Vedanta Resources continues to bloom

Interim results from India-based diversified miner Vedanta Resources underlined the very strong operational competence we associate with this company. Fresh first-half production records were set across the zinc, iron ore and aluminium businesses, while the copper division also boosted output. The record aluminium production is particularly striking as it came despite Vedanta shutting down smelting at a couple of its older higher-cost Indian aluminium operations in favour of selling their captive power capacity onto the domestic market. Much lower market prices across these core Vedanta commodities would, all else being equal, have cut cash earnings by $670m, but the volume increases plus operational cost improvements mitigated some $230m of this and were instrumental in constraining the cash earnings drop to just some $500m, the first-half figure being $746m compared with $1.27bn the previous year. Growth will continue to feed through from a slew of expansion projects already underway, all fully-funded. Compared to last year's production of over 600,000 tonnes of zinc-lead, Vedanta is targeting a run-rate in excess of 1m tonnes per year (tpy) by the end of 2011. In aluminium, production is planned to grow from 462,000tpy in 2009 to a run-rate of 2.5mtpy by the end of 2013, while iron ore production in the Indian state of Goa - overwhelmingly serving spot market demand in China - is forecast to grow from 16mtpy in 2009 to some 40-50mtpy by the end of 2013. While the zinc-lead business contributed around half the interim cash earnings, around 10 per cent of this in turn came from silver produced as a by-product - and Vedanta silver production is forecast to soar from 2.63m oz to 16m oz by the end of 2013. Analysts at Citi are anticipating full-year diluted EPS of 191.9? (2009: 75.8?), climbing to 345.5? in 2011 as long as prices across aluminium, copper, zinc and iron ore continue to average roughly where they are now.