create a new entity Sesa Sterlite .

Vedanta produces copper, zinc, silver, aluminium, iron ore and power through its operations in India, Zambia, Namibia, South Africa, Liberia, Ireland and Australia.