Vedanta's Q3 profit soars, meets forecast

* Core earnings, revenue in line with forecasts

* Q3 zinc output down 2.6 pct, iron ore up 36 pct

* Shares fall 1.7 pct, outperform mining sector

By Eric Onstad

LONDON, Jan 27 (Reuters) - Indian-focused mining group Vedanta  posted a jump in third-quarter core earnings in line with analyst expectations as metal prices rebounded and record amounts of iron ore and aluminium were churned out.

Liberum Capital said Wednesday's trading update of the London-listed firm was "strong", but said it was slightly disappointed that the timing was still uncertain for the start-up of its controversial Niyamgiri bauxite mine.

"Vedanta remains one of our top picks in the sector for 2010 as the company is on the threshold of providing a 24.2 percent compound annual volume growth rate in the next five years," Liberum said in a note.

Citigroup analyst Jon Bergtheil agreed the production results were "solid", but said the near-term outlook for the shares would be held back since a large amount of convertible bonds were due to convert at a 35 percent discount.

Vedanta shares were down 1.7 percent to 2,480 pence by 0830 GMT, slightly outperforming a 2.3 percent decline in the UK mining index.

Vedanta was the second best performing stock on the blue chip FTSE 100 index last year, surging 327 percent, but has faltered along with the rest of the sector so far this year due to worries about demand as China reins in credit growth.

The firm did not give an outlook on metals demand. Industry giant BHP Billiton   warned last week that commodity prices would remain volatile this year as rich nations withdrew stimulus funding.

ZINC OUTPUT DIPS

Vedanta's earnings before interest, tax, depreciation and amortisation (EBITDA) increased to $662.5 million in the three months to the end of December from $10.1 million a year ago, when the sector was hit by sliding metals prices amid the economic downturn.

Sales rose 64 percent to $2.15 billion.

These figures were largely in line with expectations of a rise in EBITDA to $653.4 million and revenue to $2.10 billion, according to the consensus of forecasts from seven analysts polled by the company.

The prices of zinc  more than doubled last year as a stimulus plan fuelled demand from China, the world's biggest consumer of metals. Copper has retraced 6 percent since touching a high of $7,790 per tonne on Jan. 7.

Vedanta's bottom line was helped by record volumes in iron ore and aluminium, although zinc output dipped.

Third-quarter output of refined zinc, Vedanta's most profitable product, fell 2.6 percent to 148,000 tonnes while production of iron ore climbed 35.7 percent to 5.4 million tonnes mainly due to its takeover of Dempo Group in June last year.

Zinc accounted for 44 percent of EBITDA while iron ore made up 33 percent.

In the copper unit, output of cathodes rose 12 percent in India to 85,000 tonnes and jumped 68 percent in Zambia to 42,000 tonnes due to the ramp up of the new Nchanga smelter.

Vedanta's energy unit sold 589 million units of power, up from 42 million the previous year.

The group posted a steep fall in first-half profits in November due to weaker metals prices.

(Reporting by Eric Onstad; Editing by Greg Mahlich and Karen Foster)