Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Vedanta, the natural resources company controlled by one of India’s richest men, said Monday its foreign subsidiary Cairn India Holdings’ $200 million investment in Anglo American (LON:AAL) met all governance requirements.
The company, India’s largest miner and No. 1 iron ore exporter, said the deal was made on an arms-length basis in December 2018, adding it provided “significantly higher” returns compared to other overseas cash management investments that would typically return around 2%.
Moody’s has placed Vedanta on review for potential downgrade following last week’s controversial investment in Anglo American.
The statement comes after shares in the company lost a fifth of their value on Friday as investors were sceptical of the deal struck by Volcan, Indian billionaire Anil Agarwal’s family trust.
On Thursday, Vedanta said Cairn India had paid $208 million to buy a stake in Anglo American from its parent Volcan Investments, as part of its “cash management activities”.
The unit also agreed to make deferred payments aggregating $353 million until October 2020, Rating agency Moody’s said on Monday, which makes the investment bigger than many had realized.
Moody’s, which has a non-investment grade rating on Vedanta, has placed it on review for a possible downgrade following the purchase.
In a note to investors, the rating agency said the deal was a means to “fund the risk appetite of its shareholder”, and a clear indication of the company’s willingness to deploy cash at Vedanta to support Volcan interests.
Agarwal’s decision last year to take its company private was seen by some as a prelude to a potentially broader deal with Anglo American, the world’s fifth-largest miner by market value,
Volcan Investments holds around 19% in Anglo American.
Comments
Richard Harkinson
So clearly Vedanta Resources still exists although it’s legal status is unclear. It’s clear that Agarwal’s re-arrangements of his financial affairs is inimical to the interests of other Anglo American investors. This must be because of Vedanta-Volcan’s continuing extreme lack of transparency. We found this so at their announced LSE delisting http://londonminingnetwork.org/2018/10/why-is-vedanta-delisting-from-the-london-stock-exchange/?highlight=Vedanta