VEDL Vedanta Limited

By Alex MacDonald

LONDON--Vedanta Resources PLC (VED.LN) felt the impact of falling oil, zinc and aluminum prices in its fiscal third quarter, posting a 51% drop in earnings and a steep rise in net debt.

The India-based diversified natural-resources company also said it is still pushing ahead with its plan to merge its Mumbai-based operating unit, Vedanta Ltd. (500295.BY), and its oil and gas unit, Cairn India Ltd. (532792.BY).

Vedanta's shares have fallen 36% over the past year due to the continued commodities price rout and fears over its ability to service its hefty debt burden given expectations the prices of the commodities it produces could fall further or remain low for a prolonged period, affecting its ability to generate cash flow.

The U.K.-listed miner, whose assets are located around the world, including Ireland, Zambia and Australia, said its earnings before interest, taxes, depreciation and amortization fell 51% to $494 million for the three months ended Dec. 31 from a year earlier, beating a forecast from Barclays analysts by 2%.

Revenue tumbled 27% to $2.4 billion, largely because of declines in the prices of oil, zinc and aluminum, as well as a mixed output performance.

Vedanta's oil and gas division, typically the main contributor to earnings, posted a 72% decline in Ebitda to $95 million, hit by lower oil and gas prices and a 7% drop in oil and gas output from a year earlier to 18.65 million barrels of oil equivalent.

Elsewhere, the company's zinc operations posted a 45% decline in Ebitda to $218 million, while the aluminum division reported an even steeper 84% drop in Ebitda to $21 million due to lower commodity prices, which more than offset higher output in both divisions.

In contrast, the company's copper, iron-ore and power divisions generated higher Ebitda. Chief Executive Tom Albanese said Vedanta's Zambian copper operations are now breaking even in a lower copper-price environment compared with the same time a year ago when its was hemorrhaging cash even at a much higher copper price.

Vedanta's shares were up 0.3% at 236.6 pence in early afternoon trading, while the FTSE 350 mining index was down 2.1%.

Barclays said Vedanta's production report was in line with its expectations, but balance-sheet risks remain.

Net debt rose to $8.6 billion as of Dec. 31 compared with $7.5 billion three months earlier due to continued project spending, subsidiary-level dividend payments and a weaker Indian rupee against the U.S. dollar. Net debt should return to the end-September level in the current quarter in response to working capital adjustments, Vedanta said.

"We have to weather this storm as it sits right now but we're weathering it, protecting our businesses...for the future," Mr. Albanese told analysts on a call.

He declined to comment on whether the company is facing greater pressure from Cairn India's minority shareholders to sweeten its offer for the oil unit since its operating unit, Vedanta Ltd., is now trading at a significant discount to Cairn India's share price. This stands in contrast to Vedanta's small premium over Cairn India's shares just before the one-for-one share swap proposal with a preferred share component was announced last year.

The deal, which was initially forecast to close in March, is now running a few months behind schedule since the company is still waiting to secure certain U.K. and Indian regulatory approvals before putting the deal to a shareholders vote at both units.

Write to Alex MacDonald at alex.macdonald@wsj.com

(END) Dow Jones Newswires

January 29, 2016 08:55 ET (13:55 GMT)

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