Vedanta hosted Zinc day in Udaipur to update on the management plans to sweat Zinc international (ZI) assets.
Vedanta hosted Zinc day in Udaipur to update on the management plans to sweat Zinc international (ZI) assets. Management formally notified the vision of ZI to become 1mtpa integrated Zinc producer being in the first quartile of the global cost curve, with an envisaged capex of ~ $1billion over FY18-22E.Majority of the production increase in ZI is planned from Gamsberg, Phase 1, 2 and 3, with phase 1 expected to commission in mid CY18 and 9-12 months of ramp up time – we have captured the same in FY19 earnings. Along with Gamsberg, development of Swartberg will ensure that the black mountain complex is one of the key drivers of growth for ZI assets.
While Skorpion mine life has been extended for another 4 years via Pit 112 pushback, the long term projections of the company feature in refined metal production from the Skorpion refinery and no meaningful mined metal output. Management also guides for ZI CoP to decline meaningfully as production from Gamsberg picks up. The call options on Gamsberg phase 2 and Phase 3 can lead to further value unlocking for Vedanta. We have increased ZI attributable EV to Vedanta from Rs 16/share to Rs 31/share. We maintain ‘Add’ with a revised target price of Rs 339 per share.
The development phases of Gamsberg will take total production to 600ktpa. Phase 1 will start producing @ 250 ktpa from mid CY18. Capex for the same has been reduced from $600 million to $400 million along with CoP improvement of ~ 10%. The project infrastructure for phase 1 will be augmented upon in phase 2 leading to a lower capex profile and shorter development timeframe. Phase 2 and phase 3 underground will increase production by 200 ktpa and 150 ktpa respectively.
These mines were either closed or expected to deplete soon. As table 1 highlights, while Gamsberg delivers the growth trigger, the development of Swatberg and extension of Skorpion allows for production growth guidance to be significantly higher vis-à-vis expected (till FY22E).
Gamsberg phase 2 capex will be $400 million, Swatberg development and Pit 112 extension is ~ $500 million, with $180-200 million for Pit 112).