Sterlite closes copper smelter on court order
Sterlite Industries has shut the world's No. 9 copper smelter on a court order over environmental issues.
New Delhi: Sterlite Industries has shut the world's No. 9 copper smelter on a court order over environmental issues, the latest blow to India projects for its parent Vedanta, whose shares fell nearly 5 per cent.
The Tuticorin plant in south India produced over 334,000 tonnes of copper cathode in the year to March 2010, almost half of India's total output of over 683,000 tonnes, and its closure helped push international copper prices to five-month highs.
"The copper market was already looking tight, this will only add to that sense of market tightness," said David Wilson, analyst at SocGen.
Three-month copper on the London Metal Exchange rose to $ 8,038 a tonne, its highest since mid-April, before declining to $ 8,019 by 1025 GMT.
Sterlite's first-half attributable core earnings (before interest, tax, depreciation and amortisation) could be hit to the tune of $67 million, analysts at Liberum Capital said in a note.
Shares in Vedanta, which owns 54 per cent of Sterlite, were down 4.69 per cent at 2,155 pence at 0942 GMT, while Sterlite shares fell 8.27 per cent to Rs 161.80.
The closure of the smelter could hit sentiment around Sterlite more than actual income, Citi analysts said in a research note.
"While the profit impact may not be very significant given the low copper TC/RC (treatment and refining charges) margins, the announcement is negative for sentiment ... given the recent environmental issues surrounding Sterlite and its associate companies," the note said.
London-listed Vedanta, whose business focuses on India, has already run into obstacles in other projects in the country.
The Indian government rejected its plans to mine bauxite in Orissa over environmental concerns, and at the beginning of this month the environment ministry said it had found "serious violations" of green laws at its alumina refinery in eastern India.
Vedanta is also trying to push through a $ 9.5 billion acquisition of a major stake in Cairn India, a unit of London-listed Cairn Energy.
India's environment ministry is taking an increasingly proactive stance on projects and tightening rules on existing mines and plants in the country, which is gobbling up resources to feed its economic growth.
Wired into growth
Under Indian law, Sterlite could appeal the High Court order in the Supreme Court. The Liberum Capital analysts said the company had told them it intended to appeal the suspension.
"Our lawyers are looking at the order. We are considering what steps to take," a spokesman for Sterlite Industries said. Sterlite said in a statement the smelter "has been in compliance with the necessary rules and regulations."
"The Economic Times" newspaper had earlier reported the Madras High Court order said the unit's activities would result in a rise in pollution levels and affect workers at the copper smelting plant at Tuticorin.
Sterlite exported 127,095 tonnes of copper in the year to March 2010, according to its annual report, and is the leading supplier to the domestic market with sales of 206,149 tonnes in the year to March 2010 - a record.
It plans to double copper smelting capacity to 800,000 tonnes per year at the Tuticorin site to take advantage of India's powerhouse economic growth, which is running at 8 percent per year, with the copper market expanding 4 per cent.
About 7 per cent of Sterlite's copper concentrate requirements come from the company's Mt Lyell mine in Tasmania.
Sterlite's copper business had core earnings of Rs 7.49 billion ($ 166.5 million) in the year to March 2010, down 39 per cent partly on maintenance closures. It made a pre-tax profit of Rs 3.98 billion, against overall company profit before tax of Rs 9.48 billion.
Recommended For You
- Nokia 6, 5, 3, and 3310 Launched at MWC 2017: All You Need to Know
- Iran's 'The Salesman' Wins Oscar As Farhadi Boycotts Ceremony
- Nokia 3310 Is Back And The Internet Can't Handle It
- Oscars 2017 Red Carpet: Priyanka, Nicole, Emma Are Here To Turn Around The Fashion Game
- Can Virat Kohli and Team India Respond In the Face of Adversity?