UPDATE 3-Vedanta H1 hurt by aluminum losses

 

 

Vedanta said its underlying attributable profit dropped more than 34 percent to $186.3 million, below expectations on the back of lower contributions from subsidiaries, sending its shares down by more than 8 percent in early trade.

 

 

Its attributable profit -- which includes the impact of mark-to-market foreign exchange losses at its Indian subsidiaries -- fell 92 percent.

 

 

That was despite a 27 percent increase in core profit to $1.7 billion, in line with expectations as Vedanta benefitted from its newly acquired international zinc operations, and on the back of a 43 percent revenue rise as metal prices climbed.

 

 

Vedanta said it did not expect the turbulence of the first half, including the jump in aluminium costs due to a power outage, to continue into the second half. The miner told analysts it would trim costs at its Vedanta Aluminium division by as much as $400 per tonne, as well as cutting costs at its other aluminium holding, BALCO.

 

 

At 1040 GMT Vedanta's shares were down 5.6 percent at 1,180 pence, off earlier lows and compared with a 1 percent drop in the broader mining sector.

 

 

"We feel the operational side of this morning's release represents a solid result. However, investors are likely to focus on the less encouraging 'below the line' factors resulting in a 47 percent drop in underlying (earnings per share)," analysts at Liberum said.

 

 

Vedanta said the foreign exchange mark to market losses totalled $194 million, mostly in its aluminium divisions.

 

 

The miner's aluminium operations have been squeezed along with the rest of the sector by rising raw material costs and falling prices. The squeeze has also affected its energy division, hit by rising coal prices, though Vedanta expected that pressure to ease in coming quarters as it integrates its own mine production and power tariffs rise.

 

 

Vedanta' aluminium division posted an operating loss of $25 million as its core profit margin almost halved.

 

 

Core profit from its key Indian Zinc unit, which accounts for the largest slice of Vedanta's profit, rose 47 percent to $657.7 million as higher prices offset rising costs. Its international Zinc assets, acquired from Anglo American in a deal completed in February, had a profit of $204 million.

 

 

RISING DEBT

 

 

Vedanta is in the final throes of completing its long-awaited deal to take control of oil explorer Cairn India from Cairn Energy, turning the miner into a fully diversified resources group, after securing approval from th Indian government and shareholders.

 

 

But the deal has inflated the group's net debt, which stood at $7.2 billion at the end of the period, with a gearing ratio of 36.9 percent.

 

 

The group said it expected to complete the deal by the end of the current quarter.

 

 

Vedanta has come under pressure in recent months from its high leverage, falling prices and operational headwinds in key commodities like iron ore. Its share price has dropped almost 40 percent since the end of June against a 19 percent drop in the FTSE 350 mining sector.