Goldman Sachs downgrades Vedanta as protests embroil smelter

Analysts at Goldman Sachs downgraded Vedanta Resources on Monday, citing concerns regarding the mining firm’s leverage and operational issues.

Specifically, the company, which appointed a new CEO on Monday, is currently wrestling with inflationary pressures threatening its aluminium division and protests surrounding its Tamil Nadu smelter in Kumarettiyapuram, a village 600km off Chennai, India.

Villagers protesting at the smelter claim it is a health hazard and are demanding the company cease all planned expansions around the $11.5bn copper smelting plant.

Vedanta has claimed that the protests stem from “false allegations” and that expansions are continuing on schedule, despite reports that the state pollution regulator rejected the company’s application to renew operations.

As well as the downgrade in rating to ‘neutral’ from ‘buy’, Goldman analysts also hacked away at their target price to 800p from 950p.

With regard to other concerns, the analysts said: “We see inflationary pressures increasing at the aluminium division. Alumina prices have increased significantly and they have more than offset the increase in aluminium prices in our view. This will in our view have an impact on the margins and cash generation.”

The research note forecast that Vedanta’s dividend per share would remain roughly static, dropping 2% to 0.54p in 2018 and remaining at the same level the following year.

Vedanta is looking to acquire steel mills and iron ore mines in India, which the analysts said could potentially affect the deleveraging profile of the company, as well as having submitted a $750m bid for Electrosteel Steel.

As of 1448 BST, Vedanta Resources PLC’s shares were down 3.45% 721.82p.