Mumbai: Vedanta Resources Plc. subsidiary Sterlite Industries (India) Ltd may have finalized a new deal to buy Asarco Llc. from bankruptcy, after almost eight months of uncertainty following its original bid in June to buy the integrated copper producer for around $2.6 billion (Rs12,662 crore today).
The new deal is worth $1.5 billion, two people familiar with the development said. One of them added that lawyers from both sides are drafting the final agreement.
The lower bid is a reflection of the fall in copper prices—to $3,200-3,300 a tonne, down from its June peak of $8,000 a tonne—and concerns over Asarco’s production costs, on the high side at around $3,300 a tonne. Factoring in these high costs is a new model for Sterlite, said Prasad Peji, an analyst at Mumbai brokerage Edelweiss Capital Ltd, referring to the Indian firm’s low-cost business model. “There is a flip side to integrated players. The efficiency will lie in how much cheap it (Asarco) can make copper.” Sterlite’s whole-time director Tarun Jain declined comment.
Sterlite currently buys copper concentrate from the international market. Its profit margins per tonne have increased to 18 cents this year from 12 cents in 2008, said an analyst tracking metal and mining industry. He is not authorized to speak to the media.
Shares of Sterlite closed 0.71% down to Rs278.40 on the National Stock Exchange on Tuesday. However, as reported in the Mark To Market column on Monday, the shares had risen 6.4% to Rs280.40 on Monday in anticipation of a new deal and have risen almost 40% from their mid-November lows. The buy will make it a “net debt company” from one that has “a comfortable cash surplus of around $900 million,” the column had said.
The buy will put the subsidiary of the UK-based Vedanta, headed by non-resident Indian Anil Agarwal, among the top five global copper producers.
Profit-making Asarco filed for protection under Chapter 11 in the US bankruptcy court on 9 August 2005 following lawsuits related to environmental damage and worker health. Sterlite will be insulated from these litigations.
The original proposal failed after Asarco’s parent launched an aggressive counter-bid. Then copper prices fell, making Sterlite’s original bid look overpriced. It was terminated on 22 October, according to the Asarco website.