Copper mining could augur well for Anil Agarwal's Vedanta: Analyst

With Anil Agarwal’s Vedanta chosen as the preferred bidder for two copper mines, brokerages are of the view that the company is fitting the missing piece in its business. “Mining is an entirely different business and selling of copper concentrate can also be a good business for Vedanta. So far, the company has been only into copper smelting,” said a Mumbai-based analyst on condition of anonymity. 

Last week, the company was declared the preferred bidder for two copper blocks, namely Thanewasna and Dubarpeth in Chandrapur district of Maharashtra. “Exploration and mining of these areas will not require much capital expenditure. Also, this (mining) being a long call, their Tuticorin smelter which remains shut today could be eventually shifted close to the mines,” said Giriraj Daga, portfolio manager at Visaria Securities. 

Vedanta’s custom copper smelter at Tuticorin, shut for a long time, impacted the company’s earnings in the final quarter of FY19. The company's revenue stream took a hit of nearly 20 per cent.

According to the Union ministry of mines, the two Chandrapur mine ores would have an average grade of 0.87 per cent and 0.91 per cent. “Copper ore of 4.8 million tonnes produced annually is only by Hindustan Copper, largely used for captive consumption. Hindalco and Vedanta rely entirely on import of ore to run their smelters,” said Hitesh Avachat, group head of corporate ratings at CARE Ratings.

Vedanta is considered to have a healthy balance cheet, with a net debt to operating earnings ratio of 1.1. A rating of 'AA' from CRISIL and India Ratings, which is positive to stable, implies a comfortable capital structure.