UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 20-F
(Mark One)
¨ | Registration statement pursuant to section 12(b) or 12(g) of the Securities Exchange Act of 1934 |
or
þ | Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended March 31, 2011
or
¨ | Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
or
¨ | Shell company report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
Date of event requiring this shell company report
Commission file number 001-33175
Sterlite Industries (India) Limited
(Exact Name of Registrant as specified in its charter)
SIPCOT Industrial Complex, Madurai Bypass Road, T. V. | ||||
Puram P.O., | ||||
Tuticorin - 628002, | ||||
Republic of India | Tamil Nadu, India | |||
(Jurisdiction of Incorporation or Organization) | (Address of Principal Executive Offices) |
Rajiv Choubey
Company Secretary and Head Legal
SIPCOT Industrial Complex, Madurai Bypass Road, TV Puram P.O.
Tuticorin - 628002
Tamil Nadu, India
(91) 461 661 2982
rajiv.choubey@vedanta.co.in
(Name, Telephone, E-mail and/or facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
American Depositary Shares each representing four equity shares |
||
par value Re. 1 per equity share. | New York Stock Exchange | |
(Title of Class) | (Name of Exchange On Which Registered) |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.
As of March 31, 2011, 3,361,207,534 equity shares, par value Re. 1 per equity share, were
issued and outstanding, of which 437,090,736 equity shares were held in the form of 109,272,684
American Depository Shares or ADSs.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See the definitions of large accelerated filer and accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer ¨ | Non-accelerated filer ¨ |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ¨ |
International Financial Reporting Standards as issued by the International Accounting Standards Board þ |
Other ¨ |
If Other has been checked in the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No þ
CONVENTIONS USED IN THIS ANNUAL REPORT
In this annual report, we refer to information regarding the copper, zinc, aluminum and power industries and our competitors from market research reports, analyst reports and other publicly available sources. Although we believe that this information is reliable, we have not independently verified the accuracy and completeness of the information. We caution you not to place undue reliance on this data.
With effect from June 25, 2010, there was a stock split of each of the Rs. 2 shares into two equity shares of par value Re. 1 each and bonus issue of one equity share in the ratio of 1:1 (stock split and bonus issue). Prior to the stock split and bonus issue, each ADS represented one equity share, par value Rs. 2 each. Following the stock split and bonus issue, each ADS represents four equity shares, par value Re. 1 each. The computations of basic and diluted EPS have been adjusted retroactively for all periods presented to reflect the change in capital structure. All references in these consolidated financial statements to number of shares and per share amounts have been retroactively restated to reflect bonus and stock split made.
In this annual report, references to ADS offering are to the initial public offering of our equity shares in the form of ADSs, each currently representing four equity shares, in the United States completed in June 2007.
Unless otherwise indicated, our accompanying financial information has been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, or IASB, (IFRS) for the fiscal years ended March 31, 2010 and 2011. Our consolidated financial statements as of and for the year ended March 31, 2009 were originally prepared in accordance with U.S. GAAP and were restated in accordance with IFRS for comparative purposes only. For the years prior to fiscal 2010, we prepared our financial statements in accordance with accounting principles generally accepted in the United States, or U.S. GAAP which differs in certain significant respects from and is not comparable with IFRS. References to a particular fiscal year are to our fiscal year ended March 31 of that year. Our fiscal quarters end on June 30, September 30 and December 31. References to a year other than a fiscal year are to the calendar year ended December 31.
In this annual report, references to US or the United States are to the United States of America, its territories and its possessions. References to UK are to the United Kingdom. References to India are to the Republic of India. References to Namibia are to the Republic of Namibia. References to South Africa, SA or RSA are to the Republic of South Africa. References to Ireland are to the Republic of Ireland. References to $, US$, dollars or US dollars are to the legal currency of the United States. References to Rs., Re., Rupees or Indian Rupees are to the legal currency of the Republic of India. References to AUD, Australian dollars or A$ are to the legal currency of the Commonwealth of Australia. References to N$, NAD or Namibian dollars are to the legal currency of Namibia. References to R, ZAR or RAND are to the legal currency of the Republic of South Africa. References to ¢ are to US cents. References to lb are to the imperial pounds (mass) equivalent to 0.4536 kilograms, references to tons are to metric tons, references to tpa are to tons per annum, a unit of mass equivalent to 1,000 kilograms or 2,204.6 lb, references to oz are to ounces, with one kilogram being equivalent to 35.2740 oz and one ton equivalent to 32,000 oz, references to mm are to millimeters and references to ha are to hectares, a unit of area equal to 10,000 square meters or 107,639 square feet.
We conduct our businesses both directly and through a consolidated group of companies that we have ownership interests in. See Item 4. Information on the CompanyA. History and Development of our Company for more information on these companies and their relationships to us. Unless otherwise stated in
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this annual report or unless the context otherwise requires, references in this annual report to we, us, our, Sterlite, our company, our consolidated group of companies or SIIL mean Sterlite Industries (India) Limited, its consolidated subsidiaries and its predecessors, collectively, including Monte Cello BV, or Monte Cello, Copper Mines of Tasmania Proprietary Limited, or CMT, Thalanga Copper Mines Proprietary Limited, or TCM, Bharat Aluminium Company Limited, or BALCO, Sterlite Energy Limited, or Sterlite Energy, Sterlite Opportunities and Ventures Limited, or SOVL, Hindustan Zinc Limited, or HZL, Sterlite Infra Limited (formerly known as Sterlite Paper Limited), or SIL, Fujairah Gold FZE, Sterlite (USA), Inc., or Sterlite USA, Talwandi Sabo Power Limited, or TSPL, THL Zinc Ventures Limited or THLZVL, THL Zinc Limited, or THLZL, THL Zinc Holding B.V., or THLZBV, THL Zinc Namibia Holdings (Proprietary) Limited, or Skorpion, Skorpion Zinc (Proprietary) Limited, Skorpion Mining Company (Proprietary) Limited, Namzinc (Proprietary) Limited, Amica Guesthouse (Proprietary) Limited, Rosh Pinah Health Care (Proprietary) Limited, Black Mountain Mining (Proprietary) Limited, or BMM, Vedanta Lisheen Finance Limited, or Lisheen, Vedanta Base Metals (Ireland) Limited, Vedanta Lisheen Mining Limited, Killoran Lisheen Mining Limited, Killoran Lisheen Finance Limited, Lisheen Milling Limited, Killoran Concentrates Limited, Killoran Lisheen Limited, Azela Limited, Killoran Lisheen Holdings Limited, Malco Power Company Limited, or MPCL, Malco Industries Limited, or MIL, Vizag General Cargo Berth Private Limited, or VGCB, Paradip Multi Cargo Berth Private Limited, or PMCB and Pecvest 17 Proprietary Limited.
Our consolidated financial information does not include our controlling shareholder Vedanta Resources Plc, or Vedanta, its shareholders and various companies owned directly or indirectly by it (other than us and our consolidated group of companies described above), including without limitations, Vedanta Resources Holdings Limited, or VRHL, Konkola Copper Mines Plc, or KCM, Konkola Resources Plc, Twin Star Holdings Limited, or Twin Star, Welter Trading Limited, or Welter Trading, the Anil Agarwal Discretionary Trust, Onclave PTC Limited, or Onclave, Sterlite Technologies Limited, or STL, Monte Cello Corporation NV, or MCNV, Twin Star Infrastructure Limited, Sesa Goa Limited, Sesa Industries Limited, Sesa Resources Limited (earlier V.S. Dempo & Company Private Limited), Sesa Mining Corporation Limited (earlier Dempo Mining Corporation Private Limited) and Vedanta Aluminium Limited, or Vedanta Aluminium, except that as to Vedanta Aluminium, our consolidated financial statements account for our 29.5% non-controlling interest therein under the equity method of accounting, but Vedanta Aluminium is not otherwise included in our consolidated group of companies or our consolidated financial statements. References to the Vedanta group are to Vedanta and its subsidiaries.
In this annual report, references to The London Metal Exchange Limited, or LME, price of copper, zinc or aluminum are to the cash seller and settlement price on the LME for copper, zinc or aluminum for the period indicated. References to primary market share in this annual report are to the market that includes sales by producers of metal from copper concentrate or alumina, as applicable, and do not include sales by producers of recycled metal or imports.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements as defined in the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our company and our industry. These forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as anticipate, believe, estimate, expect, intend, will, project, seek, should and similar expressions. These forward-looking statements include, among other things, the discussions of our business strategy and expectations concerning our market position,
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future operations, margins, profitability, liquidity and capital resources. We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that, although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions could be materially incorrect. Factors which could cause these assumptions to be incorrect include, but are not limited to:-
| a decline or volatility in the prices of or demand for copper, zinc, aluminum or power; |
| events that could cause a decrease in our production and higher cost of production of copper, zinc, aluminum or power; |
| unavailability or increased costs of raw materials for our products; |
| fluctuations in metal prices on LME, ore prices or power prices; |
| fluctuations in currency exchange rates; |
| our actual economically recoverable copper ore, lead-zinc ore or bauxite reserves being lower than we have estimated; |
| our ability to expand our business, effectively manage our growth or implement our strategy; |
| our ability to retain our senior management team and hire and retain sufficiently skilled labor to support our operations; |
| regulatory, legislative and judicial developments and future regulatory actions and conditions in our operating areas; |
| increasing competition in the copper, zinc, aluminum or power industries; |
| political or economic instability in India or around the region; |
| worldwide economic and business conditions; |
| our ability to successfully consummate strategic acquisitions; |
| our ability to simplify our group structure and reduction in non-controlling stake in group companies; |
| the outcome of outstanding litigation in which we are involved; |
| our ability to maintain good relations with our trade unions and avoid strikes and lock-outs; |
| any actions of our controlling shareholder, Vedanta; |
| our business future capital requirements and the availability of financing on favorable terms; |
| the continuation of tax holidays, exemptions and deferred tax schemes we enjoy; |
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| changes in tariffs, royalties, customs duties and government assistance; and |
| terrorist attacks and other acts of violence, natural disasters and other environmental conditions and outbreaks of infectious diseases and other public health concerns in India, Asia and elsewhere. |
These and other factors are more fully discussed in Item 3. Key InformationD. Risk Factors, Item 5. Operating and Financial Review and Prospects and elsewhere in this annual report. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans, objectives or projected financial results referred to in any of the forward-looking statements. Except as required by law, we do not undertake to release revisions to any of these forward-looking statements to reflect future events or circumstances.
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable
ITEM 3. | KEY INFORMATION |
A. Selected Consolidated Financial Data
Our consolidated financial statements as of and for the years ended March 31, 2010 and 2011 included in this annual report on Form 20-F have been prepared in conformity with the IFRS as issued by the IASB. Our consolidated financial statements as of and for the year ended March 31, 2009 were originally prepared in accordance with U.S. GAAP and were restated in accordance with IFRS for comparative purposes only.
In accordance with rule amendments adopted by the U.S. Securities Exchange Commission, or SEC, which became effective on March 4, 2008, we do not provide a reconciliation to U.S. GAAP.
The selected historical consolidated statements of income, cash flows and other consolidated financial data presented below for fiscal 2009, 2010 and 2011, and the selected historical consolidated financial position data as of March 31, 2009, 2010 and 2011, have been derived from our audited consolidated financial statements, which have been audited by Deloitte Haskins & Sells, Mumbai, India, or Deloitte, our independent registered public accounting firm, and included elsewhere in this annual report.
Our historical results do not necessarily indicate our expected results for any future period. The translations of Indian Rupee amounts to US dollars are solely for the convenience of the reader and are based on the noon buying rate of Rs. 44.54 per $1.00 and AUD 0.97 per $1.00 in the City of New York for cable transfers of Indian Rupees and the Australian dollar, respectively, as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2011. No representation is made that the Indian Rupee and Australian dollar amounts represent US dollar amounts or have been, could have been or could be converted into US dollars at such rates or any other rates.
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You should read the following information in conjunction with Item 5. Operating and Financial Review and Prospects and the consolidated financial statements included elsewhere in this annual report.
Amount in conformity with IFRS
For the year ended March 31, | ||||||||||||||||
2009 | 2010 | 2011 | 2011 | |||||||||||||
(Rs.) (in millions except shares and per share data) |
(Rs.) (in millions except shares and per share data) |
(Rs.) (in millions except shares and per share data) |
(US Dollar ) (in millions except shares and per share data) |
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Revenue |
212,192 | 244,903 | 302,472 | 6,791.0 | ||||||||||||
Cost of sales |
(165,097 | ) | (181,928 | ) | (226,134 | ) | (5,077.1 | ) | ||||||||
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Gross profit |
47,095 | 62,975 | 76,338 | 1,713.9 | ||||||||||||
Other operating income |
3,750 | 1,907 | 2,366 | 53.1 | ||||||||||||
Distribution expenses |
(3,388 | ) | (3,022 | ) | (3,516 | ) | (78.9 | ) | ||||||||
Administration expenses |
(4,367 | ) | (8,026 | ) | (7,614 | ) | (171.0 | ) | ||||||||
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Operating profit |
43,090 | 53,834 | 67,574 | 1,517.1 | ||||||||||||
Investment and other income |
18,772 | 13,811 | 21,933 | 492.4 | ||||||||||||
Finance and other costs |
(6,244 | ) | 214 | 1,096 | 24.6 | |||||||||||
Share in Consolidated (loss)/profit of Associate |
(3,160 | ) | 2,051 | (3,082 | ) | (69.2 | ) | |||||||||
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Profit before tax |
52,458 | 69,910 | 87,521 | 1,964.9 | ||||||||||||
Income tax expense |
(7,782 | ) | (13,247 | ) | (18,810 | ) | (422.3 | ) | ||||||||
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Profit for the year |
44,676 | 56,663 | 68,711 | 1,542.6 | ||||||||||||
Profit attributable to: |
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Equity holders of the parent |
32,228 | 39,263 | 48,898 | 1,097.8 | ||||||||||||
Non controlling interest |
12,448 | 17,400 | 19,813 | 444.8 | ||||||||||||
Earnings per share (Refer to Note 29 to consolidated financial statements | ||||||||||||||||
Basic |
11.37 | 12.27 | 14.55 | 0.3 | ||||||||||||
Diluted |
11.37 | 12.03 | 13.87 | 0.3 | ||||||||||||
Weighted average number of equity shares used in computing earnings per share | ||||||||||||||||
Basic |
2,833,583,490 | 3,199,826,061 | 3,361,207,534 | 3,361,207,534 | ||||||||||||
Diluted |
2,833,583,490 | 3,236,000,281 | 3,446,945,134 | 3,446,945,134 | ||||||||||||
Dividend declared per share (1) (2) |
3.50 | 3.75 | 1.10 | 0.0 |
Notes:
(1) | The dividend for fiscal 2010 was recommended by our board of directors on April 26, 2010 and approved by our shareholders at the general meeting held on June 11, 2010 and a final dividend of Rs. 1.10 per equity for fiscal 2011 was recommended by our board of directors on April 25, 2011 and approved by our shareholders at the general meeting held on July 23, 2011. |
(2) | On June 11, 2010, our shareholders approved the sub-division of our equity shares from Rs.2 each to Re.1 each. Our shareholders also approved the bonus issue in the ratio of one equity share of Re. 1 each for one equity share of Re.1. With effect from June 25, 2010, the equity shares have a par value of Re.1 each. |
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As of March 31, | ||||||||||||||||
Consolidated Financial Position Data | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) | (Rs. in millions) | (Rs. in millions) | (US Dollars in millions) | |||||||||||||
Cash and cash equivalents |
2,701 | 2,021 | 21,487 | 482.4 | ||||||||||||
Restricted Cash and cash equivalents |
2,011 | 60 | 39 | 0.9 | ||||||||||||
Total assets |
444,578 | 606,854 | 747,104 | 16,773.8 | ||||||||||||
Net assets |
320,603 | 451,988 | 520,026 | 11,675.5 | ||||||||||||
Long-term borrowings |
14,384 | 43,578 | 53,559 | 1,202.5 | ||||||||||||
Short-term borrowings |
20,202 | 19,121 | 37,948 | 852.0 | ||||||||||||
Total shareholders equity |
250,533 | 365,172 | 410,170 | 9,209.0 |
Year Ended March 31, | ||||||||||||||||
2009 | 2010 | 2011 | 2011 | |||||||||||||
(Rs. in millions) | (Rs. in millions) | (Rs. in millions) | (US Dollars in millions) | |||||||||||||
Cash Flow Data: |
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Net cash provided by (used in): |
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Operating activities |
72,585 | 14,249 | 127,529 | 2,863.2 | ||||||||||||
Investing activities |
(95,295 | ) | (117,582 | ) | (128,562 | ) | (2,886.4 | ) | ||||||||
Financing activities |
13,442 | 102,322 | 20,650 | 463.6 | ||||||||||||
Other Consolidated Financial Data: |
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Revenue to external customers: |
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Copper |
116,525 | 130,608 | 156,610 | 3,516.2 | ||||||||||||
Zinc India |
55,724 | 79,434 | 98,444 | 2,210.2 | ||||||||||||
Zinc International |
| | 9,961 | 223.6 | ||||||||||||
Aluminum |
39,170 | 28,289 | 30,175 | 677.5 | ||||||||||||
Power |
773 | 6,572 | 7,282 | 163.5 | ||||||||||||
Others |
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Total |
212,192 | 244,903 | 302,472 | 6,791.0 | ||||||||||||
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Operating profit: |
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Copper |
11,121 | 3,138 | 9,198 | 206.5 | ||||||||||||
Zinc India |
25,158 | 44,071 | 50,914 | 1,143.1 | ||||||||||||
Zinc International |
| | 1,592 | 35.7 | ||||||||||||
Aluminum |
6,494 | 3,189 | 3,495 | 78.5 | ||||||||||||
Power |
323 | 3,445 | 2,437 | 54.7 | ||||||||||||
Others |
(6 | ) | (9 | ) | (62 | ) | (1.4 | ) | ||||||||
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Total |
43,090 | 53,834 | 67,574 | 1,517.1 | ||||||||||||
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Segment profit:(1) |
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Copper |
13,312 | 5,120 | 11,247 | 252.5 | ||||||||||||
Zinc India |
27,773 | 47,124 | 55,343 | 1,242.5 | ||||||||||||
Zinc International |
| | 4,247 | 95.4 | ||||||||||||
Aluminum |
9,103 | 5,499 | 5,866 | 131.7 | ||||||||||||
Power |
931 | 4,160 | 3,354 | 75.3 | ||||||||||||
Others |
(5 | ) | (8 | ) | (61 | ) | (1.4 | ) | ||||||||
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Total |
51,114 | 61,895 | 79,996 | 1,796.0 | ||||||||||||
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Notes:
(1) | Segment profit is calculated by adjusting operating profit for depreciation and amortization. Our segment profit may not be comparable to similarly titled measures reported by other companies due to potential |
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inconsistencies in the method of calculation. We have included our segment profit because we believe it is an indicative measure of our operating performance and is used by investors and analysts to evaluate companies in our industry. Our segment profit should be considered in addition to, and not as a substitute for, other measures of financial performance and liquidity reported in accordance with IFRS. We believe that the inclusion of supplementary adjustments applied in our presentation of segment profit are appropriate because we believe it is a more indicative measure of our baseline performance as it excludes certain charges that our management considers to be outside of our core operating results. In addition, our segment profit is among the primary indicators that our management uses as a basis for planning and forecasting of future periods. The following table reconciles operating revenue to segment profit for the periods indicated: |
Year Ended March 31, | ||||||||||||||||
2009 | 2010 | 2011 | 2011 | |||||||||||||
(Rs. in millions) | (Rs. in millions) | (Rs. in millions) | (US Dollars in millions) | |||||||||||||
Copper: |
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Operating profit |
11,121 | 3,138 | 9,198 | 206.5 | ||||||||||||
Plus: Depreciation and amortization |
2,191 | 1,982 | 2,049 | 46.0 | ||||||||||||
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Segment profit |
13,312 | 5,120 | 11,247 | 252.5 | ||||||||||||
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Zinc India: |
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Operating profit |
25,158 | 44,071 | 50,914 | 1,143.1 | ||||||||||||
Plus: Depreciation and amortization |
2,615 | 3,053 | 4,429 | 99.4 | ||||||||||||
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Segment profit |
27,773 | 47,124 | 55,343 | 1,242.5 | ||||||||||||
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Zinc International: |
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Operating profit |
| | 1,592 | 35.7 | ||||||||||||
Plus: Depreciation and amortization |
| | 2,655 | 59.7 | ||||||||||||
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Segment profit |
| | 4,247 | 95.4 | ||||||||||||
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Aluminum: |
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Operating profit |
6,494 | 3,189 | 3,495 | 78.5 | ||||||||||||
Plus: Depreciation and amortization |
2,609 | 2,310 | 2,371 | 53.2 | ||||||||||||
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Segment profit |
9,103 | 5,499 | 5,866 | 131.7 | ||||||||||||
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Power: |
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Operating profit |
323 | 3,445 | 2,437 | 54.7 | ||||||||||||
Plus: Depreciation and amortization |
608 | 715 | 917 | 20.6 | ||||||||||||
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Segment profit |
931 | 4,160 | 3,354 | 75.3 | ||||||||||||
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Others: |
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Operating profit |
(6 | ) | (9 | ) | (62 | ) | (1.4 | ) | ||||||||
Plus: Depreciation and amortization |
1 | 1 | 1 | | ||||||||||||
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Segment profit |
(5 | ) | (8 | ) | (61 | ) | (1.4 | ) | ||||||||
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(2) | Cost of production is not a recognized measure under IFRS. We have included cost of production as a measure of effectiveness because we believe it is an indicative measure of our operating performance and is used by investors and analysts to evaluate companies in our industry. Our computation of cost of production should be considered in addition to, and not as a substitute for, other measures of financial performance and liquidity reported in accordance with IFRS. We believe that the cost of production measure is a meaningful measure of our production cost efficiency as it is more indicative of our production or conversion costs and is a measure that our management considers to be controllable. Cost of production is a measure intended for monitoring the operating performance of our operations. This measure is presented by other non-ferrous metal companies, though our measure may not be comparable to similarly titled measures reported by other companies. Cost of production as reported for our metal products consists of direct cash cost of production and excludes non-cash cost and indirect cost (such as depreciation and interest payments), and are offset for any amounts we receive upon the sale of the by- |
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products from the refining or smelting process. Cost of production is divided by the daily average exchange rate for the year to calculate US dollar cost of production per lb or per ton of metal as reported. The following table reconciles segment cost, calculated as segment sales less segment profit, to cost of production for the periods presented: |
Year Ended March 31, | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
(Rs.)(in millions, except Production |
(Rs.)(in millions, except Production |
(Rs.)(in millions, except Production output and Cost of production) |
||||||||||
Copper(3): |
||||||||||||
Segment sales |
Rs. | 116,670 | Rs. | 130,608 | Rs. | 156,610 | ||||||
Less: |
||||||||||||
Segment profit |
(13,312 | ) | (5,120 | ) | (11,247 | ) | ||||||
|
|
|
|
|
|
|||||||
103,358 | 125,488 | 145,363 | ||||||||||
Less: |
||||||||||||
Purchased concentrate/rock |
(94,873 | ) | (114,923 | ) | (135,651 | ) | ||||||
By-product/free copper net sale |
(4,337 | ) | (1,981 | ) | (4,686 | ) | ||||||
Cost for downstream products |
(1,613 | ) | (1,543 | ) | (1,638 | ) | ||||||
Others, net |
(1,556 | ) | (3,386 | ) | (2,153 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
Rs. | 979 | Rs. | 3,655 | Rs. | 1,235 | ||||||
|
|
|
|
|
|
|||||||
Production output (in tons) |
312,833 | 334,202 | 303,991 | |||||||||
Cost of production(a) |
3.1 ¢/lb | 10.46 ¢/lb | 4.0 ¢/lb | |||||||||
ZincIndia(4): |
||||||||||||
Segment sales |
Rs. | 55,724 | Rs. | 79,434 | Rs. | 98,444 | ||||||
Less: |
||||||||||||
Segment profit |
(27,773 | ) | (47,124 | ) | (55,343 | ) | ||||||
|
|
|
|
|
|
|||||||
27,951 | 32,310 | 43,101 | ||||||||||
Less: |
||||||||||||
Cost of tolling including raw material cost |
(409 | ) | | | ||||||||
Cost of intermediary product sold |
(1,301 | ) | (3,060 | ) | (3,350 | ) | ||||||
By-product revenue |
(4,848 | ) | (1,871 | ) | (3,762 | ) | ||||||
Cost of lead metal sold |
(2,079 | ) | (2,652 | ) | (3,028 | ) | ||||||
Others, net |
(1,312 | ) | (1,406 | ) | (815 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
Rs. | 18,002 | Rs. | 23,321 | Rs. | 32,146 | ||||||
|
|
|
|
|
|
|||||||
Production output (in tons) |
551,724 | 578,411 | 712,471 | |||||||||
Cost of production (per ton) (a) |
$ | 710 | $ | 850 | $ | 990 | ||||||
ZincInternational(5): |
||||||||||||
Segment sales |
| | Rs. | 9,961 | ||||||||
Less: |
||||||||||||
Segment profit |
| | (4,247 | ) | ||||||||
|
|
|
|
|
|
|||||||
| | 5,714 | ||||||||||
Less: |
| | | |||||||||
Cost of intermediary product sold |
| | (82 | ) | ||||||||
By-product revenue |
| | (706 | ) | ||||||||
Cost of lead metal sold |
| | (453 | ) | ||||||||
Royalty |
| | (197 | ) | ||||||||
Others, net |
| | (345 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total |
| | Rs. | 3,931 | ||||||||
|
|
|
|
|
|
|||||||
Production output (in tons)Skorpion |
| | 49,698 | |||||||||
Cost of production (per ton) (a)Skorpion |
| | $ | 1,161 | ||||||||
Production output (in tons)BMM |
| | 7,593 |
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Cost of production (per ton) (a)BMM |
| | $ | 1,009 | ||||||||
Production output (in tons)Lisheen |
| | 22,775 | |||||||||
Cost of production (per ton) (a)Lisheen |
| | $ | 917 | ||||||||
Aluminum(6): |
||||||||||||
Segment sales |
Rs. | 39,336 | Rs. | 28,367 | Rs. | 30,245 | ||||||
Less: |
||||||||||||
Segment profit |
(9,103 | ) | (5,499 | ) | (5,866 | ) | ||||||
|
|
|
|
|
|
|||||||
30,233 | 22,868 | 24,379 | ||||||||||
Less: Cost of intermediary product sold |
| (304 | ) | | ||||||||
By-product revenue |
(328 | ) | (126 | ) | (229 | ) | ||||||
Cost for downstream products |
(1,966 | ) | (1,767 | ) | (2,597 | ) | ||||||
Others, net |
(314 | ) | (1,455 | ) | (973 | ) | ||||||
Total |
Rs. | 27,625 | Rs. | 19,216 | Rs. | 20,580 | ||||||
|
|
|
|
|
|
|||||||
Production output (hot metal) (in tons) |
355,733 | 262,760 | 253,157 | |||||||||
|
|
|
|
|
|
|||||||
Cost of production (per ton) (a) |
$ | 1,700 | $ | 1,542 | $ | 1,784 |
(a) | Exchange rates used in calculating cost of production were based on the daily Reserve Bank of India, or RBI, reference rates for the years ended March 31, 2009, 2010 and 2011 of Rs. 45.91 per $1.00, Rs. 47.42 per $1.00 and Rs. 45.58 per $1.00, respectively. |
(3) | Cost of production of copper relates only to our custom smelting and refining operations and consists of the cost of converting copper concentrate into copper cathodes, including the cost of freight of copper anodes from Tuticorin to Silvassa and excluding the benefit of the phosphoric acid plant. Revenue earned from the sale of sulphuric acid and copper metal recovered in excess of paid copper metal are deducted from the cash costs. The total cash costs are divided by the total number of pounds of copper metal produced to calculate the cost of production per pound of copper metal produced. |
(4) | Our Zinc India operations are fully integrated. As a result, cost of production of zinc consists of the total direct cost of producing zinc from the mines and smelters, including extracting ore from the mines, converting the ore into zinc concentrate and smelting to produce zinc ingots. Our zinc segment includes lead and silver. Silver is a by-product of lead. Revenue earned from the sale of silver is reported as profit in this segment. Revenue earned from the sale of sulphuric acid is deducted from the total costs to calculate the total cash costs to HZL of producing zinc metal. Royalties paid are included in the cost of production of zinc. The total cash cost is divided by the total number of tons of zinc metal produced to calculate the cost of production per ton of zinc metal produced. |
(5) | Our Zinc International segment consists of the Skorpion mine and refinery in Namibia, Black Mountain mine in South Africa and Lisheen mine in Ireland. Skorpion produces special high grade zinc ingots. As a result, the cost of production with respect to the Skorpion mine consists of the total direct cost of procuring zinc ore from the mining company and producing zinc in the refinery through a leaching refining and electrowinning process. Skorpion does not produce any material by-products. BMM produces zinc and lead concentrate. Therefore, the cost of production at BMM consists of direct mining costs, concentrate costs, direct services cost and allocated indirect costs. The Lisheen mine produces zinc and lead concentrate. Therefore, the cost of production with respect to the Lisheen mine consists of direct mining costs, mill processing costs, other overhead costs, treatment charges and other direct cash costs. The by-product revenue of lead and silver are credited to the cost of production to arrive at the net costs of production. Royalties paid are excluded from the cost of production of zinc as the same is levied on turnover. The total cash cost is divided by the total number of tons of zinc metal produced or zinc metal in concentrate produced to calculate the cost of production per ton of zinc metal produced or zinc metal in zinc concentrate produced. |
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(6) | Cost of production of aluminum for BALCOs smelters includes the cost of producing bauxite and conversion of bauxite into aluminum metal, for the portion of BALCOs operations that are integrated from production of bauxite to aluminum metal, and the cost of conversion of alumina into aluminum metal, for the portion of BALCOs operations where alumina is sourced from third parties. Cost of production of aluminum consists of total direct cash costs. Revenue earned from the sale of by-products, such as vanadium, reduces the total cash costs. The total cost is divided by the total quantity of hot metal produced to calculate the cost of production per ton of aluminum hot metal produced. Hot metal production output is used instead of the cast metal production output disclosed elsewhere in this annual report in calculating cost of production as the hot metal production, which excludes the value-added cost of casting, is the measure generally used in the aluminum metal industry for calculating cost of production. |
B. Capitalization and Indebtedness
Not applicable
C. Reasons for the Offer and Use of Proceeds
Not applicable
D. Risk Factors
This annual report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those described in the following risk factors and elsewhere in this annual report. If any of the following risks actually occur, our business, financial condition and results of operations could suffer and the trading price of our equity shares and ADSs could decline.
Risks Relating to Our Business
Our copper and aluminum businesses depend upon third party suppliers for a substantial portion of their copper concentrate and alumina requirements, and their profitability and operating margins depend upon the market prices for those raw materials.
Our copper and aluminum businesses source a majority of their copper concentrate and alumina requirements from third parties. For example, in fiscal 2011, we sourced 92.9% of our copper requirements and BALCO sourced all of its alumina requirements from third parties. As a result, profitability and operating margins of our copper and aluminum businesses depend upon our ability to obtain the required copper concentrate and alumina at prices that are low relative to the market prices of the copper and aluminum products that we sell.
We purchase copper concentrate at the LME price for copper metal for the relevant quotational period less a treatment charge and refining charge, or TcRc, that we negotiate with our suppliers but which is influenced by the prevailing market rate for the TcRc. The TcRc has historically fluctuated independently and significantly from the copper LME price. We attempt to make the LME price a pass through for us as
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both our copper concentrate purchases and sales of finished copper products are based on LME prices. Nevertheless, we are also exposed to differences in the LME price between the quotational periods for the purchase of copper concentrate and sale of the finished copper products, and any decline in the copper LME price between these periods will adversely affect us. We attempt to hedge against such risks, but are still exposed to timing and quantity mismatches. In addition, some of our long-term copper concentrate supply agreements provide for a TcRc that is a percentage of the prevailing LME price, and hence would fluctuate with the LME price, or provide our third party supplier with price participation terms linked to LME prices. See Item 5. Operating and Financial Review and ProspectsFactors Affecting Results of OperationsMetal Prices and Copper TcRc.
We purchase alumina from third party suppliers through short-term contracts and on the spot market. The market price for alumina has historically fluctuated independently and significantly from the market price of aluminum. See Item 5. Operating and Financial Review and ProspectsFactors Affecting Results of OperationsMetal Prices and Copper TcRcZinc and Aluminum. Both the market prices of the copper concentrate and alumina that we purchase and the market prices of the copper and aluminum metals that we sell have experienced volatility in the past, and any increases in the market prices of these raw materials relative to the market prices of the metals that we sell would adversely affect the profitability and operating margins of our copper and aluminum businesses, which could have a material and adverse effect on our results of operations and financial condition.
Material changes in the regulations that govern us, or the interpretation of recent legislation, could have a material adverse effect on our business, financial condition and result of operations.
The Indian Mines (Amendment) Bill, 2011, or Mining Bill, proposes several amendments to the Mines Act, 1952, including significant enhancement to the monetary penalties and terms of imprisonment for violations under the Mines Act, 1952. The Indian Ministry of Mines has also proposed a draft statute which provides that the holder of a mining lease or prospecting licence shall be liable to pay reasonable compensation to the stakeholders holding occupation, legal rights or traditional rights of the surface of the land over which the licence and lease has been granted, as mutually agreed (failing which the relevant State government will determine the compensation payable).
Under the Indian Competition Act, 2002 and the regulations thereunder, or Competition Act, certain provisions of which came into force on June 1, 2011, any arrangement, understanding or action in concert between enterprises, whether formal or informal, which causes or is likely to cause an appreciable adverse effect on competition in India is void and will attract substantial monetary penalties. The Competition Act also requires a notice to be given to the Competition Commission for seeking its approval for any proposed combination. In the event that the Competition Commission requires further information or determines that the proposed combination is likely to cause an appreciable adverse effect on competition in India, the proposed combination may be delayed or may not take effect. In addition, the implications of the Direct Tax Code introduced by the Government of India, which is expected to come into effect in 2012, and the Indian Companies Bill, 2009, on our operations is presently unclear. If we are affected, directly or indirectly, by any such legislation, or face any enforcement proceedings initiated under any such legislation, it may harm our reputation and our business, financial condition and result of operations may be adversely affected.
Our operations are subject to operating risks that could result in decreased production, increased cost of production and increased cost of or disruptions in transportation, which could adversely affect our revenue, results of operations and financial condition.
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We are subject to operating conditions and events beyond our control that could, among other things, increase our mining, transportation or production costs, disrupt or halt operations at our mines and production facilities permanently or for varying lengths of time or interrupt the transport of our products to our customers. These conditions and events include:
| Disruptions in mining and production due to equipment failures, unexpected maintenance problems and other interruptions. All of our operations are vulnerable to disruptions. Our aluminum smelters are particularly vulnerable to disruptions in the supply of power which, even if lasting only a few hours, can cause the contents of the furnaces or cells to solidify, which would necessitate a plant closure and a shutdown in operations for a significant period, as well as involve expensive repairs. For example, power interruptions caused BALCO to partially suspend operations at its 245,000 tons per annum, aluminum smelter at Korba, or Korba smelter in May 2006, and as a result of this interruption the Korba smelter did not become fully operational again until November 2006. Similarly, our Tuticorin copper refining and smelting facility had a four-day delay in ramp-up following a scheduled maintenance shutdown between April and May 2008 due to stabilization issues faced during the post-shutdown ramp-up and an unscheduled 34-day interruption in production between November and December 2008 due to damage in a cooling tower as a result of the collapse of its foundation. CMTs Mt. Lyell processing plant was disrupted and experienced a 68-day shutdown due to a mud slide at the mine resulting from high rainfall in end August 2009. The losses from these interruptions include lost production, repair costs and other expenses. |
| Availability of raw materials for energy requirements. Any shortage of or increase in the prices of any of the raw materials needed to satisfy our businesses energy requirements may interrupt our operations or increase our cost of production. We are particularly dependent on coal, which is used in many of our captive power plants. Our aluminum business, which has high energy consumption due to the energy-intensive nature of aluminum smelting, is significantly dependent on receiving allocations from Coal India Limited, or Coal India, the government-owned coal monopoly in India, and its subsidiaries. A shortage of coal from April 2005 led Coal India to reduce the amount of coal supplied to all of its non-utility customers, including BALCO. As a result, BALCO was forced to utilize higher-priced imported coal and coal from non-linkage sources, which resulted in higher power generation costs. In fiscal 2011, 96.0% of the allocated coal was supplied. |
| Availability of water. The mining operations of our zinc and aluminum businesses, smelter operations of copper business and our captive power plants depend upon the supply of a significant amount of water. There is no assurance that the water required will continue to be available in sufficient quantities or that the cost of water will not increase. For example, BALCO is currently in a dispute with the National Thermal Power Corporation Limited, or NTPC, regarding the right of way for a water pipeline that provides one of BALCOs captive power plants access to a body of water adjacent to NTPC premises. Arbitration proceedings commenced on May 18, 2009 and are ongoing. An unfavorable resolution to this dispute may significantly increase BALCOs costs of obtaining water for that power plant. |
| Disruptions to or increased costs of transport services. We depend upon seaborne freight, inland water transport, rail, trucking, overland conveyor and other systems to transport bauxite, alumina, zinc concentrate, copper concentrate, coal and other supplies to our operations and to deliver our products to customers. Any disruption to or increase in the cost of these transport services, including as a result of interruptions that decrease the availability of these transport services or as a result of increases in |
- 12 -
demand for transport services from our competitors or from other businesses, or any failure of these transport services to be expanded in a timely manner to support an expansion of our operations, could have a material adverse effect on our operations and operating results. |
| Accidents at mines, smelters, refineries, cargo terminals and related facilities. Any accidents or explosions causing personal injury, property damage or environmental damage at or to our mines, smelters, refineries, cargo terminals and related facilities may result in expensive litigation, imposition of penalties and sanctions or suspension or revocation of permits and licenses. Risks associated with our open-pit mining operations include flooding of the open-pit, collapses of the open-pit wall and operation of large open-pit mining and rock transportation equipment. Risks associated with our underground mining operations include underground fires and explosions (including those caused by flammable gas), cave-ins or ground falls, discharges of gases or toxic chemicals, flooding, sinkhole formation and ground subsidence and underground drilling, blasting and removal and processing of ore. Injuries to and deaths of workers at our mines and facilities have occurred in the past and may occur in the future. We are required by law to compensate employees for work-related injuries. Failure to make adequate provisions for our workers compensation liabilities could harm our future operating results. |
| Strikes and industrial actions or disputes. The majority of the total workforce of our consolidated group of companies is unionized. Strikes and industrial actions or disputes have in the past and may in the future lead to business interruptions and halts in production. For example, the trade unions of BALCO initiated a 67-day-long strike in May 2001 in opposition to the divestment of equity shares of BALCO by the Government of India. We also experienced short strikes and work stoppages in 2005 and 2006. In addition, we may be subject to union demands and litigation for pay raises and increased benefits, and our existing arrangements with the trade unions may not be renewed on terms favorable to us, or at all. The wage settlement agreement with HZL was executed on November 13, 2009 for a period of five years with effect from July 1, 2007. The wage settlement agreement entered into by BALCO with the union expired on April 1, 2009 and was renewed on November 25, 2010 for a period of five years with effect from April 1, 2009. Other work stoppages or other labor-related developments, including the introduction of new labor regulations in India or Australia, may occur in the future. |
The occurrence of any one or more of these conditions or events could have a material adverse effect on our results of operations and financial condition.
We are involved in certain litigation seeking cancellation of permits and environmental approval for the alleged violation of certain air, water and hazardous waste management regulations at our Tuticorin plant.
Various writ petitions were filed before the High Court of Madras alleging, among other things, that sulphur dioxide emissions from our copper smelting operations at Tuticorin are causing air, water and hazardous waste pollution resulting in damage to the marine ecosystem and the lives of people living in and around Tuticorin. See Item 8. Financial Information A. Consolidated Statements and Other Financial InformationLegal Proceedings for further details.
On September 28, 2010, the High Court of Madras ordered the closure of our copper smelting plant at Tuticorin and following our application to the Supreme Court of India against the order of the High Court of Madras, the Supreme Court stayed the order passed by the High Court of Madras until further notice. The financial impact, if any, of the writ petitions is not precisely quantifiable.
- 13 -
In the event that we are not successful in challenging the order of the High Court of Madras, our copper smelting plant at Tuticorin may be ordered to shut down and consequently, our business and operations may be materially and adversely affected.
We are substantially dependent upon our Rampura Agucha zinc mine, and any interruption in our operations at that mine could have a material adverse effect on our results of operations and financial condition.
Our Rampura Agucha zinc mine produced 88.8% of the total mined metal in zinc concentrate that we produced in fiscal 2011 and constituted 72.0% of our proven and probable zinc reserves as of March 31, 2011. Our zinc business provided 75.3% of our operating income in fiscal 2011. Our results of operations have been and are expected to continue to be substantially dependent on the reserves and low cost of production of our Rampura Agucha mine and any interruption in our operations at the mine for any reason could have a material adverse effect on the results of operations and financial condition of our business as a whole.
If we are unable to secure additional reserves of copper, zinc and bauxite that can be mined at competitive costs or cannot mine existing reserves at competitive costs, our profitability and operating margins could decline.
If our existing copper, zinc and bauxite reserves cannot be mined at competitive costs or if we cannot secure additional reserves that can be mined at competitive costs, we may become more dependent upon third parties for copper concentrate, zinc concentrate and alumina. Because our mineral reserves decline as we mine the ore, our future profitability and operating margins depend upon our ability to access mineral reserves that have geological characteristics enabling mining at competitive costs. Replacement reserves may not be available when required or, if available, may not be of a quality capable of being mined at costs comparable to the existing or exhausted mines.
We may not be able to accurately assess the geological characteristics of any reserves that we acquire, which may adversely affect our profitability and financial condition. Because the value of reserves is calculated based on that part of our mineral deposits that are economically and legally exploitable at the time of the reserve calculation, a decrease in commodity prices of the metals may result in a reduction in the value of any mineral reserves that we do obtain as less of the mineral deposits contained therein would be economically exploitable at the lower prices. Exhaustion of reserves at particular mines may also have an adverse effect on our operating results that is disproportionate to the percentage of overall production represented by such mines. Further, with depletion of reserves, we will face higher unit extraction costs per mine.
Our ability to obtain additional reserves in the future could be limited by restrictions under our existing or future debt agreements, competition from other copper, zinc and aluminum companies, lack of suitable acquisition candidates, government regulatory and licensing restrictions, difficulties in obtaining mining leases and surface rights or the inability to acquire such properties on commercially reasonable terms, or at all. To increase production from our existing bauxite and lead-zinc mines, we must apply for governmental approvals, which we may not be able to obtain in a timely manner, or at all.
- 14 -
Our business requires substantial capital expenditures and the dedication of management and other resources to maintain ongoing operations and to grow our business through projects, expansions and acquisitions, which projects, expansions and acquisitions are subject to additional risks that could adversely affect our business, financial condition and results of operations.
Capital requirements. We require capital for, among other purposes, expanding our operations, making acquisitions, managing acquired assets, acquiring new equipment, maintaining the condition of our existing equipment and maintaining compliance with environmental laws and regulations. To the extent that cash generated internally and cash available under our existing credit facilities are not sufficient to fund our capital requirements, we will require additional debt or equity financing, which may not be available on favorable terms, or at all. Since the second half of 2008, this uncertainty has increased due to the disruption in the global financial markets. See - Risks Relating to Investments in Indian Companies, Global Economic Conditions and International OperationsGlobal economic conditions have been unprecedented and challenging and have had, and continue to have, an adverse effect on the Indian financial markets and the Indian economy in general, which has had, and may continue to have, a material adverse effect on our business, our financial performance and the prices of our equity shares and ADSs. Future debt financing, if available, may result in increased finance charges, increased financial leverage, and decreased income available to fund further acquisitions and expansions and the imposition of restrictive covenants on our business and operations. In addition, future debt financing may limit our ability to withstand competitive pressures and render us more vulnerable to economic downturns. If we fail to generate or obtain sufficient additional capital in the future, we could be forced to reduce or delay capital expenditures, sell assets or restructure or refinance our indebtedness.
In light of this, our planned and any proposed future expansions and projects may be materially and adversely affected if we are unable to obtain funding for such capital expenditures on satisfactory terms, or at all, including as a result of any of our existing facilities becoming repayable before its due date. In addition, there can be no assurance that our planned or any proposed future expansions and projects will be completed on time or within budget, which may adversely affect our cash flow. These expansions and projects include those described in Item 4. Information on the CompanyB. Business OverviewOur BusinessCompetitive StrengthsStrong pipeline of growth projects.
Cost overruns and delays. Our current and future projects may be significantly delayed by failure to receive regulatory approvals or renewal of approvals, failure to obtain sufficient funding, and technical difficulties due to human resource, technological or other resource constraints or for other unforeseen reasons, events or circumstances. As a result, these projects may incur significant cost overruns and may not be completed on time, or at all. Our decision to undertake or continue any of these projects will be based on assumptions of future demand for our products which may not materialize. As a consequence of project delays, cost overruns, changes in demand for our products and other reasons, we may not achieve the reductions in the cost of production or other economic benefits expected from these projects, which could adversely affect our business, financial condition and results of operations. For example, we have obtained clearance from the Ministry of Environment and Forest, or MOEF, for setting up a 400,000 tpa, capacity copper smelter at Tuticorin. The expansion project has been rescheduled as we are awaiting the consent from the State Pollution Control Board.
Demands on management. Our efforts to continue our growth will place significant demands on our management and other resources and we will be required to continue to improve operational, financial and other internal controls, both in India and elsewhere. Our ability to maintain and grow our existing business and integrate new businesses will depend on our ability to maintain the necessary management resources and on our ability to attract, train and retain personnel with skills that enable us to keep pace with growing demands and evolving industry standards.
- 15 -
We are in particular dependent to a large degree on the continued service and performance of our senior management team and other key team members in our business units. These key personnel possess technical and business capabilities that are difficult to replace. The loss or diminution in the services of members of our senior management or other key team members, or our failure otherwise to maintain the necessary management and other resources to maintain and grow our business, could have a material adverse effect on our results of operations, financial condition and prospects.
Acquisition risks. As part of our growth strategy, we intend to continue to pursue acquisitions to expand our business. There can be no assurance that we will be able to identify suitable acquisition, strategic investment or joint venture opportunities, obtain the financing necessary to complete and support such acquisitions or investments, integrate such businesses or investments or that any business acquired will be profitable. If we attempt to acquire non-Indian companies, we may not be able to satisfy certain Indian regulatory requirements for such acquisitions and may need to obtain the prior approval of the RBI which we may not be able to obtain. In addition, acquisitions and investments involve a number of risks, including possible adverse effects on our operating results, diversion of managements attention, failure to retain key personnel, risks associated with unanticipated events or liabilities and difficulties in the assimilation of the operations, technologies, systems, services and products of the acquired businesses or investments. Any failure to achieve successful integration of such acquisitions or investments could have a material adverse effect on our business, results of operations or financial condition.
We are subject to restrictive covenants for the credit facilities including term loans and working capital facilities provided to us and our subsidiaries.
There are restrictive covenants in agreements which we have entered into with certain banks and financial institutions for borrowings by our subsidiaries. These restrictive covenants require us to maintain certain financial ratios and seek the prior permission of these banks and financial institutions for various activities, including, among others, any change in our capital structure, issue of equity, preferential capital or debentures, raising any loans and deposits from the public, undertaking any new project, effecting any scheme of acquisition, merger, amalgamation or reconstitution, implementing a new scheme of expansion or creation of a subsidiary. Such restrictive covenants may restrict our operations or ability to expand and may adversely affect our business.
If we do not continue to invest in new technologies and equipment, our technologies and equipment may become obsolete and our cost of production may increase relative to our competitors, which would have a material adverse effect on our ability to compete, results of operations, financial condition and prospects.
Our profitability and competitiveness are in large part dependent upon our ability to maintain a low cost of production as we sell commodity products with prices we are unable to influence. Unless we continue to invest in newer technologies and equipment and are successful at integrating such newer technologies and equipment to make our operations more efficient, our cost of production relative to our competitors may increase and we may cease to be profitable or competitive. However, newer technologies and equipment are expensive and the necessary investments may be substantial. Moreover, such investments entail additional risks as to whether the newer technologies and equipment will reduce our cost of production sufficiently to justify the capital expenditures to obtain them. Any failure to make sufficient or the right investments in newer technologies and equipment or in integrating such newer technologies and equipment into our operations could have a material adverse effect on our ability to compete and our financial condition, results of operations and prospects.
- 16 -
Asarco has filed a complaint alleging that we and Sterlite USA had breached our prior agreement to acquire Asarco. Any adverse judgment or settlement may have a material adverse effect on our business, results or operations, financial condition and prospects.
On March 17, 2010, Asarco filed a complaint in the US Bankruptcy Court for the Southern District of Texas, Corpus Christi Division, against us and Sterlite USA alleging that we and Sterlite USA had breached an agreement dated May 30, 2008 (May 2008 Agreement) by, among other things, refusing to pay the $2.6 billion purchase price and refusing to assume the liabilities and contractual obligations as allegedly required under the May 2008 Agreement. Asarco is seeking to recover from us and Sterlite USA the damages allegedly suffered by it, as a result of the alleged breach and certain other amounts, including costs associated with Asarcos efforts to complete their reorganization and costs, disbursements and attorneys fees in connection with the proceedings. Asarco has claimed these damages to be in the range of $533 million to $1,509 million and has also claimed applicable pre-judgment interest.
We and Sterlite USA believe that Asarcos claim has no merit and it did not suffer any damages, as it received substantially higher consideration under the Parent Plan than possible under the May 2008 agreement. The May 2008 Agreement was only a stalking horse bid, the consummation of which was subject to various approvals from creditors of Asarcos estate, the U.S. Bankruptcy Court and competition from any other bidders. The reorganization plan proposed by Asarcos parent companies (Parent Plan) was finally approved by the US District Court and was consummated. It paid all the creditors in full along with interest and provided substantial benefits to the equity holders. The Parent Plan provided for a cash contribution of $2.205 billion to the estate of Asarco, a promissory note of $280 million to the trust set up for the benefit of asbestos claimants, assumption of certain liabilities and waiver of certain claims against Asarco. Asarcos estate also provided substantial tax benefits to the equity holders. Asarco disclosed in the joint disclosure statement filed by it during the bankruptcy proceedings, in its view that the recovery, if, any, against such potential claims may be approximately $100 million.
The trial on Asarcos complaint was completed on August 17, 2011 in the U.S. Bankruptcy Court and the decision is awaited. Any adverse judgment or settlement may have a material adverse effect on our business, results of operations, financial condition and prospects.
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We are developing our commercial power generation business, a line of business in which we have limited experience, from which we may never recover our investment or realize a profit and which may result in our managements focus being diverted from our core copper, zinc and aluminum businesses.
In August 2006, our shareholders approved a new strategy for us to enter into the commercial power generation business in India. We are investing approximately Rs. 82,000 million ($1,824.2 million) to build a 2,400 megawatt, or MW, thermal coal-based power facility (comprising four units of 600 MW each) in Jharsuguda in the State of Orissa. The project is being pursued by our wholly-owned subsidiary Sterlite Energy. Two units of 600 MW each have been commissioned in March 2011 and May 2011 respectively and the remaining two units are expected to be progressively commenced by the end of fiscal 2012. For more information, see Item 4. Information on the CompanyB. Business OverviewOur BusinessOur Commercial Power Generation BusinessOur Plans for Commercial Power Generation.
In July 2008, Sterlite Energy succeeded in an international bidding process and was awarded the project for the construction of a 1,980 MW coal-based commercial thermal power plant at Talwandi Sabo in the State of Punjab in India at an estimated cost of Rs. 92,450 million ($2,075.7 million). Commissioning of this project will be carried out in stages and the first unit is expected to be commissioned by the fourth quarter of fiscal 2013 and the remaining two units by the second quarter of fiscal 2014. In addition, TSPL has signed a memorandum of understanding, or MoU, with the Government of Punjab in October 2010 to expand the current capacity of the Talwandi Sabo coal-based thermal power plant by 660 MW. The estimated cost for the additional unit is Rs. 25,000 million ($561.0 million) and is expected to be completed in the fourth quarter of fiscal 2014. On September 1, 2008, Sterlite Energy completed the acquisition of TSPL for a purchase price of Rs. 3,868.4 million ($86.9 million). Our commerical power generation business also includes wind power plants. The establishment of additional wind power plants of 150 MW was announced by HZL, of which 48 MW has been commissioned during fiscal 2011. For more information, see Item 4. Information on the CompanyB. Business OverviewOur BusinessOur Commercial Power Generation BusinessOur Plans for Commercial Power Generation.
Although we have some experience building and managing captive power plants to provide a significant percentage of the power requirements of our copper, zinc and aluminum businesses, and in March 2007 commissioned our first wind power plant, we have limited experience competing in the commercial power generation business. In addition to the significant capital investment, our managements focus will also be directed towards this new business.
In particular, the building of coal-based power facilities is a long and capital-intensive process, with typically several years elapsing and significant capital investment required between the time that a decision to commence a project is made and the commencement of commercial operations. The completion targets for our projects and any other projects we may undertake are estimates and are subject to numerous risks and uncertainties, such as:
| We may face many uncertainties, including regulatory requirements and restrictions which may change by the time our planned power facility is completed. These may include a change in the tariff policy, which may have an adverse impact on our revenues and reduce our margins. We may also face delays in the development of our power plants and any coal mines we may seek to develop, as other coal and power companies in India and Southeast Asia recently have, as a result of protests or other obstructive or delaying activities by displaced persons and others who may oppose such developments. |
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| We must obtain the consent of certain of our lenders to commence a new business, and there can be no assurance that we will obtain such consents. |
| We will be dependent upon third parties for the construction, delivery and commissioning of the power facilities, the supply and testing of equipment and transmission and distribution of any power we produce. |
| We do not have our own coal mines, and given recent shortages in coal supplies in India, we may also not be successful at procuring an adequate supply of coal at sufficiently attractive prices, or at all, for our power plant to operate and generate a return on our investment. |
| We may face opposition to our projects by local communities where these projects are located or from special interest groups, including as a result of the perceived negative impact of coal mines and coal-based power plants to the environment or any required displacement and resettlement of individuals and families in the area of a project. |
| The commercial power generation business is highly competitive and we will be competing with established commercial power generation companies, including NTPC, the Tata Power Company Limited, or Tata Power, and Reliance Energy Limited, with significant resources and many years of experience in the commercial power generation business. |
| We may face constraints related to the availability of water which is a critical requirement for power generation. |
There can be no assurance that we will recover our investment in this new business, that we will realize a profit from this new business or that diverting our managements attention to this new business will not have a material adverse effect on our existing copper, zinc and aluminum businesses, any of which results may have a material adverse effect on our results of operations, financial condition and prospects.
If any power facilities we build and operate as part of our commercial power generation business do not meet operating performance requirements and agreed norms as may be set out in our agreements, or otherwise do not operate as planned, we may incur increased costs and penalties and our revenue may be adversely affected.
Operating power plants involves many operational risks, including the breakdown or failure of generation equipment or other equipment or processes, labor disputes, fuel interruption and operating performance below expected levels. However, the power purchase agreements and other agreements we may enter into may require us to guarantee certain minimum performance standards, such as plant availability and generation capacity, to the power purchasers. If our facilities do not meet the required performance standards, the power purchasers with whom we have power purchase agreements may not reimburse us for any increased costs arising as a result of our plants failure to operate within the agreed norms, which in turn may affect our results of operations. In addition to the performance requirements specified in our power purchase and other agreements, national and state regulatory bodies and other statutory and government mandated authorities may from time to time impose minimum performance standards upon us. Failure to meet these requirements could expose us to the risk of penalties.
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The Government of India may allege a breach of a covenant by our subsidiary SOVL and seek to exercise a put or call right with respect to shares of HZL, which may result in substantial litigation and serious financial harm to our business, results of operations, financial condition and prospects.
If the Government of India claims that SOVL has breached the covenant related to the Kapasan Project under the shareholders agreement between the Government of India and SOVL resulting in litigation, and it was determined that SOVL had breached such covenant triggering an event of default, the Government of India, under the terms of the shareholders agreement, may become entitled to the right, which is exercisable at any time within 90 days from the day it became aware of such event of default, to either sell any or all of the shares of HZL held by the Government of India to SOVL at a price equivalent to 150.0% of the market value of such shares, or purchase any or all of the shares of HZL held by SOVL at a price equivalent to 50.0% of the market value of such shares.
Based solely on the closing market price of HZLs shares on the National Stock Exchange of India Limited, or the NSE, on September 23, 2011 of Rs. 125.9 ($2.8) per share, if the Government of India were determined to have, and were to exercise, a right to sell all of its 1,247,950,590 shares of HZL at a price equivalent to 150.0% of their market value, we would be required to pay Rs. 235,675 million ($5,291.3 million) for those shares, and if the Government of India were determined to have, and were to exercise, a right to purchase all of the 2,743,154,310 shares of HZL held by SOVL at a price equivalent to 50.0% of their market value, we would receive Rs. 172,682 million ($3,877 million) for those shares.
If the Government of India were to assert that an event of default occurred and seek to exercise a put or call right with respect to shares of HZL, we may face expensive and time-consuming litigation over the matter, uncertainty as to the future of our zinc business, an inability to exercise our call option to acquire the Government of Indias remaining 29.5% ownership interest in HZL and the possibility of serious financial harm if we were unsuccessful in litigation, any of which may have a material adverse effect on our business, results of operations, financial condition and prospects.
Our option to purchase the Government of Indias remaining shares in HZL may be challenged.
Under the terms of the shareholders agreement between the Government of India and SOVL, SOVL was granted two call options to acquire all the shares in HZL held by the Government of India at the time of exercise. SOVL exercised the first call option on August 29, 2003.
By a letter dated July 21, 2009, SOVL exercised the second call option. The Government of India has stated that the clauses of the shareholders agreement relating to Sterlites option violated the provisions of Section 111A of the Companies Act, 1956, or the Indian Companies Act, by restricting the right of the Government of India to transfer its shares and that as a result the shareholders agreement was null and void. As such, the Government of India has refused to act upon the second call option. Consequently, SOVL commenced arbitral proceedings under the terms of the shareholders agreement and has appointed its arbitrator. Under the terms of the shareholders agreement, the Government of India is required to nominate an arbitrator, but the Government of India has not made such a nomination. As a result, SOVL has filed an arbitration application pursuant to section 11(6) of the Arbitration and Conciliation Act 1996 in the Delhi High Court petitioning the court to constitute an arbitral tribunal. The arbitration application was heard on May 18, 2010, and the Government of India informed that they had appointed Justice V N Khare as their arbitrator. By an order dated May 18, 2010 the court directed the parties to appoint mediators for mediation of the dispute. The mediation was not successful and the arbitral tribunal is being constituted. See Item 8. Information on the CompanyB. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCOCall Options Over Shares in HZL.
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There can be no assurance SOVL will be successful in its arbitral proceedings with the Government of India. Any adverse ruling in the arbitration proceedings, if commenced, may preclude or delay us from exercising our option to increase our ownership interest in HZL, and such an outcome would be likely to have a material adverse effect upon our operational flexibility, results of operations and prospects. Alternatively, we may only be able to acquire the Government of Indias remaining ownership interest in HZL at a price in excess of the market value or fair value of those shares, which could have a material adverse effect on our results of operations and financial condition.
The Government of India has disputed our exercise of the call option to purchase its remaining 49.0% ownership interest in BALCO.
Under the terms of the shareholders agreement between us and the Government of India, we were granted an option to acquire the shares of BALCO held by the Government of India at the time of exercise. We exercised this option on March 19, 2004. However, the Government of India contested the purchase price and validity of the option. As negotiations for an amicable resolution were unsuccessful, on direction of the court, arbitrators were appointed by the parties, as provided for under the terms of the shareholders agreement. Arbitration proceedings commenced on February 16, 2009 and concluded on October 9, 2010. By an award dated January 25, 2011, the arbitral tribunal dismissed our claims on the basis that the option was invalid as it violated Section 111A(2) of the Indian Companies Act. The arbitral tribunal also ruled that the first valuation report of SBI Capital Markets Limited, which valued the shares of the Government of India at Rs. 77.93 per share, was correct and that we had the right to purchase the Government of Indias shares at 75.0% of its valuation. The arbitral tribunals ruling in relation to the valuation and our right to purchase at 75.0% is inconsequential as the arbitral tribunal had already made a ruling that our call option was invalid. Following the issuance of the award, we filed an application in the High Court of Delhi to set aside the ruling made in the award relating to the invalidity of our call option. The High Court of Delhi has fixed a hearing date for the application on November 9, 2011.The Government also filed an application in the High Court of Delhi to set aside the ruling made in the award relating to the valuation report and our right to purchase the Government of Indias shares at 75.0% of the valuation. The High Court of Delhi has kept the Government of Indias application in abeyance until our application has been determined. Notwithstanding the outcome of the dispute, the Government of India retains the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. See Item 4. Information on the CompanyB. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCO Call Option Over Shares in BALCO.
There is no assurance that the outcome of our application or the Government of Indias application to the High Court of Delhi will be favorable to us. In the event of an unfavorable outcome, we may be unable to purchase the Government of Indias remaining 49.0% stake in BALCO or may be required to pay a higher purchase price, which may adversely affect our operational flexibility, results of operations and prospects.
Appeal proceedings in the High Court of Bombay have been brought by the Securities and Exchange Board of India, or SEBI, to overrule a decision by the Securities Appellate Tribunal, or SAT, that we have not violated regulations prohibiting fraudulent and unfair trading practices.
In April 2001, SEBI ordered prosecution proceedings to be brought against us, alleging that we have violated regulations prohibiting fraudulent and unfair trading practices and also passed an order prohibiting us from accessing the capital markets for a period of two years. This order of SEBI was overruled by the SAT on October 22, 2001 on the basis of a lack of sufficient material evidence to establish that we had, directly or indirectly, engaged in market manipulation and that SEBI had exercised its jurisdiction incorrectly in prohibiting us from accessing the capital markets. On November 9, 2001, SEBI appealed to the High Court of Bombay. A hearing date has not been fixed.
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SEBIs order was based on its finding that we had manipulated the price of our shares in connection with our proposed acquisition of shares in Indian Aluminium Company Limited, or INDAL, and our proposed open offer to the shareholders of INDAL in 1998. SEBI also alleged that MALCO, our associate company, provided funds to an entity we allegedly controlled to enable its associate to purchase our shares, as part of a connected price manipulation exercise.
In the event the High Court of Bombay decides the above matters unfavorably against us, we may be prohibited from accessing the capital markets for a period of two years and may become liable to pay penalties. Further, certain of our key officers and directors may be imprisoned, which would have an adverse effect on our business and operations.
In addition to the civil proceedings, SEBI also initiated criminal proceedings before the Court of the Metropolitan Magistrate, Mumbai, against us, our present Non-Executive Chairman, Mr. Anil Agarwal and Mr. Tarun Jain, one of our directors until March 31, 2009, and the chief financial officer of MALCO at the time of the alleged price manipulation. When SEBIs order was overturned in October 2001, we filed a petition before the High Court of Bombay to quash those criminal proceedings on the grounds that the SAT had overruled SEBIs order on price manipulation. An order was passed by the High Court of Bombay in our favor, granting an interim stay of the criminal proceedings. The matter is pending at the stage of final arguments and the next hearing date is on December 26, 2011. If we and the individuals named in the criminal proceedings do not prevail before the High Court of Bombay, our business and operations may be materially and adversely affected.
We are involved in a number of litigation matters, both civil and criminal in nature, and any final judgments against us could have a material adverse effect on our business, results of operations, financial condition and prospects.
We are involved in a variety of litigation matters, including matters relating to alleged violations of environmental and tax laws and alleged price manipulation of our equity shares on the NSE and the Bombay Stock Exchange Limited, or the BSE. A final judgment against us or our directors in one or more of these disputes may result in damages being awarded that we must pay or injunctions against us, or criminal proceedings being instituted against us or our directors, which may require us to cease or limit certain of our operations and have a material adverse effect on our business, results of operations, financial condition and prospects.
For a detailed discussion of material litigation matters pending against us, see Item 8. Financial InformationA. Consolidated Statements and Other Financial InformationLegal Proceedings.
Defects in title or loss of any leasehold interests in our properties could limit our ability to conduct operations on our properties or result in significant unanticipated costs.
Our ability to mine the land on which we have been granted mining lease rights is dependent on the surface rights that we acquire separately and subsequently to the grant of mining lease rights and generally over only part of the land leased. Additional surface rights may be negotiated separately with landowners, though there is no guarantee that these rights will be granted. Although we expect to be able to continue to obtain additional surface rights in the future in the ordinary course, any delay in obtaining or inability to obtain surface rights could negatively affect our financial condition and results of operations.
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A significant part of our mining operations are carried out on leasehold properties. Our right to mine some of our reserves may be materially and adversely affected if defects in title or boundary disputes exist or if a lease expires and is not renewed or if a lease is terminated due to our failure to comply with its conditions. Any challenge to our title or leasehold interests could delay our mining operations and could ultimately result in the loss of some or all of our interests. Also, in any such case, the investigation and resolution of title issues would divert managements time from our business and our results of operations could be adversely affected. Further, if we mine on property that we do not own or lease, we could incur liability for such mining.
We can also be subject to claims challenging our title to our non-mine properties. For example, BALCO is currently engaged in a dispute with the State Government of Chhattisgarh regarding alleged encroachment on state-owned land at its Korba smelter. On February 6, 2009, the Chhattisgarh High Court held that BALCO is in legal possession of the land and is required to pay premium and rent on the land according to the rates offered by the Government of Chhattisgarh in 1968. The State Government of Chhattisgarh challenged this order in an appeal before the division bench of the Chhattisgarh High Court. This appeal was dismissed on February 25, 2010. See Item 8. Financial InformationA. Consolidated Statements and Other Financial InformationLegal Proceedings.
Our operations are subject to extensive governmental and environmental regulations which have in the past and could in the future cause us to incur significant costs or liabilities or interrupt or close our operations, any of which events may adversely affect our results of operations.
Numerous governmental permits, approvals and leases are required for our operations as the industries in which we operate and seek to operate are subject to numerous laws and extensive regulation by national, state and local authorities. Failure to comply with any laws or regulations or to obtain or renew the necessary permits, approvals and leases may result in the loss of the right to mine or operate our facilities, the assessment of administrative, civil or criminal penalties, the imposition of cleanup or site restoration costs and liens, the imposition of costly compliance procedures, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits and other enforcement measures that could have the effect of closing or limiting production from our operations. In addition, a significant number of approvals are required from government authorities for metals and mining and commercial power generation projects, and any such approvals may be subject to challenge. We are currently primarily subject to laws and regulations relating to our operations in India and Australia. Our business, financial condition, results of operations and prospects may be materially and adversely affected by any of a number of significant legal and regulatory matters to which we are subject. See Item 8. Financial InformationA. Consolidated Statements and Other Financial InformationLegal Proceedings and Item 4. Information on the CompanyB. Business OverviewOur BusinessRegulatory Matters.
The costs, liabilities and requirements associated with complying with existing and future laws and regulations may be substantial and time-consuming and may delay the commencement or continuation of exploration, mining or production activities. For example, a gas leak at HZLs sulphuric acid plant in Chanderiya caused the Rajasthan State Pollution Control Board to shut down the entire plant for a period of 12 days in November 2005. Environmental regulations may also subject us to substantial costs and liabilities for the closure of our mines and other facilities.
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New legislation or regulations may be adopted in the future that may materially and adversely affect our operations, our cost structure or our customers ability to use our products. New legislation or regulations, or different or more stringent interpretation or enforcement of existing laws and regulations, may also require us or our customers to change operations significantly or incur increased costs, which could have a material adverse effect on our results of operations or financial condition.
Any increase in competition in our target markets could result in lower prices or sales volumes of the copper, zinc and aluminum products we produce, which may cause our profitability to suffer.
There is substantial competition in the copper, zinc and aluminum industries, both in India and internationally, and we expect this to continue. Our competitors in the copper, zinc and aluminum markets outside India include major international producers. Certain of these international producers have significantly larger scale of operations, greater financial resources and manufacturing and technological capabilities, more established and larger marketing and sales organizations and larger technical staffs than we do.
In the Indian copper market, we compete primarily against Hindalco Industries Limited, or Hindalco, the government-owned Hindustan Copper Limited, or Hindustan Copper, and imports. In the Indian zinc market, we compete primarily against imports. In the Indian aluminum market, we compete primarily against National Aluminium Company Limited, or NALCO, a Government of India enterprise, Hindalco and imports. Many of our competitors are also expanding their production capacities. If domestic demand is not sufficient to absorb these increases in capacity, our competitors could reduce their prices, which may force us to do the same or cause us to lose market share or sell our products in overseas markets at lower prices.
The end-user markets for our metal products are highly competitive. Copper competes with a number of other materials, including aluminum and plastics. Zinc metal faces competition as a result of substitution of materials, including aluminum, stainless steel and other alloys, plastics and other materials being substituted for galvanized steel and epoxies, paints and other chemicals being used to treat steel in place of galvanization in the construction market. Aluminum competes with materials such as plastic, steel, iron, glass and paper, among others, for various applications. In the past, customers have demonstrated a willingness to substitute other materials for copper, zinc and aluminum. The willingness of customers to accept substitutes could have a material adverse effect on our business, results of operations and prospects.
Our insurance coverage may prove inadequate to satisfy future claims against us.
We maintain insurance which we believe is typical in our industry in India and Australia and in amounts which we believe to be commercially appropriate. Nevertheless, we may become subject to liabilities, including liabilities for pollution or other hazards, against which we have not insured adequately, or at all, or cannot be insured. Our insurance policies contain exclusions and limitations on coverage. In addition, our insurance policies may not continue to be available at economically acceptable premiums, or at all. As a result, our insurance coverage may not cover the extent of any claims against us, including for environmental or industrial accidents or pollution. See Item 4. Information on the CompanyB. Business OverviewOur BusinessInsurance.
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Third party interests in our subsidiary companies and restrictions due to stock exchange listings of our subsidiary companies will restrict our ability to deal freely with our subsidiaries, which may have a material adverse effect on our operations.
We do not wholly own all of our operating subsidiaries. Although we have management control of HZL and BALCO, and we intend to increase our ownership interests in both, each of these companies has other shareholders who, in some cases, hold substantial interests in them. The non-controlling interests in our subsidiaries and the listing of HZL on the NSE and the BSE may limit our ability to increase our equity interests in these subsidiaries, combine similar operations and utilize synergies that may exist between the operations of different subsidiaries or reorganize the structure of our business in a tax effective manner. For example, the Government of India, which is a minority shareholder in each of HZL and BALCO, has entered into shareholders agreements for HZL and BALCO and it is a term of the shareholders agreements that HZL and BALCO may not grant loans to companies which are under the same management as HZL or BALCO, as the case may be, without the prior consent of the Government of India.
In addition, the Government of India has the right to appoint directors and has veto power over certain management decisions. These restrictions on our ability to deal freely with our subsidiaries caused by the non-controlling interests may have a material adverse effect on our results of operations or financial condition as our ability to move funds among the different parts of our business will be restricted and we will be unable to access cash held in HZL or BALCO except through dividend payments by HZL and BALCO which would be payable to all shareholders. This will limit our ability to make payments of interest and principal in respect of financial liabilities and obligations which we have undertaken on behalf of our consolidated group of companies. Further, pursuant to the requirements for the continued listing of the shares of HZL on the NSE and BSE, in the event we exercise our call option to acquire the Government of Indias remaining ownership interest in HZL, we would have to either divest a portion of our shareholding in HZL within a period of one year from the acquisition such that the minimum public shareholding requirement of 25.0% is complied with or delist HZLs shares from the NSE and BSE by making an offer to purchase the equity shares held by the remaining HZLs shareholders at a price determined by way of a reverse book-build process, which could adversely impact our financial condition and results of operations. See Item 4. Information on the CompanyB. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCO.
We may be liable for additional taxes if the tax holidays, exemptions and tax deferral schemes which we currently benefit from expire without renewal, and the benefits of the tax holidays, exemptions and tax deferral schemes are limited by the minimum alternative tax, or MAT.
We currently benefit from significant tax holidays, exemptions and tax deferral schemes. These tax holidays, exemptions and tax deferral schemes are for limited periods. For example, HZLs captive power plant at Debari, Chanderiya, and Zawar benefits from tax exemptions on the profits generated from transfers of power to HZLs other units, which are expected to generate substantial savings.
HZLS Haridwar zinc plant was set up in the state of Uttarkhand and is eligible for tax incentives applicable to hilly states. Our copper refinery and copper rod plant at Tuticorin and our first hydrometallurgical zinc smelters at Chanderiya with a capacity of 210,000 tpa, of which one has been awarded the status of export oriented units, under which we are eligible for tax exemptions on raw materials, capital goods procured and finished goods sold until March 31, 2011. New captive power plants will not be eligible for such tax exemptions if the capitalization is effected after March 31, 2012. Captive power plants will continue to have the benefit of any existing tax exemptions after March 31, 2011 until such tax exemptions expire. The expiry or loss of existing tax holidays, exemptions and tax deferral schemes or the failure to obtain new tax holidays, exemptions or tax deferral schemes will likely increase our tax obligations and any increase could have a material adverse effect on our financial condition or results of operations.
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In addition, we are subject to a MAT which sets a minimum amount of tax that must be paid each year based on our book profits. The India Finance Bill 2011 has increased the MAT rate from 18.0% to 18.5%, and surcharge has been reduced to 5.0% from 7.5% resulting in an overall increase in the MAT rate from 19.93% to 20.01%, including surcharge and cess. The MAT prevents us from taking full advantage of any tax holidays, exemptions or tax deferral schemes that may be available to us.
Shortage of skilled labor in the metals and mining industry could increase our costs and limit our ability to maintain or expand our operations, which could adversely affect our results of operations.
Mining and metal refining, smelting and fabrication operations require a skilled and experienced labor force. If we experience a shortage of skilled and experienced labor, our labor productivity could decrease and costs could increase, our operations may be interrupted or we may be unable to maintain our current production or increase our production as otherwise planned, which could have a material adverse effect on our results of operations, financial condition and business prospects.
Risks Relating to Our Industry
Commodity prices and the copper TcRc may be volatile, which would affect our revenue, results of operations and financial condition.
Historically, the international commodity prices for copper, zinc and aluminum and the prevailing market TcRc rate for copper have been volatile and subject to wide fluctuations in response to relatively minor changes in the supply of, and demand for, such commodities, market uncertainties, the overall performance of world or regional economies and the related cyclicality in industries we directly serve and a variety of other factors. For example, between March 31, 2010 and March 31, 2011, the average LME prices of copper, aluminum, zinc and lead increased by 33.1%, 20.8%, 12.9% and 12.8%, respectively. Commodity prices and the market TcRc rate for copper may continue to be volatile and subject to wide fluctuations in the future. A decline in the prices we receive for our copper, zinc or aluminum metals and in the market TcRc rate for copper would adversely affect our revenue and results of operations, and a sustained drop would have a material adverse effect on our revenue, results of operations and financial condition.
Our ore reserves are estimates based on a number of assumptions, any changes to which may require us to lower our estimated reserves.
The ore reserves stated in this annual report are estimates and represent the quantity of copper, zinc, lead and bauxite that we believed, as of March 31, 2011, could be mined, processed, recovered and sold at prices sufficient to cover the estimated future total costs of production, remaining investment and anticipated additional capital expenditures. These estimates are subject to numerous uncertainties inherent in estimating quantities of reserves and could vary in the future as a result of actual exploration and production results, depletion, new information on geology and fluctuations in production, operating and other costs and economic parameters such as metal prices, smelter treatment charges and exchange rates, many of which are beyond our control. As a result, you should not place undue reliance on the reserve data contained in this annual report. In the event that any of these assumptions turn out to be incorrect, we may need to revise our ore reserves downwards and this may adversely affect our life-of-mine plans and consequently the total value of our mining asset base, which could increase our costs and decrease our profitability.
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Changes in tariffs, royalties, customs duties and government assistance may reduce our Indian market domestic premium, which would adversely affect our profitability and results of operations.
Copper, zinc and aluminum are sold in the Indian market at a premium to the international market prices of these metals due to tariffs payable on the import of such metals. Between March 2003 and June 2009, basic customs duties on imported copper, zinc, lead and alumina and aluminium decreased cumulatively from 25.0% to 5.0%, and have remained at 5.0% since June 2009. The Government of India may reduce or abolish customs duties on copper and aluminum in the future, although the timing and extent of such reductions cannot be predicted. As we sell the majority of the commodities we produce in India, any reduction in Indian tariffs on imports will decrease the premiums we receive in respect of those sales. Our profitability is dependent to a small extent on the continuation of import duties and any reduction would have an adverse effect on our results of operations and financial condition.
We pay royalties to the State Governments of Chhattisgarh and Rajasthan based on our extraction of bauxite and lead-zinc ore, respectively, and to the State Government of Tasmania in Australia based on our extraction of copper ore. Most significant of these is the royalty that HZL is required to pay to the State Government of Rajasthan, where all of HZLs mines are located, at a rate of 8.4%, with effect from August 13, 2009 (with the rate being 6.6% prior to August 13, 2009), of the zinc LME price payable on the zinc metal contained in the concentrate produced and 12.7% (with the rate being 5.0% prior to August 13, 2009) of the lead LME price payable on the lead metal contained in the concentrate produced. The royalties we pay are subject to change. Any upward revision to the royalty rates being charged currently may adversely affect our profitability. Additionally, the Department of Mines and Geology of the State of Rajasthan has raised additional demands for payment through several show cause notices to HZL for mining minerals associated with lead and zinc such as cadmium and silver. Any upward revision to the royalty rates being charged currently or payment of additional royalty for mining of associated minerals may adversely affect our profitability. See Item 8. Financial InformationA. Consolidated Statements and Other Financial InformationLegal ProceedingsDemands against HZL by Department of Mines and Geology.
We also pay royalties to the State Government of Tasmania in Australia based on the operations at CMT at a rate equal to (a) the sum of (x) 1.6% of the revenue plus (y) 0.4 times the profit multiplied by (b) the profit margin over revenue, subject to a cap of 5.0% of revenue. Our royalties in Zinc International business are 3.0%, 7.6% and 3.5% of Skorpion, BMM and Lisheen respectively.
Indian exports of copper, aluminum and zinc receive assistance premiums from the Government of India, which have been reduced since 2002. These export assistance premiums have been reduced in recent years and may be further reduced in the future. Any reduction in these premiums will decrease the revenue we receive from export sales and may have a material adverse effect on our results of operations or financial condition. See Item 5. Operating and Financial Review and ProspectsFactors Affecting Results of OperationsGovernment Policy.
Regulation of greenhouse gas emissions effects and climate change issues may adversely affect our operations and markets.
Our mining, smelting and refining operations are energy intensive and depend heavily on electricity, thermal coal, diesel fuel and fuel oil. In addition, our commercial power generation business depends on coal-fired power plants. Many scientists believe that emissions from the combustion of carbon-based fuels contribute to greenhouse effects and therefore potentially to climate change.
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A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to the potential impacts of climate change. International treaties or agreements may also result in increasing regulation of greenhouse gas emissions, including the introduction of carbon emissions trading mechanisms, in jurisdictions in which we operate. Any such regulation will likely result in increased future energy and compliance costs. From a medium and long-term perspective, we are likely to see an increase in costs relating to our assets that emit significant amounts of greenhouse gases as a result of these regulatory initiatives. These regulatory initiatives will be either voluntary or mandatory and may impact our operations directly or through our suppliers or customers. Assessments of the potential impact of future climate change regulation are uncertain, given the wide scope of potential regulatory change in countries in which we operate.
The potential physical impacts of climate change on our operations are highly uncertain, and would be particular to the geographic circumstances. These may include changes in rainfall patterns, water shortages, changing sea levels, changing storm patterns and intensities, and changing temperatures. These effects may adversely impact the cost, production and financial performance of our operations.
Risks Relating to Our Relationship with Vedanta
We are controlled by Vedanta and our other shareholders ability to influence matters requiring shareholder approval will be extremely limited.
We are a majority-owned and controlled subsidiary of Vedanta. Vedanta is in turn 61.7% owned by Volcan Investments Limited, or Volcan. Volcan is a holding company 100% owned and controlled by the Anil Agarwal Discretionary Trust. Onclave PTC Limited, or Onclave, is the trustee of the Anil Agarwal Discretionary Trust and controls all voting and investment decisions of the Anil Agarwal Discretionary Trust. As a result, shares beneficially owned by Volcan may be deemed to be beneficially owned by the Anil Agarwal Discretionary Trust and, in turn, by Onclave. The beneficiaries of the Anil Agarwal Discretionary Trust are members of the Agarwal family, who are related to Mr. Anil Agarwal. Mr. Anil Agarwal, the Executive Chairman of Vedanta and our Non-Executive Chairman, as protector of the Anil Agarwal Discretionary Trust, may be deemed to have deemed beneficial ownership of shares that are beneficially owned by the Anil Agarwal Discretionary Trust. Vedanta, Volcan, the Anil Agarwal Discretionary Trust, Onclave and Mr. Anil Agarwal are parties to a relationship agreement that seeks to enable Vedanta to carry on its business independently of Volcan, its direct and indirect shareholders, and their respective associates, or collectively, the Volcan Parties. See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated PartiesVedanta. However, we cannot assure you that the relationship agreement will be effective at insulating Vedanta, and in turn we, from being influenced or controlled by the Volcan Parties, which influence or control could have a material adverse effect on the holders of our equity shares and ADSs.
As long as Vedanta, through its subsidiaries, owns a majority of our outstanding equity shares, Vedanta will have the ability to control or influence significant matters requiring board approval and to take shareholder action without the vote of any other shareholder, and the holders of our equity shares and ADSs will not be able to affect the outcome of any shareholder vote. Vedanta will have the ability to control all matters affecting us.
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In the event Vedanta ceases to be our majority shareholder, we will be required to immediately repay some of our outstanding long-term debt.
Vedantas voting control may discourage transactions involving a change of control of us, including transactions in which holders of our equity shares and ADSs might otherwise receive a premium therefore over the then-current market prices. Vedanta is not prohibited from selling a controlling interest in us to a third party and may do so without the approval of holders of our equity shares and ADSs and without providing for a purchase of our equity shares or ADSs. Accordingly, our equity shares and ADSs may be worth less than they would be if Vedanta did not maintain voting control over us.
Vedanta may decide to allocate business opportunities to other members of the Vedanta group instead of us, which may have a material adverse effect on our business, results of operations, financial condition and prospects.
Vedantas control of us means it can determine the allocation of business opportunities among us, itself and its other subsidiaries. For example, as of March 31, 2011, Vedanta owned 79.4% of KCM, an integrated copper producer in Zambia, 94.6% of MALCO, an aluminum metals and mining company in India with which we compete, and 70.5% of Vedanta Aluminium, an alumina refining and aluminum smelting business. As Vedanta controls KCM, MALCO, Vedanta Aluminium and us, it determines the allocation of business opportunities among, as well as strategies and actions of, KCM, MALCO, Vedanta Aluminium and us. Vedanta may determine to have KCM, MALCO, Vedanta Aluminium or another of its subsidiaries, instead of us, pursue business opportunities in the copper, zinc, aluminum or commercial power generation business, or any other business, or cause such companies or us to undertake corporate strategies, the effect of which is to benefit such companies instead of us and which could be detrimental to our interests. If Vedanta were to take any such actions, our business, results of operations, financial condition and prospects could be materially and adversely affected and the value of our equity shares and the ADSs may decline.
We have issued several guarantees as security for the obligations of certain of our subsidiaries and other companies within the Vedanta group and we will have liability under these guarantees in the event of any failure by such entities to perform their obligations, which could have a material adverse effect on our results of operations and financial condition.
We have issued several guarantees in respect of the obligations of certain of our subsidiaries and other companies within the Vedanta group, including guarantees issued as security for loan obligations, credit facilities or issuance of customs duty bonds for import of capital equipment at concessional rates of duties. Our outstanding guarantees cover obligations aggregating Rs. 64,704 million ($1,452.7 million) as of March 31, 2011, the liabilities for which have not been recorded in our consolidated financial statements. We will have a liability in the event that any of these entities fails to perform its obligations under the loan agreements, credit facilities or bonds, which could have a material adverse effect on our results of operations and financial condition. See Item 5. Operating and Financial Review and ProspectsGuarantees.
Any disputes that arise between us and Vedanta or other companies in the Vedanta group could harm our business operations.
Disputes may arise between Vedanta or other companies in the Vedanta group and us in a number of areas, including:
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| intercompany agreements setting forth services and prices for services between us and Vedanta or other companies in the Vedanta group; |
| business combinations involving us; |
| sales or distributions by Vedanta of all or any portion of its ownership interest in us; or |
| business opportunities that may be attractive to us and Vedanta, or other companies in the Vedanta group. |
We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.
Our agreements with Vedanta and other companies in the Vedanta group may be amended upon agreement between the parties. As we are controlled by Vedanta, Vedanta may require us to agree to amendments to these agreements that may be less favorable to us than the original terms of the agreements.
Some of our directors and executive officers may have conflicts of interest because of their ownership of Vedanta shares, options to acquire Vedanta shares and positions with Vedanta.
Some of our directors and executive officers own Vedanta shares and options to purchase Vedanta shares, including through their continued participation in the Vedanta Long-Term Incentive Plan 2003, or the Vedanta LTIP. In addition, some of our directors and executive officers are directors or executive officers of Vedanta. Ownership of Vedanta shares and options to purchase Vedanta shares and the presence of an executive officer of Vedanta on our board of directors could create, or appear to create, potential conflicts of interest and other issues with respect to their fiduciary duties to us when our directors and officers are faced with decisions that could have different implications for Vedanta than for us.
In addition, we are a party to a shared services agreement with Vedanta and certain other subsidiaries of Vedanta under which our managements time and services are shared between the Vedanta group and us. As a result, our management, including our senior management, is not solely focused on our business and may be distracted by, or have conflicts as a result of, the demands of Vedanta or other businesses within the Vedanta group, which may materially and adversely affect our business, results of operations and financial condition. For more information on the shared services agreement, see Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
Risks Relating to Investments in Indian Companies, Global Economic Conditions and International Operations
A substantial portion of our assets and operations are located in India and we are subject to regulatory, economic, social and political uncertainties in India.
We are incorporated in India. Our primary operating subsidiaries, HZL, BALCO and Sterlite Energy, as well as our associate company, Vedanta Aluminium, are also incorporated in India. A substantial portion of our assets and employees are located in India and we intend to continue to develop and expand our facilities in India. Consequently, our financial performance and the market price of our equity shares and ADSs will be affected by changes in exchange rates and controls, interest rates, changes in government policies, including taxation policies, social and civil unrest and other political, social and economic developments in or affecting India.
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The Government of India has exercised and continues to exercise significant influence over many aspects of the Indian economy. Since 1991, successive Indian governments have pursued policies of economic liberalization, including by significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant and we cannot assure you that such liberalization policies will continue. The present government has announced policies and taken initiatives that support the continued economic liberalization policies that have been pursued by previous governments. The present government continues to be a multiparty coalition and therefore there is no assurance that it will be able to generate sufficient cross-party support to implement its liberalization policies. The rate of economic liberalization could change, and specific laws and policies affecting metals and mining companies, foreign investments, currency exchange rates and other matters affecting investment in India could change as well. Further, protests against privatizations and government corruption scandals, which have occurred in the past, could slow the pace of liberalization and deregulation. Given the changes in government policy on divestments, there can be no assurance that any of the proposed privatizations which we may be interested in pursuing will be implemented or completed in the near future, or at all. A significant change in Indias policy of economic liberalization and deregulation could adversely affect business and economic conditions in India generally and our business in particular if new restrictions on the private sector is introduced or if existing restrictions are increased.
Global economic conditions have been unprecedented and challenging and have had, and continue to have, an adverse effect on the Indian financial markets and the Indian economy in general, which has had, and may continue to have, a material adverse effect on our business, our financial performance and the prices of our equity shares and ADSs.
Global market and economic conditions have been unprecedented and challenging and have resulted in tighter credit conditions and recession in most major economies in the last several years. Continued concerns about the systemic impact of potential long-term and wide-spread recession, energy costs, geopolitical issues, the availability and cost of credit, and the global housing and mortgage markets have contributed to increased market volatility and diminished expectations for western and emerging economies. In the second half of 2008, added concerns fueled by the United States government conservatorship of the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, the declared bankruptcy of Lehman Brothers Holdings Inc., the United States government financial assistance to American International Group Inc., Citigroup Inc., Bank of America and other federal government interventions in the United States financial system led to increased market uncertainty and instability in both United States and international capital and credit markets. These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have contributed to volatility of unprecedented levels.
As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers. These factors have led to a decrease in spending by businesses and consumers alike and corresponding decreases in global infrastructure spending and commodity prices. Continued turbulence in the United States and international markets and economies and prolonged declines in business consumer spending may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers, including our ability to refinance maturing liabilities and access the capital markets to meet
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liquidity needs. These global market and economic conditions have had an adverse effect on the Indian financial markets and the Indian economy in general, which has had, and may continue to have, a material adverse effect on our business, our financial performance and the prices of our equity shares and ADSs. For example, in response to global economic conditions and a decline in commodity prices, we had ceased operations at one of our aluminum smelters at the Korba complex in previous years which had an adverse effect on our business and financial performance.
As the domestic Indian market constitutes the major source of our revenue, the downturn in the rate of economic growth in India due to the unprecedented and challenging global market and economic conditions, or any other such downturn for any other reason, will be detrimental to our results of operations.
In fiscal 2011, approximately 61.9% of our revenue was derived from commodities that we sold to customers in India. The performance and growth of our business are necessarily dependent on the health of the overall Indian economy. Any downturn in the rate of economic growth in India, whether due to political instability or regional conflicts, economic slowdown elsewhere in the world or otherwise, may have a material adverse effect on demand for the commodities we produce. The Indian economy is also largely driven by the performance of the agriculture sector, which depends on the quality of the monsoon, which is difficult to predict. In the past, economic slowdowns have harmed manufacturing industries, including companies engaged in the copper, zinc and aluminum sectors, as well as the customers of manufacturing industries. Any future slowdown in the Indian economy could have, a material adverse effect on the demand for the commodities we produce and, as a result, on our financial condition and results of operations.
Terrorist attacks and other acts of violence involving India or other neighboring countries could adversely affect our operations directly, or may result in a more general loss of customer confidence and reduced investment in these countries that reduces the demand for our products, which would have a material adverse effect on our business, results of operations, financial condition and cash flows.
Terrorist attacks and other acts of violence or war involving India or other neighboring countries may adversely affect the Indian markets and the worldwide financial markets. The occurrence of any of these events may result in a loss of business confidence, which could potentially lead to economic recession and generally have a material adverse effect on our businesses, results of operations, financial condition and cash flows. In addition, any deterioration in international relations may result in investor concern regarding regional stability which could adversely affect the price of our equity shares and ADSs.
South Asia has also experienced instances of civil unrest and hostilities among neighboring countries from time to time, especially between India and Pakistan. In recent years, military confrontations between India and Pakistan have occurred in the region of Kashmir and along the India-Pakistan border. There have also been incidents in and near India such as terrorist attacks in Mumbai, Jaipur, Delhi and on the Indian Parliament, troop mobilisations along the India-Pakistan border and an aggravated geopolitical situation in the region. Such military activity or terrorist attacks in the future could adversely affect the Indian economy by disrupting communications and making travel more difficult and could create the perception that investments in Indian companies involve a high degree of risk. Furthermore, if India were to become engaged in armed hostilities, particularly hostilities that were protracted or involved the threat or use of nuclear weapons, we might not be able to continue our operations.
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If natural disasters or environmental conditions in India, including floods and earthquakes, affect our mining and production facilities, our revenue could decline.
Our mines and production facilities are spread across India, and our sales force is spread throughout the country. Natural calamities such as floods, rains, heavy downpours (such as heavy downpours in Tuticorin in 2008 which caused the closure of our Tuticorin facilities for two to three days, as well as the rains in Mumbai and other parts of the State of Maharashtra in 2005 and other states in 2006) and earthquakes could disrupt our mining and production activities and distribution chains and damage our storage facilities. Other regions in India have also experienced floods, earthquakes, tsunamis and droughts in recent years. In December 2004, Southeast Asia, including the eastern coast of India, experienced a massive tsunami, and in October 2005, the State of Jammu and Kashmir experienced an earthquake, both of which events caused significant loss of life and property damage. Substantially all of our facilities and employees are located in India and there can be no assurance that we will not be affected by natural disasters in the future. In addition, if there were a drought or general water shortage in India or any part of India where our operations are located, the Government of India or local, state or other authorities may restrict water supplies to us and other industrial operations in order to maintain water supplies for drinking and other public necessities which would cause us to reduce or close our operations.
Currency fluctuations among the Indian Rupee, the Australian dollar and the US dollar could have a material adverse effect on our results of operations.
Although substantially all of our revenue is tied to commodity prices that are typically priced by reference to the US dollar, most of our expenses are incurred and paid in Indian Rupees or Australian dollars. In addition, in fiscal 2011, approximately 38.1% of our revenue was derived from commodities that we sold to customers outside India. The exchange rates between the Indian Rupee and the US dollar and between the Australian dollar and the US dollar have changed substantially in recent years and may fluctuate substantially in the future. Our results of operations could be adversely affected if the US dollar depreciates against the Indian Rupee or Australian dollar or the Indian Rupee or Australian dollar appreciates against the US dollar. We seek to mitigate the impact of short-term movements in currency on our business by hedging most of our near-term exposures. Typically, most of our exposures with a maturity of less than two years are hedged completely. However, large or prolonged movements in exchange rates may have a material adverse effect on our results of operations and financial condition.
If Indias inflation worsens or the prices of oil or other raw materials rise, we may not be able to pass the resulting increased costs to our customers and this may adversely affect our profitability or cause us to suffer operating losses.
India has recently experienced fluctuating wholesale price inflation compared to historical levels due to the global economic downturn. In addition, international prices of crude oil have recently experienced significant volatility, including a rise to historical highs that increased transportation costs followed more recently by a significant decline as global economic conditions have deteriorated. Inflation, increased transportation costs and an increase in energy prices generally, which may be caused by a rise in the price of oil, or an increase in the price of thermal coking coal in particular, could cause our costs for raw material inputs required for production of our products to increase, which would adversely affect our financial condition and results of operations if we cannot pass these added costs along to customers.
Stringent labor laws in India may adversely affect our profitability.
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India has stringent labor legislation that protects the interests of workers, including legislation that sets forth detailed procedures for dispute resolution and employee compensation for injury or death sustained in the course of employment, and imposes financial obligations on employers upon employee layoffs. This makes it difficult for us to maintain flexible human resource policies, discharge employees or downsize, which may adversely affect our business and profitability.
As a foreign private issuer and a controlled company within the meaning of the New York Stock Exchange, or NYSE, rules, we are subject to different NYSE rules than non-controlled domestic US issuers. Consequently, the corporate governance standards which we are required to adhere to are different than those applicable to such companies, which may limit the information available to, and the shareholder rights of, holders of our ADSs.
We qualify as a controlled company within the meaning of the NYSE rules as Vedanta has effective control of a majority of our equity shares. This will allow Vedanta to, among other things, control the composition of our board of directors and direct our management and policies.
As a foreign private issuer and a controlled company, we are exempt from complying with certain corporate governance requirements of the NYSE, including the requirement that a majority of our board of directors consist of independent directors. As the corporate governance standards applicable to us are different than those applicable to domestic non-controlled US issuers, holders of our equity shares and ADSs may not have the same protections afforded under the NYSE rules as shareholders of companies that do not have such exemptions. It is also possible that the Agarwal familys significant ownership interest of us as a result of its majority ownership of Vedantas majority shareholder, Volcan, could adversely affect investors perceptions of our corporate governance. For a summary of the differences between the corporate governance standards applicable to us as a listed company in India and as a foreign private issuer and controlled company in the United States and such standards applicable to a domestic non-controlled US issuer, see Item 10. Additional InformationB. Memorandum and Articles of AssociationComparison of Corporate Governance Standards.
There are certain differences in shareholder rights and protections between the laws of India and the United States and between governance standards for a US public company and a foreign private issuer such as us.
We are incorporated in India and investors should be aware that there are certain differences in the shareholder rights and protections between the laws of India and the United States. There are also certain differences in the corporate governance standards for a domestic US issuer and those applicable to a foreign private issuer such as us. See Item 10. Additional InformationB. Memorandum and Articles of AssociationComparison of Shareholders Rights.
SEBI and the various Indian stock exchanges are responsible for improving and setting standards for disclosure and other regulatory standards for the Indian securities markets. SEBI has issued regulations and guidelines on disclosure requirements, insider trading and other matters. Nevertheless, there may be less information made publicly available in respect of Indian companies than is regularly made available by public companies in the United States as a result of differences between the level of regulation and monitoring of the Indian securities markets and of the transparency of the activities of investors and brokers in India compared to the United States. Similarly, our disclosure obligations under the rules of the NSE and BSE on which our equity shares are listed may be less than the disclosure obligations of public companies on the NYSE.
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Risks Relating to our ADSs
Substantial future sales of our equity shares or ADSs in the public market, or the perception of such sales, could cause the market price of our ADSs to fall.
If our existing shareholders sell a substantial number of our equity shares in the open market, or if there is a perception that such sale or distribution could occur, the market price of our equity shares and ADSs could be adversely affected. These sales, or the perception that these sales could occur, also might make it more difficult for us to sell securities in the future at a time or at a price that we deem appropriate or pay for acquisitions using our equity securities.
As of March 31, 2011 we had 3,361,207,534 equity shares outstanding, including 437,090,736 equity shares represented by 109,272,684 ADSs. All our 3,361,207,534 outstanding equity shares are freely tradable on the NSE and BSE Furthermore, Vedanta, through Twin Star and MALCO, continued to have effective control over 1,939,086,376 of our total outstanding equity shares (including equity shares representing ADSs), which represented 57.7% of our outstanding share capital as of March 31, 2011.
Fluctuations in the exchange rate between the Indian Rupee and the US dollar could have a material adverse effect on the value of our ADSs, independent of our actual operating results.
The price of the ADSs is quoted in dollars. Our equity shares are quoted in Indian Rupees on the NSE and BSE. Any dividends in respect of our equity shares will be paid in Indian Rupees and subsequently converted into US dollars for distribution to ADS holders.
Currency exchange rate fluctuations will affect the dollar equivalent of the Indian Rupee price of our equity shares on the NSE and BSE and, as a result, the prices of our ADSs, as well as the US dollar value of the proceeds a holder would receive upon the sale in India of any of our equity shares withdrawn from the depositary under the deposit agreement and the US dollar value of any cash dividends we pay on our equity shares. Holders may not be able to convert Indian Rupee proceeds into US dollars or any other currency, and there is no guarantee of the rate at which any such conversion will occur, if at all. Currency exchange rate fluctuations will also affect the value received by ADS holders from any dividends paid by us in respect of our equity shares. Holders of our ADSs will bear all of the risks with respect to a decline in the value of the Indian Rupee as compared to the US dollar, which would adversely affect the price of our ADSs and the US dollar value of any dividends we pay that are received by ADS holders.
Transfers of the underlying shares by persons resident outside India to residents of India are subject to certain pricing norms.
Under current Indian regulations, subject to certain conditions, no prior regulatory approval is required for the sale of any equity shares, including any equity shares withdrawn from the ADS facilities, by a person resident outside India to a resident of India. However, certain reporting requirements would need to be complied with by the parties to the sale transaction. Also, the prior approval of the RBI would be required in the event of a sale of the equity shares underlying our ADSs by a non-resident investor to a resident investor if the sale price is greater than the maximum price set by the RBI under Indian foreign exchange laws. Any such approval required from the RBI or any other government agency may not be obtained on terms favorable to a non-resident investor, or at all.
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Holders of ADSs may be restricted in their ability to exercise preemptive rights under Indian law and thereby may suffer future dilution of their ownership positions.
Under the Indian Companies Act, the holders of equity shares of a company incorporated in India have a preemptive right to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares by the company, unless the preemptive rights have been waived by adopting a special resolution passed by 75% of the shareholders present and voting at a general meeting.
Holders of ADSs may be unable to exercise preemptive rights for the underlying equity shares of the ADSs unless a registration statement under the Securities Act of 1933, as amended, or the Securities Act is effective with respect to such rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to prepare and file such a registration statement and our decision to do so will depend on the costs and potential liabilities associated with any such registration statement, as well as any other factors we consider appropriate at the time. No assurance can be given that we would file a registration statement under these circumstances. If we issue any such securities in the future, such securities may be issued to the depositary, which may sell the securities for the benefit of the holders of the ADSs. The value the depositary would receive from the sale of such securities cannot be predicted. To the extent that holders of ADSs are unable to exercise preemptive rights granted in respect of our equity shares represented by their ADSs, their proportional ownership interests in us would be diluted.
We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to US Holders.
Based on the market prices of our equity shares and ADSs and the composition of our income and assets, including goodwill, we do not believe we were a PFIC for United States federal income tax purposes for our taxable year ended March 31, 2011. However, the application of the PFIC rules is subject to uncertainty in several respects and, therefore, the US Internal Revenue Service may assert that, contrary to our belief, we were a PFIC for such taxable year. A non-United States corporation will be considered a passive foreign investment company, or PFIC, for any taxable year if either (1) at least 75% of its gross income is passive income or (2) at least 50% of the total value of its assets (based on an average of the half yearly values of the assets during a taxable year) is attributable to assets, including cash, that produce or are held for the production of passive income, or passive assets. In addition, we must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the PFIC test will generally be determined by reference to the market price of our ADSs and equity shares, fluctuations in the market price of the ADSs and equity shares may cause us to become a PFIC. In addition, changes in the composition of our income or assets may cause us to become a PFIC. Accordingly, we cannot assure you that we will not be a PFIC for the taxable year that will end on March 31, 2012 or any future taxable year. If we were a PFIC for any taxable year during which a US Holder (as defined under Item 10. Additional InformationE. TaxationUnited States Federal Income Taxation) holds an ADS or an equity share, certain adverse United States federal income tax consequences could apply to the US Holder. See Item 10. Additional InformationE. TaxationUnited States Federal Income TaxationPassive Foreign Investment Company.
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ITEM 4. | INFORMATION ON THE COMPANY |
A. History and Development of our Company
SIIL was incorporated on September 8, 1975 under the laws of India and maintains a registered office at SIPCOT Industrial Complex, Madurai Bypass Road, T.V. Puram P.O., Tuticorin, State of Tamil Nadu 628 002, India. Our principal executive office is located at SIPCOT Industrial Complex, Madurai Bypass Road, T.V. Puram P.O., Tuticorin, State of Tamil Nadu 628 002, India and the telephone number for this office is (91) 461 424 2982. Our website address is www.sterlite-industries.com. Information contained on our website, or the website of any of our subsidiaries or affiliates, including Vedanta and other members of the Vedanta group, is not a part of this annual report. Our agent for service in the United States is CT Corporation System, 111 Eighth Avenue, New York, New York 10011.
We were acquired by Mr. Anil Agarwal and his family in 1979 and have grown from a small wire and cable manufacturing company to one of Indias leading non-ferrous metals and mining companies. In 1988, we completed an initial public offering of our shares in India to finance in part our first polythene insulated jelly filled copper telephone cables plant. As part of our strategy to concentrate on businesses with high growth potential, we discontinued production of polyvinyl chloride power and control cables and enameled copper wires in 1990 and in 1991 commissioned a continuous cast copper rod plant.
In 1997, in order to obtain captive sources of copper for our copper rod plant, we commissioned the first privately developed copper smelter in India at Tuticorin.
In 2000, we acquired CMT, which owns the Mt. Lyell copper mine in Australia. CMT had been acquired by Monte Cello in 1999, and we acquired it through our acquisition of Monte Cello from a subsidiary of Twin Star in 2000.
In July 2000, our telecommunications cables and optical fiber business was spun-off into a new company, STL. The Agarwal family has substantial interests in STL. STL is not a part of our group companies.
We acquired our aluminum business through our acquisition of a 51.0% interest in BALCO from the Government of India on March 2, 2001. On March 19, 2004, we gave notice to exercise our call option to purchase the Government of Indias remaining 49.0% shareholding in BALCO at a price determined in accordance with the shareholders agreement entered into by us and the Government of India. The exercise of this option has been contested by the Government of India. Further, the Government of India retains the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. See B. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCOCall Option Over Shares in BALCO for more information.
On April 11, 2002, we acquired, through SOVL, a 26.0% interest in HZL from the Government of India and a further 20.0% interest through an open market offer. On November 12, 2003, we acquired, through SOVL, a further 18.9% interest in HZL following the exercise of a call option granted by the Government of India, taking our interest in HZL to 64.9%. In addition, SOVL has a call option, which became exercisable beginning on April 11, 2007, to acquire the Government of Indias remaining ownership interest in HZL.
On October 3, 2006, we acquired 100% of Sterlite Energy from TSPL, Mr. Anil Agarwal and Mr. Dwarka Prasad Agarwal, one of our directors until March 31, 2009, for a total consideration of Rs. 4.9 million ($0.1 million). Sterlite Energy is our subsidiary through which we are setting up a thermal coal-based 2,400 MW power facility in the State of Orissa.
On September 1, 2008, Sterlite Energy completed the acquisition of TSPL for a purchase price of Rs. 3,868 million ($86.8 million). On October 30, 2009, Sterlite Energy filed its draft red herring prospectus with SEBI for a proposed initial public offering of its equity shares for up to Rs. 51,000 million ($1,134.6 million).
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In June 2007, we completed an initial public offering of our shares in the form of ADSs in the US and our ADSs were listed on the NYSE. Vedantas ownership interest, held through its subsidiaries, decreased to 59.9%.
In July 2009, in connection with our follow-on offering of ADS, each representing one equity share of par value Rs. 2, we issued 131,906,011 new equity shares in the form of ADSs, at a price of $12.15 per ADS, aggregating approximately $1,602.7 million. Out of 131,906,011 equity shares, 41,152,263 equity shares were allotted to our parent company, Twin Star, which is a wholly-owned subsidiary of Vedanta.
In October 2009, we issued $500 million aggregate principal amount of 4% Convertible Senior Note, or Convertible Notes. Subject to certain exceptions, the Convertible Notes are convertible, at the option of the holder, into ADSs at a conversion rate of 42.8688 ADSs per $1,000 principal amount of Convertible Notes, which is equal to a conversion price of approximately $23.33 per ADS. The Convertible Notes will mature on October 30, 2014, unless earlier repurchased or redeemed by us or converted.
On May 10, 2010, Sterlite agreed to acquire the zinc business of Anglo American Plc for a total consideration of Rs. 69,083 million ($1,513.1 million). The zinc business comprises of:
(1) | a 100.0% stake in Skorpion which owns the Skorpion mine and refinery in Namibia; |
(2) | a 74.0% stake in BMM, which includes the Black Mountain mine and the Gamsberg Project, in South Africa; and |
(3) | a 100.0% stake in Lisheen, which owns the Lisheen mine in Ireland. |
On December 3, 2010, we announced the completion of the acquisition of 100.0% stake in Skorpion by SIL, a wholly-owned subsidiary of Sterlite for a consideration of Rs. 32,098 million ($706.7 million). On February 4, 2011, we announced the completion of the acquisition of the 74.0% stake in BMM for a consideration of Rs. 11,965 million ($260.2 million). On February 15, 2011, we announced the completion of the acquisition of 100.0% stake in Lisheen for a consideration of Rs. 25,020 million ($546.2 million). The purchase price for the zinc business was paid in US dollars and has been converted into Indian Rupees based on the exchange rate as on the date of each such acquisition.
On February 3, 2011, our board of directors approved the acquisition of 100% ownership of MPCL for a consideration of Rs. 0.5 million and MIL for a consideration of Rs. 1.3 million. MPCL would be the proposed holding company for all port business and functions and MIL would be the proposed holding company for all the infrastructure business of the company. The acquisition of MPCL and MIL was completed on February 19, 2011 and March 4, 2011 respectively.
Our equity shares are listed and traded on the NSE and BSE. Our equity shares have been included in S&P CNX Nifty, a diversified index of 50 Indian stocks listed on the NSE, since April 5, 2007 and has been included in BSE Sensex, a diversified index of 30 Indian stocks listed on the BSE, since July 28, 2008. Our ADSs are quoted on the NYSE (NYSE: SLT).
We are a majority-owned and controlled subsidiary of Vedanta, a public company in the United Kingdom listed on the London Stock Exchange plc, or LSE, and included in the FTSE 100 Index. Vedanta is a leading metals and mining company with its business principally located in India and having assets and operations in Zambia, Australia, Namibia, South Africa and Ireland. Vedanta is primarily engaged in copper, zinc, aluminum, iron ore and commercial power generation businesses. We and Vedanta share a common management team with a common strategic vision, and we form the core of Vedantas operations.
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Vedanta is 61.7% owned by Volcan, a holding company 100% owned and controlled by the Anil Agarwal Discretionary Trust. Onclave is the trustee of the Anil Agarwal Discretionary Trust and controls all voting and investment decisions of the Anil Agarwal Discretionary Trust. As a result, shares beneficially owned by Volcan may be deemed to be beneficially owned by the Anil Agarwal Discretionary Trust and, in turn, by Onclave. The beneficiaries of the Anil Agarwal Discretionary Trust are members of the Agarwal family, who are related to Mr. Anil Agarwal. Mr. Anil Agarwal, the Executive Chairman of Vedanta and our Non-Executive Chairman, as protector of the Anil Agarwal Discretionary Trust, may be deemed to have deemed beneficial ownership of shares that are beneficially owned by the Anil Agarwal Discretionary Trust. Vedanta, Volcan, the Anil Agarwal Discretionary Trust, Onclave and Mr. Anil Agarwal are parties to a relationship agreement that seeks to enable Vedanta to carry on its business independently of the Volcan Parties. See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated PartiesVedanta.
Our capital expenditures spent in fiscal 2009, 2010 and 2011 were Rs. 40,623 million , Rs. 61,875 million and Rs. 50,016 million ($1,122.9 million), respectively. See Item 5. Operating and Financial Review and ProspectsOff Balance Sheet ArrangementsCapital Expenditures and Commitments for more information.
B. Business Overview
OUR INDUSTRY
Unless otherwise indicated, all data relating to the copper, zinc and aluminum industries contained in this annual report is primarily derived from Brook Hunt & Associates Limited, or Brook Hunt, (a Wood Mackenzie company) and other industry sources.
Unless otherwise indicated, all financial and statistical data relating to the power industry in India in the following discussion is derived from the Ministry of Powers Annual Report (2005-06, 2006-07, 2007-08 and 2009-10), the Central Electricity Authority of Indias General Review (2004-05 and 2007-08), and the Ministry of Power website. The data may have been re-classified for the purpose of presentation. Unless otherwise indicated, the data presented excludes captive power generation capacity and captive power generation. The term units as used herein refers to kilowatt-hours, or kWh.
Copper
Global Copper Market
Background
Copper is a non-magnetic, reddish-colored metal with a high electrical and thermal conductivity (among pure metals at room temperature, only silver has a higher electrical conductivity), high tensile strength and resistance to corrosion.
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The copper market is geographically diverse in terms of both production and consumption. The different geographical locations of the copper mines and the smelting and refining facilities have led to the development of custom smelters/refineries, which tend to be heavily reliant on imported concentrates.
Copper consumption can be divided into three main product groups: copper wire rods, copper products and copper alloy products. The predominant use of copper has been the production of copper wire rods, which accounted for an estimated 55% of total global consumption (i.e. including scrap) and approximately 70% of primary consumption in 2010. Wire rod is consumed in five main wire and cable markets which include general and industrial cable, utility power cable, telecommunication cable, other insulated wire and winding wire.
In the global copper consumer market in 2010, the construction segment accounted for 33% of copper consumption, followed by the electric and electronic products segment (33%), the industrial machinery and equipment segment (13%), the transportation equipment segment (13%) and the consumer and general products segment (8%).
The copper industry has three broad categories of producers:
| miners, which mine the copper ore and produce copper concentrate; |
| custom smelters, which smelt and refine copper concentrate to produce copper metal; and |
| integrated producers, which mine copper ore from captive mines and produce copper metal either through smelting and refining or through leaching. |
Global Copper Reserves
Global copper reserves were estimated to be, as of December 31, 2010, 630 million tons, according to preliminary estimates by U.S. Geological Survey, Chile, Peru, Australia, Mexico and United States have the majority of copper reserves and collectively account for 62% of world reserves.
Refined Copper Consumption
Global copper consumption increased from 17.4 million tons globally in 2009 to 19.2 million tons in 2010. The increase in demand was mainy due to the extent of the refined metal and semi stock draw downs during 2009, which led to the increase in demand for all metals including copper.
China lead in 2010 with an increase of 13.0% as continued strong economic growth underpinned expansion. In particular, spending in the infrastructure sectore continued to form the major part of end use demand. Other major economies also contributed to the overall demand in copper consumption, led by Japan (21.0%), Latin America (17.8%), Western Europe (10.1%), North America (6.7%) and Asia (excluding China and Japan) (4.4%). Africa and Oceania experienced a decline of 0.9%.
China was the largest end user of copper in 2010 with a global market share of 37.0%, totalling Asias combined market share to 62.0%, followed by Europe (21.0%), the United States (10.0%), Latin America (5.0%) and others (2.0%). Previously, Europe and North America accounted for over 60% of copper consumption during the 1980s, but strong growth in Asia, led by China and Japan, has since significantly changed global consumption patterns. This trend of Asias rising and growing dominance in global copper consumption is expected to continue.
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The following table sets forth the regional consumption pattern of refined copper from 2007 to 2010:
Year Ended December 31, | ||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||
Region |
Volume | % | Volume | % | Volume | % | Volume | % | ||||||||||||||||||||||||
(thousands of tons, except percentages) | ||||||||||||||||||||||||||||||||
Latin America |
864 | 4.8 | % | 889 | 4.9 | % | 768 | 4.4 | % | 905 | 4.7 | % | ||||||||||||||||||||
Rest of Asia(1) |
4,387 | 24.5 | % | 4,369 | 24.3 | % | 3,895 | 22.4 | % | 4,127 | 21.6 | % | ||||||||||||||||||||
China |
4,670 | 26.0 | % | 5,100 | 28.3 | % | 6,375 | 36.6 | % | 7,204 | 37.5 | % | ||||||||||||||||||||
CEE(2) |
1,133 | 6.3 | % | 1,061 | 5.9 | % | 732 | 4.2 | % | 898 | 4.7 | % | ||||||||||||||||||||
North America |
2,304 | 12.8 | % | 2,185 | 12.1 | % | 1,773 | 10.2 | % | 1,892 | 9.8 | % | ||||||||||||||||||||
Western Europe |
3,667 | 20.4 | % | 3,433 | 19.0 | % | 2,839 | 16.3 | % | 3,125 | 16.3 | % | ||||||||||||||||||||
Africa |
274 | 1.5 | % | 323 | 1.8 | % | 343 | 2.0 | % | 343 | 1.8 | % | ||||||||||||||||||||
Oceania |
148 | 0.8 | % | 152 | 0.8 | % | 130 | 0.7 | % | 125 | 0.6 | % | ||||||||||||||||||||
India |
516 | 2.9 | % | 529 | 2.9 | % | 552 | 3.2 | % | 580 | 3.0 | % | ||||||||||||||||||||
Total |
17,963 | 100.0 | % | 18,041 | 100.0 | % | 17,407 | 100.0 | % | 19,199 | 100.0 | % |
Notes:
(1) | Rest of Asia is Asia excluding China and India, but including the Middle East. |
(2) | Central and Eastern Europe. |
Source: | Brook Hunt Metals Market Service Report, March 2011 |
Copper Supply
Global mine production is the principal source of copper, with scrap recycling accounting for only a minor part of the aggregate supplies.
The five largest copper mining countries were Chile (33.6%), China (7.7%), Peru (7.4%), the United States (7.0%) and Indonesia (5.4%), which together accounted for approximately 61.1% of the total copper mined worldwide as of March 31, 2011. The five largest copper mining companies as of March 2011 were Corporación Nacional del Cobre, Chile, or Codelco (10.7%), Freeport-McMoran Copper and Gold Corporation, or Freeport-McMoran (8.6%), BHP Billiton (6.7%), Xstrata AG, or Xstrata (5.3%), and Anglo American Plc (4.3%).
The major smelting locations include China (24.0%), Chile (11.0%), Japan (10.5%), Russia (5.1%) and India (4.4%), which together accounted for 55.0% of global production in 2010. The five largest copper smelting companies were Codelco (7.3%), Jiangxi Copper Corporation, or Jiangxi Copper (5.8%), Xstrata (4.7%), The Aurubis Group, or Aurubis (4.4%) and Nippon Mining and Metals Co. Limited (3.8%).
The five largest copper producing countries were China (23.9%), Chile (17.0%), Japan (8.1%), the United States (5.8%) and Russia (4.7%), which together accounted for about 59.5% of the total copper produced worldwide in 2010. The five largest copper refining companies were Codelco (9.1%), Aurubis (5.6%), Freeport-McMoran (5.2%), Jiangxi Copper (4.5%) and Xstrata (3.3%).
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Global copper production increased from 18.3 million tons in 2008 to 18.4 million tons in 2009, an increase of 0.2% and a further increase to 19.1 million tons in 2010, a YOY increase of 4.2%.
The following table sets forth the regional production pattern of refined copper from 2007 to 2010:
Year Ended December 31, | ||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||
Region |
Volume | % | Volume | % | Volume | % | Volume | % | ||||||||||||||||||||||||
(thousands of tons, except percentages) | ||||||||||||||||||||||||||||||||
Latin America |
3,956 | 21.9 | % | 4,064 | 22.2 | % | 4,197 | 22.9 | % | 4,146 | 21.7 | % | ||||||||||||||||||||
Rest of Asia(1) |
3,531 | 19.6 | % | 3,421 | 18.7 | % | 3,220 | 17.5 | % | 3,374 | 17.7 | % | ||||||||||||||||||||
China |
3,519 | 19.5 | % | 3,795 | 20.7 | % | 4,109 | 22.4 | % | 4,573 | 23.9 | % | ||||||||||||||||||||
CEE(2) |
1,592 | 8.8 | % | 1,564 | 8.5 | % | 1,574 | 8.5 | % | 1,694 | 8.9 | % | ||||||||||||||||||||
North America |
1,792 | 9.9 | % | 1,710 | 9.3 | % | 1,499 | 8.2 | % | 1,425 | 7.5 | % | ||||||||||||||||||||
Western Europe |
1,837 | 10.2 | % | 1,929 | 10.5 | % | 1,810 | 9.9 | % | 1,890 | 9.9 | % | ||||||||||||||||||||
Africa |
648 | 3.6 | % | 669 | 3.6 | % | 788 | 4.3 | % | 931 | 4.9 | % | ||||||||||||||||||||
Oceania |
444 | 2.5 | % | 501 | 2.7 | % | 449 | 2.4 | % | 425 | 2.2 | % | ||||||||||||||||||||
India |
722 | 4.0 | % | 683 | 3.7 | % | 720 | 3.9 | % | 647 | 3.4 | % | ||||||||||||||||||||
Total |
18,041 | 100.0 | % | 18,336 | 100.0 | % | 18,366 | 100.0 | % | 19,105 | 100.0 | % |
Notes:
(1) | Rest of Asia is Asia excluding China and India, but including the Middle East. |
(2) | Central and Eastern Europe. |
Source: | Brook Hunt Metals Market Service Report, March 2011 |
Pricing
Copper is traded on the LME. Although prices are determined by LME price movements, producers normally charge a regional premium that is market driven. The significant price increase in 2006 resulted from healthy demand growth and supply. Due to Chinas shortage in supply of 2.6 million tons, global production recorded a slight deficit for the first time in four years. In 2010, Chinas metal deficit was not significant when compared to the overall size of the market. The LME spot price, reached its record average price at $7,536 per ton as a result of strong copper demand from China after the decrease in 2008 and 2009 mainly due to the global recession.
The following table sets forth the movement in copper prices from 2001 to 2010:
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||
($ per ton, except percentages) | ||||||||||||||||||||||||||||||||||||||||
LME Cash Price($) |
1,577 | 1,557 | 1,779 | 2,868 | 3,683 | 6,729 | 7,124 | 6,951 | 5,163 | 7,536 | ||||||||||||||||||||||||||||||
% Change |
(13.1 | ) | (1.3 | ) | 14.3 | 61.2 | 28.4 | 82.7 | 5.9 | (2.4 | ) | (25.3 | ) | 46.0 |
Source: Brook Hunt Metals Market Service Report, March 2011
The LME copper cash price was $9,399.5 per ton as of March 31, 2011.
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For custom smelters, TcRc rates have a significant impact on profitability as prices for copper concentrate are equal to the LME price net of TcRc and prices of finished copper products are equal to the LME price plus a premium. A significant proportion of concentrates are sold under frame contracts and TcRc are negotiated annually. The main conditions of the contract which are subject to negotiation are the TcRcs that are expressed in US dollars per dry ton of concentrate, or Tc, and in cents per pound of payable copper, or Rc, and, until recently (under long-term contracts) price participation. The TcRc rates are influenced by the demand-supply situation in the concentrate market, prevailing and forecasted LME prices and mining and freight costs.
With another year of high prices combined with a marked deficit in copper concentrate in 2010, substantial portion of profits was distributed to the miners. Since 2006, TcRc have fallen significantly, reflecting a continuing tightening in the physical concentrate demand/supply balance. Traditionally, the benchmark copper concentrate TcRc (excluding price participation, if any) is based on the annual negotiations between the Japanese smelters and BHP Billiton. However, in 2010, the benchmark was set by negotiations between Freeport-McMoran and Sumitomo Metal Mining, which settled at $46.5 per ton and $0.0465 per pound, an increase from the $45.0 per ton and $0.045 per pound terms agreed for 2008, but a decrease from the $75.0 per ton and $0.075 per pound terms agreed for 2009.
The following table sets forth the movement in copper TcRc from 2001 to 2010:
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||
(US cents per lb, except percentages) | ||||||||||||||||||||||||||||||||||||||||
TcRc(1) |
17.4 | 15.5 | 13.9 | 13.0 | 29.6 | 45.9 | 15.4 | 11.5 | 19.5 | 11.9 | ||||||||||||||||||||||||||||||
% Change |
9.4 | (10.9 | ) | (10.3 | ) | (6.5 | ) | 127.7 | 55.1 | (66.4 | ) | (24.7 | ) | 69.6 | 39.0 |
Note:
(1) | Includes price participation, if any. |
Source: | Brook Hunt Copper Metal Service Report. |
Indian Copper Market
Background
The Indian copper industry consists primarily of custom smelters as there are limited copper deposits in the country. The available deposits are owned by the government-owned Hindustan copper, which was the only producer in India until 1995 and has transformed significantly with our entry and the entry of Birla Copper, now owned by Hindalco. The Indian industry can be classified into two broad categoriesmanufacturers of refined copper (copper cathodes) and manufacturers of copper products. Of the three manufacturers of refined copper, Hindustan Copper Limited, or HCL, is the only primary producer, which mines and refines copper. Hindalco Industries Limited, or Hindalco, and Sterlite process primarily imported copper concentrate to produce end products such as copper bars, rods and wires.
The Indian copper industry opened to private sector investment in 1992. Prior to 1992, the industry was dominated by HCL, a public sector undertaking, or PSU, owned by the Government of India. HCL was incorporated in November 1967 with the objectives of carrying out mining operations and producing copper and related products.We are one of the two custom copper smelters in India with a primary market share of 43.0% in fiscal 2011, according to the International Copper Promotion Council, India, or ICPCI.
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Consumption Pattern
From 2008 to 2010, consumption in the Indian primary copper market increased at a compound annual growth rate of 9.9%. The total domestic demand for copper is estimated to have increased from 587,000 tons in 2008 to 652,000 tons in 2010, a CAGR of 11% over three years. In addition, the demand for copper in India is expected to grow from 652,000 tons in 2010 to 1.57 million tons in 2020, representing a CAGR of 9.19%. This compares to world demand for copper, which Brook Hunt estimates will grow from 18.2 million tons in 2010 to 24.6 million tons in 2020, representing a compound annual growth rate of 3.05%, according to Brook Hunt.
Pricing and Tariff
Indian copper prices track global prices as the metal is priced on the basis of landed costs of imported metal. The following table sets out the customs duties that were applicable on copper for the period indicated:
22 January 2007 to 28 April 2008 |
29 April 2008 to 2 January 2009 |
3 January 2009 to February 27, 2011 |
February 28, 2011 to present |
|||||||||||||
Copper |
5 | % | 5 | % | 5 | % | 5 | % | ||||||||
Copper concentrate |
2 | % | 2 | % | 2 | % | 2.5 | % |
In addition, the Finance Act (2 of 2004) of India, which has been in effect since July 8, 2004, levies an additional surcharge at the rate of 2% of the total customs duty payable, which has been further increased to 3% of the total customs duty payable effective as of March 1, 2007.
On February 28, 2011, the Government of India announced the increase of import duty on copper concentrate from 2% to 2.5%.
Market Outlook
Global Copper Outlook
The developing Asian market is expected to drive copper consumption growth. The countries from Asia that are contributing to this growth are primarily China and India. Global refined consumption of copper is expected to increase from 19.2 million tons in 2010 to 20.2 million tons in 2011, an increase of 5.0%. Asia is expected to contribute 60.8% of this incremental growth. This would translate into a compound annual growth rate, or CAGR, for consumption from 2008 to 2011 of 8.1% for Asia, compared to 3.9% for the world and -1.9% for the world excluding Asia.
The mine production is expected to rise by 4.9% in 2011 YoY, mainly due to an increase in investments in Africa (19.7% in 2011 YoY) and Latin America (5.0% in 2011 YoY). However, the long term view on the availability of concentrates remains subdued since the mining projects are taking longer to implement due to depleting resources of copper. Existing mining projects are experiencing problems such as power shortage, depleting ore grades and labor issues. Global copper concentrate demand will outperform the production and is expected to be stable in 2011.
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The global copper smelter production capacity is expected to increase by 8.7% in 2011 YoY with a production of 16.6 million tons, and by 8.7% and 3.3% for the years 2012 and 2013 at a production of 18.0 million tons and 18.6 million tons, respectively. The largest rise in 2010 will be seen in China with the commissioning of the Baoding, Liangshan smelters and several smelter expansions.
The catalyst for any meaningful recovery in long-term TcRcs will be a rationalization, or at least restructuring, of the custom smelting industry. Until then, TcRcs are likely to remain well below their previous long-term average.
Indian Copper Outlook
Indias copper market is expected to remain positive with strong growth in key user segments such as power, construction and engineering. Indian refined copper consumption is expected to continue to grow strongly inline with the overall growth of the economy. Continued growth in the industrial, housing, infrastructure and power sectors is expected to drive the demand for copper over the medium term.
The Government of Indias 11th Plan expects domestic demand for refined copper to grow at about 6% per annum while production of refined copper is expected to increase by 15% per annum. The five major industries that consume 82% of the copper in India are electrical, telecom, engineering, construction and transport. Copper consuming sectors have been recognised by the Government of India as key infrastructure sectors to sustain the growth of the Indian economy. For example, under the projections of investment in infrastructure during the 11th Plan, the power, telecom and railway industries are expected to attract 30.4%, 13.2% and 12.7%, respectively, of the total projected investment in infrastructure of $581.68 billion during the 11th Plan. The power industry has seen a CAGR of 5.1% from fiscal 2003 to fiscal 2007 and has a target growth rate of 9% for fiscal 2008 to fiscal 2012 according to the Indian Ministry of Power. This is in conjunction with the program of providing electricity to 80,000 Indian villages by 2012, with Indias power capacity targeted to double to 200,000 megawatts by 2012. According to the Ministry of Railways, the railway industry has seen average annual growth of over 7% in both freight and passenger traffic from fiscal 2002 to fiscal 2007. The Ministry of Heavy Industries & Public Enterprises calculated that production in the automotive industry has grown 16% with exports having grown at a CAGR of 30% per year for fiscal 2002 to fiscal 2006 and identified investment of Rs.110-120 billion per annum as required for the automotive industry to reach its growth potential during the 11th Plan period.
Indias per capita copper consumption was much less than 0.5 kg in 2009 as compared to China and the world average. If Indias per capita copper consumption moves towards the per capita copper consumption levels in the rest of the world, we believe that Indias copper market has the potential for significant growth.
Zinc
Global Zinc Market
Background
Zinc is the fourth most common metal in the world, trailing only iron, aluminum and copper in worldwide annual production.
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The principal use for zinc in the world is galvanizing, which involves coating steel with zinc to guard against corrosion. Galvanizing, including sheet, tube, wire and general galvanizing, accounted for approximately 50% of world consumption of zinc in 2010. The main end-use industries for galvanized steel products are the automobile manufacturing, domestic appliance manufacturing and construction industries, and it is these industries on which zinc consumption ultimately depends. Other major uses for zinc include brass semis, alloys and castings (12%), die-casting (17%) and oxides and chemicals (6%) and others (4%). Alloys are principally used in vehicles and building hardware.
The zinc industry has three broad categories of producers:
| miners, which mine the lead-zinc ore and produce zinc concentrate for sale to smelters, and usually receive payment for 85% of the zinc contained in the concentrate less a Tc; |
| smelters, which purchase concentrate and sell refined metal, with some smelters also having some integrated production downstream; and |
| integrated producers, which are involved in both the mining and smelting of zinc. |
Most integrated producers are only partially integrated and therefore need to either buy or sell some concentrate. Only approximately one-third of total western world zinc production can be attributed to integrated producers.
Global Zinc Reserves
Global zinc reserves were estimated to be, as of December 31, 2010, 250 million tons, according to preliminary estimates by U.S. Geological Survey. Australia, China, Peru, Kazakhstan and Mexico collectively account for 60% of world reserves.
The following table sets for the world zinc reserves:
Reserves (in million tones) |
||||
Australia |
53 | |||
China |
42 | |||
Peru |
23 | |||
Kazakhstan |
16 | |||
Mexico |
15 | |||
United States |
12 | |||
India |
11 | |||
Bolivia |
6 | |||
Canada |
6 | |||
Ireland |
2 | |||
Other countries |
62 | |||
World Total (rounded) |
250 |
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Zinc Consumption
Global zinc consumption rebounded strongly in 2010 growing by 14.8%. Zinc consumption increased to 11.6 million tons from 10.16 million tons in 2009 according to Brook Hunt Zinc Metal Services Report, March 2011. The ongoing process of urbanization and industrialization, especially in the developing economies of China and India has contributed to this growth. Europe, US and Japan recovered to post strong growth in 2010. This growth was stimulated by financial easing in USA and Japan and strong industrial growth in Europe.
In both absolute and percentage terms, galvanizing is forecast to be the fastest growing end use with the principal applications being found in the construction and automotive industries. By 2020, it is expected to account for 55% of global zinc usage.
China, Europe and North America together accounted for approximately 70% of global zinc consumption in 2010. With a CAGR of 10% and 7% between 2006 and 2010, China and India respectively have been the fastest growing zinc markets in the world. These two countries are expected to lead future growth as well.
The following table sets forth the regional consumption pattern of refined zinc from 2007 to 2010:
Year Ended December 31, | ||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||
Region |
Volume | % | Volume | % | Volume | % | Volume | % | ||||||||||||||||||||||||
(thousands of tons, except percentages) | ||||||||||||||||||||||||||||||||
Europe |
2,894 | 25.2 | 2,592 | 23.1 | 1,973 | 19.4 | 2,279 | 19.6 | ||||||||||||||||||||||||
China |
3,531 | 30.8 | 3,795 | 33.9 | 4,061 | 40 | 4,705 | 40.4 | ||||||||||||||||||||||||
India |
469 | 4.1 | 479 | 4.3 | 495 | 4.8 | 561 | 4.8 | ||||||||||||||||||||||||
Rest of Asia(1) |
2,149 | 18.7 | 2,075 | 18.5 | 1,677 | 16.5 | 2,015 | 17.3 | ||||||||||||||||||||||||
North America |
1,275 | 11.1 | 1,131 | 10.1 | 1,028 | 10 | 1,075 | 9.3 | ||||||||||||||||||||||||
Latin America |
673 | 5.9 | 671 | 6.0 | 559 | 5.5 | 614 | 5.3 | ||||||||||||||||||||||||
Oceania |
284 | 2.5 | 284 | 2.5 | 226 | 2.2 | 223 | 1.9 | ||||||||||||||||||||||||
Africa |
198 | 1.7 | 178 | 1.6 | 164 | 1.6 | 165 | 1.4 | ||||||||||||||||||||||||
Total |
11,473 | 100.0 | 11,205 | 100.0 | 10,183 | 100 | 11637 | 100 |
Note:
(1) | Rest of Asia is Asia excluding China and India. |
Source: | Brook Hunt Zinc Metal Services Report, March 2011 |
Zinc Supply
There are zinc mining operations in approximately 40 countries. The five largest zinc mining countries are China (30.3%), Australia (12.2%), Peru (11.5%), India (6.1%), USA (5.8%) and Canada (5.4%) which together accounted for more than 70% of total zinc mined worldwide in 2010. India accounted for about 6.1% of the global mine output in 2010. Mine production has fallen in North America in the last few years as a result of mine closures, which has resulted principally from reserve exhaustion and also from economic pressures. China and India, on the other hand, have expanded their mine output to more than offset this decrease. The five largest zinc mining companies in 2010 were Xstrata (8%), Hindustan Zinc (6.5%), China Minmetals Corp (5%), Teck (4.7%) and Glencore International AG (3.8%).
Australia and Peru are the largest concentrate exporters. Much of this is supplied through traders rather than sold directly to smelters. The largest concentrate importing region is Europe, followed by China, the Korea Republic and Japan. The main custom smelters are located in these regions.
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Zinc smelting is less geographically concentrated than zinc mining. With a production of 5 million tons of zinc in 2010, China is the largest single zinc-producing country in the world. The other major zinc producing countries and regions include Western Europe and North America, which along with China accounts for approximately 60% of total global zinc production. The three largest zinc producing companies in 2010 were Nyrstar NV, or Nyrstar (8.2%), Korea Zinc Company Limited (7%) and HZL (6.3%), which together accounted for about 22% of the total zinc produced worldwide in 2010.
The following table sets forth the regional production pattern of refined zinc from 2007 to 2010:
Year Ended December 31, | ||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||
Region |
Volume | % | Volume | % | Volume | % | Volume | % | ||||||||||||||||||||||||
(thousands of tons, except percentages) | ||||||||||||||||||||||||||||||||
Europe |
2,474 | 22.1 | 2,454 | 21.3 | 2,068 | 18.5 | 2,355 | 18.6 | ||||||||||||||||||||||||
China |
3,728 | 33.4 | 3,905 | 34.0 | 4,246 | 38 | 5,086 | 40.1 | ||||||||||||||||||||||||
India |
444 | 4.0 | 595 | 5.2 | 646 | 5.8 | 727 | 5.7 | ||||||||||||||||||||||||
Rest of Asia(1) |
1,893 | 17.0 | 1,944 | 16.9 | 1,784 | 16 | 1913 | 15.1 | ||||||||||||||||||||||||
North America |
1,057 | 9.5 | 1,020 | 8.8 | 888 | 8 | 936 | 7.4 | ||||||||||||||||||||||||
Latin America |
778 | 7.0 | 784 | 7.0 | 754 | 6.7 | 876 | 6.9 | ||||||||||||||||||||||||
Australia |
501 | 4.5 | 498 | 4.4 | 514 | 4.6 | 502 | 4 | ||||||||||||||||||||||||
Africa |
287 | 2.5 | 268 | 2.4 | 273 | 2.4 | 275 | 2.2 | ||||||||||||||||||||||||
Total |
11,162 | 100.0 | 11,468 | 100.0 | 11,173 | 100.0 | 12,670 | 100.0 |
Note:
(1) | Rest of Asia is Asia excluding China and India. |
Source: | Brook Hunt Zinc Metal Services Report, March 2011. |
Pricing
Zinc is traded on the LME. Although prices are determined by LME price movements, producers normally charge a regional premium that is market driven. A surge of large mine start-ups in the period from 1999 to 2000 led to substantial global zinc supply surpluses and a build-up of commercial stocks from 2002 to 2003. As a result, the refined zinc price slumped, reaching a low of $779 per ton in 2002. The most vulnerable mines closed down during this period. However, Chinas consumption growth increased rapidly and in 2004, refined zinc consumption surpassed production. With strong consumption growth and rapidly falling commercial stocks, zinc prices appreciated strongly in 2004 and 2005. A fundamentally strong market in 2006, also fueled by speculation as base metals, including zinc, were increasingly traded like financial instruments, saw a market deficit of 659,000 tons and prices reaching a peak of $4,620 per ton in November 2006.
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Zinc prices declined in 2007 and continued to decline during 2008 as the metal market remained in surplus throughout 2008. The LME cash price for zinc in October 2008 averaged $1,301 per ton, an approximate 70% decline in value from its peak reached in 2006. A wave of zinc mine closings and cutbacks (particularly in Australia, Canada, and the United States) began in mid-2008 as prices began to fall below operating costs, and a few smelters announced production cutbacks towards the end of the year in order to prevent an accumulation of stocks. Mines in New York and Tennessee closed in 2008 because of low zinc prices.
Towards the later part of 2009, prices began to increase continuously. This increase was fuelled by expectations and improved industry performance. In 2010, the average price of zinc on the LME was up by 30.5% to $2,161, as compared to $1,655 in 2009. This increase was principally driven by keen investors interest in the metal coupled with strong demand.
The following table sets forth the movement in zinc prices from 2001 to 2010:
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||
($ per ton, except percentages) | ||||||||||||||||||||||||||||||||||||||||
LME Cash Price |
$ | 885 | $ | 778 | $ | 827 | $ | 1,047 | $ | 1,381 | $ | 3,274 | $ | 3,240 | $ | 1,874 | $ | 1,665 | $ | 2,161 | ||||||||||||||||||||
% Change |
(21.5 | ) | (12.1 | ) | 6.3 | 26.6 | 31.9 | 137.0 | (1.0 | ) | (42.2 | ) | (11.2 | ) | 29.8 |
Source: LME.
Indian Zinc Market
Background
The Indian zinc industry has only two producers. The leading producer is our majority-owned subsidiary, HZL, which had an 82% market share in India in fiscal 2011, according to the India Lead Zinc Development Association, or ILZDA, HZL has a refining capacity of 879,000 tpa. The other producer is Binani Zinc Limited, or Binani Zinc, with a 6% market share which has a refining capacity of 38,000 tpa with the balance being served by imports.
Consumption Pattern
Consumption of refined zinc in India reached 503 kilo tons during 2011. The principal use of zinc in the Indian market is in the galvanizing sector, which currently accounts for an estimated 75% of total consumption. Galvanization is primarily used for tube, sheet and structural products. The other significant end-user of zinc in India is the alloys sector. This contrasts with western world consumption trends, where galvanizing, although still the most common use of zinc, is relatively less important and increased demand has been seen for die-casting alloys. With expected infrastructure development such as roads, irrigation, construction, oil and gas and ports, there is expected to be increased demand for steel, thus providing significant opportunities for zinc in India.
Pricing and tariff
Indian zinc prices track global prices as the metal is priced on the basis of the landed costs of imported metal.
The following table sets out the customs duties that were applicable on zinc for the periods indicated:
January 22, 2007 to April 28, 2008 |
April 29, 2008 to January 2, 2009 |
January 3, 2009 to present | ||||
Zinc |
5% | 0% | 5% |
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In addition, the Finance Act (2 of 2004) of India levies an additional surcharge at the rate of 3% of the total customs duty payable, which is an increase from 2% prior to March 1, 2007.
Market Outlook
Global Zinc Outlook
According to Brook Hunt, the combination of stronger economic growth and restocking will result in zinc consumption growth increasing to above 6% per annum in 2011 and 2012. For the period from 2010 to 2019, consumption growth is forecast at a CAGR of 3.8% per annum. As a result of these growth rates, global zinc consumption is forecast to reach 17.0 million tons in 2020, an increase of 7 million tons from 2009.
Indian Zinc Outlook
The Indian market outlook is expected to remain positive, with strong growth in key user segments such as sheet galvanizing and zinc alloys for the construction segment. Indian Zinc demand is expected to grow in the next few years based on a positive GDP forecast. The key components for growth are the ongoing and upcoming infrastructure projects, telecom and power projects and automobile sector. 37 Infrastructure projects worth Rs. 700 billion ($15.7 billion) have already been approved by the Government of India including various projects for railway electrification, ports, airports, power projects and others.
Aluminum
Global Aluminum Market
Background
Aluminum is lightweight in relation to its strength, durability and resistance to corrosion. It can be extruded, rolled, formed and painted for a wide variety of uses.
The importance of different sectors in aluminum demand varies significantly between developed and developing nations. In mature economies, transport plays a more important role in aluminium demand than construction. In 2010, the four largest sectors of end-uses for aluminium in mature economies were transport (42%), packaging (25%), construction (13%) and electrical (8%). As a comparison, in 2010 for developing economies the construction sector was the largest end-use sector for aluminum with 37% of total aluminum consumption, followed by transport (19%), consumer goods (15%) and electrical (15%) sectors.
The raw material from which aluminum is produced is bauxite, which is a very common mineral found mainly in tropical regions. It normally occurs close to the surface and can be mined by open-pit methods. The bauxite is refined into alumina. Typically, bauxite ranges from 35% to 60% contained alumina. There are several different types of bauxite, and alumina refineries are usually designed to treat a specific type. The majority of alumina refineries are therefore integrated with mines.
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Aluminum Consumption
World primary aluminum consumption decreased from 37.7 million tons in 2008 to 35.6 million tons in 2009, a decrease of 5.5%, but had increased to 41.5 million tons in 2010, an increase of 16.7% from 2009. The growth was primarily due to increased demand in China, which between 2007 and 2010 saw demand increasing at a CAGR of 11.1%, compared to a decrease of 1.4% for world demand excluding China. The CAGR in demand in each of Western Europe and North America between 2007 and 2010 was -4.6% and -7.7%, respectively, which reflected the impact of a slowing economy in these regions.
Brookhunt has forecast global primary aluminum consumption in 2012 to be 48.4 million metric tons, 3.7 million metric tons higher than 2011.
The following table sets forth the regional consumption of primary aluminum from 2007 to 2010:
Year Ended December 31, | ||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||
Region |
Volume | % | Volume | % | Volume | % | Volume | % | ||||||||||||||||||||||||
North America |
6,721 | 17.7 | % | 6,073 | 16.1 | % | 4,724 | 13.3 | % | 5,285 | 12.7 | % | ||||||||||||||||||||
Western Europe |
7,159 | 18.8 | % | 6,882 | 18.3 | % | 5,578 | 15.7 | % | 6,216 | 15.0 | % | ||||||||||||||||||||
China |
12,347 | 32.5 | % | 12,560 | 33.3 | % | 13,879 | 39.0 | % | 16,932 | 40.7 | % | ||||||||||||||||||||
Rest of Asia(1) |
6,241 | 16.4 | % | 6,200 | 16.5 | % | 5,585 | 15.7 | % | 6,498 | 15.6 | % | ||||||||||||||||||||
East/Central Europe |
1,947 | 5.1 | % | 1,966 | 5.2 | % | 1,621 | 4.6 | % | 1,797 | 4.3 | % | ||||||||||||||||||||
Latin America |
1,443 | 3.8 | % | 1,609 | 4.3 | % | 1,576 | 4.4 | % | 1,853 | 4.5 | % | ||||||||||||||||||||
India |
1,207 | 3.2 | % | 1,284 | 3.4 | % | 1,478 | 4.1 | % | 1,715 | 4.1 | % | ||||||||||||||||||||
Oceania |
444 | 1.2 | % | 462 | 1.2 | % | 442 | 1.2 | % | 474 | 1.1 | % | ||||||||||||||||||||
Africa |
492 | 1.3 | % | 648 | 1.7 | % | 714 | 2.0 | % | 760 | 1.8 | % | ||||||||||||||||||||
Total |
38,001 | 100.0 | % | 37,684 | 100.0 | % | 35,597 | 100.0 | % | 41,530 | 100.0 | % |
Note:
(1) | Rest of Asia is Asia excluding China and India, but including the Middle East. |
Source Brook Hunt Aluminium Metal Service Report, March 2011.
Aluminum Supply
Global production of primary aluminum decreased from 40 million tons in 2008 to 37.5 million tons in 2009, a decrease of 6.3%, but then increased to 42.3 million tons in 2010, an increase of 12.8% over 2009. In 2010, North America, Western Europe and China together accounted for approximately 57.8%, with China alone accounting for 40.9% of global primary aluminum production. Asia has shown the largest annual increases in consumption of primary aluminum, driven largely by increased industrial consumption in China which has emerged as the largest aluminum consuming nation, accounting for 40.8% of global primary aluminum consumption in 2010.
The following table sets forth the actual and estimated regional production of primary aluminum from 2007 to 2010:
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Year Ended December 31, | ||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||
Region |
Volume | % | Volume | % | Volume | % | Volume | % | ||||||||||||||||||||||||
China |
12,588 | 33.0 | % | 13,600 | 34.0 | % | 13,500 | 36.0 | % | 17,300 | 40.9 | % | ||||||||||||||||||||
North America |
5,643 | 14.8 | % | 5,785 | 14.4 | % | 4,759 | 12.7 | % | 4,689 | 11.1 | % | ||||||||||||||||||||
East/Central Europe |
4,899 | 12.8 | % | 5,124 | 12.8 | % | 4,432 | 11.8 | % | 4,610 | 10.9 | % | ||||||||||||||||||||
Western Europe |
4,321 | 11.3 | % | 4,625 | 11.5 | % | 3,722 | 9.9 | % | 3,801 | 9.0 | % | ||||||||||||||||||||
Latin America |
2,559 | 6.7 | % | 2,660 | 6.6 | % | 2,507 | 6.7 | % | 2,305 | 5.4 | % | ||||||||||||||||||||
Oceania |
2,316 | 6.1 | % | 2,296 | 5.7 | % | 2,212 | 5.9 | % | 2,278 | 5.4 | % | ||||||||||||||||||||
Rest of Asia(1) |
2,763 | 7.2 | % | 2,936 | 7.3 | % | 3,220 | 8.6 | % | 3,985 | 9.4 | % | ||||||||||||||||||||
Africa |
1,816 | 4.7 | % | 1,715 | 4.3 | % | 1,682 | 4.5 | % | 1,746 | 4.1 | % | ||||||||||||||||||||
India |
1,222 | 3.2 | % | 1,296 | 3.2 | % | 1,480 | 3.9 | % | 1,603 | 3.8 | % | ||||||||||||||||||||
Total |
38,127 | 100.0 | % | 40,037 | 100.0 | % | 37,514 | 100.0 | % | 42,317 | 100.0 | % |
Notes:
(1) | Rest of Asia is Asia excluding China and India, but including the Middle East. |
Source: Brookhunt: Metals Market Service Monthly Update, March l 2011
Alumina
Alumina is a key raw material for aluminum production. Generally it takes two tons of alumina to produce one ton of primary aluminum. According to Brook Hunt, the four largest alumina producing companies are ALCOA (17.2%), Rio Tinto (9.7%), CHALCO (12.7%) and UC RUSAL (8.5) which accounted for approximately 48.1% of the total alumina produced in 2010.
The following table sets forth the regional production of alumina from 2007 to 2010:
Year Ended 31 December | ||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||
Region |
Volume | % | Volume | % | Volume | % | Volume | % | ||||||||||||||||||||||||
(thousands of tons, except percentages) | ||||||||||||||||||||||||||||||||
Oceania |
19,249 | 23.9 | % | 19,728 | 22.7 | % | 20,263 | 26.0 | % | 20,124 | 22.8 | % | ||||||||||||||||||||
Latin America |
15,110 | 18.7 | % | 15,768 | 18.1 | % | 13,276 | 17.0 | % | 13,808 | 15.6 | % | ||||||||||||||||||||
China |
20,900 | 25.9 | % | 25,370 | 29.2 | % | 23,850 | 30.6 | % | 31,000 | 35.1 | % | ||||||||||||||||||||
North America |
6,076 | 7.5 | % | 6,160 | 7.1 | % | 4,279 | 5.4 | % | 5,343 | 6.0 | % | ||||||||||||||||||||
Western Europe |
6,809 | 8.4 | % | 6,951 | 8.0 | % | 4,664 | 6.0 | % | 5,637 | 6.4 | % | ||||||||||||||||||||
East/Central Europe |
5,828 | 7.2 | % | 5,630 | 6.5 | % | 4,729 | 6.1 | % | 5,421 | 6.1 | % | ||||||||||||||||||||
India |
3,181 | 3.9 | % | 3,625 | 4.2 | % | 3,687 | 4.7 | % | 3,643 | 4.1 | % | ||||||||||||||||||||
Rest of Asia(1) |
3,053 | 3.8 | % | 3,053 | 3.5 | % | 2,737 | 3.5 | % | 2,829 | 3.2 | % | ||||||||||||||||||||
Africa |
526 | 0.7 | % | 594 | 0.7 | % | 530 | 0.7 | % | 596 | 0.7 | % | ||||||||||||||||||||
Total |
80,732 | 100.0 | % | 86,879 | 100.0 | % | 78,015 | 100.0 | % | 88,401 | 100.0 | % |
Note:
(1) | Rest of Asia is Asia excluding China and India. |
Source: Brook Hunt Metals Market Service Report, March 2011
The sharp increase in alumina demand from aluminium production in 2010 turned the global alumina
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market from a surplus in 2009 to a deficit in 2010.
The following table sets forth the demand-supply balance for alumina from 2007 to 2010 (estimated):
Year Ended 31 December | ||||||||||||||||
2007 | 2008 | 2009 | 2010 | |||||||||||||
(thousands of tons) | ||||||||||||||||
Global Alumina Surplus/(Deficit) |
146 | 2,814 | 331 | (761 | ) |
Source: Brook Hunt Metals Market Service Report, March 2011
Bauxite
Bauxite, the principal raw material used in the production of alumina, is typically open-pit mined in very large-scale operations. Between 2.0-3.6 dry tons of bauxite are usually required to make one ton of alumina (depending on ore type, alumina content and variables such as proportion of reactive silica and organic matter). Based on data from U.S. Geological Survey,, as reported in January 2011, Guinea has the largest bauxite reserves in the world (26%), followed by Australia (19%), Brazil (12%), Vietnam (8%), Jamaica (7%) and India (3%).
The table below sets forth the world reserves:
Reserves (million tons): | ||
Guinea |
7,400 | |
Australia |
5,400 | |
Brazil |
3,400 | |
Vietnam |
2,100 | |
Jamaica |
2,000 | |
India |
900 | |
Guyana |
850 | |
China |
750 | |
Greece |
600 | |
Suriname |
580 | |
Kazakhstan |
360 | |
Venezuela |
320 | |
Russia |
200 | |
United States |
20 | |
Other countries |
3,300 | |
World total (rounded) |
28,000 |
Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2011
Global production of bauxite is expected to reach 211 million tons in 2010, representing a 5.7% increase YoY. Australia, China, Brazil, India and Guinea are the largest bauxite producing countries, representing 84% of worlds total production in 2010.
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Pricing
Aluminum is an LME traded metal. It is either sold directly to consumers or on a terminal market. The price is based on the LME price but producers are also able to charge a regional price premium, which generally reflects the cost of obtaining the metal from an alternative source.
Alumina prices are negotiated on an individual basis between buyers and sellers but are usually determined by reference to the LME price for aluminum. The negotiated agreements generally take the form of long-term contracts, but fixed prices can be negotiated for shorter periods and a relatively small spot market also exists.
The following table sets forth the movement in aluminum and alumina prices from 2001 to 2010:
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
Aluminum |
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||||||||||||||||
($ per ton, except percentages) | ||||||||||||||||||||||||||||||||||||||||
LME Cash Price(1) |
$ | 1,444 | $ | 1,349 | $ | 1,432 | $ | 1,716 | $ | 1,897 | $ | 2,566 | $ | 2,639 | $ | 2,571 | $ | 1,667 | $ | 2,172 | ||||||||||||||||||||
% Change |
(6.8 | ) | (6.6 | ) | 6.1 | 19.9 | 10.5 | 35.3 | 2.8 | (2.6 | ) | (35.2 | ) | (30.3 | ) | |||||||||||||||||||||||||
Alumina |
||||||||||||||||||||||||||||||||||||||||
Spot Price(2) |
$ | 149 | $ | 148 | $ | 283 | $ | 420 | $ | 468 | $ | 420 | $ | 353 | $ | 362 | $ | 245 | $ | 333 | ||||||||||||||||||||
% Change |
(47.6 | ) | (0.7 | ) | 91.2 | 48.4 | 11.4 | (10.3 | ) | (16.0 | ) | 2.5 | (32.3 | ) | (35.6 | ) | ||||||||||||||||||||||||
Alumina/Aluminum (%) |
10.3 | % | 10.9 | % | `19.8 | % | 24.5 | % | 24.6 | % | 16.4 | % | 13.4 | % | 14.1 | % | 14.7 | % | 15.3 | % |
(1) | Source: LME. |
(2) | Source: Bloomberg, Metal Bulletin; alumina metallurgical grade spot Free on Board, or FOB, average for the year. |
The LME aluminum cash price was $2,600.0 per ton as of March 31, 2011.
While aluminum prices have risen by 50.4% from 2001 to 2010, alumina prices have risen by more than 123.4% during the same period. Rampant demand in China and the increasing exposure of commodities to fund activity in 2010 resulted in cash LME aluminum prices recording an increase of 30.3%. Alumina prices also recorded an increase of 35.9%.
Indian Aluminium Market
Background
India has been producing primary aluminum since 1938, and over the years, the model that prevailed was of fully integrated operations with access to bauxite, alumina and power. As this model consolidated, the corporate structure of the aluminum industry also changed, with smaller regional producers being absorbed or merged to form larger integrated players with international presence and, in the case of Vedanta, an international listing.
The domestic Indian aluminum industry consists of four primary producers: Hindalco with 36%, NALCO with 26%, a Government of India enterprise, BALCO with 18%, controlled by Sterlite, and Vedanta Aluminium at 20% according to Aluminium Association of India or AAI
- 54 -
India possesses considerable reserves of bauxite, estimated at 2.3 billion tons. In Orissa, according to Indian industry sources, bauxite reserves are estimated to be 1.3 billion tons, with large reserves in Panchpatmali, Pottangi and Baphalimali. In Andhra Pradesh, there are 0.6 billion tons, with large bauxite concentrations in Saparla and Jarella. At current extraction rates, these two states alone have the equivalent of over 200 years of Indian requirements. Even using the more conservative U.S. Geological Survey,reserve estimate, India has reserves equivalent to almost 70 years at current output.
According to the U.S. Geological Survey, India has the seventh largest reserves of bauxite ore in the world, with total recoverable reserves estimated at 2,170 million tons. These bauxite ore reserves are high grade and require less energy to refine, thus resulting in significant cost advantages for Indian aluminum producers.
Supply and Demand
There are currently five refineries and five smelters operating in India, owned by four producing companies: 87% state-owned NALCO, privately held Hindalco, Vedanta Aluminium and BALCO, which is owned 49% by the Indian government and 51% by Sterlite.
The aluminum industry in India remains largely self-sufficient. Primary production has kept pace with demand, such that output in 2010 of 1.7 million tons resulted in India being a small net exporter. The majority of aluminium produced in India is consumed in the building and construction, transport, electrical appliance and equipment and packaging industries, with limited exports to countries including Singapore, Taiwan and the United Arab Emirates. Primary production has been supplied by a commensurate growth in domestic alumina output. Production in 2010 of 3.6 million tons made India a modest exporter as it supplied alumina into the third party market.
Aluminum consumption in India increased by 16% YoY in 2010 backed by strong growth in the electricity, transportation, industrial and infrastructure sectors. A series of government assisted policies and a relatively low base in 2009 helped to achieve such growth rates in 2010.
Indian primary aluminum consumption in 2011 is estimated to grow by 7.8% to 1.85 million tons. As the domestic economy continues to grow and demand for exports increases, it is expected to result in the Indian aluminum consumption of primary aluminum being approximately 2 million tons by 2012. From 2012 to 2025, Indian aluminum consumption is forecast to grow at an average annual rate of 7%, which is expected to result in consumption reaching 5.2 million tons by 2025, making India the worlds third largest aluminum consumer after China and the United States.
The electrical segment, which accounts for a large part of total aluminum consumption, uses aluminum in overhead conductors, transformer coils, bus bars and foil wraps for power cables. With its low weight and price, aluminum has significant competitive advantages over copper in the manufacture of overhead conductors. For example, the low weight of aluminum leads to savings in the investments required in transmission line towers in terms of strength and cable span (distance between towers). As a result, conductors for overhead power transmission are made exclusively of aluminum.
Pricing and Tariff
Domestic aluminum prices track global price trends as producers usually price the metal at a marginal discount to the landed cost of imported metal. Though value-added product prices also track metal price
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movement, they usually have relatively less volatility and command a premium reflecting the degree of value addition and quality, as indicated by the brand.
The following table sets out the customs duties that were applicable for the periods indicated:
January 22, 2007 to April 28, 2008 |
April 29, 2008 to January 2, 2009 |
January 3, 2009 to present | ||||
Aluminium |
5% | 5% | 5% |
In addition, the Finance Act (2 of 2004) of India, which has been in effect since July 8, 2004, levies an additional surcharge at the rate of 2% of the total customs duty payable, which has been further increased to 3% of the total customs duty payable effective March 1, 2007.
Market Outlook
Global Aluminum Outlook
According to Brook Hunt, global capacity is estimated at 53 metric tons per annum in 2011 and required capacity utilisation is expected to be at 84.5%. By 2025, we believe that global demand growth of 4.4% per annum can be fully supplied from our base of existing capacity plus projects in our highly probable category.
As capacity utilisation tightens around 2018 and prices rise, up to 12 metric tons per annum of additional capacity would be constructed from our base of 21 metric tons projects now classified as probable. Global production in 2025 is projected to be 78.4 metric tons.
Total global primary aluminium consumption is forecast by Brookhunt to grow by 4.4% per annum from 2010 to 2025, bringing global consumption in 2025 to 79.6 million tons, which is double current levels.
Indian Aluminum Outlook
India is a growing player in the global aluminum industry (forecast to produce 8 million tons per annum of aluminum to 2016), given its modest labor cost, proximity to fast growing end markets and its significant bauxite and coal resources, which have been estimated to be 2.3 billion tons and 250 billion tons, respectively. Indias alumina capacity could reach 11 to 12 million tons per annum by 2016, which would place the country among the top tier of global producers behind China, Australia and Brazil.
In terms of cash costs, India is reasonably well placed globally in primary smelting, lying at the lower end of the second quartile, compared to China, which occupies most of the fourth quartile. Indian smelters form part of integrated chains, stretching back to bauxite, alumina and forward into semi-fabricating operations. Indian smelters are also endowed with their own captive power plants and favorable labor costs.
According to Brook Hunt, aluminum consumption in India increased by 16% YoY in 2010 due to strong growth in the electricity, transportation, industrial and infrastructure sectors. A series of government assisted policies and a relatively low base in 2009 helped to achieve these growth rates in 2010. Over the medium term, there will be less policies such as those encouraging purchases of new vehicles, but a number of multi-annual government expenditure plans will underpin demand in the coming years. The power sector, for instance, will continue to support aluminum demand as village electrification plans continue. Infrastructure investment as well as the execution of the final stage of the 11th Five Year Plan (which is from 2007 to
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2012) will fuel housing investment in the next three years. While primary aluminum consumption is expected to grow at 8% YoY in 2011, the construction sector is estimated to grow at a higher pace. Growing urbanisation, an increasing number of households together with higher employment levels will drive demand for housing. While electricity expenditure decreased in 2011, aluminum demand from this sector is expected to be 250,000 tons in 2011 due to its high demand. Total primary aluminum consumption in India is expected to be 1.85 million tons in 2011. In the longer term, the consumption of aluminum in India is expected to grow from 1.8 million tons in 2011 to 4.8 million tons in 2025.
Commercial Power Generation Business
Industry Overview
India has experienced shortages in energy and peak power requirements. The current revised capacity addition target for the 11th Plan is 78,700 MW. As of February 28, 2011, capacity addition achieved over the 11th Plan has been 48.8% of the target addition or 38,454.40 MW. The total installed power generation capacity in India was 171,926.40 MW as of February 28, 2011. According to the CEA Monthly Review published in February 2011, the total energy deficit and peak power deficit for February 2011 was approximately 7.8% and 10.2%, respectively.
Installed Capacities
As of March 31, 2011, Indias power system had an installed generation capacity of approximately 173626 MW. The Central Power Sector Utilities of India, accounted for approximately 31.3% of total power generation capacity as of March 31, 2011, while the various state entities and private sector companies accounted for approximately 47.5% and 21.2%, respectively.
MW |
Central | State | Private | Total | Share of total | |||||||||||||||
(MW) | ||||||||||||||||||||
Thermal |
40,747 | 52,186 | 19,891 | 112,824 | 65.0 | % | ||||||||||||||
Hydro |
8,885 | 27,257 | 1,425 | 37,567 | 21.6 | % | ||||||||||||||
Nuclear |
4,780 | | | 4,780 | 2.8 | % | ||||||||||||||
Renewable Energy Source |
| 3,009 | 15,446 | 18,455 | 10.6 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
54,412 | 82,452 | 36,762 | 173,626 | 100.0 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
Source: Central Electricity Authority of India.
A significant majority of Indias power requirements are dependent upon thermal coal-fired power plants. According to the Ministry of Coal, the total coal resources of India are 267.2 billion tons as of April 1, 2009, and according to the Energy Information Agency, a statistical agency of the United States government, India has the fourth largest coal reserves in the world as of 2007. The following table sets forth the coal reserves for the Indian states with the largest coal reserves:
Indian states with more than 8 billion tons of coal reserves |
Total Coal Reserves | |
(in billion tons) | ||
Jharkhand |
76.7 | |
Orissa |
65.2 | |
Chattisgarh |
44.5 | |
West Bengal |
28.3 | |
Madhya Pradesh |
21.0 | |
Andhra Pradesh |
18.9 | |
Maharashtra |
10.2 |
Source: Ministry of Coal of the Government of India.
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Industry Demand-Supply Overview
The Indian power sector has historically been characterised by energy shortages which have been increasing over the years. The following table sets forth the peak and normative shortages of power in India from 2002 to December 2010:
Peak | Normative | |||||||||||||||||||||||||||||||
Period | Demand | Supply | Shortage | Demand | Supply | Shortage | ||||||||||||||||||||||||||
(MW) | (MW) | (MW) | (%) | (MU) | (MU) | (MU) | (%) | |||||||||||||||||||||||||
2002-2003 |
81,492 | 71,547 | 9,945 | 12.2 | 545,983 | 497,890 | 48,093 | 8.8 | ||||||||||||||||||||||||
2003-2004 |
84,574 | 75,066 | 9,508 | 11.2 | 559,264 | 519,398 | 39,866 | 7.1 | ||||||||||||||||||||||||
2004-2005 |
87,906 | 77,652 | 10,254 | 11.7 | 591,373 | 548,115 | 43,258 | 7.3 | ||||||||||||||||||||||||
2005-2006 |
93,255 | 81,792 | 11,463 | 12.3 | 631,554 | 578,819 | 52,735 | 8.4 | ||||||||||||||||||||||||
2006-2007 |
100,715 | 86,818 | 13,897 | 13.8 | 690,587 | 624,495 | 66,092 | 9.6 | ||||||||||||||||||||||||
2007-2008 |
108,866 | 90,793 | 18,073 | 16.6 | 739,343 | 666,007 | 73,336 | 9.9 | ||||||||||||||||||||||||
2008-2009 |
109,809 | 96,785 | 13,024 | 11.9 | 777,039 | 691,038 | 86,001 | 11.1 | ||||||||||||||||||||||||
2009-2010 |
119,166 | 104,009 | 15,157 | 12.7 | 830,594 | 746,644 | 83,950 | 10.1 | ||||||||||||||||||||||||
April-December 2010 |
119,437 | 107,286 | 12,151 | 10.2 | 638,181 | 582,225 | 55,956 | 8.8 | ||||||||||||||||||||||||
December 2010 |
117,409 | 105,060 | 12,349 | 10.5 | 71,363 | 65,529 | 5,834 | 8.2 |
Source: CEA Power Scenario at a Glance, January 2011
Regional Demand-Supply Overview
The following table displays the peak and normative power shortages in India for the period from April 2010 to February 2011 across different regions in India:
Region |
Energy Requirement | Deficit | Peak Demand | Deficit | ||||||||||||
(MU) | (%) | (MW) | (%) | |||||||||||||
Northern |
19,181 | (6.3 | ) | 33,717 | (9.7 | ) | ||||||||||
Western |
22,979 | (13.3 | ) | 40,502 | (16.8 | ) | ||||||||||
Southern |
19,521 | (4.0 | ) | 31,680 | (4.3 | ) | ||||||||||
Eastern |
7,054 | (4.5 | ) | 12,972 | (5.9 | ) | ||||||||||
North Eastern |
766 | (5.5 | ) | 1,665 | (6.8 | ) | ||||||||||
All India |
69,501 | (7.8 | ) | 120,536 | (10.2 | ) |
Source: CEA Monthly Review, February 2011
Future Capacity Additions
The Government of Indias national electricity policy envisages Power for all by 2012 and per capita availability of power to be increased to over 1,000 units by 2011 to 2012. To achieve this, a total capacity addition of about 100,000 MW will be required during periods of the 10th Plan and 11th Plan . To meet the energy generation requirement of 1,038 billion units and a peak load of 152,746 MW with diversity and a 5% spinning reserve, a capacity addition of about 82,500 MW is required during 11th Plan. Based on the 10th Plans actual capacity addition of 21,180 MW, a capacity addition of 78,577 MW comprising of 39,865 MW (50.7%) in the central sector, 27,952 MW (35.6%) in state sector and 10,760 MW (13.7%) in
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private sector was proposed during 11th Plan. Out of the 78,577 MW, 220 MW (Kaiga U3) has already been commissioned and projects totalling to 48,955 MW (62.3% of the proposed capacity) are already under construction. The remaining projects totalling to 29,402 MW, have not been awarded. The working group on power has recommended a plan size of about 82,200 MW for the 12th Plan, which would comprise hydro projects totalling about 30,000 MW, thermal projects totalling 42,200 MW and nuclear projects of about 10,000 MW.
The power sector in India is characterized by under-investment and resulting supply constraints, as a result of which, the power section in India suffers significant levels of energy deficits. The Indian Electricity Act, 2003 was enacted in order to consolidate multiple legislations covering various aspects of the power sector and to enhance the scope of power sector reforms. Reforms to national tariff policy in India in 2003 made it mandatory for power requirements to be procured via a transparent competitive bidding process as per the guidelines issued by the Ministry of Power of the Government of India.
In order to accelerate the development of power plants in India, the Government of India has proposed the setting up of nine Ultra Mega Power Projects, or UMPPs. Each project will be 4,000 MW and will use coal as fuel. The Government of India will ensure land and environmental clearances, fuel linkage, offtake agreements and a payment security mechanism to ensure smooth implementation. Each of these projects is expected to be commissioned from 2008 to 2012, nine of which have already been awarded. Tata Power has been awarded the Mundra UMPP in Gujarat and Reliance Power has won three UMPPs, Sasan in Madhya Pradesh, Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand.
Transmission and Distribution
In India, the transmissions and distributions system are comprised of state grids, regional grids (which are formed by interconnecting neighboring state grids) and distribution networks. The distribution networks and the state grids are mostly owned and operated by the SEBs or state governments through SEBs, while most of the inter-state transmission links are owned and operated by the Power Grid Corporation of India Limited. These regional grids facilitate transfers of power from power-surplus states to power-deficit states and are gradually being integrated to form a national grid.
With the enactment of the Indian Electricity Act, 2003 and the recently notified guidelines for competitive bidding in transmission projects, private investment was permitted in power transmission which became recognized as an independent activity. Power distribution in the States of Delhi and Orissa has been privatized and distribution networks are now operated by private utilities companies such as Tata Power, CESC Limited, Reliance Energy Limited, Torrent Power AEC & SEC and Noida Power Company Limited, and a number of other distribution companies.
Consumption
Although electricity generation capacity has increased substantially in recent years, the demand for electricity in India still substantially exceeds available generation supply. The following charts show the gap between the total electricity required versus total electricity made available from fiscal 1998 to 2011.
Power: Demand and Supply
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Power: Peak Demand and Supply
Note: * Up-to December.
Source: Ministry of Power of the Government of India.
The industrial, domestic and agriculture sectors are the main consumers of electrical energy, with the industrial sector consuming 44.0%, domestic consumption of 25.0% and agriculture consuming over 24.0% of total electrical energy in fiscal 2007.
Overall power demand increased at a compound annual growth rate of around 5% in the last decade from 1996 to 1997 to 2007 to 2008. There has been a shift in the demand for electricity from various sectorsthe share of the industrial sector has declined steadily, and agricultural consumption, after peaking at 31.0% in 1995 to 1996, declined to 22.0% in 2005 to 2006. On the other hand, domestic household demand witnessed a steady increase from 19.0% in 1995 to 1996 to 24.0% in 2005 to 2006. The following chart shows power consumption by sector in percentage terms, for the period 2005 to 2006.
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Power: Category-wise Consumption (2005 to 2006)
Source: Central Electricity Authority of India.
According to the forecasts of the Seventeenth Electric Power Survey, energy demand will increase at a compound annual growth rate of 8.5% to 964 billion kWh, during the 10th five-year plan period (2008 to 2012). Peak demand is projected to increase at a compound annual growth rate of 9.6% to 167.1 billion kWh over the same period.
The Eleventh five-year plan (2007 to 2012) envisages energy demand to grow at a compound annual growth rate of 7.0%. The following graph shows the expected demand for power for the period 2003 to 2022.
Source: Central Electricity Authority of India (Seventeenth Electric Power Survey).
While per capita consumption in India has grown significantly, it continues to lag behind power consumption in other leading developed and emerging economies by a large margin. The Ministry of Power of the Government of India is projecting a per capita consumption of over 1,000 kWh per year in 2012.
The following charts compare per capita electricity consumption in India, other countries and the world average consumption.
Per Capita World Consumption (2006)
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Note:
(1) | Countries that are members of the Organization for Economic Co-operation and Development, or OECD (http://www.oecd.org). |
Source: International Energy Agency, Key World Energy Statistics 2008 (2006 data).
India Growth Pattern Over Years
Source: Ministry of Power of the Government of India.
Power Trading
Power trading takes place between suppliers with surplus capacity and areas with deficits. Recent regulatory developments include the announcement of rules and provisions for open access and licensing related to interstate trading in electricity to promote competition. Several entities, including PTC India
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Limited (formerly Power Trading Corporation of India Limited), NTPCs subsidiary, NTPC Vidyut Vyapar Nigam Limited, and Tata Power Trading Company Private Limited have started trading operations or have applied for trading licenses. With the aid of the reforms, the volume of power traded as well as its traded price has grown rapidly over the last few years. The following graph and table shows the increasing volume of power traded in India for the periods indicated:
Source: Central Electricity Regulatory Commission Annual Report 2009-2010
Tariff Setting
Until the end of 2005, the tariff regime in India for all electricity generators was regulated and determined by either the Central Electricity Regulatory Commission, or CERC, or the State Electricity Regulatory Commissions that set the tariff on a cost-plus basis consisting of a capacity charge, a variable energy charge and an unscheduled interchange charge. The tariff regime guaranteed a fixed return on equity to the generators and treated all costs as pass through in the tariff.
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In order to improve efficiency and provide cheaper electricity cost to consumers and at the same time attract adequate investments and accelerate development in the power sector, the Government of India notified the National Tariff Policy, or NTP in January 2006 with the key objectives of:
| ensuring availability of electricity to consumers at reasonable and competitive rates; |
| promoting transparency, consistency and predictability in regulatory approvals across jurisdictions and minimising the perception of regulatory risks; and |
| promoting competition, efficiency in operations and improvement in quality of supply. |
To achieve these objectives, the NTP mandated that power procurement for future requirements by all distribution licensees should be through a transparent competitive bidding mechanism using the Guidelines for Determination of Tariff by Bidding Process for Procurement of Power by Distribution Licensees, dated January 19, 2005, issued by the Ministry of Power of the Government of India. Further, to facilitate a transparent competitive bidding mechanism, an availability-based tariff mechanism has also been introduced whereby the electricity tariffs are split into two parts comprising a fixed capacity charge and a variable energy charge. The fixed cost elements like interest on loans, return on equity, depreciation, operations and maintenance expenses, insurance, taxes and interest on working capital are covered by the capacity charge. The variable cost (that is, fuel cost) of the power plant for generating energy is covered by the energy charge.
The NTP also provides that power purchase agreements should ensure adequate and bankable payment security arrangements like letters of credit and escrow of cash flows for the benefit of the generating companies. In case of persisting default, generating companies may sell power to other buyers.
Government Initiatives
Historically, management of the power sector by SEBs was driven by local populist politics that caused the financial health of central and state utilities to deteriorate, which led to under-investment, continued loss and theft and cash leakage. In response, the Government of India launched a combination of regulatory and development initiatives which, among other measures, made anti-theft laws more stringent, prohibited unfunded subsidies and required 100% metering in all states.
Initiatives have also been introduced to address poor transmissions and distributions infrastructure and dilapidated metering systems. These initiatives include concessional loans from the Government of India to fund up to half the costs of state transmissions and distributions projects and incentive payments to the states linked to the reduction in annual cash losses of the SEBs.
The Accelerated Power Development and Reform Program, or APDRP, was implemented to accelerate reforms in the distribution sector by giving incentives and loans to state utilities to reduce Aggregate Technical and Commercial losses and outage interruptions. The APDRP has not been as successful as was initially planned. The Ministry of Finance has finalized a new APDRP, the Re-Structured Accelerated Power Development and Reform Program, or R-APDRP. The focus of the R-APDRP is on actual, demonstrable performance in terms of sustained loss reduction. Establishment of reliable and automated systems for sustained collection of accurate base line data, and the adoption of information technology in the areas of energy accounting, will be essential before taking up distribution strengthening projects. The R-APDRP is intended to cover urban areas, towns and cities with populations of over 30,000 people (10,000 in the case of
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special category states). In addition, in certain dense rural areas with significant loads, works of separation of agricultural feeders from domestic and industrial feeders and of high voltage distribution systems (11 kilovolt) will also be taken up.
As a part of rural electrification initiatives, the Ministry of Power introduced the Rajiv Gandhi Grameen Vidhyutikaran Yojana, or RGGVY, in April 2005, with the aim of providing access to electricity to all rural households over a period of four years . Rural Electrification Corporation Limited has been appointed as the nodal agency for the RGGVY, and the scheme is 90% funded by the Central subsidy and 10% by the States, through their own resources or by seeking financial assistance from financial institutions. The States are responsible for finalising their own rural electrification plans, which are to be a roadmap for generation, transmission, sub-transmission and distribution of electricity within that State to ensure achievement of the scheme objectives.
In order to meet the increasing demands of the economy, generation capacity in India must increase significantly and sustainably over the coming decades. Large capacity projects have to be developed at the national level to meet the requirements of different States. The development of UMPPs is one of the initiatives taken by the Ministry of Power to meet this objective. Each project is expected to generate a minimum of 4,000 MW and involves an estimated investment of approximately $4 billion. The projects are expected to substantially reduce power shortages in India.
Independent Transmission Projects
The Ministry of Manpower has initiated a tariff based competitive bidding process for independent transmission projects, or ITPs, which is a process similar to that followed for UMPPs, for the development of transmission systems through private sector participation. The ITPs aim to evacuate power from generating stations and transmit the power from pooling stations to other grid stations, resulting in system strengthening across India.
Other Initiatives
Merchant Power Plants
Merchant Power Plants, or MPPs, generate electricity for sale at market-driven rates in the open wholesale market. Typically, the MPPs do not have long-term power purchase agreements, or PPAs, and are constructed and owned by private developers. Merchant sales, however, include the sale of power under short-term PPAs and on-spot basis. Many private sector newcomers are starting to adopt the MPP model for their projects to generate higher returns as opposed to selling power through a long term PPA, as the off-take risk is seen to be low in light of significant power shortages in the country. The MPPs can sell power to the power trading companies (such as PTC India Limited and Tata Power), the SEBs, distribution companies and industrial and bulk customers.
Captive Power Generation
Another segment of power generation in India is the captive power segment. Captive power refers to power generation from a project established for industrial consumption. The dependence on captive power has been rising as a result of the continuing shortage of power and Indias sustained economic growth.
The Electricity Act provides further incentives to captive power generation companies by exempting them from licensing requirements. This has resulted in an increase in captive power capacity. Reliability of power supply and better economics are other variables driving industries to develop captive generation plants.
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OUR BUSINESS
Overview
We are one of Indias largest non-ferrous metals and mining companies. We are one of the two custom copper smelters in India, with a 43.0% primary market share in India in fiscal 2011, according to ICPCI, the leading and only integrated zinc producer with a 82.0% market share of the Indian zinc market in fiscal 2011, according to the ILZDA, and one of the four primary producers of aluminum with a 18.0% primary market share by production volume in India in fiscal 2011, according to the AAI. In addition to our three primary businesses of copper, zinc and aluminum, we are also developing a commercial power generation business in India that leverages our experience in building and managing captive power plants used to support our primary businesses. We believe our experience in operating and expanding our business in India will allow us to continue to capitalize on attractive growth opportunities arising from Indias large mineral reserves, relatively low cost of operations and large and inexpensive labor and talent pools. We believe we are also well positioned to take advantage of the growth in industrial production and investments in infrastructure in India, China, Southeast Asia and the Middle East, which we expect will continue to create strong demand for metals.
Our copper business is principally one of custom smelting. Our Tuticorin smelter was one of the top 15 custom copper smelters in the world in 2011, and one of the largest in India by production volume in fiscal 2011, according to Brook Hunt. We own the Mt. Lyell copper mine in Tasmania, Australia, which provides a small percentage of our copper concentrate requirements. Our operations also include a copper smelter, two copper refineries, three copper rod plants, a doré anode plant, sulphuric and phosphoric acid plants, and captive power plants at our facilities in Silvassa and Tuticorin in India, as well as a precious metal refinery at Fujairah in the United Arab of Emirates, or UAE. However, in an order dated September 28, 2010, the High Court of Madras ordered the closure of the copper smelting plant at Tuticorin. We filed a special leave petition before the Supreme Court of India, which, on October 2, 2010, granted a stay of the order of the High Court of Madras. See Item 8. Financial Information A. Consolidated Statements and Other Financial Information Legal Proceedings.
Our fully-integrated zinc business is owned and operated by HZL, in which we have a 64.9% ownership interest. HZL is Indias leading zinc producer with a 82.0% market share of the Indian zinc market in fiscal 2011, according to the ILZDA. HZLs Rampura Agucha mine is the largest zinc mine in the world in terms of contained zinc deposits on a production basis, according to Brook Hunt. HZL was in the lowest cost quartile in terms of all zinc mining operations worldwide in 2010, the third largest non-integrated producer of zinc worldwide and the largest integrated producer of zinc worldwide based on production volumes, according to Brook Hunt. In addition, HZLs Chanderiya zinc smelter is the fourth largest smelter on a production basis worldwide, according to Brook Hunt. We have a 64.9% ownership interest in HZL, with the remainder owned by the Government of India (29.5%) and institutional and public shareholders (5.6%). We have exercised the second call option to acquire the Government of Indias remaining ownership interest in HZL although the exercise is currently subject to dispute. HZLs operations include four lead-zinc mines, four hydrometallurgical zinc smelters, one lead smelter, one lead-zinc smelter, five sulphuric acid plants, one silver refinery, and captive power plants at our Chanderiya, Dariba and Zawar facilities in Northwest India, one zinc smelter and a sulphuric acid plant at our Vizag facility in Southeast India and one zinc ingot melting and casting plant at Haridwar in North India.
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In addition we have expanded our zinc business. On May 10, 2010, Sterlite agreed to acquire the zinc business of Anglo American Plc for a total consideration of Rs. 69,083 million ($1,513.1 million). The zinc business comprises of:
(1) | a 100.0% stake in Skorpion which owns the Skorpion mine and refinery in Namibia; |
(2) | a 74.0% stake in BMM, which includes the Black Mountain mine and the Gamsberg Project, in South Africa; and |
(3) | a 100.0% stake in Lisheen, which owns the Lisheen mine in Ireland. |
On December 3, 2010, we announced the completion of the acquisition of 100.0% stake in Skorpion by SIL, a wholly-owned subsidiary of Sterlite for a consideration of Rs. 32,098 million ($706.7 million). On February 4, 2011, we announced the completion of the acquisition of the 74.0% stake in BMM for a consideration of Rs. 11,965 million ($260.2 million). On February 15, 2011, we announced the completion of the acquisition of 100.0% stake in Lisheen for a consideration of Rs. 25,020 million ($546.2 million). The purchase price for the zinc business was paid in US dollars and has been converted into Indian Rupees based on the exchange rate as on the date of each such acquisition. The zinc business of Anglo American Plc acquired by us has been categorised as a separate segment Zinc-International.
Our aluminum business is primarily owned and operated by BALCO in which we have a 51.0% ownership interest. BALCO, one of the four primary producers of aluminum in India, had a 18.0% primary market share by production volume in India in fiscal 2011, according to AAI. We have exercised our option to acquire the Government of Indias remaining 49.0% ownership interest, although the exercise is currently subject to dispute. Further, the Government of India has the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. BALCOs partially integrated operations include two bauxite mines, captive power plants and refining, smelting and fabrication facilities at our Korba facility in Central India. BALCOs 245,000 tpa Korba aluminum smelter was in the ninth position in terms of all aluminum smelter operations worldwide in 2010, according to Brook Hunt. BALCOs operations benefit from relatively cost effective access to power, the most significant cost component in aluminum smelting due to the power-intensive nature of the process. This is to a considerable extent due to BALCO being an energy-integrated aluminum producer. BALCO received a coal block allocation of 211.0 million tons for use in its captive power plants in November 2007. These allocated coal blocks are regarded as non-reserve coal deposits. In addition, BALCO is constructing a thermal coal-based 1,200 MW captive power facility, along with an integrated coal mine, in the State of Chhattisgarh. The first two units of 300 MW are expected to be synchronised by the first and second quarter of fiscal 2012, respectively and the remaining two units, progressively, by the second quarter of fiscal 2013. BALCO has commenced the setting up of 325,000 aluminum smelter, which is expected to be completed by the second quarter of fiscal 2013.
In addition, we are expanding our aluminum business through Vedanta Aluminium. We hold a 29.5% non-controlling interest in Vedanta Aluminium, a 70.5%-owned subsidiary of Vedanta. Vedanta Aluminium has started with a 1.0 million tpa, which was commissioned in March 2010 and produced 706,640 tons of alumina in fiscal 2011. In addition, Vedanta Aluminium is investing an estimated Rs.76,000 million ($1,706.3 million) to expand its alumina refining capacity at Lanjigarh to 5.0 million tpa, subject to government approvals, by increasing the capacity of the current alumina refinery from 1.4 million tpa to 2.0 million tpa through debottlenecking and by constructing a second 3.0 million tpa alumina refinery and an associated 210 MW captive power plant. The MoEF on August 24, 2010 rejected the forest clearance for the Niyamgiri Mines to Orissa Mining Corporation (OMC) , which is one of the sources of supply of Bauxite to Vedanta Aluminium.Against this order of the MoEF, OMC filed a writ petition in the Supreme Court on
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October 24, 2010. The Supreme Court issued a notice on the writ by its order dated April 21, 2011 and directed the MoEF to file its reply within four weeks. In the meantime, the MoEF by its order dated July 11, 2011, cancelled the environmental clearance granted to OMC for its Niyamgiri mines. OMC has filed an application in the Supreme Court against this order of the MoEF on August 1, 2011. The MoEF directed Vedanta Aluminium to maintain status quo on the expansion of its refinery on October 20, 2010. Against this order, Vedanta Aluminium filed a writ petition in the High Court of Orissa and the court by its order dated July 19, 2011 dismissed the writ. Vedanta Aluminium made an application to the MoEF to reconsider the grant of the environmental clearance for its Niyamgiri mines. The Supreme Court has issued a notice to the MoEF and directed the listing of both matters for final disposal in January 2012.
In addition, Vedanta Aluminium has completed the construction of a greenfield 500,000 tpa aluminum smelter, together with an associated 1,215 MW coal-based captive power plant, in Jharsuguda in the State of Orissa. The project has been implemented in two phases of 250,000 tpa each. Phase 1 was completed on November 30, 2009 and Phase 2 was completed on March 1, 2010. All nine units of 135 MW have been commissioned. The cast metal production for fiscal 2011 was 385,363 tons including trial run production and the net generation of the captive power plant was 7,147 million units. Vedanta Aluminium is also setting up another 1,250,000 tpa aluminum smelter in Jharsuguda at an estimated cost of Rs. 145,000 million ($3,255.5 million) which is scheduled for progressive completion by the third quarter of fiscal 2014. As of March 31, 2011, Vedanta Aluminium had spent Rs. 264,460 million ($5,937.6 million) on all projects at Lanjigarh and Jharsuguda.
In respect of our power business, Sterlite Energy is building a 2,400 MW thermal coal-based power facility (comprising four units of 600 MW each) in Jharsuguda in the State of Orissa. The first two units are operational with the remaining two units to be progressively commissioned by the fourth quarter of fiscal 2012. In July 2008, Sterlite Energy succeeded in an international bidding process and was awarded the project for the construction of a 1,980 MW coal-based commercial thermal power plant at Talwandi Sabo in the State of Punjab in India at an estimated cost of Rs. 93,200 million ($2,092.5 million) and the first unit is expected to be commissioned by the fourth quarter of fiscal 2013 and the remaining two units by the second quarter of fiscal 2014. In addition, TSPL has signed a MoU with the Government of Punjab in October 2010 to expand the current capacity of the Talwandi Sabo coal-based thermal power plant by 660 MW. The estimated cost for the additional unit is Rs. 25,000 million ($559.9 million) and is expected to be completed in the fourth quarter of fiscal 2014.
Competitive Strengths
We believe that we have the following competitive strengths:
High quality assets and resources making us a low-cost producer
We believe that our business has assets of global size and scale. Our costs of production in our Indian copper, zinc and aluminum businesses are competitive with those of leading metals and mining companies in the world, which we believe is enabled by our high quality assets, operational skills and experience and the integrated nature of our operations. Specifically:
| Our Tuticorin smelter was one of the top fifteen custom copper smelters worldwide in 2010, and one of the largest in India by production volume in fiscal 2010, according to Brook Hunt. The Tuticorin smelter is currently amongst the lowest quartile cost custom smelters in the world benefiting from economies of scale, low labor cost, and captive power plant. We intend to double the copper custom smelting capacity at Tuticorin to 800 ktpa with an associated 160 MW power plant, which is expected to reduce costs further and strengthen our low cost position. |
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| Our zinc business operations are fully integrated with its own mining and captive power generation capacities. HZL is Indias leading zinc producer with a 82.0% market share of the Indian zinc market in fiscal 2011, according to the ILZDA. Its Rampura Agucha Mine is the worlds largest zinc mine with proved and probable reserves of 69.7 million tons and an annual ore production capacity of 6.15 million tons per annum, or mtpa, as of March 31, 2011. According to Brook Hunt, HZL is in the lowest cost quartile in terms of all zinc mining operations worldwide. HZLs operations and assets comprises high grade zinc and lead deposits, open cast and integrated operations, world class facilities, and extensive infrastructure and captive power generation capacities. There was also an increase in reserves at HZLs mines to 313.18 million tons as of March 31, 2011 (excluding the reserves at the Skorpion mine, the Lisheen mine and the Black Mountain mine) as a result of further exploration efforts. |
| We expanded our zinc business by acquiring the businesses of Anglo American Plc, in Ireland, Namibia and South Africa. This provides us with a greater presence in Africa and Europe. See Item 5. Operating and Financial Review and prospects Recent Developments Zinc International Acquisition. |
| Our aluminum business operations are fully integrated with respect to their power requirements through their captive power plants. BALCOs 245,000 tpa Korba aluminum smelter was in the ninth position in terms of all aluminum smelter operations worldwide in 2010, according to Brook Hunt. In November 2007, BALCO received a coal block allocation of 211.0 million tons for use in its captive power plants. These allocated coal blocks are regarded as non-reserve coal deposits; |
| We are seeking to further lower our costs across all our operations. Factors contributing to our success in lowering our costs of production include: |
| our focus on continually reducing mining and manufacturing costs and seeking operational efficiency improvements; |
| our building and managing our own captive power plants to supply a substantial majority of the power requirements of our operations; and |
| the relatively large and inexpensive labor and talent pools in India. |
We view strict cost management and increases in productivity as fundamental aspects of our day-to-day operations and continually seek to improve efficiency.
Leading non-ferrous metals and mining company in India with a diversified product portfolio
We have substantial market share across the copper, zinc and aluminum metals markets in India. Specifically:
| we are one of two custom copper smelters in India, with a 43.0% primary market share in India in fiscal 2011, according to ICPCI; |
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| HZL is Indias only integrated zinc producer and had a 82.0% market share by production volume in India in fiscal 2011, according to ILZDA; For the first quarter of fiscal 2011, HZL was the worlds largest integrated producer of zinc and one of the top five lead mining companies based on production volumes and in the lowest cost quartile in terms of all zinc mining operations worldwide, according to Brook Hunt; and |
| BALCO is one of the four primary producers of aluminum in India and had a 18.0% primary market share by production volume in India in fiscal 2011, according to AAI. |
According to Brook Hunt, the annual demand for copper, zinc and aluminium in India is expected to grow from 991,000 tons, 605,000 tons and 1.7 million tons, in 2010 to 1.4 million tons, 827,000 tons and 2.5 million tons in 2015, representing a CAGR of 8.2%, 8.1% and 8.2%, respectively. This compared to world demand for copper, zinc and aluminum, which Brook Hunt estimates will grow from 23.5 million tons, 11.6 million tons and 41.5 million tons in 2010 to 32.4 million tons, 17.1 million tons and 67.8 million tons in 2020, respectively.
With our copper, zinc, Zinc International zinc and aluminum businesses representing 51.8%, 32.5%, 3.3% and 10.0% of our revenue and 13.4%, 74.9%, 2.34% and 5.76% of our operating income in fiscal 2011, respectively, we believe that we have a diversified product portfolio and intend to further diversify our business through our planned entry into the commercial power generation business.
Ideally positioned to capitalize on Indias growth and resource potential
We believe that our experience operating and expanding our business in India will allow us to capitalize on attractive growth opportunities arising from factors including:
| Indias large mineral reserves. According to the Ministry of Mines Annual Report 2010-2011, the total copper ore, lead-zinc ore, and bauxite resources of India are estimated at 1.4 billion tons, 0.5 billion tons, and 3.3 billion tons, respectively. According to the Ministry of Coal, the total coal resources of India are 267.2 billion tons as of April 1, 2009, and according to the Energy Information Agency, a statistical agency of the United States government, India has the fourth largest coal reserves in the world as of 2007 and the total recoverable reserves of coal around in the world are estimated at 909 billion tons. In addition, according to the Investment Commission of India, Indias bauxite reserves are the fourth largest in the world with total recoverable reserves estimated at 2.4 billion tons. |
| Indias economic growth and proximity to other growing economies. India is one of the fastest growing large economies in the world with a real GDP growth of 7.2% in fiscal 2010 and an expected growth in real GDP of 9.7% in fiscal 2011, according to the Government of India, Economic Survey (2010-2011). The Government of India plans to spend approximately $514 billion on infrastructure between 2007 and 2012, including approximately $167 billion on the power segment, according to the Government of Indias 11th Five-Year Plan (2007 to 2012) (exchange rate used in the plan for calculating infrastructure and power segments spending was Rs. 40 = $1.00). As such, we believe that our focus on the metals and power segments will allow us to directly benefit from demand in India and from the other growing economies in China, Southeast Asia and the Middle East. |
| Indias large and inexpensive labor and talent pools. India has, compared to other industrialized nations, low labor costs as a result of its large and skilled labor pool and the availability of many well-educated professionals. |
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Strong pipeline of growth projects
We possess a strong portfolio of greenfield and brownfield projects that we intend to pursue:
| Copper segment: we have Rs. 22,900 million ($514.1 million) of ongoing expansion projects to increase our total copper capacity to 800,000 tpa with a 160 MW coal based thermal captive power plant. The expansion project at Tuticorin has been rescheduled while we await the consent from State Pollution Control Board and the captive power plant project is in progress and the first unit is scheduled for commissioning in the fourth quarter of fiscal 2012. We have incurred Rs. 5,948.5 million ($133.6 Million) on these projects as of March 31, 2011. The funding for these projects are mainly from proceeds of the convertible senior notes issued in fiscal 2010. |
| Zinc segment: HZL has Rs. 6,090 million ($136.7 million) of expansion projects to increase its total lead-zinc capacity to 1,064,000 tpa with fully integrated mining and captive power generation capacities. These projects include: |
| establishing one brownfield lead smelter which is expected to increase the production capacity of lead by approximately 100,000 tons at HZLs Rajpura Dariba complex in the State of Rajasthan, which is progressively being commissioned |
| HZL is expected to start mining activity at the Kayar mine progressively from mid-2013, with the mine expected to have a production capacity of 350,000 tpa; and |
| increasing silver production from the current levels of approximately 180 tpa to approximately 500 tpa, primarily from the Sindesar Khurd mine. |
These projects are financed from internal sources.
| Aluminum segment: Our aluminum segment projects are being undertaken both at our subsidiary, BALCO, and by Vedanta Aluminium, a 70.5%-owned subsidiary of Vedanta in which we have 29.5% ownership interest: |
| In order to enhance aluminum production capacity to 1.0 million tons, BALCO entered into a MoU with the State Government of Chhattisgarh on August 8, 2007, for a potential investment to build an aluminum smelter with a capacity of 650,000 tpa at Chhattisgarh, at an estimated cost of Rs. 81,000 million ($1,818.6 million). BALCO has commenced the implementation process of the first phase of expansion for setting up a 325,000 tpa aluminum smelter at an estimated cost of Rs. 38,000 million ($853.2 million) which uses pre-baked technology from the Guiyang AluminiumMagnesium Design & Research Institute, or GAMI, of China. The first production stream from the 325,000 tpa aluminum smelter is expected in the fourth quarter of fiscal 2012. In addition, BALCO is building a 1,200 MW coal-based captive power plant in Chhattisgarh at an estimated cost of Rs. 46,500 million ($1,044.0 million). The units are expected to be commissioned progressively, by the second quarter of fiscal 2013. |
| Vedanta Aluminium is setting up another 1,250,000 tpa aluminum smelter in Jharusguda at an estimated cost of Rs. 145,000 million ($ 3,255.5 million) which is scheduled for final completion by the second quarter of fiscal 2013. |
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| Power segment: We have executed our plan to enter the commercial power generation business with Sterlite Energys construction of a 2,400 MW thermal coal-based power facility (comprising four units of 600 MW each) in Jharsuguda in the State of Orissa at an estimated cost of Rs. 82,000 million ($1,841.0 million). The first two units are operational with the remaining two units to be progressively commissioned by the fourth quarter of 2012. We have obtained coal block allocations of 112.2 million tons from the Ministry of Coal to support this facility. These allocated coal blocks are regarded as non-reserve coal deposits. We have also received provisional coal linkage of 2.57 mtpa which will be sufficient for the generation of a substantial portion of the power in the first 600 MW unit. Coal linkage is a long-term supply contract for the delivery of coal meeting contract specifications. Following our application to the Ministry of Coal for a coal linkage to meet the substantial portion of the remaining coal requirement for the balance three units, Mahanadi CoalFields Limited on July 14, 2010 issued a letter of assurance for an additional 6.94 million tons. |
Further, in July 2008, Sterlite Energy was awarded the tender for a project to build a 1,980 MW thermal coal-based commercial power plant at Talwandi Sabo, in the State of Punjab, India, by the Government of Punjab. The project is expected to be completed by the second quarter of fiscal 2014. In addition, TSPL has signed a MoU with the Government of Punjab in October 2010 to expand the current capacity of the Talwandi Sabo coal-based thermal power plant by 660 MW. The estimated cost for the additional unit is Rs. 25,000 million ($561.3 million) and it is expected to be completed in the fourth quarter of fiscal 2014.
Experience for entry into commercial power generation business in India
We have been building and managing captive power plants in India since 1997 and as of March 31, 2011, are managing captive power plants and wind power plants with a total power generation capacity of 4,027 MW, including six thermal coal-based captive power plants with a total power generation capacity of 3,774 MW. In August 2006, our shareholders approved a new strategy for us to enter into the commercial power generation business in India.
Our current power projects include the coal-based commercial power plant at Jharsuguda in the State of Orissa, which will have a capacity of 2,400 MW, of which the first two units of 600 MW have been commissioned and the remaining two units will be progressively commissioned by the fourth quarter of fiscal 2012. Our second power project is for a supercritical independent power plant at Talwandi Sabo in the State of Punjab in India. A MoU was signed with the Punjab State Government for the fourth unit of 660 MW, thereby increasing the power generation capacity to 2,640 MW, which is progressively expected to be completed by the fourth quarter of fiscal 2014.
We are also expanding our existing wind power generation capacity from the existing 123.2 MW to 273.2 MW. The first phase of 48 MW has been completed and the second phase of 102 MW is scheduled to be completed by the second quarter of fiscal 2012.
Sales of units of power increased from 231 million units in fiscal 2009 to 2,035 million units of power in fiscal 2011. The increase in sales was due to our commercial power generation business which increased from $773 million in fiscal 2009 to $7,282 million in fiscal 2011.
The following table sets out selected financial data of our commercial power business for fiscal 2009, 2010 and 2011:
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Year ended 31 March | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
(Rs. million except power sales) | ||||||||||||
Power Sales (million units) |
231 | 1,416 | 2,035 | |||||||||
Revenue |
773 | 6,572 | 7,282 | |||||||||
Segment result after special items |
931 | 4,160 | 3,354 |
Experienced and entrepreneurial management team with outstanding track record
Our senior management has significant experience in all aspects of our business and has transformed us from a small wire and cable manufacturing company in the early 1980s into our current status as a leading non-ferrous metals and mining company in India. Mr. Anil Agarwal, our founder, remains involved in overseeing our business as our Non-Executive Chairman. Our experienced and focused management and dedicated project execution teams have a proven track record of:
| selecting attractive acquisition opportunities and successfully improving the operations and profitability of acquired businesses; and |
| successfully implementing capital-intensive projects to increase our production capacities. |
We acquired our Zinc India business through our acquisition of HZL, our Zinc International business by acquiring the zinc business of Anglo American Plc comprising of a 100.0% stake in Skorpion, which owns the Skorpion mine and refinery in Namibia, a 74.0% stake in BMM, which includes the Black Mountain mine and the Gamsberg project, in South Africa and a 100.0% stake in Lisheen, which owns the Lisheen mine in Ireland. We acquired our aluminum business through our acquisition of BALCO. We have been successful at increasing production levels from the existing assets by improving operational efficiencies, lowering the costs of production by commissioning captive power plants and growing the businesses through capacity expansions, specifically:
| increasing HZLs production from 172,140 tpa of zinc ingots and 214,447 tpa of zinc mined metal content when we acquired HZL in 2002 to 712,471 tpa of zinc ingots and 752,125 tpa of zinc mined metal content in fiscal 2011, representing an increase of 314.0% and 251.0%, respectively, by increasing the production of HZLs three hydrometallurgical zinc smelters, one lead-zinc smelter, four lead-zinc mines; and |
| increasing the production of BALCOs original aluminium smelter from 89,164 tpa when we acquired management control of BALCO in 2001 to 255,298 tpa in fiscal 2011. |
We utilize project monitoring and assurance systems to facilitate timely execution of our projects, a number of which have been completed ahead of time and within budget. In addition, we have established relationships with leading domestic and international vendors that support our expansion projects. We have successfully completed expansion projects across our copper, zinc and aluminum businesses specifically:
| increasing the lead metal capacity of HZLs lead-zinc smelter at Chanderiya from 35,000 tpa to 85,000 tpa in February 2006; |
| increasing the copper anode capacity of our Tuticorin copper smelter from 180,000 tpa to 300,000 tpa in 2005 and then to 400,000 tpa in November 2006; |
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| increasing the Korba facility by adding a new 245,000 tpa aluminum smelter in November 2006; |
| completing a brownfield expansion with the addition of HZLs two hydrometallurgical zinc smelters with a capacity of 170,000 tpa each, together with coal-based captive power plants of 154 MW and 80 MW at Chanderiya in May 2005 and December 2007, respectively. The capacities of the two hydro zinc smelters were further increased to 210,000 tpa through improvements to the operational efficiencies of both smelters in April 2008; |
| increasing the capacity of the Rampura Agucha lead-zinc mine and processing plant from 2.0 million tpa to 6.0 million tpa of ore to supply the brownfield zinc smelter expansion at Chanderiya between 2003 and 2010; |
| completing our wind power plants at Gujarat and Karnataka with a total power generation capacity of 123.2 MW between 2007 and July 2008 and at Rajasthan and Karnataka in March 2011 with a total power generation capacity of 48 MW; |
| commissioning a third concentrator at Rampura Agucha in May 2008 and an 80 MW captive power plant at Zawar in December 2008 which has lowered our power generation costs, as we have replaced relatively higher cost purchases from the local SEB with our own power generation facilities; |
| increasing the capacity of HZLs Debari smelter from 80,000 tpa to 88,000 tpa through a project commissioned in April 2008 to improve operational efficiencies; |
| commissioning a fourth concentrator at the Rampura Agucha mines and a hydrometallurgical zinc smelter with a capacity of 210, 000 tpa at Rajpura Dariba in March 2010; |
| commissioning captive power plants at Dariba with a total power generation capacity of 160 MW in 2011; and |
| commissioning a concentrator at Sindhesar Khurd mine of 1.5 mtpa in 2011. |
Ability and capacity to finance world-class projects
We have generated strong cash flows in recent years due to our volume growth, high commodity prices and our cost reduction measures. Moreover, we have a strong balance sheet with low leverage. We believe that holding substantial cash and current assets and maintaining low leverage are important to provide sufficient liquidity and to meet the cash outflow requirements of our capacity expansion projects in the event of any adverse movements in commodity prices.
Strategy
Our goal is to generate strong financial returns and create a world-class metals and mining company. Our strategy is to continue to grow our business by completing our existing expansion projects as well as setting up new greenfield and brownfield projects. We intend to take advantage of our low-cost base, expand our position in India as a supplier of copper, zinc and aluminum products and further develop our exports of these products. We are also leveraging our experience in building and managing captive power plants in developing the commercial power generation business in India and will continue to closely monitor the Indian resource markets in our existing lines of business as well as new opportunities such as iron ore and coal. Key elements of our strategy include:
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Continuing focus on asset optimization and reducing the cost of production
According to Brook Hunt, for the first quarter of 2011 we are in the lowest cost quartile in terms of cost of production in our zinc business and we intend to continue to improve our production processes and methods and increase operational efficiencies to further reduce our costs of production in all our businesses. Our current initiatives include:
| seeking improvements in operations to maximize throughput, mining and plant availability to achieve production increases at our existing facilities with minimum capital expenditures to optimize our asset utilization; |
| reducing logistics costs through various initiatives; |
| reducing energy costs and consumption, including through continued investment in advanced technologies to reduce power consumption in the refining and smelting processes and in captive power plants to provide the required power; |
| increasing exploration efforts to increase reserves, particularly in our zinc businesses; |
| building and managing of our captive power plants to supply a majority of the power requirements of our operations; |
| gaining access to relatively large and inexpensive labor in India; |
| increasing automation to reduce the manpower required for a given level of production volume; |
| a strong exploration effort seeking to increase the reserves, particularly in our zinc ore business; |
| continuing to improve recovery ratios such that more finished product is obtained from a given amount of raw material; |
| reducing purchase costs, including by entering into long-term contracts for raw materials, making investments in mining operations and optimizing the mix of raw material sourcing between long-term contracts, mining operations and the commodities spot markets to address fluctuations in demand and supply; |
| securing additional sources of coal through coal block allocations and coal linkages, which are long-term supply contracts for delivery of coal for use in power plants, such as the coal block allocations of 211.0 million tons we received from the Ministry of Coal for use in BALCOs captive power plants, 31.5 million tons we received from the Madanpur Coal Block for use in HZLs captive power plants and 112.2 million tons from the Ministry of Coal to support Sterlite Energys plants. These allocated coal blocks are regarded as non-reserve coal deposits; |
| seeking better utilization of by-products, including through adding additional processing capabilities to produce end-products from the by-products that can be sold at higher prices and help lower the cost of production of our core metals. For example, lead and silver are by-products of lead while sulphuric acid is a by-product of zinc; |
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| reducing greenhouse gas emissions from our operations through various projects, including for example our recent installation of a back pressure turbine for utilizing waste gases of the roaster plant at one of our zinc smelters at Chanderiya, a project from which we have 22,744 voluntary emission reduction credits from July 1, 2005 until March 30, 2007 and received 15,614 carbon emission reduction credits from March 31, 2007 until February 29, 2008, 28,571 carbon emission reduction credits from March 31, 2008 until May 31, 2009 and 19,187 carbon emission reduction credits from June 30, 2009 to March 31, 2010; |
| Our two wind power projects at Gujarat and Karnataka have also been registered for carbon emission reduction credits, from which we have 217,755 voluntary emission reduction credits from Gujarat from March 13, 2007 to January 14, 2009 and 82,560 carbon emission reduction credits for the period from January 15, 2009 to July 24, 2009, and from wind power project at Karnataka, we have sold 46,386 voluntary emission reduction credits for the period December 17, 2007 to January 14, 2009 and 32,391 carbon emission reduction credits for the period January 15, 2009 to July 31, 2009 and 32,391 carbon emission reduction credits for the fiscal 2011. |
Recent successes as a result of these initiatives include:
| increased zinc production volumes from fiscal 2010 to fiscal 2011; |
| increase in BALCOs production from 148,279 tpa of rods and 65,973 tpa of rolled products in fiscal 2010 to 160,665 tpa of rods and 66,706 tpa of rolled products in fiscal 2011; |
| increase in reserves and resources at HZL from 298.7 million tons as of March 31, 2010 to 313.2 million tons as of March 31, 2011; and |
| stable cost of production in most of our businesses notwithstanding inflationary cost pressures across the metals and mining industry generally, particularly with respect to logistics and energy costs. |
Increasing our capacities through greenfield and brownfield projects
We intend to continue to increase our capacities through the expansion of mines and construction of new facilities. We believe that increasing our reserves, access to ores and capacities is critical to enable us to continue to capitalize upon the growing demand for metals in India and abroad, particularly in China, Southeast Asia and the Middle East. We seek to implement our expansion projects quickly and with the minimum necessary capital costs in order to generate a high internal rate of return on the projects.
As of March 31, 2011, we had total production capacities of 405,000 tpa of copper cathodes, 879,000 tpa of zinc, 85,000 tpa of lead and 245,000 tpa of aluminum. Our goal is to achieve 1.0 million tpa of total production capacity in each of our base metals through our existing and future expansion projects, while implementing our expansion projects at industry leading benchmark capital costs, within budget and ahead of schedule. We believe we have made significant progress towards achieving this goal, though there can be no assurance that we will be able to achieve such production capacity for each of our businesses. See - Competitive StrengthsStrong pipeline of growth projects.
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Leveraging our project execution and operating skills and experience in building and managing captive power plants to develop a commercial power generation business
The demand for power in India to support its growing economy has in recent years exceeded supply. Per capita consumption of power in India, despite significant increases in recent years, continues to lag behind other leading developed and emerging economies by a large margin. India has large thermal coal resources and the coal industry is in the process of government deregulation that is expected to increase the availability of coal for power generation, among other uses. We believe these factors make the commercial power generation business an attractive growth opportunity in India and that, by leveraging our project execution and operating skills and experience in building and managing captive power plants, and by applying our mining experience to the mining of the coal blocks we are seeking to have allotted to us to reduce the costs of our proposed commercial power generation business, we can compete successfully in this business. In addition, we believe that our entry into the commercial power generation business will allow us to establish ourselves and gain specific experience in coal mining as the power industry is one of only three industries in India, the others being iron or steel and cement, where captive coal mining by non-governmental entities is permitted. We believe this would help position us to more broadly enter the coal mining business if it is eventually opened to entry by non-governmental entities as part of a Government of India deregulation initiative. See Our Commercial Power Generation Business.
Seeking further growth and acquisition opportunities that leverage our transactional, project execution and operational skills and experience
Our successful acquisitions of HZL, BALCO and our acquisition of the zinc business of Anglo American Plc have contributed substantially to our growth. We continually seek new growth and acquisition opportunities in the metals and mining and related businesses, including through government privatization programs in India, where we can leverage our skills and experience. We continue to closely monitor the resource markets in our existing lines of business as well as seek out opportunities in complementary businesses such as coal mining. By selecting the opportunities for growth and acquisition carefully and leveraging our skills and experience, we expect to continue to expand our business while maintaining a strong balance sheet and investment grade credit profile.
Consolidating our corporate structure and increasing our direct ownership of our underlying businesses to derive additional synergies as an integrated group
We have consolidated and are continuing to seek to increase our direct ownership of our underlying businesses to simplify and derive additional synergies as an integrated group, in particular by acquiring major shareholders to consolidate our corporate structure to simplify and more closely integrate our operations. As part of this strategy we continue to seek to increase our direct ownership of our underlying businesses to derive additional synergies as an integrated group. In March 2004, we exercised our option to acquire the Government of Indias remaining 49.0% ownership interest in BALCO in order to make BALCO a wholly-owned subsidiary, though the exercise of this option has been contested by the Government of India and the Government of India retains the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. We own 64.9% of HZL and we intend to acquire from the Government of India a further 29.5% of the shares in HZL (or 26.0% if the Government of India exercises in full its right to sell 3.5% of HZL to HZL employees), which is exercisable so long as the Government of India has not sold its remaining interest pursuant to a public offer. We have exercised the second option to acquire the Government of Indias remaining ownership interest in HZL although the exercise is currently subject to dispute. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessOur
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option to purchase the Government of Indias remaining shares in HZL may be challenged and - Options to Increase Interests in HZL and BALCO. It has been reported in the media that the Government of India is considering asserting a breach of a covenant by our subsidiary SOVL and may seek to exercise a put or call right with respect to shares of HZL. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessThe Government of India may allege a breach of a covenant by our subsidiary SOVL and seek to exercise a put or call right with respect to shares of HZL, which may result in substantial litigation and serious financial harm to our business, results of operations, financial condition and prospects. If the Government of India makes such an assertion, we intend to contest it and believe we have meritorious defenses.
Basis of Presentation of Ore Reserves
Our reported ore reserves are derived following a systematic evaluation of geological data and a series of technical and economic studies by our geologists and engineers and an audit of the results for the ore reserves of HZL by the independent consulting firm of SRK Consulting (UK) Limited, or SRK, a resource and reserve review of the Skorpion, BMM and Lisheen mines by AMC Consultants Proprietary Limited, Golder Associates and AMC Consultants UK Limited. Our reported ore reserves at the Mt. Lyell and BALCO mine are based on our internal estimates. The results are reported in compliance with Industry Guide 7 of the US Securities and Exchange Commission, or the SEC.
An ore reserve is economically mineable and includes diluting materials and allowances for losses, which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. Ore reserves are sub-divided in order of increasing confidence into probable ore reserves and proven ore reserves.
We retained SRK to conduct independent reviews of our ore reserve estimates (excluding CMT) as of March 31, 2011 at the Rampura Agucha, Rajpura Dariba S.K Mines, Kayar mines and Zawar lead-zinc mines. SRK visited the HZL sites in 2011 and reviewed the methodology and data used to develop the ore reserve estimates. The geological information at Rampura Agucha, Kayar, Rajpura Dariba and Sindesar Khurd are modeled using conventional computerized models, the information at Zawar is modeled using paper based sections and partly conventional computerized models. SRK conducted a series of checks at the HZL mines to verify that the resulting estimate of the quantity and quality of ore present was as per the criteria laid down by the Joint Ore Reserve Committee, Australia (JORC).
In April 2011, AMC Consultants Proprietary Limited had completed a resource and reserve review of Skorpion mine. They conducted the review to ensure that the overall approach and methods used for the mineral resources estimation is consistent with the accepted industry standards. They reviewed data collection, resource estimation, modeling methodology and suitability of resource estimate, classification and associated reports for reporting under the JORC code.
In April 2011, Golder Associates had computed a resource and reserve review of BMM mines. Golder Associates reviewed data collection, quality control, geological interpretation, grade estimation and resource classification for BMM in 2010. Technical site visits were conducted by Golder Associates in order to review and comment on the compliance of BMM with the JORC code and the South African code of Reporting of Mineral Resources and Mineral Reserves, 2007 (SAMREC code).
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In April 2011, AMC Consultants UK Limited, or AMC completed a resource and reserve review of the Lisheen mine. They reviewed data collection, quality control, geological interpretation, grade estimation and resource classification for the mine resource estimate of Lisheen in 2010. They reviewed the methodology used to prepare the Lisheen ore reserve. Their opinion was that the methodology used was in line with practices in similar mining operations and was appropriate for the Lisheen mine. The Lisheen ore reserve has been prepared using accepted industry practice and has been estimated in accordance with the JORC code.
The ore reserves of Mt. Lyell and BALCO were derived from management estimates as of March 31, 2011.
In addition to the ore reserves, we have identified further mineral deposits as either extensions to or in addition to our existing operations that are subject to ongoing exploration and evaluation.
Our Copper Business
Overview
Our copper business is principally one of custom smelting and includes a smelter, refinery, phosphoric acid plant, sulphuric acid plant, copper rod plant, a doré anode plant and two captive power plants at Tuticorin in Southern India and a refinery and two copper rod plants at Silvassa in Western India. In addition, we own the Mt. Lyell copper mine in Tasmania, Australia, which provided approximately 7.1% of our copper concentrate requirements in fiscal 2011. We also have a precious metal refinery at Fujairah in the UAE that produces gold and silver ingots, which was commissioned in March 2009.
As a custom smelter, we buy copper concentrate at LME-linked prices for copper less a TcRc that is negotiated with suppliers. We sell refined copper at LME-linked prices in the domestic and export markets. The TcRc is influenced by global copper concentrate demand, supply of copper smelting and refining capacity, LME trends, LME-linked price participation and other factors. We source our concentrate from various global suppliers and our Australian mine.
In recent years, we have improved the operating performance of our copper business by improving operational efficiencies and reducing unit costs, including reducing power costs by constructing a captive power plant at Tuticorin. We intend to further improve the operating performance of our copper business by continuing to reduce unit operating costs through improvements in recovery rates, lowering power and transport costs, achieving economies of scale and the achievement of other operational efficiencies.
Principal Products
Copper Cathode
Our copper cathodes are square shaped with purity levels of 99.9%. These cathodes meet international quality standards and are registered as LME A Grade. The major uses of copper cathodes are in the manufacture of copper rods for the wire and cable industry and copper tubes for consumer durable goods. Copper cathodes are also used for making alloys like brass, bronze and alloy steel, with applications in defense and construction.
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Copper Rods
Our copper continuous cast rods meet all the requirements of international quality standards. Our copper rods are currently used primarily for power and communication cables, transformers and magnet wires.
Sulphuric Acid
We produce sulphuric acid at our sulphuric acid plant through conversion of sulphur dioxide gas that is generated from the copper smelter. A significant amount of the sulphuric acid is consumed by our phosphoric acid plant in the production of phosphoric acid, and the remainder of the sulphuric acid is sold to fertilizer manufacturers and other industries.
Phosphoric Acid
We produce phosphoric acid at our phosphoric acid plant by chemical reaction of sulphuric acid and rock phosphate, which we import. Phosphoric acid is sold to fertilizer manufacturers and other industries.
Other By-products
Other by-products of our copper smelting operations are gypsum and anode slimes, which we sell to third parties.
Our Production Process
Our copper business has a number of elements which are summarized in the following diagram and explained in greater detail below:
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Supply of Copper Concentrate
As a custom smelter, we source a significant majority of our copper concentrate from third party suppliers at the LME price less a TcRc. Approximately 7.1% of our copper concentrate was sourced from our own mine in Tasmania, Australia in fiscal 2011. All of the copper concentrate used in our operations, whether from our own mine in Australia or from third party suppliers, is imported through the port of Tuticorin in Southern India and transported by road to our Tuticorin smelter.
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Tuticorin Smelter
Our Tuticorin smelter processes copper concentrate by combining it with silica flux and lime, where required, and feeding it into the IsaSmeltTM furnaces. The furnaces smelt the copper concentrate, producing copper matte, slag and sulphur dioxide gas. The slag and the copper matte flow into a holding furnace, where they are separated. The slag is further smelted to extract additional copper matte and then the remaining slag is discarded. The copper matte is transferred to a converter, where it is oxidized to produce blister copper. The blister copper is fed into the anode furnace where additional sulphur dioxide is removed and the copper is cast as copper anodes.
Tuticorin Acid Plants
The sulphur dioxide gas produced from the IsaSmeltTM furnaces at Tuticorin in the process of creating copper anodes is fed through the sulphuric acid plant at Tuticorin to be converted into sulphuric acid. Most of the sulphuric acid is further treated in our phosphoric acid plant to be converted into phosphoric acid. Both the sulphuric acid and the phosphoric acid are sold primarily to fertilizer manufacturers. The treatment of the sulphur dioxide gas creates sulphuric acid and phosphoric acid by-products, including gypsum, from the copper smelting process and avoids the release of the harmful sulphur dioxide gas.
Silvassa and Tuticorin Refineries
In the refineries at Silvassa and Tuticorin, which use IsaProcessTM technology, copper anodes are electrolytically refined to produce copper cathodes with a purity of 99.99% and slimes, which are treated further in a slimes treatment plant to recover additional copper. The residual slimes are sold to third parties. Copper cathodes are either sold to customers or sent to our copper rod plants.
Silvassa and Tuticorin Copper Rod Plants
In our copper rod plants, copper cathodes are first melted in a furnace and cast in a casting machine, and then extruded and passed through a cooling system that begins solidification of copper into 51x38 mm or 54x38 mm copper bars. The resulting copper bars are gradually stretched in a rolling mill to achieve the desired diameter. The rolled bar is then cooled and sprayed with a preservation agent and collected in a rod coil that is compacted and sent to customers.
Doré Anode Plant
In our doré anode plant, which was commissioned in February 2009, roasted anode slime is mixed with soda and borax and fed into a furnace known as the TROF converter. The TROF converter takes care of the smelting, reduction and refining steps in the same furnace, which saves energy when compared to a conventional furnace. After smelting, silver poor slag is poured off from the TROF converter and the doré metal is refined by blowing oxygen into the metal bath. Thereafter, the refined doré metal is cast into doré anodes each weighing 16.5 kilograms. Off-gases are led in a controlled way from the TROF converter into a bag filter and scrubber before being released into the atmosphere.
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Precious Metal Refinery
In our precious metal refinery, doré anodes are refined into silver metal using an electrolytic process and further refined into gold metal by employing a leaching process, which uses concentrated hydrochloric acid, to remove gold metal from the gold mud produced during the electrolytic process. Platinum, palladium and other impurities, which are dissolved in the leaching process, are precipitated as concentrate.
Delivery to Customers
The copper cathodes, copper rods, phosphoric acid and other by-products are shipped for export or transported by road to customers in India.
Principal Facilities
Overview
The following map shows the locations of each of our copper mines and production facilities and the reserves or production capacities, as applicable, as of March 31, 2011:
The following map shows the location of our Tuticorin facility in the State of Tamil Nadu:
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The following map shows the location of our Silvassa facility in the union territory of Dadra and Nagar Haveli:
The following map shows the location of the Mt. Lyell mine in Tasmania:
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Our Copper Mine
The Mt. Lyell mine is located at Queenstown on the west coast of Tasmania, Australia, approximately 164 kilometers south of Burnie and approximately 260 kilometers northeast of Hobart. Mt. Lyell has well-established infrastructure as mining has been conducted in the area since 1883. The town of Queenstown, originally established to service the mines, continues to provide a range of mining services which are supplemented from Burnie and Hobart. Mt. Lyell is connected by paved public road to Burnie and Hobart. There is a rail connection to the port of Burnie.
The Mt. Lyell mine is owned and operated under the terms and conditions as stipulated in Mining Leases 1M95 and 5M95 granted by the State Government of Tasmania. Mining Lease 1M95 was granted on January 1, 1995 for a period of 15 years and Mining Lease 5M95 was granted on February 1, 1995 for a period of 14 years and 11 months. Both are renewable and are subject to the terms and conditions specified in the Mineral Resources Development Act, 1995, as amended, of Australia. For Mining Lease 1M95 and Mining Lease 5M95, renewed applications have been submitted, which we expect to be renewed in due course. The mine is also covered by the Copper Mines of Tasmania (Agreement) Act 1999, which, in conjunction with an agreement between the State Government of Tasmania and CMT entered into pursuant to that Act, limits CMTs environmental liabilities to the impact of current operations, thereby insulating CMT from any historical legacy claims.
The Mt. Lyell mining district was first discovered in 1883 and 15 separate ore bodies have been mined over its life. It is estimated that in excess of 100 million tons of ore has been extracted from the district. Monte Cello acquired CMT in 1999 from Mt. Lyell Mining Company Limited, or MLMC, formerly Gold Mines of Australia, when MLMC entered into voluntary administration due to hedging difficulties. Since Monte Cello took over the mine, annual production has increased from 2.2 million tpa in fiscal 2000 to 2.6 million tpa in fiscal 2009 and decreased in 2011 to 1.97 million tpa. We acquired Monte Cello, and with it CMT, from a subsidiary of Twin Star in 2000.
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The principal deposits in the Mt. Lyell region are all of the volcanic disseminated pyrite-chalcopyrite type, which accounts for 86.0% of the known ore in the region. The geology of the Mt. Lyell mine consists of a series of intercalated felsic to mafic-intermediate volcanics. Lithologies are highly altered quartz-sericite-chlorite volcanics with individual units delineated largely by the relative abundance of phyllosilicates. Volcaniclastic and rhyolitic lithologies occur sporadically throughout the sequence, as does pervasive iron mineralization in the form of haematite, magnetite and siderite.
Chalcopyrite is the principal ore mineral and occurs chiefly in higher grade lenses enveloped by lower grade halos. The overall structure of Mt. Lyell is that of a steeply dipping overturned limb of a large anticline. The hanging wall (stratigraphic footwall) of the ore body consists of weakly mineralized chloritic schists with disseminated pyrite. The footwall is sharply defined by the Great Lyell FaultOwen Conglomerate contact which truncates the ore body at its southern end.
All mining operations at CMT are undertaken by contractors while the processing and mill maintenance operations are undertaken by CMT employees. A sub-level caving underground mining method is used at the Prince Lyell ore body. Ore is loaded into trucks by front end loader at draw points and then transported to the underground crusher and skip loading area. Crushed ore is then hauled via the Prince Lyell shaft and unloaded onto a conveyor feeding the ore bin at the Mt. Lyell processing plant. At the processing plant, the ore is crushed and ground prior to processing by floatation to produce copper concentrate, which is then filtered to form a cake and trucked to the Melba Flats railway siding for transport to the port of Burnie. The concentrate is stored at Burnie until it is loaded into ships for transport to the port of Tuticorin in south India from where it is trucked to the Tuticorin smelter.
The tailings dam is a valley-fill type and excess water is discharged via a spillway. The water quality is sampled before the water is released from the site. The tailings are deposited on beaches some 300 meters from the dam spillway. CMTs accepted closure plan is to flood the tailings which will require CMT to raise the tailings dam wall.
CMT has an active exploration and evaluation program at Mt. Lyell which involves upgrading resources below the Prince Lyell reserves and testing additional exploration targets on the mining lease. The Western Tharsis deposit lies to the west of the Prince Lyell ore body, but CMT has not yet committed to its development. Additional targets include Tasman & Crown, Glen Lyell, Copper Clays and NW Geophysics.
The processing plant is approximately 30 years old and has been partially refurbished following our acquisition with the addition of crushers, a float cell and a regrind mill at the surface. While the condition of the plant is ageing, maintenance is carried out as required to ensure that the process plant remains in safe and efficient condition.
Power at the mine is supplied through an electricity supply agreements with Aurora Energy Proprietary Limited and Hydro Tasmania Proprietary Limited to supply approximately 112 Giga Watts at a fixed rate until September 30, 2012. There is plentiful supply of water from mine water and storm water captured on the tailings dam.
The gross value of fixed assets, including capital works-in-progress, was approximately AUD 110.3 million (Rs.5,335 million or $119.8 million) as of March 31, 2011.
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In fiscal 2011, Mt. Lyell mined and processed 2.0 million tons of ore at a grade of 1.23% copper to produce 91,357 dry metric tons of copper concentrate, which also contained 12,347 ounces of gold and 114,937 ounces of silver. Although the grade of copper at Mt. Lyell is low, it produces a clean concentrate that is valuable in the smelting process. Based on reserves as of March 31, 2011 and anticipated production, the estimated mine life at Mt. Lyell is approximately three and a half years from April 1, 2011.
The economic cut-off grade is defined using the metal prices of $4,409 per ton of copper and $1,000 per ounce of gold. The cut-off grades are based on copper grades with the gold credit deducted from the operating costs. The reserves are derived from stopes which are designed such that the limits of the stope are defined by a cut-off grade of 1.0% copper and have an average grade that exceeds 1.0% copper. The revenue derivation of the cut-off grade includes the gold credit. The break-even cut-off grade of 0.75% copper is the grade that makes enough margin to cover the fixed and variable costs while the actual or operational cut-off grade used is 1.0% copper. CMT operates on a 1.0% copper operational cut-off grade in practice, preferring to take a higher revenue at the expense of a longer mine life.
The reserves at CMT in the proven reserve category are defined by drill-holes spaced at 30 meters intervals while the probable reserves are generally defined by drill-holes spaced at 60 meters intervals, though some blocks between 1,415 meters and 1,440 meters have a drill-hole spacing of 30 meters and have been classified as probable reserves as there is less certainty of the modifying factors since the detailed mine design has not yet been completed.
CMT does not use a copper equivalent calculation for the determination of stope limits as the relationship between the copper and gold grades is essentially linear, allowing the gold credits to be deducted from operating costs.
The proportion of sub-economic dilution in the reserves varies with the amount of internal dilution and the amount of over-draw. Due to the caving process mixing ore from previous levels, remnant material and material from mineralized halo, it is difficult to determine the level of external dilution, leading CMT to derive the modifying factors from the reconciliation of historical production against the grade and tonnage of the primary ore mined.
For fiscal 2010, the metallurgical recovery was 93.2% for copper, 68.6% for gold and 63.5% for silver. For fiscal 2011, the contract mining and milling cost was AUD 3,909 (Rs. 189,069 or $4,244.9) per ton, administration and environment cost was AUD 759 (Rs. 36,711 or $824.2) per ton and transportation cost was AUD 259 (Rs. 12,527 or 281.3) per ton. Correspondingly the TcRc was AUD 350 (Rs. 16,928 or $380.1) per ton.
The following table sets out our proven and probable copper reserves as of March 31, 2011. The figures show the split between the ore derived from primary, or in-situ, ore and secondary ore, which consists of broken fresh ore from previous levels, remnants of ore from the open-pit side wall and pillars remaining from a former mining method together with sub-economic dilution from the mineralized material surrounding the ore body. The quantity and grade of the secondary ore was determined from the analysis of historical production. The estimate of the quantity and grade of the remnant material has been evaluated from previous studies and only uses a small proportion of this source of ore. Consequently, we believe that this allowance can be sustained for the forecast life of the reserves.
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Proven Reserve | Probable Reserve | Total Proven and Probable Reserves |
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Mine |
Source |
Quantity | Copper Grade | Quantity | Copper Grade | Quantity | Copper Grade | |||||||||||||||||||
(million tons) | (%) | (million tons) | (%) | (million tons) | (%) | |||||||||||||||||||||
Mt. Lyell |
In-situ ore | 3.0 | 1.34 | 0.8 | 1.31 | 3.8 | 2.65 | |||||||||||||||||||
Secondary ore | | | 6.0 | 1.13 | 6.0 | 1.13 | ||||||||||||||||||||
Surface stockpile |
0.0 | 1.25 | | | 0.0 | 1.25 | ||||||||||||||||||||
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Total |
3.0 | 1.34 | 6.8 | 1.2 | 9.8 | 1.21 | ||||||||||||||||||||
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Our Smelter and Refineries
Overview
The following table sets forth the total capacities as of March 31, 2011 at our Tuticorin and Silvassa facilities:
Capacity | ||||||||||||||||||||||||
Facility |
Copper Anode(1) |
Copper Cathode(2) |
Copper Rods(2) |
Sulphuric Acid(3) |
Phosphoric Acid(3) |
Captive Power |
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(tpa) | (tpa) | (tpa) | (tpa) | (tpa) | (MW) | |||||||||||||||||||
Tuticorin |
405,000 | 205,000 | 96,000 | 1,300,000 | 230,000 | 46.5 | ||||||||||||||||||
Silvassa |
| 200,000 | 172,000 | | | | ||||||||||||||||||
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Total |
405,000 | 405,000 | 268,000 | 1,300,000 | 230,000 | 46.5 | ||||||||||||||||||
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Notes:
(1) | Copper anode is an intermediate product produced by copper smelters and is not sold to customers. It is used for the production of copper cathode by copper refineries. Approximately one ton of copper anode is required for the production of one ton of copper cathode. |
(2) | Copper cathode is used as a starting material for copper rods. Approximately one ton of copper cathode is required for the production of one ton of copper rods. |
(3) | Sulphuric acid is used as a starting material for phosphoric acid. Approximately 2.8 tons of sulphuric acid are required for the production of one ton of phosphoric acid. |
Tuticorin
Our Tuticorin facility, established in 1997, is located approximately 17 kilometers inland from the port of Tuticorin in Tamil Nadu in Southern India. Tuticorin is one of Indias largest copper smelters based on production volume in fiscal 2009. Our Tuticorin facility currently consists of a 405,000 tpa copper smelter, a 205,000 tpa copper refinery, a 96,000 tpa copper rod plant, a 1,300,000 tpa sulphuric acid plant, a 230,000 tpa phosphoric acid plant, a 700 tpa doré anode plant and two captive power plants with capacities of 22.5 MW and 24.0 MW, respectively.
The captive power plants with a total capacity of 46.5 MW, together with a further 11.2 MW generated from the smelter waste heat boiler, meet most of the facilitys power requirements.
The smelter at the Tuticorin facility utilizes IsaSmeltTM furnace technology. The refinery uses IsaProcessTM technology to produce copper cathode and the copper rod plant uses Properzi Continuously Cast and Rolled, or CCR, copper rod technology from Continuus-Properzi S.p.A., Italy, to produce copper rods.
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Silvassa
Our Silvassa facility, established in 1997, is located approximately 140 kilometers from Mumbai in the union territory of Dadra and Nagar Haveli in Western India. Our Silvassa facility currently consists of a 200,000 tpa copper refinery and two copper rod plants with a total installed capacity of 172,000 tpa of copper rods. Its refinery uses IsaProcessTM technology in the production of copper cathode and its copper rod plants use Properzi CCR copper rod technology. Our Silvassa facility draws on the state power grid to satisfy its power requirements.
Fujairah
Fujairah Gold FZE is located in the Fujairah Free Zone-2. Our Fujairah facility is strategically located 130 kilometers east of Dubai and is on the coast of the Arabian Sea. The precious metal refinery was commissioned in March 2009 and began production in April 2009, with a capacity of 20 tons of gold and 85 tons of silver. Outotec oyj, Finland, the pioneer in providing technology for extraction and refining of precious metals, supplied the technology for the precious metal refinery. Fujairah Gold FZE has commissioned a copper rod plant at a cost of $12.5 million, with an annual capacity of 100,000 tpa with production commencing in May 2010 and generating a production of 2.2 tons of gold and 19.8 tons of silver in fiscal 2011. Continuus Properzi S.p.A., Italy, has supplied the rod mill equipment for this project, and the copper cathode required for the copper rod plant is being sourced from the smelters of the Vedanta group.
Production Volumes
The following table sets out our total production from Tuticorin and Silvassa for the three years ended March 31, 2011:
Year Ended March 31, | ||||||||||||||
Facility |
Product |
2009 | 2010 | 2011 | ||||||||||
(tons) | ||||||||||||||
Tuticorin |
Copper anode(1) | 313,284 | 333,924 | 304,964 | ||||||||||
Sulphuric acid(2) | 987,511 | 1,036,353 | 968,760 | |||||||||||
Phosphoric acid(2) | 163,607 | 205,844 | 154,232 | |||||||||||
Copper cathode(3) | 139,706 | 154,177 | 141,281 | |||||||||||
Copper rods(3) | 76,292 | 55,893 | 54,006 | |||||||||||
Silvassa |
Copper cathode(3) | 173,127 | 179,997 | 162,710 | ||||||||||
Copper rods(3) | 143,587 | 140,989 | 133,886 | |||||||||||
Total |
Copper anode | 313,284 | 333,924 | 304,964 | ||||||||||
Copper cathode | 312,833 | 334,174 | 303,991 | |||||||||||
Copper rods | 219,879 | 196,882 | 187,892 | |||||||||||
Sulphuric acid | 987,511 | 1,036,353 | 968,760 | |||||||||||
Phosphoric acid | 163,607 | 205,844 | 154,232 |
Notes:
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(1) | Copper anode is an intermediate product produced by copper smelters and is not sold to customers. It is used for the production of copper cathode by copper refineries. Approximately one ton of copper anode is required for the production of one ton of copper cathode. |
(2) | Sulphuric acid is used as a starting material for phosphoric acid. Approximately 2.8 tons of sulphuric acid are required for the production of one ton of phosphoric acid. |
(3) | Copper cathode is used as a starting material for copper rods. Approximately one ton of copper cathode is required for the production of one ton of copper rods. |
The following table sets out CMTs copper extraction from the Mt. Lyell mine for the three years ended March 31, 2011:
Year Ended March 31, | ||||||||||||||
Mine (Type of Mine) |
Product | 2009 | 2010 | 2011 | ||||||||||
(tons, except for percentages) | ||||||||||||||
Mt. Lyell (Underground) |
Ore mined | 2,558,094 | 1,875,969 | 1,976,177 | ||||||||||
Ore grade | 1.5 | % | 1.3 | % | 1.3 | % | ||||||||
Copper recovery | 90.2 | % | 91.1 | % | 93.2 | % | ||||||||
Copper concentrate | 98,761 | 84,227 | 91,357 | |||||||||||
Copper in concentrate | 27,421 | 23,777 | 22,929 |
Principal Raw Materials
Overview
The principal inputs of our copper business are copper concentrate, rock phosphate and power. We have in the past been able to secure an adequate supply of the principal inputs for our copper production.
Copper Concentrate
Copper concentrate is the principal raw material of our copper smelter. In fiscal 2011, we sourced 92.9% of our copper concentrate requirements from third party suppliers, either through long-term contracts or on spot markets. We purchase copper concentrate at the LME price less a TcRc that we negotiate with our suppliers but which is influenced by the prevailing market rate for the TcRc. In fiscal 2011, we sourced only 7.1% of our copper concentrate requirements from our own mines in Australia. We expect the percentage we purchase from third party suppliers to increase in future periods as the reserves of our Mt. Lyell copper mine are expected to be exhausted by fiscal 2014. We expect the percentage we purchase from third party suppliers to also increase in future periods to the extent we seek to increase our copper smelting and refining capacity.
In general, our long-term agreements run for a period of three to five years, and are renewable at the end of the period. The quantity of supply for each contract year is fixed at the beginning of the year and terms like TcRc and freight differential are negotiated each year depending upon market conditions. In fiscal 2011, we sourced approximately 71.3% of our copper concentrate requirements through long-term agreements.
We also purchase copper concentrate on a spot basis to fill any gaps in our requirements based on production needs for quantity and quality. These deals are struck on the best possible TcRc during the period and are specific for short-term supply. In fiscal 2011, we sourced approximately 28.7% of our copper concentrate requirements through spot purchases.
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Rock Phosphate
Our rock phosphate is currently sourced primarily from Jordan pursuant to contracts renewed on an annual basis, with pricing fixed for the year. These contracts provide for minimum supply quantities with an option to increase if required. We utilize other sources in Egypt, and Algeria to procure additional rock phosphate as required.
Power
The electricity requirements of our copper smelter and refinery at Tuticorin are primarily met by the on-site captive power plants. Our captive power plants at Tuticorin operate on furnace oil that is procured through contracts with various oil companies. We have outsourced the day-to-day operation and maintenance of our captive power plants at Tuticorin. Our Silvassa facility relies on the state power grid for its power requirements.
Distribution, Logistics and Transport
Copper concentrate from the Mt. Lyell processing facility is transported by road to a rail head and then transported by rail to the port of Burnie, Tasmania, from which it is shipped to the port of Tuticorin in India. Copper concentrate sourced from both our Mt. Lyell processing facility and from third parties is received at the port of Tuticorin and then transported by road to the Tuticorin facility.
Once processed at the Tuticorin facility, copper anodes are either refined at Tuticorin or transported by road to Silvassa. Copper cathodes, copper rods, sulphuric acid, phosphoric acid and other by-products are shipped for export or transported by road to customers in India.
Sales and Marketing
The 10 largest customers of our copper business accounted for approximately 32.5%, 27.2% and 34.4% of our copper business revenue in fiscals 2009, 2010 and 2011, respectively. One of our customers, Uninor, accounted for 11.8% of our copper revenue in fiscal 2011 and none of our customers accounted for greater than 10.0% of our copper revenue in fiscal 2009 and 2010.
Our copper sales and marketing head office is located in Mumbai, and we have field sales and marketing offices in most major metropolitan centers in India. We sell our copper rods and cathodes in both the domestic and export markets. In fiscals 2009, 2010 and 2011, exports accounted for approximately 39.0%, 45.7% and 41.3% of the revenue of our copper business, respectively. Our export sales were primarily to China, Japan, the Philippines, Singapore, South Korea, Taiwan, Thailand and various countries in the Middle East. We also sell phosphoric acid and other by-products in both the domestic and export markets.
Domestic sales are normally conducted on the basis of a fixed price for a given month that we determine from time to time on the basis of average LME price for the month, as well as domestic supply and demand conditions. The price for copper we sell in India is normally higher than the price we charge in the export markets due to the tariff structure on costs, smaller order sizes that domestic customers place and the packaging, storing and truck loading expenses that we incur when supplying domestic customers.
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Our export sales of copper are made on the basis of both long-term sales agreements and spot sales. The sales prices of our copper exports include the LME price plus a producers premium. We do not enter into fixed price long-term copper sales agreements with our customers.
Market Share and Competition
We are one of the two custom copper smelters in India and had a 43.0% primary market share in India in fiscal 2011, according to ICPCI.
Copper is a commodity product and we compete primarily on the basis of price and service, with price being the most important consideration when supplies of copper are abundant. Our metal products also compete with other materials, including aluminum and plastics, that can be used in similar applications by end-users. Copper is sold directly to consumers or on terminal markets such as the LME. Prices are established based on the LME price, though as a regional producer we are able to charge a premium to the LME price which reflects the cost of obtaining the metal from an alternative source.
Projects and Developments
We have Rs. 22,900 million ($514.1 million) of ongoing expansion projects to increase our total copper capacity to 800,000 tpa with a 160 MW coal based thermal captive power plant. The 400,000 tpa copper smelter expansion project at Tuticorin is being rescheduled while we await the consent from the State Pollution Control Board. We have incurred Rs. 5,948 million ($133.5 million) on these projects as of March 31, 2011. The funding for these projects are mainly from the proceeds of the convertible senior notes issued in fiscal 2010.
Our Zinc India Business
Overview
Our Zinc India business is owned and operated by HZL. HZLs fully-integrated zinc operations include four lead-zinc mines, four hydrometallurgical zinc smelters, one lead smelter, one lead-zinc smelter, five sulphuric acid plants and one silver refinery in the State of Rajasthan in Northwest India, one hydrometallurgical zinc smelter and one sulphuric acid plant in the State of Andhra Pradesh in Southeast India and one zinc ingot melting and casting plant at Haridwar in the State of Uttrakhand in North India. HZLs mines supply all of its concentrate requirements and allow HZL to also export surplus zinc and lead concentrates.
We first acquired an interest in HZL in April 2002 and since then have significantly improved its operating performance through expansion and by improving operational efficiencies and reducing unit costs. HZL improved its operating performance further by:
| benefiting from low-cost production available from its two hydrometallurgical zinc smelters with capacity of 210,000 tpa each at Chanderiya commissioned in May 2005 and December 2007, and expanded in April 2008 together with associated captive power plants at Chanderiya; |
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| benefiting from low-cost production available from one of its hydrometallurgical zinc smelters with capacity of 210,000 tpa at Rajpura Dariba smelting complex, which was commissioned in March 2010; |
| increasing the total zinc smelting production capacity; |
| increasing the percentage of concentrates being sourced from its Rampura Agucha mine as compared to its other mines to lower its cost of obtaining zinc concentrate; |
| continuing its initiatives to improve operational efficiencies at its existing operations; |
| reducing power costs; |
| reducing the size of its workforce including through a voluntary retirement plan; and |
| increasing productivity and upgrading existing technology. |
HZL has signed a mining lease for the Kayar mine in the State of Rajasthan which expires on February 27, 2018. In January 2009, HZL obtained environmental clearance for an annual production of 350,000 tons. The Kayar mine is currently in the post-exploration but pre-development stage. HZL is in the process of obtaining surface land rights over the mine area. HZL has commenced mine development activities.
HZL pays royalties to the State Government of Rajasthan based on its extraction of lead-zinc ore. With effect from August 13, 2009, the royalty rate increased from 6.6% to 8.4% of the LME zinc metal price payable on the zinc metal contained in the concentrate produced and from 5.0% to 12.7% of the LME lead metal price payable on the lead metal contained in the concentrate produced. The royalties we pay are subject to change. See Risk FactorsRisks Relating to Our IndustryChanges in tariffs, royalties, customs duties and government assistance may reduce our Indian market domestic premium, which would adversely affect our profitability and results of operation.
We have a 64.9% ownership interest in HZL, with the remainder owned by the Government of India (29.5%) and institutional and public shareholders (5.6%).
We have exercised the second call option option by a letter dated July 21, 2009 to acquire the Government of Indias remaining ownership interest in HZL although the exercise is currently subject to dispute. The Government of India has stated that the clauses of the shareholders agreement relating to our option violated the provisions of Section 111A of the Indian Companies Act by restricting the right of the Government of India to transfer its shares and that as a result, the shareholders agreement was null and void. As such, the Government of India has refused to act upon the second call option. Consequently, SOVL commenced arbitral proceedings under the terms of the shareholders agreement and has appointed its arbitrator. Under the terms of the shareholders agreement, the Government of India is required to nominate an arbitrator, but the Government of India has not made such a nomination. As a result, SOVL has filed an arbitration application pursuant to section 11(6) of the Arbitration and Conciliation Act 1996 in the High Court of Delhi petitioning the court to constitute an arbitral tribunal. The arbitration application was heard on May 18, 2010, and the Government of India informed that they had appointed Justice V N Khare as their arbitrator. By an order dated May 18, 2010, the court directed the parties to appoint mediators for mediation of the dispute. The mediation was not successful and the arbitral tribunal is being constituted. See Options to Increase Interests in HZL and BALCOHZL Call Options.
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Principal Products
Zinc
We produce and sell zinc ingots in all three international standard grades: Special High Grade (SHG99.994%), High Grade (HG99.95%) and Prime Western (PW98.0%). We sell most of our zinc ingots to Indian steel producers for galvanizing steel to improve its durability. Some of our zinc is also sold to alloy, dry cell battery, die casting and chemical manufacturers.
Lead
We produce and sell lead ingots of 99.99% purity primarily to battery manufacturers and to a small extent to chemical manufacturers.
By-products
Sulphuric acid is a by-product of our zinc and lead smelting operations. We sell sulphuric acid to fertilizer manufacturers and other industries.
Silver
Silver is a by-product of our lead smelting operations. We produce and sell silver ingots primarily to industrial users and traders of silver.
Our Production Process
Our zinc business has a number of elements which are summarized in the following diagram and explained in greater detail below:
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Lead-Zinc Mines
HZL sources all of the lead-zinc ore required for its business from its Rampura Agucha open-pit mine and the Zawar and Rajpura Dariba (including Sindesar Khurd) underground mines in Northwest India. Lead-zinc ore extracted from the mines is conveyed to on-site concentrators and beneficiation plants that process the ore into zinc and lead concentrates. With its low strip ratio and good ore mineralogy providing a high metal recovery ratio, the Rampura Agucha mine accounted for 88.8% of HZLs total mined metal in zinc and lead concentrate produced in fiscal 2011, with the Zawar, Rajpura Dariba and Sindhesar Khurd mines accounting for the remaining 3.4%, 3.4% and 4.4%, respectively. The zinc and lead concentrates are then transported by road to the nearby Chanderiya, Dariba and Debari smelters and by rail and road to the Vizag smelter in Southeast India. HZL has also sold surplus zinc and lead concentrates from its mines to third party smelters.
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Our current Indian Bureau of Mines, or IBM, approvals for the Rampura Agucha mine, the Zawar mine and the Rajpura Dariba mine limit our extraction of lead-zinc ore from the mines to approximately 6.15 million tpa, 1.2 million tpa and 0.9 million tpa, respectively, in fiscal 2011.
Zinc Smelters
HZL has two types of zinc smelters, hydrometallurgical and pyrometallurgical. Five of HZLs smelters are hydrometallurgical and one of HZLs smelters is pyrometallurgical.
The hydrometallurgical smelting process is a roast, leach and electrowin, or RLE, process. Zinc concentrate is first oxidized in the roaster and the gases generated are cleaned and sent to the sulphuric acid plant. The primary output from the roaster, called calcine, is sent to the leaching plant to produce a zinc sulphate solution that is then passed through a cold or hot purification process to produce purified zinc sulphate solution. The purified zinc solution then goes through an electrolysis process to produce zinc cathodes. Finally, the zinc cathodes are melted and cast into zinc ingots.
The pyrometallurgical smelter uses the imperial smelting process, or ISP, which process starts with sintering, where a mixture consisting of lead and zinc concentrates and fluxes is passed through the sinter machine to remove the sulphur. The gases generated from the sintering process are sent to the sulphuric acid plant. The de-sulphurized output of the sinter machine is broken for size reduction before being fed into an imperial smelting furnace, or ISF, where it is smelted with preheated metcoke and air. During the smelting process, molten lead trickles down to the bottom of the ISF and zinc rises up as vapor. The vapor is passed into a condenser where it is then absorbed back into the molten lead. The molten lead is cooled to separate out the zinc, which is then passed through a process of double distillation and condensation through which any remaining lead is removed to produce pure zinc metal which is cast into ingots. The lead removed through this process is sent to the pyrometallurgical lead smelter.
Lead Smelters
HZL has two lead smelters, one of which uses the pyrometallurgical ISF process and is part of the pyrometallurgical zinc smelter described above and the other of which uses Ausmelt technology.
The pyrometallurgical process involves the smelting of lead and zinc together as described under - Zinc Smelters. Lead removed from the pyrometallurgical process is sent for further refining where it passes through a series of processes to remove impurities. In this process, silver is also produced as a by-product. The refined lead is cast into lead ingots.
HZLs Ausmelt lead plant is based on Top Submerged Lance technology where lead concentrate is smelted directly in a vertical furnace along with flux. Lead bullion produced in this process is then treated in the lead refinery plant to produce high purity lead ingots. Off-gas containing sulphur dioxide gas is then cleaned and treated in the sulphuric acid plant.
Delivery to Customers
The zinc, lead and silver ingots and the sulphuric acid by-product are transported by road to customers in India. Zinc ingots are also shipped for export.
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Principal Facilities
Overview
The following map shows the locations of HZLs lead-zinc mines and production facilities and the reserves or production capacities, as applicable, as of March 31, 2011:
The following map shows the locations of HZLs facilities in the State of Rajasthan:
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The following map shows the location of HZLs facility at Vizag in the State of Andhra Pradesh:
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Mines
Rampura Agucha
The Rampura Agucha zinc mine is located in Gulabpura, District Bhilwara in the State of Rajasthan, Northwestern India. It can be accessed by paved road from the major centers of Udaipur, approximately 225 kilometers to the south, and Jaipur, the capital of the State of Rajasthan, which lies approximately 235 kilometers to the north. The nearest railway to the mine lies approximately five kilometers to the west. This railway provides access to Jaipur in the north and Chittorgarh in the south where the Chanderiya lead-zinc smelting facility is located.
The Rampura Agucha deposit was the largest lead-zinc mine in the world in terms of contained zinc deposits on a production basis in 2010, according to Brook Hunt. It is a sediment-hosted zinc deposit which lies within gneisses and schists of the Precambrian Mangalwar Complex. The main ore body is 1.5 kilometers long and has a width ranging from five meters to 120 meters with an average of approximately 58 meters. It extends from the surface with recent exploration intersecting up to 15-meter wide mineralized zones at depths of over 900 meters. The southern boundary of the ore body is sharp and steeply dipping while the northern margin is characterized by a thinning mineralized zone. Grades remain relatively consistent with depth. The ore body consists of sphalerite and galena, with localized concentrations of pyrite, arsenopyrite, pyrrhotite and tetrahedrite-tennantite.
The Rampura Agucha mine is Indias largest producer of lead and zinc ore and one of the largest producers in the world. The ore body is mined by open-pit methods. The capacity of the mine and concentrator was expanded between 2003 and 2010 from 2.4 million tpa to 6.15 million tpa for mine and 6.5 million tpa for mill at a cost of Rs.11,300 million ($253.7 million) through the purchase of additional mining equipment, upgrades to the truck fleet, improvements to the operational efficiency of the plant and the installation of a new semi-autogenous, or SAG, mill and ball mill circuit.
Mining at Rampura Agucha is a simple drill and blast, load and haul sequence using 240 ton trucks and 34 -cubic meter excavators. Ore is trucked to the primary crusher at the mill and waste is trucked to the waste dump. The mining equipment are owned owner-operated. The processing facility is a conventional crushing, milling and differential lead-zinc floatation plant which was commissioned in 1991. Ore from the open-pit is crushed in a series of three crushing circuits and then milled in three identical milling circuits, comprising a rod mill in open circuit and a ball mill in closed circuit. The milled ore is then sent to the lead flotation circuit which includes roughing, scavenging and three stages of cleaning. The lead concentrates are thickened and filtered ahead of storage and transport to the Chanderiya lead smelter. The lead flotation tails proceed to zinc flotation which comprises roughing, scavenging and four stages of cleaning. Zinc concentrates are thickened and filtered ahead of storage and transported to all three of the HZL zinc smelters. Zinc flotation tails are thickened ahead of disposal to the tailings dam.
Exploration at Rampura Agucha since 2004 has resulted in significant increases in the reserves at the mine. Following an extensive drilling program of 149 holes, approximately 88,040 meters to convert resources to reserves, better definition of the boundaries of the ore body, addition of resources and the conduct of open-pit re-optimization, as well as the commencement of potential underground mine project work, the reserve was increased by 29.61 million tons to 69.71 million tons as of March 31, 2011 with an average grade of 14.28% zinc and 1.96% lead and 66 ppm silver after depletion. The drill spacing for the definition of proven reserves was approximately 50 meters by 50 meters while for probable reserves was 100 meters by 100 meters in the open-pit. Resources now extend up to 1,190 meters below surface.
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The Rampura Agucha open-pit mine was commissioned in 1991 by HZL and operated as a state-owned enterprise until 2002 when HZL was acquired by us. The low strip ratio and good ore minerology of the mine provide a high metal recovery ratio and a low overall cost of production for zinc concentrate extracted from the mine. An on-site concentrator is used to produce zinc and lead concentrates which are shipped mainly to HZLs smelters though surplus concentrates are exported through the port of Kandla. The mining and processing facilities are modern and in good condition.
In fiscal 2011, 6.15 million tons of ore at 13.1% zinc and 2.2% lead were mined from Rampura Agucha, which produced 1.3 million tons of zinc concentrate at 51.3% zinc and 117,272 tons of lead concentrate at 58.6% lead. Approximately 77,066,151 tons of waste were removed giving a strip ratio of 12.53 tons of waste per ton of ore mined. The strip ratio is expected to increase to about 14.2 tons in fiscal 2012, considering the anticipated overburden removal of about 87.45 million tons and ore production of 6.15 million tons. The expansion of mine from 5 mt to 6.15 mt has resulted into significant increase in the strip ratio as there is dimensional change in the pit with ultimate depth of mine as 372 meters. Rampura Agucha mine has initiated a number of steps to optimize the strip ratio. Approximately 88.4% of the zinc was recovered to the zinc concentrate, while 54.6% of the lead and 64.1% of the silver was recovered from the metal contained in ore mined.
The 12-square kilometers mining lease was granted by the State Government of Rajasthan and runs until March 2020. Mining leases are governed in accordance with the Mineral Concession Rules, 1960 and the Mineral Conservation and Development Rules, 1988. We have also obtained consents under various environmental laws to operate the mine. We recently applied for a new prospecting permit covering the surrounding area as the ore body is dipping towards the eastern limit of the mining lease and the deepest intersection is approaching the current leasehold boundary. HZL commenced production at the mine in 1991. Since then, approximately 47.2 million tons of ore, with an ore grade of 12.9% zinc and 1.9% lead, respectively, have been extracted from the open-pit mine.
Power is supplied from two 234 MW and 80 MW captive power plants at Chanderiya and Zawar with two backup 5 MW generators on-site. Water to the site is pumped 57 kilometers from radial wells in the Banas River. A water extraction permit has been granted, which provides sufficient water for a production rate of approximately 6.2 million tpa.
The gross book value of the Rampura Agucha mines fixed assets and mining equipment was approximately Rs. 16,750 million ($376.1million) as of March 31, 2011.
HZL estimates the remaining mine life at Rampura Agucha, based on reserves as of March 31, 2011, and current and anticipated production to be over 30 years. In 2004, HZL commissioned the first exploration program since the mine opened and since then has increased the reserves at Rampura Agucha by approximately 60.0% after depletion. HZL also believes that additional mineralization exists in an extension in the depth and breadth of the established resource boundary and exploration drillings and is continuing to evaluate the potential of this deeper mineralization.
An economic feasibility study was carried out in September 2008 based on an industry standard Lerch Grossman open-pit optimization algorithm using Whittle software 4X. The treatment charges considered were $270 per ton of zinc concentrate and $210 per ton of lead concentrate. A dilution factor of 3.0% and a mining recovery factor of 96.0% were also applied.
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Additionally, a sensitivity analysis was carried out between $1,000 and $2,500 per ton of zinc. The result determined that an ultimate pit shell of 372 meters remains close to the optimal. The base metal prices used for the case study were $1,650 per ton for zinc and $1,190 per ton for lead.
In fiscal 2011, 55,954 dry metric tons of zinc concentrate at a grade of 49.9% was sold to third parties from the Rampura Agucha mine. The revenue realized from zinc concentrate sales was Rs. 2,215 million ($49.8 million). In fiscal 2011, 30,305 dry metric tons lead concentrate at a grade of 54.0% was sold to third parties from the Rampura Agucha mine. The revenue realized from lead concentrate sales was Rs. 2,638.3 million ($59.2 million).
We have commissioned a 1 million tpa concentrator at the Rampura Agucha mine in March 2010.
Rajpura Dariba
Rajpura Dariba is a medium sized underground lead-zinc mine and processing facility located approximately 75 kilometers by paved road northeast of Udaipur in the Rajsamand district of Rajasthan, Northwestern India. Roads to Chittorgarh and Udaipur are used to transport concentrates to the HZL smelters at Chanderiya and Debari. The railway is used to transport concentrate to the HZL smelter at Vizag on the east coast of India.
The ore at Rajpura Dariba occurs in the north, south and east lenses which are typically 15 meters to 50 meters thick, are conformable with the stratigraphy and dip approximately 65 degrees to the east. The lenses have strike lengths of more than 900 meters, 500 meters and 600 meters, respectively. They lie within a synclinal structure with a north-south axis, which is overturned to the west with steep easterly dips. The lead and zinc mineralization is hosted within silicified dolomites and graphite mica schists. The main ore minerals are galena and sphalerite, with minor amounts of pyrite, pyrrhotite and silver bearing tetrahedrite-tennantite. The proven and probable reserves for the Rajpura Dariba mine as of March 31, 2011 is 9.05 million tons at 6.8% zinc, 1.77% lead and 78 particles per million silver after depletion.
Mining at Rajpura Dariba commenced in 1983 and is carried out using the vertical crater retreat method and blasting hole mining method with mined out stopes backfilled with cemented classified mill tailings. In certain areas the ground conditions adversely affect slope stability and dilution. These ground conditions are the result of the weak graphitic nature of the shear zone combined with the dissolution of fractured and sheared dolomites by percolating acidic groundwater derived for overlying adjacent oxidized zones. HZLs Rajpura Daribas mine permit is valid until May 2010. HZL has already submitted an application for renewal on Decmeber 18, 2008 of the Rajpura Dariba mine permit, which is under process. The mine is currently being operated on the basis of deemed approval.
The mine is serviced by two vertical shafts approximately 600 meters deep. The main shaft is six meters in diameter and the auxiliary shaft is 4.5 meters in diameter. The main shaft has the capacity to hoist 1.0 million tpa of ore and is equipped with a modern multi-rope Koepe winder. All personnel and materials are hoisted in a large counterbalanced cage which is operated by the koepe winder. The surface infrastructure includes ventilation fans, compressors and ore loading facilities.
The ore is crushed underground before being hoisted to the surface. It is then crushed again and milled before undergoing a lead flotation process incorporating roughing, scavenging and three stages of cleaning. A facility exists at the mine to direct lead rougher concentrate to multi-gravity separators in order to reduce the graphite levels in the final concentrate as required. The final lead concentrate is thickened and filtered and subsequently stored and sent to HZLs Chanderiya lead smelters.
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Lead flotation tails are sent to the zinc flotation process, which comprises roughing, scavenging and three stages of cleaning. The facility is able to direct zinc rougher concentrate to column flotation cells to reduce silica levels in the final concentrate if required. Zinc concentrates are thickened, filtered and stored prior to dispatch to HZL smelters. Zinc flotation tails proceed to a backfill plant where they are cycloned with the underflow proceeding to intermediate storage where cement is added in preparation for use as underground fill. The cyclone overflow is thickened to recover water ahead of disposal in the tailings dam.
Power for the mine is supplied largely from HZLs captive power plants at Chanderiya and through a contract with Ajmer Vidyut Vitran Nigam Limited. Water is sourced via a 22-kilometer long pipeline from the Matri Kundia Dam on the seasonal Banas River as well as from underground. Water supply has been erratic in the past requiring supplemental supplies to be delivered by truck.
The gross book value of the Rajpura Dariba mines fixed assets and mining equipment, including Sindesar Khurd mine, is approximately Rs. 7,800 million ($175.1 million) as of March 31, 2011.
HZL estimates the remaining life of the mine at Rajpura Dariba including Sindesar Khurd, based on reserves as of March 31, 2011 at current and anticipated production to be over 20 years. An exploration program is also underway to identify new resources with the potential to be upgraded to reserves, and has been and continues to be focused on maintaining the reserve position after annual mining depletion. The drill spacing for proved reserves was some 30 meters while for probable reserves was less than 60 meters.
The average grade for each individual stope was defined using standard parameters for internal waste and dilution and a geological cut-off grade of 3.0% combined lead and zinc, though the mineralization generally has a sharp natural contact. The economic cut-off grade was then calculated based on a zinc price of $1,000 per ton and a lead price of $700 per ton, treatment charges of $130 per ton for zinc concentrate and $140 per ton for lead concentrate and fiscal 2006 cost and performance levels. The in-situ quantities and qualities were adjusted by applying a mining loss factor of 10.0%, a dilution factor of between 12.0% and 20.0% depending on ground conditions, with a further grade adjustment of (0.2)% for lead, (0.3)% for zinc and five grams per ton silver. These parameters are based on a reconciliation of historical production. This analysis showed that at these prices the diluted in-situ cut-off grade should be 5.4% combined lead and zinc. Stopes with average grades below this economic cut-off grade were excluded from the reserve estimate. The final reserve estimate is the sum of the stopes with an average grade above the economic cut-off limit. As the stopes are all accessed using the existing infrastructure and as there is sufficient capacity on the tailings dam, the capital expenditure was limited to the replacement of mining equipment and was therefore considered not to have a material impact on the cut-off grade.
The latest addition to the Rajpura Dariba mining operation is the Sindesar Khurd underground mine deposit that was explored during the years of 1992 to 1995. Mine production began at the Sindesar Khurd mine in April 2006 and HZLs mining permit is valid until 2029.
The Sindesar Khurd mine is a small scale underground mine. The deposit lies five kilometers north of and is on the same geological belt as the Rajpura Dariba mine. Ore from the mine is fed to the Rajpura Dariba mill and processing plant. The two mines are connected by all-weather tar road. The proven and probable reserves for the Sindesar Khurd mine as of March 31, 2011 is 10.10 million tons at 4.93% zinc, 2.78% lead and 158 ppm silver after depletion.
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The Sindesar Khurd ore body is conformable with the host stratigraphy. The mineralization lies within silicified dolomite and graphite mica schist which are overlain by quartzite. The deposit has been drilled to a depth of approximately 800 meters below surface and the ore body is traced over approximately two kilometers along the strike with an 800 meters vertical extension. While the deposit is still open in depth in the southern extension of the present mine block, the area below the mine block and towards the north extension only has narrow and low to moderate grade mineralization intersected.
Access to the mine is through an incline shaft and ramp from the surface while ore is hauled up the inclined shaft through the ramp. The ore body is accessed via horizontal drives on three levels. The long-hole open stoping mining method is used.
Exploration at the south part of Sindesar Khurd has been ongoing since March 2005 with a drilling program aimed at increasing the size of the resource. As of March 31, 2011, a total of 185 holes have been drilled, the deepest being 1100 meters below surface.
In fiscal 2011, 1,150,284 tons of ore at a grade of 5.6% zinc and 1.8% lead ore (mined at the Rajpura Dariba and Sindesar Khurd mines) was mined which produced 93,364 tons of zinc concentrate at 47.8% zinc, 26,896 tons of lead concentrate at 54.0% lead and 2,972 grams per ton of silver, and 14,265 tons of bulk concentrate at 37.5% zinc and 10.6% lead with 82.4% of the zinc being recovered in the zinc concentrate and 76.7% of the lead (at the Rajpura Dariba and Sindesar Khurd mines) and 81.0% of the silver being recovered in the lead concentrate.
In fiscal 2011, 10,004 dry metric tons of zinc concentrate at a grade of 48.5% was sold to third parties from the Rajpura Dariba mines. The revenue realised from zinc concentrate sales was Rs. 369.2 million ($8.3 million). In fiscal 2011, 8,152 dry metric tons of lead concentrate at a grade of 50.5% was sold to third parties from the Rajpura Dariba and Sindesar Khurd mines. The revenue realized from lead concentrate sales was Rs. 1,365.4 million ($30.6 million).
Zawar
Zawar consists of four separate mines: Mochia, Balaria, Zawarmala and Baroi. The deposit is located approximately 45 kilometers south of the Udaipur city, in Udaipur district of Rajasthan, in Northwest India. It is well accessed by paved road from Udaipur (in the North) and Ahmedabad (in the South), the capital of the State of Gujarat. The deposits lie within a 36.2 square kilometers mining lease granted by the State Government of Rajasthan, India, which was due for renewal in March 2010. An application to the Government of Rajasthan was submitted on November 25, 2008 for the renewal of the mining lease. Presently, the matter is pending in the Supreme Court for renewal of the mining lease. The mine plan for enhanced quantity (1.5 million tons) was approved by the IBM on August 21 2009. The environmental clearance from the Ministry of Environment and Forest, or MoEF, for the renewal of the lease and capacity enhancement (of 1.5 million tons) was obtained on October 30, 2009. The forest clearance is pending approval by MoEF. Due to lack of the forest clearance, mining activities at the Mochia, Zawar mala and Baroi mines were stopped after March 29, 2010. The consents to operate under the Air and Water Acts,was granted by the Rajasthan State Pollution Control Board for Zawar on March 23, 2010 for a period of three years with its validity expiring on February 28, 2013 in respect of the lead zinc ore mining.
The four deposits at Zawar are hosted by low grade metamorphosed sediments consisting of greywackes, phyllites, dolomites and quartzites that unconformably overlay the Pre-Cambrian basement. The lead-zinc-pyrite mineralization is strata bound and occurs as vein-stringers reflecting the high level of fractures within
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the more competent dolomites. There are multiple ore bodies that are complex in some areas as the lenses split and enclose waste rock. The ore bodies are steeply dipping. Zawar uses the sub-level open stoping mining method and its variants for the majority of its production.
Ore processing is carried out in a conventional comminution and flotation plant having facility for differential as well as bulk flotation of zinc & lead metals. The ore is crushed primarily underground and then hoisted to the surface. Thereafter, the ore is crushed to 15mm in size before being milled to 74 microns. In the differential flotation process, milled ore is conveyed separately to two lead flotation circuits and undergoes a process incorporating roughing, scavenging and cleaning. Final lead concentrate is thickened and filtered and then stored before dispatch to the Chanderiya lead smelter. Lead flotation tails proceed to two zinc flotation circuits comprising roughing, scavenging and cleaning. Zinc concentrate is thickened and filtered, then stored and dispatched to the Debari and Chanderiya smelters. Zinc flotation tails are disposed in slurry form in designated tailings disposal area.
In the bulk flotation process milled ore is conveyed to the flotation circuit and undergoes a process incorporating roughing, scavenging and cleaning. Final bulk concentrate is thickened and filtered, and then stored before dispatch to the Chanderiya lead zinc smelter. Bulk flotation tails are disposed in slurry form in designated tailings disposal area.
In fiscal 2011, approximately 240,550 tons of ore at 3.7% zinc and 0.9% lead was mined which produced 55,265 tons of bulk concentrate at 44.9% zinc and 6.4% lead. The recovery of zinc and lead during fiscal 2011 was 88.7% and 76.0%, respectively.
Power is supplied through a combination of an 80 MW thermal coal-based captive power plant commissioned in December 2008 and a 6 MW captive power plant. Power from the 80 MW thermal coal-based captive power plant is supplied to our Debari hydrometallurgical zinc smelter and also the excess power is sold to third parties.
Water consumption is controlled by an active water conservation program with supplemental water supplies sourced from a dedicated 300 million cubic foot dam. The process plant is in a reasonable structural, electrical and mechanical condition and a planned maintenance program is in place.
The gross book value of the Zawar fixed assets and mining equipment was approximately Rs. 1,674 million ($37.6 million) as of March 31, 2011 and of the 80 MW coal-based thermal captive power plant at Zawar was Rs. 3,134 million ($70.4 million).
Based on reserves as of March 31, 2011 and annual production levels, HZL estimates the remaining life of the Zawar operation to be approximately 20 years from April 1, 2011. The focus of mine exploration at Zawar is to replenish the reserves through exploration activity that are being depleted and to look for new mineralized area to enhance production capacity. A surface drilling program is underway to locate deeper resources below -100 MRL up to -500 MRL. Underground exploratory drilling is carried out on a grid of between 25 meters and 30 meters which is then infilled to 12 meters and 15 meters after completing the development for final delineation of ore bodies. Past exploration has outlined additional in-mine mineral resources which require further delineation to add to reserves and further extend the mine life.
Two approaches were used to determine the reserves. For some of the proven reserves, the stope limits had been designed and the mineable quantities were then derived by applying a mining recovery factor of 90.0% and a dilution factor of 10.0%. For the remaining proven resources and all of the probable reserves, the mineable quantities were adjusted further by applying an additional mining recovery factor of 60.0% to reflect the impact of leaving pillars and an additional dilution factor of 15.0% to reflect the effect of internal waste.
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The average grade for each individual stope was defined using standard parameters for internal waste and dilution and a geological cut-off grade of 3.0% for combined lead and zinc. The economic cut-off grade was then calculated based on a zinc price of $1,000 per ton, a lead price of $700 per ton, treatment charges of $130 per ton for zinc concentrate and $140 per ton for lead concentrate and fiscal 2006 cost and performance levels. This analysis showed that at these prices, the diluted cut-off grade should be 3.6% zinc. Stopes with average grades below this economic cut-off grade were excluded from the reserve estimate. The final reserve estimate is the sum of the stopes with an average grade above the economic cut-off limit. As the stopes are all accessed using the existing infrastructure and as there is sufficient capacity on the tailings dam, the capital expenditure was limited to the replacement of mining equipment and was therefore considered not to have a material impact on the cut-off grade.
In fiscal 2011, zinc, lead or bulk concentrates were not sold to third parties from the Zawar mine.
Summary of Mine Reserves
The following table sets out HZLs proven and probable zinc and lead reserves as of March 31, 2011:
Proven Reserves | Probable Reserves | Total Proven and Probable Reserves | ||||||||||||||||||||||||||||||||||||||||||||||||
Mine |
Quantity | Zinc Grade |
Lead Grade |
Silver Grade |
Quantity | Zinc Grade |
Lead Grade |
Silver Grade |
Quantity | Zinc Grade |
Lead Grade |
Silver Grade |
||||||||||||||||||||||||||||||||||||||
(million tons) |
(%) | (%) | (g/t Ag) |
(million tons) |
(%) | (%) | (g/t Ag) |
(million tons) |
(%) | (%) | (g/t Ag) |
|||||||||||||||||||||||||||||||||||||||
Rampura Agucha |
6.16 | 12.4 | 1.8 | 57 | 63.55 | 14.5 | 2.0 | 67 | 69.71 | 14.3 | 2.0 | 61 | ||||||||||||||||||||||||||||||||||||||
RajpuraDariba |
7.37 | 6.9 | 1.8 | 82 | 1.67 | 6.5 | 1.7 | 63 | 9.05 | 6.8 | 1.8 | 81 | ||||||||||||||||||||||||||||||||||||||
Sindesar Khurd |
1.91 | 5.4 | 2.6 | 133 | 8.19 | 4.8 | 2.8 | 164 | 10.1 | 4.9 | 2.8 | 162 | ||||||||||||||||||||||||||||||||||||||
Zawar |
3.53 | 4.1 | 2.1 | 37 | 4.34 | 3.3 | 2.0 | 34 | 7.87 | 3.7 | 2.0 | 36 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||
Total |
18.97 | 8.0 | 1.9 | 71 | 77.75 | 12.7 | 2.1 | 75 | 96.73 | 11.7 | 2.0 | 74 |
Smelters
Overview
The following table sets forth the total capacities as of March 31, 2011 at HZLs Chanderiya, Debari, Vizag, Zawar and Dariba facilities:
Facility |
Zinc | Lead | Capacity Silver |
Sulphuric Acid | Captive Power | |||||||||||||||
(tpa) | (tpa) | (tpa) | (tpa) | (MW) | ||||||||||||||||
Chanderiya |
525,000 | 85,000 | 168 | 828,500 | 248.8 | |||||||||||||||
Debari |
88,000 | | | 419,000 | 14.8 | |||||||||||||||
Vizag |
56,000 | | | 91,000 | | |||||||||||||||
Zawar |
| | | | 86.0 | |||||||||||||||
Dariba |
210,000 | | | 306,000 | 160.0 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
879,000 | 85,000 | 168 | 1,644,500 | 509.6 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
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Chanderiya
The Chanderiya facility is located approximately 120 kilometers east of Udaipur in the State of Rajasthan in Northwest India. The facility contains four smelters, two associated captive power plants, two sulphuric acid plants, and a silver refinery:
| an ISP pyrometallurgical lead-zinc smelter with a capacity of 105,000 tpa of zinc and 35,000 tpa of lead that was commissioned in 1991; |
| two RLE hydrometallurgical zinc smelters with a capacity of 170,000 tpa each that were commissioned in May 2005 and December 2007. Pursuant to the improvement in operational efficiencies which was completed in April 2008, the zinc smelting capacity increased by 40,000 tpa to 210,000 tpa each; |
| an Ausmelt lead smelter with a capacity of 50,000 tpa that was commissioned in February 2006; |
| associated 154 MW and 80 MW coal-based captive power plants commissioned in May 2005 and April 2008, respectively; |
| a 14.8 MW fuel based captive power plant transferred from Debari in March 2009 and which was originally commissioned at Debari in March 2003; |
| three sulphuric acid plants with a total capacity of 828,500 tpa of sulphuric acid; and |
| a silver refinery with a capacity of 168 tpa silver ingots. |
Concentrate requirements for the facility are supplied by HZLs mines. The 154 MW, 80 MW and 14.8 MW captive power plants at Chanderiya provide all of the power for the facility. The captive power plants require approximately 130,000 tons of coal per month, which we procure through tenders and from the domestic market, with contracts made on the basis of one to three shipments of 50,000 to 70,000 tons each and the particulars depending on price and other circumstances. The coal is imported from a number of third party suppliers. In addition, HZL secured in January 2006, as part of a consortium with five other partners, the award of a coal block from the Madanpur Coal Block which is expected to help meet the coal requirements of its captive power plants in the future. HZLs share of the coal block is 31.5 million tons which, according to the Ministry of Coal, are proved reserves with ash content ranging from 28.7% to 47.0% and with gross calorific value ranging from 3,865 kilo calories per kilogram to 5,597 kilo calories per kilogram. On June 16, 2008, the Ministry of Coal approved the consortiums plan for mining the coal block. The coal block is located in the Hasdev Arand coal field of Chhattisgarh which falls under moderate to dense forest. The environmental clearance and approval for the forest diversion was rejected by the MoEF and accordingly, a letter of rejection was issued by the State government on January 23, 2010. We have made our submissions to the MoEF. Thereafter, the Prime Ministers Office constituted a committee of secretaries to review the rejection of the environmental clearance and approval. The Prime Ministers Office also constituted a Group of Ministers to resolve the issue of forest clearance. The matter is now being discussed at the Group of Ministers meetings. HZL will continue to import coal from third-party suppliers or pursue alternative sources.
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HZL has also been awarded 2.43 million tons of coal linkage by the Ministry of Coal of the Government of India, which will enable us to source coal from mines of South Eastern Coalfields Limited, or SECL, a subsidiary of Coal India.
Debari
The Debari hydrometallurgical zinc smelter is located approximately 12 kilometers east of Udaipur in the State of Rajasthan. The hydrometallurgical zinc smelter was commissioned in 1968, uses RLE technology and has a capacity of 80,000 tpa which was increased to 88,000 tpa in April 2008 pursuant to improvements made to its operational efficiencies. The Debari facility also includes a 419,000 tpa sulphuric acid plant. A majority of the power requirements of the facility is sourced from the coal-based captive power plant at Chanderiya and the balance is sourced from an on-site liquid fuel-based 14.8 MW captive power plant commissioned in March 2003. The liquid fuel is procured from domestic oil-producing companies through a tender process for a yearly contract.
Vizag
The Vizag hydrometallurgical zinc smelter is located approximately 17 kilometers from the Vizag inner harbor on the Bay of Bengal in the State of Andhra Pradesh in Southeast India. The hydrometallurgical zinc smelter was commissioned in 1977, uses older RLE technology and has a capacity of 56,000 tpa. The Vizag facility also includes a 91,000 tpa sulphuric acid plant. HZL obtains approximately 50.0% of the facilitys power requirements from Andhra Pradesh Gas Power Corporation Limited, a gas utility company in which HZL holds an 8.0% equity interest. The remaining power is obtained from the Transmission Company of Andhra Pradesh, a government-owned enterprise.
Haridwar
The 210,000 tpa zinc ingot melting and casting plant in Haridwar in the State of Uttarakhand was commissioned in July 2008. This plant was established at a cost of Rs. 830 million ($18.5 million). This plant melts and casts zinc ingots from zinc cathodes produced in the Chanderiya smelter and therefore its production capacity does not increase the total production capacity of HZLs facilities. The capacity of Haridwar zinc plant is currently 292,000 tpa.
Dariba
The Dariba hydrometallurgical zinc smelter is located approximately 75 kilometers northeast of Udaipur in the Rajsamand district of Rajasthan in Northwest India. This hydrometallurgical zinc smelter was commissioned in March 2010 and has a capacity of 210,000 tpa. The Dariba facility also includes a 306,000 tpa sulphuric acid plant. A majority of the power requirements of the facility is sourced from the coal-based captive power plant at Dariba.
Production Volumes
The following table sets out HZLs total production from its Chanderiya, Debari and Vizag facilities for the three years ended March 31, 2011:
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Year Ended March 31, | ||||||||||||||
Facility |
Product | 2009 | 2010 | 2011 | ||||||||||
(tons, except for silver which is in kgs) | ||||||||||||||
Chanderiya |
||||||||||||||
ISP(TM) pyrometallurgical lead-zinc smelter |
Zinc | 79,569 | 93,480 | 90,298 | ||||||||||
Lead(2) | 18,938 | 21,550 | 20,562 | |||||||||||
First hydrometallurgical zinc smelter |
Zinc | 181,377 | 175,602 | 179,276 | ||||||||||
Second hydrometallurgical zinc smelter |
Zinc | 152,511 | 167,827 | 154,844 | ||||||||||
Ausmelt(TM) lead smelter |
Lead | 41,385 | 42,769 | 36,733 | ||||||||||
Silver refinery |
Silver | 105,055 | 138,550 | 148,082 | ||||||||||
Sulphuric acid plants |
Sulphuric acid | 611,871 | 641,313 | 600,753 | ||||||||||
Dariba |
||||||||||||||
Hydrometallurgical zinc smelter (2) |
Zinc | | | 164,551 | ||||||||||
Sulphuric acid plant |
Sulphuric acid | | | 218,483 | ||||||||||
Debari |
||||||||||||||
Hydrometallurgical zinc smelter |
Zinc | 85,191 | 87,318 | 84,839 | ||||||||||
Sulphuric acid plant |
Sulphuric acid | 267,463 | 290,188 | 306,949 | ||||||||||
Vizag |
||||||||||||||
Hydrometallurgical zinc smelter |
Zinc | 53,076 | 54,184 | 38,663 | ||||||||||
Sulphuric acid plant |
Sulphuric acid | 74,935 | 74,945 | 65,514 | ||||||||||
Total |
Zinc | 551,724 | 578,411 | 712,471 | ||||||||||
Lead(1) | 60,232 | 64,319 | 57,294 | |||||||||||
Silver | 105,055 | 138,550 | 148,082 | |||||||||||
Sulphuric acid | 954,269 | 1,006,446 | 1,192,699 |
Notes:
(1) | Excludes lead containing a high content of silver (High Silver lead) produced from the pyrometallurgical lead-zinc smelter for captive use, which was 5,009 tons, 7,308 tons and 5,898 tons in fiscals 2009, 2010 and 2011, respectively. |
(2) | The hydrometallurgical zinc smelter was commissioned in March 2010. |
The following table sets out HZLs total ore, zinc concentrate, lead concentrate and bulk concentrate production for the three years ended March 31, 2011:
Year Ended March 31, | ||||||||||||||
Mine (Type of Mine) |
Product |
2009 | 2010 | 2011 | ||||||||||
(tons, except percentages) | ||||||||||||||
Rampura Agucha (Open-pit) |
Ore mined | 4,953,110 | 5,135,625 | 6,149,165 | ||||||||||
Ore grade -Zinc |
13.4 | % | 12.9 | % | 13.1 | % | ||||||||
Lead |
1.9 | % | 1.8 | % | 2.2 | % | ||||||||
Recovery - Zinc |
92.0 | % | 92.1 | % | 88.4 | % | ||||||||
Lead |
60.6 | % | 59.3 | % | 54.6 | % | ||||||||
Zinc concentrate |
1,114,048 | 1,155,849 | 1,319,245 | |||||||||||
Lead concentrate |
92,151 | 89,205 | 117,272 | |||||||||||
Rajpura Dariba/Sindesar Khurd (Underground) |
Ore mined | 783,288 | 945,997 | 1,150,284 | ||||||||||
Ore grade - Zinc |
5.8 | % | 5.4 | % | 5.6 | % | ||||||||
Lead |
2.1 | % | 1.9 | % | 1.8 | % | ||||||||
Recovery - Zinc |
81.8 | % | 82.2 | % | 82.4 | % | ||||||||
Lead |
74.3 | % | 76.2 | % | 76.7 | % | ||||||||
Zinc concentrate |
59,672 | 74,872 | 93,364 | |||||||||||
Lead concentrate |
17,745 | 20,828 | 26,896 | |||||||||||
Bulk concentrate(1) |
8,687 | 15,535 | 14,265 | |||||||||||
Zawar (Underground) |
Ore mined | 944,300 | 1,020,250 | 240,550 |
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Ore grade -Zinc |
3.8 | % | 3.0 | % | 3.7 | % | ||||||||
Lead |
2.0 | % | 1.9 | % | 0.9 | % | ||||||||
Recovery -Zinc |
89.4 | % | 90.8 | % | 88.0 | % | ||||||||
Lead |
87.3 | % | 90.8 | % | 70.7 | % | ||||||||
Zinc concentrate |
29,257 | | | |||||||||||
Lead concentrate |
15,049 | | | |||||||||||
Bulk concentrate(1) |
29,924 | 73,048 | 55,265 | |||||||||||
Total |
Ore mined | 6,680,698 | 7,101,872 | 7,539,999 | ||||||||||
Zinc concentrate |
1,202,977 | 1,230,721 | 1,412,609 | |||||||||||
Lead concentrate |
124,945 | 110,033 | 144,168 | |||||||||||
Bulk concentrate(1) |
38,611 | 88,583 | 69,530 |
Note:
(1) | Bulk concentrate is concentrate that contains both zinc and lead. |
Principal Raw Materials
The principal inputs of HZLs zinc smelting business are zinc and lead concentrates and power. HZL has in the past been able to secure an adequate supply of the principal inputs for its business.
Zinc and Lead Concentrates
Zinc and lead concentrates are the principal raw material of HZLs smelters. HZLs lead-zinc mines have provided all of its requirements for zinc and lead concentrates in the past. We expect HZLs mines to continue to provide all of its zinc and lead concentrate requirements for the foreseeable future.
Power
Most of HZLs operations are powered by the coal-based captive power plants at Chanderiya, for which HZL imports the necessary thermal coal from a number of third party suppliers. HZL has outsourced the day-to-day operation and maintenance of its captive power plants at Chanderiya, Dariba, Debari and Zawar. HZL has also been awarded 2.43 million tons of coal linkage, by the Ministry of Coal, which will enable us to source coal from mines of SECL.
HZLs remaining operations source their required power from liquid fuel-based captive power plants or from local power companies. The liquid fuel is sourced from third party suppliers on yearly contracts.
Metallurgical Coke
In addition, HZLs pyrometallurgical smelter at Chanderiya requires metallurgical coke that is used in the smelting process. HZL currently sources its metallurgical coke requirements from third parties under long-term contracts and the open market.
Distribution, Logistics and Transport
Zinc and lead concentrates from HZLs lead-zinc mines are transported to the Chanderiya and Debari smelters by road. Zinc concentrate from HZLs mines is also transported by road, or a combination of road and rail, to the Vizag smelter, which is located approximately 1,200 kilometers southeast of the mines. Zinc
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concentrate may also be shipped for export. Zinc and lead ingots and silver, and sulphuric acid by-products are transported by road to customers in India.
Sales and Marketing
HZLs 10 largest customers accounted for approximately 23.6%, 32.3% and 36.2% of its revenue in fiscal 2009, 2010 and 2011, respectively. No customer accounted for greater than 10.0% of HZLs revenue in fiscal 2009, 2010 and 2011.
HZLs marketing office is located in Mumbai, and it has field sales and marketing offices in most major metropolitan centers in India. In fiscal 2011, HZL sold approximately 61.0% of the zinc and lead metal it produces in the Indian market and exports approximately 39.0%.
Approximately 98.5% of the zinc metal that HZL produced in fiscal 2011 was sold under annual contracts specifying quantity, grade and price, with the remainder sold on the spot market. In some of the contracts, a premium over the LME price is fixed while in other contracts sales take place at a price equal to HZLs list price less an agreed discount. HZLs list prices are based on the LME prices, the prevailing market premium, tariffs and logistics costs. HZL periodically revises its list prices based on LME price trends. Thus, the price that HZL receives for its zinc is dependent upon, and subject to fluctuations in, the LME price.
Projects and Developments
HZL has expansion projects in the amount of approximately Rs. 6,090 million ($136.7 million) to increase its total integrated lead-zinc capacity to 1,064,000 tpa with fully integrated mining and captive power generation capacities and Rs.8,650 million ($194.2 million) to increase its total wind power generation capacity from 123.2 MW to 273.2 MW. These projects include:
| establishing one brownfield lead smelter which is expected to increase the production capacity of lead by approximately 100,000 tons at HZLs Rajpura Dariba complex in the State of Rajasthan, which is being commissioned; |
| HZL is expected to start mining activity at the Kayar mine progressively from mid-2013, with the mine expected to have a production capacity of 350,000 tpa; and |
| expanding its existing wind power generation capacity from the existing 123.2 MW to 273.2 MW. The first phase of 48 MW has been completed and the second phase of 102 MW is scheduled to be completed by the second quarter of fiscal 2012. |
| increasing silver production from the current levels of approximately 180 tpa to approximately 500 tpa, primarily from the Sindesar Khurd mine. |
These projects are being financed from internal sources.
Market Share and Competition
HZL is the only integrated zinc producer in India and had a market share by sales volume of the Indian zinc market of 82.0% in fiscal 2011, according to ILZDA. The only other zinc producer in India, but not
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integrated and depends on imports of zinc concentrate, is Binani Zinc Limited, which had a market share of 6.0% of the Indian market in terms of sales volume in fiscal 2011, according to ILZDA. Imports and secondary sources accounted for the remaining 12.0% market share, according to ILZDA.
Zinc is a commodity product and HZL competes primarily on the basis of price, time of delivery and location. Zinc metal also faces competition as a result of substitution of materials, including aluminum, stainless steel and other alloys, plastics and other materials being substituted for galvanized steel and epoxies, paints and other chemicals being used to treat steel in place of galvanization in the construction market.
HZL is the only primary lead producer in India, with competition coming from imports which provide a substantial majority of the lead consumed in India. Lead is a commodity product and HZL competes primarily on the basis of price, time of delivery and location.
Our Zinc International Business
Overview
On May 10, 2010, Sterlite agreed to acquire the zinc business of Anglo American Plc for a total consideration of Rs. 69,083 million ($1,513.1 million). The zinc business comprises of:
(1) | a 100.0% stake in Skorpion which owns the Skorpion mine and refinery in Namibia; |
(2) | a 74.0% stake in BMM, which includes the Black Mountain mine and the Gamsberg Project, in South Africa; and |
(3) | a 100.0% stake in Lisheen, which owns the Lisheen mine in Ireland. |
On December 3, 2010, we announced the completion of the acquisition of 100.0% stake in Skorpion by SIL, a wholly-owned subsidiary of Sterlite for a consideration of Rs. 32,098 million ($706.7 million). On February 4, 2011, we announced the completion of the acquisition of the 74.0% stake in BMM for a consideration of Rs. 11,965 million ($260.2 million). On February 15, 2011, we announced the completion of the acquisition of 100.0% stake in Lisheen for a consideration of Rs. 25,020 million ($546.2 million). The purchase price for the zinc business was paid in US dollars and has been converted into Indian Rupees based on the exchange rate as on the date of each such acquisition. The zinc business of Anglo American Plc acquired by us has been categorised as a separate reportable segment Zinc- International.
Skorpion
Overview
THL Zinc Namibia Holdings Proprietary Limited was incorporated on June 16, 1998 and its headquarters is at the Skorpion Zinc mine site, which is situated 25 kilometers north of Rosh Pinah Namibia. Skorpions registered office is situated at 24 Orban Street, Klein Windhoek, Namibia. Skorpions wholly owned subsidiaries are: Skorpion Zinc (Proprietary) Limited, Namzinc (Proprietary) Limited and Skorpion Mining Company (Proprietary) Limited. Skorpion Zinc (Proprietary) Limited is an investment holding company, owning the entire share capital in Namzinc (Proprietary) Limited and Skorpion Mining Company (Proprietary) Limited. Namzinc (Proprietary) Limited operates a zinc refinery, who procures oxide zinc ore from Skorpion Mining Company (Proprietary) Limited, who in turn extracts the ore from an open pit zinc deposit. Skorpion Mining Company (Proprietary) Limited is a member of the Chamber of Mines in Namibia.
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The Skorpion mine is located in the Karas region of southern Namibia, comprising an open pit mine with a mine life up to 2015 and an attached electrolytic refinery producing approximately 150,000 tons of SHG zinc ingots annually. Further opportunities to extend the life of the mine are currently being evaluated.
The processing at the Skorpion mine is unique, using solvent-extraction and electrowinning from zinc oxide ore. In this process, mined ore is crushed, homogenised and milled before acid leaching in agitated tanks at the refinery. Clarified liquor is purified by solvent extraction and zinc is electrolytically plated on to aluminum cathodes. Zinc is periodically stripped from these cathodes before being melted and cast as ingots for export.
During the year ended December 31, 2010, 1.55 million tons of ore at 11.1% zinc were mined from the Skorpion mine, which produced approximately 152,000 tons of zinc metal. Approximately 9.21 million tons of waste were removed giving a strip ratio of 6 tons of waste per ton of ore mined. Prior to its acquisition by us, Skorpion had a financial year end of December 31.
Principal Products
Skorpion produces SHG zinc ingots and there is a committed off-take agreement for three years commencing January 1, 2010, covering the sale of all zinc ingots produced at the integrated mine and refinery of Skorpion. Skorpion does not produce any material by-products.
Our Production Process
Our Skorpion zinc business has a number of elements which are summarized in the following diagram and explained in greater detail below:
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Process overview
In contrast to the majority of zinc deposits worldwide, which contain zinc primarily as the sulphide mineral sphalerite, Skorpion is a primary oxide/silicate/carbonate zinc deposit. The zinc minerals can therefore not be concentrated by flotation. However, the absence of sulphur offers an advantage as no sulphur or sulphuric acid disposal is required. The ore is leached directly in dilute sulphuric acid to produce zinc sulphate. It is not possible to directly electrowin zinc from the sulphate solution due to the high chlorine and fluorine levels and other impurities contained in Skorpion ore, which cause anode and cathode corrosion and cathode stripping problems. Solvent extraction provides a buffer against chlorine and fluorine and effectively prevents any carry-over into the purified electrolyte solution. The use of solvent extraction for zinc simplifies the overall treatment route by comparison with conventional roast-leach-electrowinning (RLE) circuits.
The process is conducted in three loops, schematically as shown in the figure below. The first loop is an
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aqueous loop, where ore is leached with aqueous raffinate to produce zinc sulphate. The second loop is organic and consists of a 40% mixture of the extractant Di-2-Elhyl-Phosphoric Acid (D2EHPA) in diluent (kerosene). The organic is contacted with the zinc sulphate solution from the primary aqueous loop to extract zinc as an organic complex. The loaded organic is then contacted with spent electrolyte, which strips zinc, to produce a zinc rich electrolyte (loaded electrolyte). The loaded electrolyte is fed to the electrowinning cellhouse to produce SHG zinc cathode sheets, and spent electrolyte through. Recirculating the spent electrolyte to the stripping stage of solvent extraction completes the third loop. The electrowinning product, SHG zinc cathode at 99.9% zinc, does not require further refining and the final step consists of melting and casting, to produce zinc ingots or jumbos.
Melting and Casting
The melting and casting section of the plant is designed to produce 25kg Special High Grade ingots and 1 or 2 ton jumbo ingots.
The zinc cathodes from electrowinning are fed into two induction furnaces, producing molten zinc metal. The molten zinc metal can be pumped to three alternate destinations:
| To an ingot casting machine where 25kg ingots are produced; or |
| To two jumbo casting launders where 1 to 2 ton jumbo ingots are produced; or |
| To two tilting alloying furnaces which feed the jumbo casting launders. |
Due to surface oxidation during the melting and casting process, some zinc-containing dross and skimmings are produced. The metallic portion of the dross and skimmings is returned to the furnace, while the oxide portion is returned to the leach process for zinc recovery.
Main consumables in melting and casting are ammonium chloride flux and liquid petroleum gas (LPG) for pre-heating of casting moulds.
Principal Facilities
Overview
The following map pointing shows the location of Skoprion mine and production facilities and the reserves or production capacities, as applicable as of March 31, 2011:
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The following map shows the location of Skorpion mines in Namibia:
Mines
Skorpion Mines
The Skorpion Zinc Deposit is located in the southern Namib desert of Namibia, approximately 20 kilometers north-west of the small mining town of Rosh Pinah, 75 kilometers from the Atlantic coastline, and about 40 kilometers from the perennial Orange river, which forms the border with South Africa. The deposit lies just inside the Sperrgebiet or forbidden area, now known as Diamond Area 1. The extracted ore is sent to the refinery for further processing.
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Summary of Mine Reserves
The following table sets out the proved and probable zinc and lead reserves as of March 31, 2011:
Proved Reserve | Probable Reserve | Total Proved and Probable Reserves |
||||||||||||||||||||||||||||||||||
Quantity | Zinc Grade |
Lead Grade |
Quantity | Zinc Grade |
Lead Grade |
Quantity | Zinc Grade |
Lead Grade |
||||||||||||||||||||||||||||
(million tons) | (%) | (%) | (million tons) | (%) | (%) | (million tons) | (%) | (%) | ||||||||||||||||||||||||||||
Skorpion |
1.5 | 9.4 | | 4.9 | 10.4 | | 6.4 | 10.2 | | |||||||||||||||||||||||||||
Total |
1.5 | 9.4 | | 4.9 | 10.4 | | 6.4 | 10.2 | |
Skorpion Facility
The following table sets out the total capacity of the facility at Skorpion as of March 31, 2011:
Capacity | ||||
Facility |
Zinc (tpa) | |||
Skorpion |
153,000 | |||
|
|
|||
Total |
153,000 | |||
|
|
Production Volumes
The following table sets out the total production from the Skorpion zinc refinery for each of the three years ended December 31, 2008, 2009 and 2010:
Year ended 31 December | ||||||||||||||
Facility |
Product | 2008 | 2009 | 2010 | ||||||||||
(tons) | ||||||||||||||
Zinc refinery |
Zinc | 145,000 | 150,000 | 152,000 |
The following table sets out the total ore, zinc and lead concentrate production at the Skorpion mine, for each of the three years ended December 31, 2008, 2009 and 2010:
Year ended 31 December | ||||||||||||||
Mine (Type of Mine) |
Product |
2008 | 2009 | 2010 | ||||||||||
(tons, except percentages) | ||||||||||||||
Skorpion (Open-pit) |
Ore mined | 1,390,000 | 1,496,000 | 1,553,000 | ||||||||||
Ore grade -Zinc |
12.2 | % | 11.8 | % | 11.1 | % | ||||||||
Recovery - Zinc | 89.1 | % | 90.3 | % | 90.3 | % |
Prinicipal Raw Materials
The Skorpion mine uses 70,000 tons of sulphur per year, of which 80.0% is imported in bulk from Germany and shipped to Namibia through the port of Luderitz while the remaining sulphur is brought from South Africa in molten form via road.
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Power
The maximum power demand of the Skorpion mine is 85 MW and power is supplied from South Africa and is govered by a tri-partite U.S. Dollar denominated contract between Namibia Power Corporation (Proprietary) Limited, Eskom Holdings Limited and Skorpion, that currently links the annual increases in power costs to a U.S. inflationary index.
Distribution, Transport & Logistics
Zinc at the Skorpion mine is cast into ingots for export and transported from the refinery to the port of Luderitz, approximately 300 kilometers away by trucks each having a maximum capacity of 35 tons. On the return trip from luderitz, sulphur transported to site which is imported by ship. All other re-agents and cosumables are trucked in by one trasnport contractor.
Sales and Marketing
Skorpion has a single customer that buys all the products.
Market Share and Competition
According to Brook Hunt, the Skorpion mine has consistently been one of the largest zinc producing mines in the world and in 2010, it was ranked fifteenth in the world in terms of production volume with a cost base in the bottom half of the zinc industry cost curve. The Skorpion mine produces only high-grade, high purity SHG zinc ingots that are registered on the LME.
BMM
Overview
BMM consists of the Black Mountain mine and the Gamsberg project. The zinc mine at Black Mountain is an underground operation, mining a polymetallic ore body, with an attached concentrator producing approximately 28,000 tons of zinc, 50,000 tons of lead, 2,000 tons of copper and 55 tons of silver in concentrate, annually. Exxaro Resources (through its wholly owned subsidiary, Exxaro Base Metals) holds the remaining 26.0% interest in BMM.
The predominant mining method is ramp in stope cut and fill. The planned production rate is 1.56 mtpa plant feed and the share hoisting capacity is approximately 150,000 tpa. All production stopes are backfilled and waste filled, integrated into the mining sequence.
The mining process includes primary crushing underground before being hoisted to surface coarse ore silos for stockpile. Coarse ore is screened before secondary and tertiary crushing, from where it is fed into a milling plant. The slurry product from the grinding mills passes directly to the flotation circuits from which copper concentrates, lead concentrates and, finally zinc concentrates are floated off. The concentrates are dewatered by thickening and subsequent pressure filtration to reduce moisture content to shipment requirements. The dewatered concentrates are discharged onto conveyors, before being transferred to separate copper, lead and zinc concentrate stockpiles. From the stockpiles, the concentrates are hauled by truck to a dedicated railway siding, where they are loaded onto rail cars for outbound shipping.
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Power at the zinc mine at Black Mountain is supplied from two 40 million volt ampere transformers at the Eskom Aggeneys substation. Water is supplied by the Pelladrift Water Board, which supplies potable water to the mine from the Orange river for both human consumption and industrial water requirements.
During the year ended December 31, 2010, 1,379,000 tons of ore at 3.3% zinc and 4.2% lead were mined from the Black Mountain mine, which produced approximately 72,000 tons of zinc concentrate and 71,000 tons of lead concentrate, containing 36,000 tons of zinc and 51,000 tons of lead, respectively. In addition the Black Mountain mine also produced 2,500 tons of copper in concentrate and 57 tons of silver in concentrate. Prior to its acquisition by us, BMM had a financial year end of December 31.
Principal Products
BMM produces zinc, copper and lead in concentrate and all the zinc concentrate is shipped to a refinery owned by Exxaro Base Metals.
By-products
Silver is a by-product of our copper and lead concentrate.
Production Process
BMM zinc business has a number of elements which are summarized in the following diagram and explained in greater detail below:
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The run-of-mine (ROM) ore undergoes a primary crushing stage underground. From there, it is conveyed to a series of course ore silos before being fed into an open circuit secondary crushing stage and a closed circuit tertiary crushing stage. The plant treats about 1.5mtpa or ore. Crushing reduces the ore size from about 200mm topsize to about 12mm topsize. Crushed ore is stored in the fine ore silos ahead of the milling circuit.
The first stage of milling is an open circuit rod mill. 80mm rods are used to mill down crushed material. Mill discharge is fed to the hydrocyclones which removes the fines (60% passing 75microns). Cyclone underflow is fed to a ball mill filled with 50mm balls. Ball mill discharge is fed back to the hydrocyclones for fines removal. Hydrocyclone overflow is sent to the aeration banks ahead of the float circuit.
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The slurry is then subjected to sequential floatation (for copper, lead and zinc concentrates). All three circuits have the same basic design, that is conditioning upfront, followed by roughing to recover metal. Rougher concentrate is fed to a cleaner bank for upgrading to product specification, where-as rougher tails are sent to a scavenger bank to strip out metals nor recovered in rougher stage. Scavenger concentrate and cleaner tails are reciculated back into the conditioners/roughers. Cleaner concentrate is sent to a thickener/filtration section for dewatering, whereas scavenger tails are routed to the next circuit.
Copper is removed first and upgraded to about 26% copper in concentrate. Recoveries of 68.0%-63.0% is achieved. Lead removal follows with lead concentrate being upgraded to about 70% lead (at a recovery of about 90%). Zinc is removed last, with final product being about 50% zinc (recovery about 78%). The final products (copper, lead and zinc) are then stockpiled for transportation by truck to the loop 10 railway siding.
Prinicipal Facilities
The following maps shows the specific location of the Black Mountain mine in Northern Cape in South Africa:
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Mines
Black Mountain mine is a polymetallic underground operation producing base metals. The two orebodies currently being mined are the Deeps and Gamsberg orebodies. The Swartberg and Broken Hill orebodies have not been exploited since 2006. The Black Mountain mine is situated 113km east of the town Springbok in the Northern Cape Province, South Africa (Latitude 29° 14 South and Longitude 18° 50 East). The Deeps orebody is the down plunge continuation of the Broken Hill Lower orebody and the Gamsberg orebody is situated 25km east of Black Mountain.
Summary of Mine Reserves
The following table sets out the proved and probable zinc and lead reserves as of March 31, 2011:
Proved Reserve | Probable Reserve | Total Proved and Probable Reserves |
||||||||||||||||||||||||||||||||||
Quantity | Zinc Grade |
Lead Grade |
Quantity | Zinc Grade |
Lead Grade |
Quantity | Zinc Grade |
Lead Grade |
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(million tons) | (%) | (million tons) | (%) | (million tons) | (%) | |||||||||||||||||||||||||||||||
Black Mountain |
3.3 | 2.7 | 3.7 | 3.5 | 3.3 | 2.8 | 6.8 | 3.0 | 3.2 | |||||||||||||||||||||||||||
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Total |
3.3 | 2.7 | 3.7 | 3.5 | 3.3 | 2.8 | 6.8 | 3.0 | 3.2 | |||||||||||||||||||||||||||
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Production Volumes
The following table sets out the total ore, zinc and lead concentrate production at the Black Mountain mine for each of the three years ended December 31, 2008, 2009 and 2010:
Year ended 31 December | ||||||||||||||
Mine (Type of Mine) |
Product |
2008 | 2009 | 2010 | ||||||||||
(tons, except percentages) | ||||||||||||||
Black Mountain (Underground) |
Ore mined | 1,205,000 | 1,293,000 | 1,379,000 | ||||||||||
Ore grade -Zinc |
3.0 | % | 2.8 | % | 3.3 | % | ||||||||
-Lead |
4.3 | % | 4.0 | % | 4.2 | % | ||||||||
Recovery - Zinc |
77.2 | % | 78.6 | % | 79.9 | % | ||||||||
-Lead |
91.8 | % | 94.6 | % | 88.2 | % | ||||||||
Zinc concentrate |
56,000 | 56,000 | 72,000 | |||||||||||
Lead concentrate |
65,000 | 69,000 | 71,000 |
Principal Raw Materials
The Black Mountain mine uses chemical reagents in the floation process to produce zinc and lead concentrates.
Distirbution, Logistics and Transport
Zinc concentrate is transported via road and rail to Exxaro Base Metals Zincor refinery in Springs. Gauteng, which is approximately 1,200 kilometers away from the mine. Lead and copper concentrate from the mine is hauled by road to a dedicated railway siding along a 150 kilometers gravel road, which is owned by the provincial authorities but maintained by BMM. The concentrate is then transported by train to Saldanha on the Sishen Saldanha railway with delivery terms to export customers on a cost, insurance and freight basis.
Sales and Marketing
BMM produces zinc, lead and copper concentrates that are sold in local and international markets on spot basis and through long term contracts. The commercial terms negotiated on an annual basis include taking into account the percentage of payable metals, treatment and refining charges and applicable prices. Delivery terms to export customers are generally CIF, to customers in South Africa are FCA (Free Carrier) Black Mountain or CIP (Carriage Insurance Paid) customers works. Some of the customers of Black Mountain mine are Exxaro Base Metals Proprietary Limited, Trafigura Beheer B.V., Glencore International AG and Ocean Partners UK Limited.
Projects & Developments
Gamsberg Project
The major project undertaken by BMM is the Gamsberg project. This project comprises of two main areas of mineralization, Gamsberg North, a near surface mineral resource of approximately 154 mt at 6.3% zinc and Gamsberg East, with a mineral resource of approximately 32 mt at 9.8% zinc, which requires underground mining.
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According to Brook Hunt, the Gamsberg project is expected to be one of the worlds largest zinc producers with operating costs in the bottom third of the cost curve.
The Gamsberg deposits are favorably distinguished from other large undeveloped zinc deposits for reasons including:
| the deposits have large open-pittable resource, supported by higher grade underground resource; |
| the deposits belong to the class of mineralization characterised by metamorphosed, re-crystalised sulphide mineralization which can have important by-products such as lead and silver; |
| there is potential to upgrade the mineralization using ore-sorting technology due to the magnetic nature of the non-ore mineral such as magnetite and pyrrhotite; and |
| the deposits are located adjacent to a well established mining district with modern infrastructure and is locally in a politically stable country with a mild climate. |
We believe that the Gamsberg project will be capable of producing in excess of 400,000 tpa of SHG zinc metal and is expected to comprise an open pit, an underground mine, a concentrator and a refinery.
The estimated power requirement for the Gamsberg project is 350 MVA for the production of 400,000 tpa of SHG zinc metal.
Lisheen
Overview
The Lisheen mine is located in County Tipperary, approximately 160 kilometers southwest of Dublin, Republic of Ireland and consists of an underground mine, concentrator and backfill plant, producing approximately 170,000 tons of zinc in concentrate annually with an expected mine life until 2014. The Lisheen mine also produces approximately 25,000 tons of lead concentrate annually.
The power requirements at the Lisheen mine are provided by a 22-KV power substation on site.
During the year ended December 31, 2010, 1,588,000 tons of ore at 12.2% zinc and 1.9% lead were mined from the Lisheen mine, which produced approximately 326,000 tons of zinc concentrate and 34,000 tons of lead concentrate, containing 175,000 tons and 21,000 tons of zinc and lead, respectively. Prior to its acquisition by us, Lisheen had a financial year end of December 31.
The Lisheen zinc deposit is located in the Rathdowney Trend, which comprises sedimentary rocks, mainly limestone, which were formed approximately 320 million years ago. The Lisheen deposit owes its existence to the presence of several faults in the district, which played a major role in the formation, morphology and location of the ore bodies. It is believed that these fractures in the strata acted as conduits for the hydrothermal mineralising fluids which carried metals upwards from extreme depths.
The mine commenced production in 1999, following a successful development partnership between
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Minorco (merged with Anglo American in 1999) and Ivernia West. Anglo American subsequently acquired Ivernias stake in 2003 to gain 100% ownership. Lisheen mine was subsequently acquired by SIIL (through its subsidiary THLZBV) on February 15, 2011.
The deposit was discovered in 1990 and construction commenced in 1997 and in late 1999 production commenced from the two main orebodies. The production from third orebody commenced in 2006. The average depth is approximately 190 meters below surface and as pre-current planning and financial forecasts, the end of production is scheduled to 2014.
Principal Products
Zinc concentrates (approximate grade 53.5%) and lead concentrates (approximate grade 62.0%) are dewatered to shipment requirements by thickening and subsequent pressure filtration. The dewatered concentrates are then trucked to the port of Cork and are then shipped to international smelters.
Our Production Process
The crushed ore from the mine is stored in a surface stockpile from which it is conveyed to a two-stage wet grinding circuit as the first processing set in the concentrator. The slurried product from the grinding mills then passes directly to the two flotation circuits, where the lead concentrate and zinc concentrates are floated off sequentially. The zinc concentrates are leached with sulphuric acid to remove dolomite to bring the product to smelter requirements. The concentrates are dewatered to shipment requirements by thickening and subsequent pressure filtration. Lisheen zinc concentrates yield assays of 53.3% to 53.5% zinc. Lead concentrates typically assay 62% lead. The dewatered concentrates are trucked to the port of Cork, from where they are shipped to international smelters.
Our Lisheen business has a number of elements which are summarized in the following process flow and explained in greater detail below:
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Mineral Processing
The mineral processing facility at Lisheen operates 24 hours a day, seven days a week, 365 days a year, at a feed rate of 4,500 to 5,000 tons of ore per working day.
Run of mine ore undergoes primary crushing underground and is conveyed to a coarse ore stockpile on surface. From the covered surface stockpile, the ore is conveyed via vibrating feeders onto a conveyor, which delivers it into a SAG mill, where process water is added. The SAG mill is a rotating cylindrical vessel containing 8 to 12% 125mm diameter steel balls, in which the particle size of the ore is reduced. Substantially oversized discharge is passed through the trommel screen mechanism and conveyed back into the SAG mill for further grinding. Intermediate sized pebbles are sent via a conveyor to a rotary pebble crusher and recycled back to the SAG mill. Ground material and water (slurry) is directed out of the mill into the mill discharge sump below, which also accepts material from the ball mill. This ball mill contains approximately 40% steel balls of approximately 60 millimeter in diameter, and is slightly longer and thinner than the SAG mill. The ball mill operates in closed-circuit with a cluster of cyclones above it. The cyclones are fed from the mill discharge sump. The coarse overflow materials from the cyclones are directed back to the ball mill for further grinding, while the finer overflow is sent to the flotation section. A lead concentrate is extracted first, followed by a zinc concentrate. Zinc concentrates are leached with sulphuric acid to remove dolomite in order to bring the product within smelter specifications.
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The second stage of processing is flotation to separate the zinc and lead minerals from the host rock. The slurry is agitated, reagents are added and air is pumped into it, forming bubbles to which the minerals attach themselves. The mineralised bubbles rise to the surface and form afroth which overflows into launders. Lisheen uses sequential flotation. Both lead and zinc circuits have roughers, column cleaners and cleaner scavengers, and the zinc has an additional cleaning stage. Slurry first passes through the lead rougher where, aided by the addition of specific reagents, the lead content is separated from the rest of the slurry or lead tailings. The lead tailings then pass into the zinc flotation circuit where different reagents are added. After roughing, the zinc concentrates undergo a further comminution process known as regrinding, during which very fine locked particles of sphalerite are released before production of the final concentrate in the columns. After flotation, the zinc concentrate undergoes an acid leach quality control process, which helps to reduce magnesium levels in the concentrate (if needed) to the levels required under the concentrate sales agreements (0.4% magnesium oxide).
At this point the concentrates contain too much water for storage and shipping and must therefore be dewatered. The first stage of de-watering is thickening. The slurry is fed into an un-agitated tank, where chemicals are added to assist the settling process by amassing individual particles into larger clumps. These solid particles of the slurry are then allowed to settle to the bottom before being raked gently to a central underflow pumping point. The underflow of thickened concentrates is directed to the respective filtration stage for final de-watering. Using horizontal pressure filters (one for lead, two for zinc) the moisture content of the thickened concentrates is reduced to acceptable levels for transport. The facility has the proven capability to dewater the concentrates to moisture levels of 8 to 10% for zinc and 6 to 8% for lead. The installed thickener and filter units are capable of filtering at rates of 380 kt (dry basis) of zinc concentrate and 360 kt of lead concentrate (dry basis) per annum. Dewatered concentrates are stored in a section of the concentrator building before being trucked to the port of Cork, where they are stored in a dedicated facility before onward shipping to international smelters.
The lead concentrate produced has steadily maintained a grade of 62% lead with a lead recovery of 70% at lead head grades of 1.5 to 2.0% Pb. The zinc concentrate produced has steadily maintained a grade of 53.5% zinc, with a recovery of 90.5% at zinc head grades of 12.0 to 12.3% zinc. Zinc concentrate production is limited by constraints relating to the froth loading from the flotation columns and the size of the circulating load around the cleaner circuit. This currently limits the metal treatment rate to an annual average limit of 25.5 ton per hour of zinc metal.
Each of the concentrates is dewatered by thickening and subsequent pressure filtration to reduce moisture contents to levels suitable for shipment.
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Principal Facilities
The following map shows the locations of Lisheen within Europe and within the island of Ireland
Mines
The Lisheen zinc deposit is located in the Rathdowney Trend, which comprises sedimentary rocks (mainly limestone), which were formed approximately 320 million years ago. It owes its existence to the presence of several faults in the district, which played a major role in the formation, morphology and location of the ore bodies. It is believed that these fractures in the strata acted as conduits for the hydrothermal mineralising fluids which carried metals upwards from extreme depths.
The Lisheen orebodies occur as three principal zones, Main Zone, Derryville Zone and Bog Zone (see Figure 1) and a series of small satellite bodies surrounding these. The ore is largely hosted within fault-associated hydrothermal breccias, known as the Black Matrix Breccia, or BMB, which is developed at or proximal to the base of a massive, fine grained dolomitised limestone unit, termed the Waulsortian Formation. This unit is underlain by the Argillaceous Bioclastic Limestone, or ABL, a dark shaly limestone which forms the lithological footwall to the mineralization.
The ore bodies are at an average depth of 170 meters and are predominantly stratiform or flat lying, ranging in thickness from 1 to 14 meters. Close to faults, mineralization may be substantially thicker. The stratiform nature of the ore bodies is typical of zinc deposits in Ireland and also occurs elsewhere in the world.
Mineralogically, the orebodies comprise massive sulphide lodes typically composed of dominant pyrite, marcasite and sphalerite with minor amounts of galena. The deposit is high grade, with a zinc to lead ratio of
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6:1. Minor silver grades are encountered locally. Several deleterious elements occur, the principal ones being nickel, cobalt, copper, magnesium and arsenic. The aquifer is fracture-controlled and connected directly to the surface drainage system via a conjugate set of steeply dipping North-East and North-North-West trending joints and fissures, which have been extensively karst weathered. Water ingress to the workings occurs principally when one of these structures is intersected and significant flow rates can occur over short time spans. The peak daily water flow rate can reach up to 90 million litres per day and 75 million litres per day on an annual basis. Dedicated pumping and water treatment facilities are in place to ensure full compliance with the Integrated Pollution Control Licence.
The Lisheen zinc and lead deposit is located in the Rathdowney Trend, which stretches 40 kilometers, between the Towns of Abbeyleix to the North East and Thurles to the South West. The region is a broad plain drained by the Rossetown and Drish Rivers, tributaries of the Suir River, which flows into the Irish Sea at Waterford.
In common with much of Ireland, the area is characterised by cool, wet climatic conditions. Mean temperatures vary from 4.4 degree Celcius in January to around 15 degree celcius in July, with an average humidity of 83.0%. Annual rainfall ranges between 700 and 1000 millimeters.
Land in the vicinity of the Lisheen mine has traditionally been used for dairy farming, cattle and sheep rearing, forestry and peat farming.
Exploration of the Rathdowney Trend during the late 1960s and early 1970s identified sporadic occurrences of lead and zinc, although the first significant mineralization was not discovered until 1984 at Derrykearn.
Following the discovery of the Galmoy deposit in early 1986, Ivernia and its former venture partner, Chevron, were granted prospecting licences covering Lisheen and other areas. Over the subsequent two years, geochemical, geological and geophysical surveys identified the target area for a drilling program and work commenced under Ivernias management in 1990. The seventh hole in the program, drilled in April 1990, intersected 6.4 meters of ore body grading 14.7% zinc and 2.7% lead.
By the end of 1996, 550 holes had been drilled, producing a total distance length of more than 100 kilometers of core. This defined a combined ore body outline of one square kilometer, containing 22.5 million tons of a geological resource grading 13.02% zinc and 2.19% lead.
The Lisheen mine was wholly owned by Anglo American Plc between 2003 and 2011 following a series of mergers and acquisitions of stake holdings. The mine is now owned by SIIL through our subsidiary THLZBV.
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Summary of Mine Reserves
The following table sets out the proved and probable zinc and lead reserves as of March 31, 2011:
Proved Reserve | Probable Reserve | Total Proved and Probable Reserves |
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Quantity | Zinc Grade |
Lead Grade |
Quantity | Zinc Grade |
Lead Grade |
Quantity | Zinc Grade |
Lead Grade |
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(million tons) | (%) | (million tons) | (%) | (million tons) | (%) | |||||||||||||||||||||||||||||||
Lisheen |
5.0 | 11.0 | 1.9 | 0.7 | 9.0 | 1.5 | 5.7 | 10.9 | 1.8 | |||||||||||||||||||||||||||
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Total |
5.0 | 11.0 | 1.9 | 0.7 | 9.0 | 1.5 | 5.7 | 10.9 | 1.8 | |||||||||||||||||||||||||||
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Production Volumes
The following table sets out the total ore, zinc and lead concentrate production at the Lisheen mine for each of the three years ended December 31, 2008, 2009 and 2010:
Year ended 31 December | ||||||||||||||
Mine (Type of Mine) |
Product | 2008 | 2009 | 2010 | ||||||||||
(tons, except percentages) | ||||||||||||||
Lisheen (Underground) |
Ore processed (dry metric tons) |
1,517,000 | 1,526,000 | 1,588,000 | ||||||||||
Ore grade -Zinc | 12.1 | % | 12.4 | % | 12.2 | % | ||||||||
-Lead | 1.6 | % | 1.8 | % | 1.9 | % | ||||||||
Recovery -Zinc | 91.1 | % | 90.6 | % | 90.5 | % | ||||||||
- Lead | 64.0 | % | 68.4 | % | 67.2 | % | ||||||||
Zinc concentrate | 313,000 | 322,000 | 326,000 | |||||||||||
Lead concentrate | 25,000 | 31,000 | 34,000 |
Principal Raw Materials
The Lisheen mine uses chemical reagents in the floatation process to produce zinc and lead concentrates.
Distribution, Logistics and Transport
With respect to outbound logistics, Lisheen transports the zinc concentrates to the port at Cork (135 kilometers from mine site) via on site haulage contracted with a single supplier. A dedicated marketing office in Cork handles shipping and contracts, with a stockyard and ship loading facilities. Haulage accounts for about 5.0% of total operating costs.
With respect to inbound logistics, contracts are in place with most of the high value suppliers, including drill consumables, pumps, shotcrete, binder for backfill, concrete and explosives.
Lisheen is within close proximity to international airports (Dublin 157 kilometers; Cork 135 kilometers), the national highway network and nearby towns. The nearest motorway is 10 kilometers from the mine site and provides direct motorway access to the port facility in Cork.
Sales and Marketing
The Lisheen mine extracts lead and zinc ore from underground and processes this into zinc and lead concentrates and sells these concentrates to smelters and customers in Europe, Asia, North Africa and the United States. Lisheen currently has a very small base of customers. Lisheen has a number of different concentrate sales contracts in place with international customers and also has an increasing number of spot sales. There is no forward selling arrangements in place.
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A dedicated marketing office in Cork handles shipping and contracts, with a stockyard and ship loading facilities. Lisheen has a number of different concentrate sales contracts in place with international customers but also deals on the spot market.
Market Share and Competition
According to Brook Hunt, the Lisheen mine was one of the top fifteen zinc mines by production volume in the world in 2010.
Our Aluminum Business
Overview
Our aluminum business is owned and operated by BALCO. BALCOs partially integrated aluminum operations are comprised of two bauxite mines and the Korba facility, which includes an alumina refinery, a 245,000 tpa aluminum smelter, two captive power plants and a fabrication facility, all of which are located in the State of Chhattisgarh in Central India. During fiscal 2009 and until June 5, 2009, BALCO also operated a 100,000 tpa aluminum smelter.
We acquired our interest in BALCO in 2001 and have since worked to improve its operating performance through expansions and by improving operational efficiencies and reducing unit costs of production. BALCO currently sources all of the alumina required for its smelters from third party suppliers on both the Indian and international markets, including from Vedanta Aluminium. BALCOs bauxite mines provide all of the bauxite required for BALCOs alumina refinery. BALCO intends to further improve its operating performance by continuing to reduce unit operating costs at the Korba facility, including by lowering power consumption and improving the operating efficiency of the captive power plant. BALCO also intends to focus on the production of fabricated products with higher margins.
We own a 51.0% ownership interest in BALCO and have management control of the company. The remainder of BALCO is owned by the Government of India, which established BALCO in 1965. We acquired our interest in BALCO from the Government of India on March 2, 2001. On March 19, 2004, we exercised an option to acquire the Government of Indias remaining ownership interest. The exercise of this option has been contested by the Government of India. Further, the Government of India retains the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. See - Options to Increase Interests in HZL and BALCO for more information.
Principal Products
Primary Aluminum
Primary aluminum is produced from the smelting of metallurgical grade alumina. BALCO produces primary aluminum in the form of ingots and wire rods for sale. Ingots are used extensively for aluminum castings and fabrication in the construction and transportation industries. Wire rods are used in various electrical applications especially in the form of electrical conductors and cables.
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Rolled Products
Rolled products, namely coils and sheets, are value-added products that BALCO produces from primary aluminum. Rolled products are used for a variety of purposes in different industries, including aluminum foil manufacturing, printing, transportation, consumer durables, building and architecture, electrical and communications, packaging and general engineering industries.
By-products
Vanadium sludge is a by-product of the alumina refining process and primarily used in the manufacture of vanadium-based ferro alloys.
Production Process
BALCOs business has a number of elements which are summarized in the following diagram and explained in greater detail below:
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* | In response to recent global economic conditions and a decline in commodity prices, starting in February 2009, BALCO suspended part of its operations at the 100,000 tpa aluminum smelter. Operations at this aluminum smelter ceased on June 5, 2009. At this aluminum smelter, alumina from the refinery was dissolved in an electrolytic bath in a large carbon or graphite lined steel pot. An electric current was passed through it to produce aluminum metal using VSS technology. |
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Bauxite Mines
BALCO has two captive bauxite mines, Mainpat and Bodai-Daldali, that provide all of its bauxite requirements for its alumina refinery. See Additional Supply of Alumina. As the bauxite deposits at these mines occur close to the surface, they are mined by open-pit methods. The mining operation employed is semi-mechanized, where bauxite sorting and sizing are carried out through manual labor. Overburden, which is in the form of soil and laterite, is first excavated by a combination of a shovel or excavator and a dumper in order to expose the bauxite ore. The bauxite ore is then drilled and blasted. The blasted ore is sorted according to grade at the mine-face, and the rejected ore is back-filled into the mine. The overburden is then returned and the area is leveled and reforested. The sorted ore is currently transported by road to Vedanta Aluminium, Langigarh for processing.
Alumina Refinery
BALCOs alumina refinery at Korba uses the conventional high pressure Bayer process to produce alumina from bauxite. In the Bayer process, caustic soda is used to extract the alumina content from ground bauxite, at temperatures suitable for the particular mineralogy of bauxite, after which the resultant sodium aluminate solution is separated from the undissolved residue called red mud. The solution is then subjected to seeded precipitation to produce alumina hydrate, which is then calcined into alumina and transported to the smelter.
Additional Supply of Alumina
The additional alumina required for BALCOs smelters in excess of the capacity of its alumina refinery is obtained by purchasing alumina on both the domestic Indian market, including from Vedanta Aluminium, and international markets. Alumina purchased from third party suppliers is transported by road to BALCOs smelters at Korba. In addition, BALCO also sends bauxite to Vedanta Aluminium for conversion into alumina, which is returned to BALCO for use in its smelters, for which a conversion fee is paid to Vedanta Aluminium based on the actual cost of production at the Lanjigarh unit.
Aluminum Smelters
BALCOs 245,000 tpa aluminum smelter uses pre-baked technology from GAMI of China. In this pre-baked process, alumina is converted into primary aluminum through a smelting process using electrolytic reduction. The reduction process takes place in a reduction cell, referred to as the pot, where alumina is reduced to molten aluminum. From the pot-line, the molten aluminum is sent to the fabrication facility.
During fiscal 2009 and until June 5, 2009, BALCO also operated a 100,000 tpa aluminum smelter that uses Vertical Stud Soderberg, or VSS, technology to produce aluminum from alumina. Alumina is dissolved in an electrolytic bath of molten cryolite (sodium aluminum fluoride) in a large carbon or graphite lined steel container known as a pot. An electric current is passed through the electrolyte at low voltage but at a very high current. The electric current flows between a carbon anode (positive), made of petroleum coke and pitch, and a cathode (negative), formed by the thick carbon or graphite lining of the pot. Molten aluminum is deposited at the bottom of the pot and is siphoned off periodically. The molten aluminum is then taken to a holding furnace, cleaned and sent to the fabrication facility. In response to recent global economic conditions and a decline in commodity prices, starting in February 2009, BALCO suspended part of its operations at the 100,000 tpa aluminum smelter at Korba. Operations at this aluminum smelter ceased on June 5, 2009. The surplus power generated by the captive power plants at the Korba facility is sold to the Chattisgarh State Electricity Board, or CSEB, and other third parties. BALCO is in the process of constructing a new 325,000 tpa aluminum smelter using pre-backed GAMI technology along with an
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associated 1,200 MW power plant at a cost of Rs. 84,500 million ($1,897.2 million) to increase production capacity and lower costs of production. The 325,000 tpa aluminum smelter at Korba is expected to be completed by the second quarter of fiscal 2013.
Fabrication Facility
BALCOs fabrication facility, consisting of a cast house and a sheet rolling shop, processes the molten aluminum from the smelters into ingots, wire rods and rolled products. The cast house uses continuous rod casters from Continuus-Properzi S.p.A. and has a foundry which has twin-roll continuous casters with a spinning nozzle inert flotation, or SNIF, degasser and hydraulically driven semi-continuous ingot casting machine to produce ingots and wire rods.
Molten metal is cast into slabs and either hot-rolled and sold as hot-rolled sheets or converted into cold-rolled sheets in the cold rolling mills. Alternatively, molten metal is directly used in strip casting and then fed to the cold rolling mills to convert it into cold-rolled sheets or coils.
Delivery to Customers
Ingots, wire rods and rolled products are transported by trucks to customers in India and to ports for export.
Principal Facilities
Overview
The following map shows the locations of BALCOs mines and production facilities or production capacities, as applicable, as of March 31, 2011:
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The following map shows details of the locations of BALCOs facilities in the State of Chhattisgarh:
Bauxite Mines
Chhattisgarh Mines
BALCO has two captive bauxite mines, namely, the Mainpat bauxite mines and the BodaiDaldali Bauxite mines, in the State of Chhattisgarh in Central India. Mainpat is an open-pit bauxite mine located approximately 170 kilometers from the Korba complex in the Surguja district of the State of Chhattisgarh. The Mainpat mine has been in production since 1993 and has a leased hold area of 6.39 square kilometers and is valid for 20 years with effect from July 9, 1992 and is renewable. The Mainpat mining lease is valid up to July 8, 2012. We have applied for renewal of mining lease for a further period of 10 years from July 2012. The bauxite extraction limit for the mine as granted by MoEF is 750,000 tpa. The Bodai-Daldali deposits are located approximately 260 kilometers from Korba in the Kawardha district of the State of Chhattisgarh. Bodai-Daldali was commissioned in 2004 by BALCO with a lease hold area is 6.3 square kilometers renewable mining lease that is valid until March 26, 2017. The bauxite extraction limit for Bodai-Daldali approved by IBM is 1,250,000 tpa.
The Chhattisgarh bauxite deposits are situated over a plateau with steep scarps on both side, at an elevation of approximately 1,000 meters above minimum sea level, for Mainpat, and approximately 940 meters, for Bodai-Daldali above the surrounding land. The bauxite generally is one meter to three meters thick and lies within a laterite sequence overlying thick Tertiary basalts of the Deccan Traps. The cover of laterite and thin top soil is up to five meters thick but is generally less than two meters. The bauxite outcrops around much of the plateau rims.
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A typical profile of the Chhattisgarh deposits comprises topsoil and soft overburden above the laterite. The upper laterite consists of hard, loose or indurated bauxite pebbles and boulders with a clear contact with the underlying hard bauxites.
The bauxite occurs in discontinuous lenses up to four meters in thickness with laterite infilling joints and fractures with the bauxite. The contact with the softer lower laterite is usually gradational and irregular.
The bauxite is hard to very hard with a natural moisture content of 5.0% to 10.0%, an in-situ density of 2.3 tons to 2.4 tons per cubic meter. It comprises primarily gibbsite with boehmite and minor diaspore. The reactive silica content is low and iron is present in the form of hematite and aluminous goethite. The average grade of the bauxite is approximately 47.0% aluminum oxide and silica levels of less than 4.0%.
All mining and transportation at both mines are undertaken by contractors. One thin top soil layer is removed by excavator and is either transported to an adjacent storage point or an area that is being backfilled. The laterite layer is drilled and blasted. The overburden is then removed by backhoe excavators and 15-ton dumpers. Broken ore is hand-sorted, leaving waste material behind. Ore productivity is around two to three tons per person per day in the dry season which decreases to 1.25 to 1.75 tons per person per day in the wet season.
The ore pile is loaded by hand into non-tipping 16 to 25-ton trucks. Loaded trucks undertake a one-way trip of approximately 210 kilometers via public roads to the offloading point at BALCOs Korba plant. The journey takes approximately six to seven hours, depending upon truck condition and road condition which are highly variable, ranging from seven-meter wide, drained, cambered, smooth bitumen highways to non-surfaced, ungraded, three-meter wide dirt tracks. In May 2009, BALCO commissioned an extensive road building and improvement program to reduce the average one-way haul distance from approximately 250 kilometers to approximately 140 kilometers. At Mainpats processing site, the trucks are unloaded manually and the bauxite is bulldozed onto an armored pan feeder conveyor, where it is fed into the crusher.
The current exploration drilling program is based on a 50-meter square pattern and is reduced to a 25-meter centers for detailed mine planning. Sampling is normally in 0.40 meter lengths and core is currently split and retained for future reference. Bauxite samples are tested for silica and aluminum oxide at laboratories situated on site and at the Korba plant. Selected sample are re-assayed as part of a quality control program.
Since commencing operations, the Mainpat mine has produced approximately 6.6 million tons of bauxite, with production in fiscal 2011 totaling approximately 564,408 tons at 44.3% aluminum oxide. Our operations are subject to extensive governmental and environmental regulations which have in the past and could in the future cause us to incur significant costs or liabilities for its operations.
Power and water requirements at Mainpat are minimal and can be supplied by small on-site diesel generators and from boreholes in the mine.
BALCO estimates the reserves at Mainpat as of March 31, 2011 to be 2.4 million tons and, based on current and anticipated production rates, expects that the mine will continue to operate for approximately 3.3 years from March 31, 2011.
Total production at the Bodai-Daldali mine since the commencement of production has been 2.0 million
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tons of bauxite, with production in fiscal 2011 totaling approximately 506,168 tons at 49.9% aluminum oxide. As of the Mainpat mine, manual sorting and sizing of ore is carried out due to the bauxite occurring as boulders, though trials for mechanized crushing and screening on-site are planned. Power is supplied by on-site diesel generators and ground water provides the water requirements for the mine.
BALCO estimates the reserves at Bodai-Daldali as of March 31, 2011 to be 3.0 million tons and, based on current and anticipated production rates, expects that the mine will continue to operate for approximately three years from April 01, 2011.
A cut-off grade of 44.0% aluminia was used to define the reserves at BALCOs mines, as this cut-off limit was primarily fixed by IBM for reserve estimation for the metallurgical use of bauxite. As the bauxite is hand-sorted and the mining recovery adjustment factor is based on reconciliation studies, there is a high degree of confidence in the cut-off limits. Also, BALCOs operations are vertically integrated and all bauxite mined at the Mainpat and Bodai-Daldali mines is only suitable for use at BALCOs Korba alumina refinery. Consequently, the economic feasibility of the reserves depends on the economic feasibility of the company. Based on current costs and historical prices, BALCOs operations are forecast to remain profitable and therefore the deposits at the Mainpat and Bodai-Daldali mines fulfill the requirements for being classified as reserves.
The reserves as of March 31, 2011 at BALCOs mines at Mainpat and Bodai-Daldali have been determined by verifying that the integrated operation is economic at an aluminum price of $2,120 per ton, which is the average metal price for the three fiscal years ending March 31, 2011.
A drilling hole spacing of 50 meters by 50 meters is used to determine the proven reserves while a drill hole spacing of 100 meters by 100 meters is used to determine the probable reserves.
The mining dilution and mining recovery factors applied to determine the reserves at the Mainpat mine are 6.4% and 62.0%, respectively, while the factors applied at the Bodai-Daldali mine are 5.0% and 65.0%, respectively. The parameters for Mainpat are derived from the reconciliation of actual production against the geological model, while the parameters for Bodai-Daldali are based on estimates.
In fiscal 2011, all mining and transportation of the bauxite was done by contractors and the total cost for this was Rs. 1,935 ($43.4) per ton of bauxite.
For fiscal 2011, the stripping ratio at the Mainpat mine was 1.0:1.7 with 1.7 tons of waste overburden being removed to mine one ton of ore, while the stripping ratio at the Bodai-Daldali mine was 1.0:2.6 with 2.6 tons of waste overburden being removed to mine one ton of ore. The strip ratio for the remaining reserves at Mainpat is 5.02 tons of waste per ton of ore while at Bodai-Daldali, it is 3.61 tons of waste per ton of ore.
Summary of Bauxite Mine Reserves
The following table sets out BALCOs proven and probable bauxite reserves as of March 31, 2011:
Proven Reserves | Probable Reserves | Total Proven and Probable Reserves |
||||||||||||||||||||||
Mine |
Quantity | Oxide | Quantity | Oxide | Quantity | Oxide | ||||||||||||||||||
(million tons) | (%) | (million tons) | (%) | (million tons) | (%) | |||||||||||||||||||
Mainpat |
2.4 | 46.8 | | | 2.4 | 46.8 | ||||||||||||||||||
Bodai-Daldali |
2.6 | 45.8 | 0.4 | 46.0 | 3.0 | 45.8 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
5.0 | 46.2 | 0.4 | 46.0 | 5.4 | 46.2 | ||||||||||||||||||
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Korba Facility
Overview
BALCOs Korba facility is located at Korba in the State of Chhattisgarh in Central India and consists of one alumina refinery, two aluminum smelters, two captive power plants and a fabrication facility. The following table sets forth the total capacities as of March 31, 2011 at BALCOs Korba facility:
Capacity | ||||||
Facility |
Alumina | Aluminum | Captive Power | |||
(tpa) | (tpa) | (MW) | ||||
Korba |
200,000 | 245,000 | 810 |
Refinery
The Korba alumina refinery was commissioned in 1973, uses the conventional high pressure Bayer process and has a capacity of 200,000 tpa of alumina. The operations of the refinery has been temporarily stopped in September 2009.
Smelters
There are two aluminum smelters at Korba. The newer smelter, which uses pre-baked GAMI technology and has a capacity of 245,000 tpa, was commissioned in November 2006. The older smelter was commissioned in 1975, uses the VSS technology to produce aluminum from alumina and has a capacity of 100,000 tpa.
In response to recent global economic conditions and a decline in commodity prices, starting in February 2009, BALCO suspended part of its operations at the 100,000 tpa aluminum smelter at Korba. Operations at this aluminum smelter ceased on June 5, 2009.
Fabrication Facility
The fabrication facility at Korba has two parts, a cast house and a sheet rolling shop.
Cast House
The cast house uses continuous rod casters from Continuus-Properzi S.p.A. and has a foundry which has twin-roll continuous casters with a SNIF degasser and hydraulically driven semi-continuous ingot casting machine to produce ingots and wire rods.
Sheet Rolling Shop
The sheet rolling shop has three parts: a hot rolling mill with a capacity of 75,000 tpa, an older cold rolling mill with a capacity of 30,000 tpa and a newer cold rolling mill commissioned in 2004 with a capacity of 36,000 tpa. Molten metal is cast into slabs and then either hot-rolled and sold as hot-rolled sheets or converted into cold-rolled sheets in the cold rolling mills. Alternatively, molten metal is directly used in strip casting and then fed to the cold rolling mills to convert it into cold-rolled sheets or coils.
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Captive Power Plants
Smelting requires a substantial continuous supply of power and interruptions can cause molten metal to solidify and damage or destroy the pots. Power for the Korba facility is for the most part provided by the coal-based 540 MW captive power plant commissioned in March 2006. Thermal coal is a key raw material required for the operation of BALCOs captive power plants. The older coal-based 270 MW plant is not being used for captive purposes at present due to the closure of operations at the 100,000 tpa aluminum smelter. In April 2008, BALCO entered into two five-year coal supply agreements with SECL for the supply of thermal coal by SECL to BALCO, which represents approximately 65.0% of its thermal coal requirements, with the remainder obtained through open market purchases and imports of coal.
Production Volumes
The following table sets out BALCOs total production from its Korba facility for the three years ended March 31, 2011:
Year Ended March 31, | ||||||||||||||
Facility |
Product | 2009 | 2010 | 2011 | ||||||||||
(tons) | ||||||||||||||
Korba |
Alumina(1) | 197,947 | 42,893 | | ||||||||||
Ingots/Busbar | 172,263 | 54,173 | 27,927 | |||||||||||
Rods | 127,120 | 148,279 | 160,665 | |||||||||||
Rolled products | 57,399 | 65,973 | 66,706 | |||||||||||
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|||||||||
Total(2) |
356,782 | 268,425 | 255,289 | |||||||||||
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Notes:
(1) | Reflects alumina production. Alumina that is produced is used in production of aluminum and rolled products. Additional alumina needed for production of aluminum is purchased from third parties and not reflected in alumina production numbers. Approximately two tons of alumina is required for the production of one ton of aluminum. |
(2) | Reflects total of ingots, rods and rolled products. |
The following table sets out the total bauxite ore production for each of BALCOs mines for the three years ended March 31, 2011:
Year Ended March 31, | ||||||||||||||
Mine (Type of Mine) |
Product |
2009 | 2010 | 2011 | ||||||||||
(tons, except for percentages) | ||||||||||||||
Mainpat (Open-pit) |
Bauxite ore mined | 571,422 | 486,429 | 564,608 | ||||||||||
Ore grade | 44.7 | % | 46.4 | % | 45.8 | % | ||||||||
Bodai-Daldali (Open-pit) |
Bauxite ore mined | 300,250 | 300,000 | 506,108 | ||||||||||
Ore grade | 49.1 | % | 46.1 | % | 45.8 | % | ||||||||
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Total |
871,672 | 786,429 | 1,070,716 | |||||||||||
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|
|
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Principal Raw Materials
The principal inputs of BALCOs operations are bauxite, alumina, power, carbon, caustic soda and certain other raw materials. BALCO has in the past been able to secure an adequate supply of the principal inputs for its business.
Bauxite
Bauxite is the primary raw material used in the production of alumina. BALCO sources the bauxite required for its alumina refinery from its own mines. BALCO supplies bauxite to Vedanta Aluminium, Lanjigarh on conversion basis and receives alumina production from supplied bauxite.
Alumina
Alumina is the primary raw material used in the production of aluminum. BALCO currently sources all of its alumina required for its smelters from third party suppliers on both the Indian and international markets, including from Vedanta Aluminium, with the remainder provided by its alumina refinery. The alumina sourced externally is metallurgical grade calcined alumina with a minimum alumina content of 98.6% on a dry basis. In fiscal 2009, 2010 and 2011, BALCO purchased 112,017 tons, 192,557 tons and 126,210 tons of alumina at an average price of $365, $305 and $360 per ton, respectively, on a cost, insurance and freight, or CIF, basis at the port of Vizag, India.
Power
Smelting primary aluminum requires a substantial, continuous supply of electricity. A reliable and inexpensive supply of electricity, therefore, significantly affects the viability and profitability of aluminum smelting operations. As a result, power is a key input at BALCOs Korba facility, where it is provided by one coal-based captive power plant of 540 MW. Our captive power plant has historically been dependant upon coal allocations from Coal India. In November 2007, BALCO received a coal block allocation of 211.0 million tons for use in its captive power plants. At the time of the allocation, the Ministry of Coal estimated that the coal block allocated to BALCO contained proved reserves of 211 million tons of coal. These allocated coal blocks are regarded as non-reserve coal deposits and is currently in the post-exploration but pre-development stage. We expect mine development activities to commence upon the receipt of all regulatory approvals. Power for BALCOs mines is provided by on-site diesel generators. However, if such allocation is not available, BALCO will continue to source coal from third parties.
Water
Water is also an important input for BALCOs captive power plants. BALCO sources its water requirements at Korba from a nearby canal, with the water transported by pipelines. BALCO is currently in a dispute with NTPC regarding the right of way for its water pipeline that supplies water to its 270 MW captive power plant, which has been built through NTPC premises. Arbitration proceedings commenced on May 18, 2009 and are ongoing. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessOur operations are subject to operating risks that could result in decreased production, increased cost of production and increased cost of or disruptions in transportation, which could adversely affect our revenue, results of operations and financial condition.
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Carbon
Carbon is an important raw material to the aluminum smelting process. Carbon is used in the process of electrolysis, in the form of cathodes and anodes, with the latter the biggest component of BALCOs carbon costs. Anodes are made up of carbonaceous material of high purity. For pre-baked anodes, green carbon paste made of calcined petroleum coke and coal tar pitch is compacted or pressed into the required form. These anodes are baked before their use in electrolytic cells, or pots.
BALCO has in-house facilities to manufacture carbon anodes to meet its entire carbon anode requirements. Calcined petroleum coke, coal tar pitch and fuel oil, which are the key ingredients for the manufacture of carbon anodes, are sourced primarily from the Indian market. There is an adequate supply of these raw materials in India, though their prices are generally determined by movements in global prices.
Caustic Soda
Caustic soda is a key raw material used to dissolve the bauxite in the alumina refining process. The caustic soda requirement varies significantly depending on the silica content of the bauxite and the technology employed. BALCO sources its caustic soda requirements from various domestic manufacturers.
Other Raw Materials
BALCO also uses other raw materials such as fluorides and other chemicals. For these raw materials, there are several sources of supplies in the domestic markets and BALCO does not foresee any difficulty in securing supplies when needed.
Distribution, Logistics and Transport
Bauxite mined from the Mainpat and Bodai-Daldali mines is transported by road approximately 170 kilometers and 260 kilometers, respectively, from the mines to the Korba facility. Alumina purchased from third party suppliers is obtained from a combination of domestic sources and imports, and is transported to the Korba facility by road from domestic third party suppliers or ports. BALCOs aluminum products are transported from the Korba facility to domestic customers through a combination of road and rail, and shipped for export.
Sales and Marketing
BALCOs 10 largest customers accounted for approximately 44.6%, 28.9% and 41.1% of its revenue in fiscal 2009, 2010 and 2011, respectively. No customer accounted for greater than 10.0% of BALCOs revenue in the last three fiscal years.
BALCOs sales and marketing head office is located in Mumbai, and it has field sales and marketing offices in most major metropolitan centers in India. Currently, BALCO sells its products primarily in the Indian market, with limited focus on exports. However, with the commissioning of the new aluminum smelter, a significant part of the additional production is sold in the export market. BALCOs key customers include conductor manufacturers, state road transport corporations, railways, defense contractors and electrical equipment and machinery manufacturers.
Domestic sales are normally conducted on the basis of a fixed price for a given month that BALCO determines from time to time on the basis of average LME price for the month, as well as domestic supply
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and demand conditions. The price for aluminum BALCO sells in India is normally higher than the price it charges in the export markets due to the tariff structure, smaller order sizes that domestic customers place and the packaging, storing and truck loading expenses incurred when supplying domestic customers.
BALCOs export sales of aluminum are currently on a spot basis at a price based on the LME price plus a premium.
Projects and Developments
On October 7, 2006, BALCO entered into a MoU with the State Government of Chhattisgarh, India, and the CSEB under which, among other things, feasibility studies will be undertaken to build a thermal coal-based 1,200 MW captive power facility, along with an integrated coal mine, in the State of Chhattisgarh at an estimated cost of Rs. 46,500 million ($1,044 million). The project was disrupted in September 2009 due to the collapse of a chimney under construction during heavy rains and lightning at Korba. There were 40 fatalities in the accident and SEPCO Electric Power Construction Corporation, our EPC contractor, and Gamon Dunkerley and Company Limited, the sub-contractor are the subject of an investigation by the Chhattisgarh government. We have instituted an enquiry being conducted by IIT Rourkee, an expert in the civil engineering field in India. Work had resumed in January 2010 and the synchronization of the first two units of 300 MW are expected in fiscal 2012, and the remaining two units progressively by the second quarter of fiscal 2013.
In addition, on August 8, 2007, BALCO entered into a MoU with the State Government of Chhattisgarh for a potential investment to build an aluminum smelter with a capacity of 650,000 tpa at Chhattisgarh at an estimated cost of Rs. 81,000 million ($1,818.6 million). The first of two phases of this project has been commenced by BALCO with the setting up of a 325,000 tpa aluminum smelter at an estimated cost of Rs. 38,000 million ($853.2 million), which uses pre-baked GAMI technology. BALCO has received environmental clearance for both phases of the project. Construction has commenced and the first production stream from the 325,000 tpa aluminum smelter is expected in second quarter of fiscal 2013.
The estimated cost of building the 325,000 tpa aluminum smelter and 1,200 MW captive power facility is Rs. 84,500 million ($1,897.2 million). As of March 31, 2011, Rs. 46,389 million ($1,041.5 million) has been spent.
Market Share and Competition
BALCO is one of the four primary producers of aluminum in India and had a primary market share of 18.0% in fiscal 2011, according to AAI. BALCOs competitors (and their respective primary market shares by volume in India in fiscal 2010) are Hindalco (36.0%), NALCO, a Government of India enterprise (26.0%), and Vedanta Aluminium (20.0%) and subsidiaries of Vedanta.
Aluminum ingots, wire rods and rolled products are commodity products and BALCO competes primarily on the basis of price and service, with price being the most important consideration when supplies are abundant. Aluminum competes with other materials, particularly plastic, steel, iron, glass, and paper, among others, for various applications. In the past, customers have demonstrated a willingness to substitute other materials for aluminum.
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Vedanta Aluminium
Overview
We hold a 29.5% ownership interest in Vedanta Aluminium. The other 70.5% of Vedanta Aluminium is owned by Vedanta. Vedanta Aluminium is not part of our consolidated group of companies.
In October 2004, Vedanta Aluminium entered into an agreement with the Orissa Mining Corporation Limited, or OMC, regarding the establishment of the alumina refinery, an aluminum smelter and associated captive power plants in the Lanjigarh and Jharsuguda districts.
On March 11, 2010, Vedanta Aluminium has acquired 100.0% ownership of Allied Port Services Private Limited, or APSPL. The directors of APSPL are Mr. V. Ramanathan, Mr. Pankaj Khanna and Dr. Mukesh Kumar. After the acquisition, the registered office of APSPL was shifted from Chennai to Tuticorin.
Projects and Developments
Lanjigarh Alumina Refinery
We signed an MoU with Government of Orissa for setting up an alumina refinery on June 7, 2003 and the same was assigned by us to Vedanta Aluminium. The MoU was further revised to include an aluminium smelter at Jharsuguda in the State of Orissa on April 4, 2007. On October 5, 2009 Vedanta Aluminium also entered into an agreement with OMC for the supply of 150 million tons of bauxite to the alumina refinery at Lanjigarh from the Lanjigarh bauxite mine and nearby mines. In November 2007, the Supreme Court of India directed SIIL to enter into an agreement with OMC to operate the bauxite mines in place of Vedanta Aluminium. Accordingly, OMC and SIIL have an agreement to form a joint venture company to bauxite from the mines in the name of South West Orissa Bauxite Mining Private. Limited with 74.0% and 26.0% shareholding rights of SIIL and OMC, respectively.
Apart from the formation of the joint venture company for mining for bauxite, OMC and SIIL jointly agreed to the rehabilitation package as suggested by the Supreme Court when it granted clearance to the mines project. Accordingly, SIIL has filed necessary affidavits accepting the rehabilitation package in compliance with the interim judgment dated November 23, 2007.
In addition, Vedanta Aluminium is investing an estimated Rs. 76,000 million ($1,706.3 million) to expand its alumina refining capacity at Lanjigarh to 5 mtpa, subject to government approvals by increasing the capacity of the current alumina refinery from 1 mtpa to 2 mtpa through debottlenecking and by constructing a 3 mtpa alumina refinery and an associated 210 MW captive power plant.
On August 8, 2008, the Supreme Court of India granted clearance to the forest diversion proposal for the conversion of 660.7 hectares of forest land from forestry use to mining use, allowing the sourcing of bauxite which has been mined on the Niyamgiri Hills in Lanjigarh. Pursuant to the Supreme Court order, Sterlite was required to pay, from April 2007, the higher of 5% of annual profits before tax and interest from the Lanjigarh project and Rs. 100 million ($2.2 million) per annum, as a contribution for scheduled area development, as well as Rs. 122 million ($2.7 million) towards tribal development and Rs.1,055 million ($23.7 million) plus expenses towards a wildlife management plan for the conservation and management of wildlife around the Lanjigarh bauxite mine. As of March 31, 2011, an amount of Rs.1,212 million ($27.2 million) has been remitted to the Compensatory Afforestation Fund in compliance with the Supreme Court order. On December 11, 2008, the MoEF granted in-principle approval under the Forest (Conservation) Act, 1980, or the Forest Act. The stage one approval for the conveyor corridor was granted on March 15, 2009.
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On April 28, 2009, the MoEF granted environmental clearance for the mining of bauxite. Thereafter, MoEF in a statement issued on August 24, 2010 refused the final approval to the OMC proposal for the bauxite mining at Niyamgiri hills, in the State of Orissa, following the report of Dr. N.C. Saxena committee and recommendation of the Forest Advisory Committee, MoEF. On March 8, 2011, OMC challenged the order of the MoEF by way of a special leave petition to the Supreme Court of India. On April 1, 2011, the Supreme Court of India admitted OMCs plea against the MoEF. Upon direction of the Supreme Court, the application has been converted into a writ petition and on April 21, 2011, the Supreme Court directed the MoEF and other parties to file their replies within four weeks and list thereafter.
The MoEF on August 24, 2010 rejected the forest clearance for the Niyamgiri Mines to Orissa Mining Corporation (OMC) , which is one of the sources of supply of Bauxite to Vedanta Aluminium.Against this order of the MoEF, OMC filed a writ petition in the Supreme Court on October 24, 2010. The Surpeme Court issued a notice on the writ by its order dated April 21, 2011 and directed the MoEF to file its reply within four weeks. In the meantime, the MoEF by its order dated July 11, 2011, cancelled the environmental clearance granted to OMC for its Niyamgiri mines. OMC has filed an application in the Supreme Court against this order of the MoEF on August 1, 2011. The MoEF directed Vedanta Aluminium to maintain status quo on the expansion of its refinery on October 20, 2010. Against this order, Vedanta Aluminium filed a writ petition in the High Court of Orissa and the court by its order dated July 19, 2011 dismissed the writ. Vedanta Aluminium made an application to the MoEF to reconsider the grant of the environmental clearance for its Niyamgiri mines. The Supreme Court has issued a notice to the MoEF and directed the listing of both matters for final disposal in January 2012.
Certain groups of persons and individuals have filed an appeal challenging the grant of environment clearance by the MoEF before The National Environment Appellate Authority, or NEAA, and the same issues which were raised during hearing at the Supreme Court were raised at the NEAA. The NEAA dismissed the appeals by its order dated September 15, 2010, and has refused to consider the issues already discussed in the Supreme Court under the principle of res judicata, but has advised MoEF to consider the two Environment Impact Assessments, or EIAs, prepared for the mining project. Pursuant to the NEAA order, additional conditions, if any are required, can be imposed by MoEF in the environmental clearance, which remains inoperable, until MoEF reconsiders the matter.
In view of the ongoing delay in approval of the Niyamgiri mining, the Government of Orissa is actively considering allocation of alternative sources of bauxite to the Vedantas alumina refinery, from the State of Orissa.
Jharsuguda Aluminum Smelter
500,000 tpa Aluminum Smelter
Vedanta Aluminium has completed the construction of a greenfield 500,000 tpa aluminum smelter, together with an associated 1,215 MW coal-based captive power plant, in Jharsuguda in the State of Orissa. The project has been implemented in two phases of 250,000 tpa each. Phase 1 was completed on November 30, 2009. In Phase 2, 228 pots (out of 304 pots) with the associated carbon and cast house facilities have been commissioned from March 1, 2010 in stages. The remaining 76 pots have been commissioned in June 2010. All nine units of 135 MW have been commissioned. The smelter production for fiscal 2011 was 385,363 tons including trial run production whereas net generation of captive power plant was 7147 MU.
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1,250,000 tpa Aluminum Smelter
Vedanta Aluminium is also setting up another 1,250,000 tpa aluminum smelter in Jharsuguda at an estimated cost of Rs. 145,000 million ($3,255.5 million) which is scheduled for progressive final completion by the third quarter of fiscal 2013.
As of March 31, 2011, Vedanta Aluminium had spent an amount of Rs. 264,460 million ($5,937.6 million) on all the projects at Lanjigarh and Jharsuguda.
Vedanta Aluminium received formal approval to set up a special economic zone in a portion of the area on February 27, 2009. This special economic zone is a designated duty-free enclave approved by the Government of India which is treated as foreign territory for purposes of trade operations, duties and tariffs. Subject to certain conditions, there is no customs duty or excise duty for the import or procurement of capital goods, raw materials, consumables, spares and other products into the special economic zone. There is a 100.0% income tax exemption for a period of five years, a 50.0% income tax exemption for a further period of five years and a further exemption for up to 50.0% of profits that are reinvested into the zone for a period of five years under Section 10AA of the Income Tax Act, 1961, or the Income Tax Act.
Our Commercial Power Generation Business
Overview
Although electricity generation capacity has increased substantially in recent years, the demand for power in India to support its growing economy has in recent years exceeded, and continues to substantially exceed, the available generation supply. Per capita consumption of power in India, despite significant increases in recent years, continues to lag behind power consumption in other leading developed and emerging economies by a large margin. See Our IndustryCommercial Power Generation BusinessConsumption. India has large coal resources of 264.5 billion tons as of April 1, 2008, according to Geological Survey of India, and the coal industry is in a process of government deregulation that is expected to increase the availability of coal for power generation, among other uses. To sustain the recent economic growth in India, the Ministry of Power in India has set a target to provide an installed capacity of 212,000 MW by 2012 by adding approximately 100,000 MW of generation capacity from the 2007 installed capacity. As part of the planned target of approximately 100,000 MW of additional capacity by 2012, the Government of India has proposed setting up nine UMPPs. Each of these projects is expected to be commissioned during the period from 2008 to 2012 and nine have already been awarded as of March 31, 2011. The Ministry of Power has initiated the process for two more such UMPPs.
We believe that these factors make the commercial power generation business an attractive growth opportunity for us to diversify our business and that, by leveraging our project execution and operating skills and experience in building and managing power plants and by applying our mining experience to the mining of coal blocks that we have been and will continue to seek to have allotted to us by the Government of India, we may compete successfully in this business.
Our Experience with Captive Power Plants
We have been building and managing captive power plants since 1997. As of March 31, 2011, the total
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power generating capacity of our captive power plants and wind power plants, including the captive power plants of our 29.5%-owned subsidiary Vedanta Aluminium, was 4,027.3 MW, including ten thermal coal-based captive power plants with a total power generation capacity of 3,774 MW.
The following table sets forth information relating to our and Vedanta Aluminiums existing power plants as of March 31, 2011:
Fiscal Year Commissioned |
Capacity | Location |
Fuel Used | |||||
(MW) | ||||||||
1988(1) |
270 | Korba | Thermal Coal | |||||
1997 |
24 | Tuticorin | Liquid fuel | |||||
2003 |
14.8 | Debari | Liquid fuel | |||||
2003 |
6 | Zawar | Liquid fuel | |||||
2003 |
14.8 | Chanderiya (2) | Liquid fuel | |||||
2005 |
22.5 | Tuticorin | Liquid fuel | |||||
2005 |
154 | Chanderiya | Thermal coal | |||||
2006 |
540 | Korba | Thermal coal | |||||
2007 |
75 | (3) | Lanjigarh | Thermal coal | ||||
2007 |
107.2 | Gujarat and Karnataka | Wind (4) | |||||
2008 |
80 | Chanderiya | Thermal coal | |||||
2009 |
80 | Zawar | Thermal coal | |||||
2009 |
16 | Gujarat and Karnataka | Wind (4) | |||||
2009 |
675 | (3) | Jharsuguda | Thermal coal | ||||
2010 |
540 | (3) | Jharsuguda | Thermal coal | ||||
2011 |
1200 | (5) | Jharsuguda | Thermal coal | ||||
2011 |
48 | Rajasthan and Karnataka | Wind | |||||
2011 |
160 | Dariba | Thermal coal | |||||
|
|
|||||||
4,027.3 | ||||||||
|
|
Notes:
(1) | Commissioned by BALCO prior to our acquisition of BALCO in 2001 which is not being used for captive purposes at present due to the closure of operations at the 100,000 tpa aluminum smelter. |
(2) | Transferred from Debari to Chanderiya in March 2009. |
(3) | Captive power plant of Vedanta Aluminium, our 29.5%-owned subsidiary that is 70.5%-owned and controlled by Vedanta. The Lanjigarh captive power plant is expandable to 90 MW, subject to government approvals. |
(4) | Our wind power plants are not for captive use. |
(5) | One of the 600 MW unit included was operational as of March 31, 2011. |
We have the following power plants under construction:
| SIILs 160 MW coal-based thermal captive power plant at Tuticorin which is currently under construction is scheduled for commissioning in the fourth quarter of fiscal 2012; and |
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| BALCOs 1,200 MW thermal coal-based captive power plant in the State of Chhattisgarh where the first two units of 300 MW are expected to be synchronised in fiscal 2012, respectively, and the remaining units progressively by the second quarter of fiscal 2013 |
In addition, Vedanta Aluminium is setting up a 210 MW coal-based captive power plant at its second 3.0 million alumina refinery which is expected to be commissioned in fiscal 2012.
Our Plans for Commercial Power Generation
Sterlite EnergyOrissa
In August 2006, our shareholders approved a new strategy for us to enter into the power generation business in India. Sterlite Energy is investing approximately Rs. 82,000 million ($1,841.0 million) to build a 2,400 MW thermal coal-based sub-critical power facility (comprising four units of 600 MW each) in Jharsuguda in the State of Orissa. As of March 31, 2011, Rs. 57,105 million ($1,282.1 million) has been spent on the project. The first two units have been commissioned and the remaining two units to be progressively commissioned by the fourth quarter of fiscal 2012. This project is expected to be financed by internal sources and/or debt financing.
Sterlite Energy is building this power facility in the State of Orissa, which has abundant coal resources estimated at 65.3 billion tons as of April 1, 2008, according to the Geological Survey of India 2008. According to the Energy Information Administration, a statistical agency of the United States Department of Energy, India has the fourth largest coal reserves in the world. According to the Ministry of Coal of the Government of India, the State of Orissa has approximately 24.7% of Indias coal resources of 264.5 billion tons as of April 1, 2008. The plant would require approximately 12.49 million tpa of coal. Sterlite Energy has applied to the Ministry of Coal for allotments of coal blocks and long-term coal linkages, which are long-term supply contracts for delivery of coal meeting specific contract specifications. In January 2008, the Ministry of Coal jointly allocated the coal blocks in the Rampia and Dip Side Rampia in the State of Orissa to six companies, including Sterlite Energy. Sterlite Energys proportionate share would be 112.2 million tons. The coal block is currently in the pre-exploration stage and are regarded as non-reserve coal deposits. The six companies have entered into an agreement regarding the joint allocation through a joint venture company, Rampia Coal Mine and Energy Private Limited, or RCMEPL, incorporated in February 2008. On April 16, 2008, RCMEPL submitted an application to the Government of Orissa for the grant of a prospecting licence, or a licence for exploration, which is currently pending approval from the regulatory authorities. Once the licence for exploration is issued, RCMEPL will commence exploration activities in the coal block. Upon completion of exploration activities, RCMEPL will apply for the grant of the mining lease and other regulatory approvals for the development and mining of the coal block. We expect the development of the mines to take between three and five years. At the time of the allocation, the Ministry of Coal estimated that the coal block contains non-reserves coal deposits of 645.26 million tons of coal. Additionally, Sterlite Energy has been allotted a coal linkage of 2.57 mtpa for the Jharsuguda project to meet the coal requirements of one of the units of 600 MW of the 2,400 MW power facility. Following our application to the Ministry of Coal for a coal linkage to meet the substantial portion of the remaining coal requirements for the remaining three units, on the recommendation of Standing Linkage Committee in its meeting on January 29, 2010, Mahanadi Coal fields Limited issued the letter of assurance on July 14, 2010 for another 6.94 million tons.
Further, on September 26, 2006, Sterlite Energy entered into a memorandum of understanding with the State Government of Orissa under which the government has agreed to assist us in our acquisition of
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approximately 3,000 acres of land for the power facility, including the rehabilitation and resettlement of persons to be displaced, the obtaining of environmental clearances, the allocation of coal blocks, long-term coal linkages, water allocations and the sourcing of power during the construction period. The process of making arrangements for railway marshalling yard, coal stockpile, ash pond and other required facilities is currently underway. Pursuant to the memorandum of understanding, on September 28, 2006, Sterlite Energy entered into a power purchase agreement, or PPA, with the Grid Corporation of Orissa Limited, or GridCo, a nominee of the State Government of Orissa, which provides for approximately 600 MW of power to be supplied to the State Government of Orissa each year over a five-year period.
The PPA also provides that all power generated by the power plant prior to commercial operations and, thereafter, the power generated from the facility in excess of a plant load factor of 80% will be made available to GridCo at a variable price plus a variable incentive to be determined by the CERC.
Subsequently, Sterlite Energy entered into an amended PPA with GridCo on August 20, 2009 to amend the terms of the PPA pursuant to the Policy Guidelines for Thermal Power Generation notified by the Government of Orissa on August 8, 2008. Pursuant to the amended PPA, GridCo has the right to purchase up to 25.0% of the installed capacity of the power plant after adjustments for auxiliary consumption by us. Further, GridCo shall at all times have the right on behalf of the Government of Orissa to receive from the Jharsuguda power project, 7.0% of power generated (after adjustments for auxiliary consumption by us) at variable cost, determined by OERC. Further, we are required to make available to GridCo the entire power generated from the first unit of the Jharsuguda power project after meeting our own requirement. GridCo will have the right to purchase this power from us once in every five years, for 25 years from the date of commercial operation of the last unit. This right is an option to purchase rather than a binding commitment of GridCo. The PPA is subject to the approval of the OERC.
In the event GridCo decides not avail part or whole of the above mentioned right during any five year period, it shall give six months notice of the same to us prior to the commencement of such period.
The tariff for the sale of power by us to GridCo will be determined by the OERC as follows:
For the sale of power up to 25.0% of the installed capacity:
(i) | a fixed capacity charge which shall be determined by the OERC as per the terms and conditions of tariff issued from time to time and will be related to target availability. Recovery of fixed capacity charges below the level of target availability shall be done on a pro rata basis and calculated proportionately to the capacity requisitioned to GridCo; and |
(ii) | a variable energy charge, which shall comprise fuel cost and shall be calculated on the basis of the ex-bus energy scheduled to be sent out from the generating station. The energy charges shall be calculated as per the methodology prescribed by the OERC from time to time. |
For the sale of additional 7.0%, on account of allocation of coal blocks within the State of Orissa, a variable energy charge, which shall comprise fuel cost and shall be calculated on the basis of the ex-bus energy scheduled to be sent out from the generating station. The energy charges shall be calculated as per the methodology prescribed by the appropriate commission, from time to time.
Power from the power plant to be purchased by GridCo will be evacuated by GridCo from the bus bar of the project. For the evacuation of the remaining power, Sterlite Energy has constructed a 400 KV
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transmission line to connect to the transmission line being developed by Power Grid Corporation India Limited, or PGCIL near Jharsuguda. Sterlite Energy entered into an agreement with PGCIL in July 2010 to build the dedicated transmission system required for evacuating power from the power plant to the pooling units of PGCIL and to dispatch power to beneficiaries.
Sterlite EnergyTalwandi Sabo
In July 2008, Sterlite Energy succeeded in an international bidding process and was awarded the project for the construction of a 1,980 MW coal-based thermal commercial power plant at Talwandi Sabo in the State of Punjab in India. The State of Punjab has a power deficit of supply versus demand, according to the Northern Regional Power Committee of the Government of India. All necessary approvals for the project have been obtained and commissioning of this project will be carried out in stages and is expected to be completed by second quarter of fiscal 2014 at an estimated cost of Rs. 92,450 million ($2,075.7 million).
In October 2010, TSPL signed a MoU with Punjab State Power Corporation Limited to construct an additional unit of 660 MW in line with the State of Punjabs 2010 power generation policy. The estimated cost for the additional unit is Rs. 25,000 million ($561.3 million) and is expected to be completed in the fourth quarter of fiscal 2014.
In November 2009, Sterlite Energy entered into an on-shore and offshore engineering, procurement and construction contract with Shandong Electric Power Construction Corporation, or SEPCO, for Sterlite Energys Talwandi Sabo thermal power project for Rs. 66,560 million ($1,494.4 million). The contract was amended to include an additional unit of 660 MW. The revised cost of the contract was Rs. 87,000 million ($1,953.3 million).
SEPCOs obligations under the contract include testing and delivery of plant and equipment, system design and engineering of plant and equipment in accordance with technical specifications, supervision of civil, structure and manufacturing work, custom clearance, port clearance, inland transportation of offshore as well as onshore plant and equipment, unloading, storage and preservation for all equipment and material required, ash disposal among others within the period specified in the contracts. The fixed contract price is payable in multiple instalments according to a fixed payment schedule. SEPCO has provided performance guarantees with respect to various parameters, for instance, net unit heat rate of 2,222.80 kwph/kcal and net unit electric output of 614 MW. If there is a delay in completion or failure to meet performance guarantees, liquidated damages may be imposed on SEPCO in accordance with the terms of the contract.
As of March 31, 2011, we had spent Rs. 16,733 million ($375.7 million) on this project. In September 2008, TSPL entered into a long-term PPA with the Punjab State Electricity Board for the sale of power from the completed power plant. This project is expected to be financed by internal sources and/or debt financing.
HZLWind Power Plants
HZLs board of directors has approved the establishment of wind power plants with a combined capacity of up to 300 MW at an estimated cost of Rs. 16,000 million ($359.2 million). As of March 31, 2011, wind power plants with a combined power generation capacity of 123.2 MW have been commissioned in the States of Gujarat and Karnataka in India at a total cost of Rs. 6,006 million ($134.8 million). The first phase of 48 MW has been completed and the second phase of 102 MW is scheduled to be completed by the second quarter of fiscal 2012 at a cost of Rs. 8,650 million ($194.2 million). The electricity from these wind power plants is sold to SEBs. This project is funded through internal accruals and will benefit from the various tax incentives available under the Income Tax Act.
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Other Opportunities in Power
Vedanta Aluminium entered into an agreement on October 1, 2007 with GridCo for the sale of excess power from one unit of its 75 MW captive power plant at Lanjigarh with a capacity of 30 MW.
Sterlite Energy intends to participate in projects relating to the generation of coal-based thermal power and ancillary activities, including UMPPs or other projects announced by the Government of India or any state government. A recent initiative of the Ministry of Power of the Government of India offers private developers an opportunity to establish a number of UMPPs. Private developers will be selected on the basis of competitive bidding and under the initiative, will have the benefit of the assured purchase of power generated and payment security mechanisms. Nine of such UMPPs have been awarded as of March 31, 2011.
On October 30, 2009, Sterlite Energy filed its draft red herring prospectus with SEBI for a proposed initial public offering of its equity shares for an issue size of Rs. 51,000 million ($1,145 million) while the permission from SEBI to proceed with the intial public offering lapsed in April, 1 2011, Sterlite continues to explore various financing options for Sterlite Energy including an intial public offering.
Risks in Commercial Power Business
There will be risks involved in entering into the commercial power generation business. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessWe are developing our commercial power generation business, a line of business in which we have limited experience, from which we may never recover our investment or realize a profit and which may result in our managements focus being diverted from our core copper, zinc and aluminum businesses and Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessIf any power facilities we build and operate as part of our commercial power generation business do not meet operating performance requirements and agreed norms as may be set out in our agreements, or otherwise do not operate as planned, we may incur increased costs and penalties and our revenue may be adversely affected for more details.
Exploration and Development Activities
We are engaged in ongoing exploration activities to locate additional ore bodies in India, Australia, South Africa and Namibia. We spent approximately Rs. 439 million ($9.9 million) in fiscal 2011 on exploration.
The focus of our exploration has been sediment hosted zinc deposits in India. Bauxite exploration concentrates on delineating and evaluating known deposits within economic transport distance of our alumina refinery at Korba.
Options to Increase Interests in HZL and BALCO
Call Options Over Shares in HZL
On April 11, 2002, we acquired a 26.0% interest in HZL from the Government of India through our subsidiary SOVL. At the time of the acquisition, we owned 80.0% of SOVL and STL owned the remaining 20.0%. In February 2003, STL transferred its 20.0% interest in SOVL to us and SOVL became our wholly-
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owned subsidiary. SOVL subsequently acquired a further 20.0% interest in HZL through an open market offer. The total cash consideration paid by SOVL for the acquisition of the 46.0% interest in HZL was Rs. 7,776 million.
Upon SOVLs acquisition of the 26.0% interest in HZL, the Government of India and SOVL entered into a shareholders agreement to regulate, among other things, the management of HZL and dealings in HZLs shares. The shareholders agreement provides that as long as SOVL holds at least 26.0% of the share capital of HZL, SOVL is entitled to appoint one more director to the board of HZL than the Government of India and is entitled to appoint the managing director. In addition, as long as the shareholders agreement remains in force, the Government of India has the right to appoint at least one director to the board of HZL.
There are also various other matters reserved for approval by both the Government of India and SOVL, including amendments to HZLs Articles of Association, the commencement of a new business, non-pre-emptive issues of shares or convertible debentures, a discounted rights issue and the granting of loans or provision of guarantees or security to other companies under the same management as HZL.
Under the shareholders agreement, the Government of India also granted SOVL two call options to acquire all the shares in HZL held by the Government of India at the time of exercise. SOVL exercised the first call option on August 29, 2003 and acquired an additional 18.9% of HZLs issued share capital at a cost of Rs. 3,239 million on November 12, 2003, taking our interest in HZL to 64.9%.
The shareholders agreement provides that prior to selling shares in HZL to a third party, either party must first issue a sale notice offering those shares to the other party at the price it intends to sell them to the third party. However, a transfer of shares, representing not more than 5.0% of the equity share capital of HZL, by the Government of India to the employees of HZL is not subject to such right of first refusal by SOVL. The Government of India has transferred shares representing 1.5% of HZLs share capital to the employees of HZL. The shareholders agreement also provides that if the Government of India proposes to make a sale of its shares in HZL by a public offer prior to the exercise of SOVLs second call option, then SOVL shall have no right of first refusal.
The second call option provides SOVL a right to acquire the Government of Indias remaining 29.5% shareholding in HZL, subject to the right of the Government of India to transfer up to 3.5% of the issued share capital of HZL to employees of HZL, in which case the number of shares that SOVL may purchase under the second call option will be reduced accordingly. This call option became exercisable on April 11, 2007 and remains exercisable thereafter so long as the Government of India has not sold its remaining interest pursuant to a public offer of its shares. Under the shareholders agreement, upon the issuance of a notice of exercise of the second call option by SOVL to the Government of India, SOVL shall be under an obligation to complete the purchase of the shares, if any, then held by the Government of India, within a period of 60 days from the date of such notice. The exercise price for the second call option will be equal to the fair market value of the shares as determined by an independent appraiser. In determining the fair market value of the shares, the independent appraiser may take into consideration a number of factors including, but not limited to, discounted cash flows, valuation multiples of comparable transactions, trading multiples of comparable companies, SEBI guidelines and principles of valuation, the minority status of the shares, the contractual rights of the shares and the current market price of the shares. Based solely on the market price of HZLs shares on the NSE on September 23, 2011 of Rs. 125.9 ($2.8) per share, and not including the other factors that the independent appraiser may consider, one possible estimation of the exercise price to acquire all of the Government of Indias 1,247,950,590 shares of HZL would be Rs. 157,117 million ($3,527.5 million). If the Government of India sells its remaining ownership interest in HZL through a public offer, Sterlite may look into alternative means of increasing our ownership interest in HZL.
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SOVL has exercised the second call option by a letter dated July 21, 2009. The Government of India has stated that it is maintaining the same stand as in BALCO on the validity of the call option and has refused to act upon the second call option. Consequently, SOVL commenced arbitral proceedings and has appointed its arbitrator. The Government of India has not nominated its arbitrator despite SOVLs request for it to do so. Thereafter, SOVL filed an arbitration application pursuant to section 11(6) of the Arbitration and Conciliation Act 1996 in the Delhi High Court for constitution of an arbitral tribunal.
The arbitration application was heard on May 18, 2010, and the Government of India informed that they had appointed Justice V N Khare as their arbitrator. By an order dated May 18, 2010, the court directed the parties to appoint mediators for mediation of the dispute and if the mediation is not successful, arbitration will commence. The mediation was unsuccessful and the arbitral tribunal is being constituted.
It has been reported in the media that the Government of India is considering asserting a breach of a covenant by our subsidiary SOVL and may seek to exercise a put or call right with respect to shares of HZL. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessThe Government of India may allege a breach of a covenant by our subsidiary SOVL and seek to exercise a put or call right with respect to shares of HZL, which may result in substantial litigation and serious financial harm to our business, results of operations, financial condition and prospects. If the Government of India makes such an assertion, we intend to contest it and believe we have meritorious defenses.
Call Option Over Shares in BALCO
On March 2, 2001, we acquired a 51.0% interest in BALCO from the Government of India for a cash consideration of Rs. 5,532 million. On the same day, we entered into a shareholders agreement with the Government of India and BALCO to regulate, among other things, the management of BALCO and dealings in BALCOs shares. The shareholders agreement provides that as long as we hold at least 51.0% of the share capital of BALCO, we are entitled to appoint one more director to the board of BALCO than the Government of India and are entitled to appoint the managing director. There are various other matters reserved for approval by both the Government of India and Sterlite under the shareholders agreement, including amendments to BALCOs articles of association, the commencement of a new business, non-pre-emptive issues of shares or convertible debentures and the provision of loans or guarantees or security to other companies under the same management as BALCO.
Under the shareholders agreement, if either the Government of India or Sterlite wishes to sell its shares in BALCO to a third party, the selling party must first offer the shares to the other party at the same price at which it is proposing to sell the shares to the third party. The other party shall then have the right to purchase all, but not less than all, of the shares so offered. If a shareholder does not exercise its right of first refusal, it shall have a tag along right to participate in the sale pro rata and on the same terms as the selling party, except that if the sale is by the Government of India by way of a public offer, the tag along right will not apply. However, a transfer of shares representing not more than 5.0% of the equity share capital of BALCO by the Government of India to the employees of BALCO is not subject to such right of first refusal by Sterlite.
The Government of India also granted to Sterlite an option to acquire the remaining shares in BALCO held by the Government of India at the time of exercise. The exercise price is the higher of:
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| the fair value of the shares on the exercise date, as determined by an independent valuer; and |
| the original sale price Rs. 49.01 per share ($1.1 per share) together with interest at a rate of 14.0% per annum compounded half yearly from March 2, 2001 to the exercise date, less all dividends received by the Government of India since March 2, 2001 to the exercise date. |
Based on a valuation report commissioned by the Government of India and us in December 2007, the fair value of the remaining shares in BALCO held by the Government of India was Rs. 12,438 million ($279.3 million).
Under the terms of the shareholders agreement between us and the Government of India, we were granted an option to acquire the shares of BALCO held by the Government of India at the time of exercise. We exercised this call option on March 19, 2004. However, the Government of India has contested the purchase price and validity of the option, contending that the restriction imposed by the shareholders agreement on the transfer of shares violates Section 111A of the Indian Companies Act. As negotiations for an amicable resolution were unsuccessful, on direction of the court, arbitrators were appointed by the parties, as provided for under the terms of the shareholders agreement. Arbritration proceedings commenced on February 16, 2009. The arbitration hearings commenced on December 23, 2009 and concluded on August 29, 2010.
By an award dated January 25, 2011 the arbitral tribunal dismissed the claims of Sterlite on the basis that the clauses relating to the call option, the right of first refusal, the tag-along rights and the restriction on the transfer of shares violated section 111 A(2) of the Indian Companies Act. The award also ruled that the first valuation report of SBI Capital Markets Limited, which valued the shares of the Government of India at Rs. 77.93 per share, was correct and that we had the right to purchase the Government of Indias shares at 75.0% of its valuation. The arbitral tribunals ruling in relation to the valuation and our right to purchase at 75.0% is inconsequential as the arbitral tribunal had already made a ruling that our call option was invalid. Following the issuance of the award, we filed an application in the High Court of Delhi to set aside the award ruling that our call option was invalid. The High Court of Delhi has fixed a hearing date for the application on November 9, 2011. The Government also filed an application in the High Court of Delhi to set aside the ruling made in the award relating to the valuation report and our right to purchase the Government of Indias shares at 75.0% of the valuation. The High Court of Delhi has kept the application in abeyance until our application has been determined. See Item 4. Information on the CompanyB. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCO.
See Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessThe Government of India has disputed our exercise of the call option to purchase its remaining 49.0% ownership interest in BALCO.
Employees
As of March 31, 2011, we had 14,478 employees as follows:
Company |
Location | Primary Company Function |
Total Employees | |||||||
Copper |
||||||||||
Sterlite Industries (India) Limited | India | Copper smelting and refining | 1,172 | |||||||
Copper Mines of Tasmania Proprietary Limited. | Australia | Copper mining | 102 | |||||||
Fujairah Gold FZE | UAE | Precious metal refinery | 57 |
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Zinc India Hindustan Zinc Limited | India | Zinc and lead production | 6,742 | |||||||
Zinc International | ||||||||||
BMM | South Africa | Zinc and lead Mining | 795 | |||||||
THL Zinc Namibia Holdings (Proprietary) Limted | Namibia | Zinc and lead Mining & refining | 684 | |||||||
Vedanta Lisheen Finance Limited | Ireland | Zinc and lead Mining | 377 | |||||||
Aluminum Bharat Aluminium Company Limited | India | Aluminum production | 4,292 | |||||||
Power Sterlite Energy Limited | India | Commercial power generation | 196 | |||||||
Talwandi Sabo Power Limited | India | Commercial power generation | 61 | |||||||
The majority of our workforce is unionized. Employees of HZL and BALCO are members of registered trade unions such as Bharat Aluminum Mazdoor Sangh for BALCO and Hindustan Zinc Workers Federation for HZL, and are affiliated with national trade unions such as the Indian National Trade Union Congress. We believe that relations with our employees and unions are good, though we have in the past and may in the future experience strikes and industrial actions or disputes. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessOur operations are subject to operating risks that could result in decreased production, increased cost of production and increased cost of or disruptions in transportation, which could adversely affect our revenue, results of operations and financial condition.
We have a strong ongoing institutional commitment to the health and safety of our employees for achieving sustainable development in harmony with the communities and environments in which we operate. Proactively complying with and exceeding the requirements of regulatory guidelines, utilizing environment friendly technologies in our expansions and modernizations and implementing programs to support communities around our facilities are integral part of our business strategy. Most of our mines, refineries and smelters in India are both International Standards Organization (ISO) 14001 and Occupational Health and Safety Assessment Series (OHSAS) 18001 certified. We are committed to providing a healthy and safe working environment, to promoting empowerment, commitment and accountability of our employees and to being an equal opportunity employer. We actively initiate and participate in a variety of programs to contribute to the health, education and livelihood of the people in the local communities in which we operate, including through support of schools, educational programs and centers, women empowerment programs, hospitals and health centers. We constantly seek out and invest in new technologies and operational improvements to minimize the impact of our operations on the environment, including energy conservation measures, reductions in sulphur dioxide gas and other air emissions, water conservation and recycling measures and proper residue management. We also invest in programs to promote reforestation and better agricultural practices.
Insurance
We maintain property insurance which protects against losses relating to our assets arising from fire, business interruption, earthquakes or terrorism and freight insurance which protects against losses relating to the transport of our equipment, product inventory and concentrates. However, our insurance does not cover other potential risks associated with our operations. In particular, we do not have insurance for certain types of environmental hazards, such as pollution or other hazards arising from our disposal of waste products. The occurrence of a significant adverse event, the risks of which are not fully covered by insurance, could have a material adverse effect on our financial condition or results of operations. Moreover, no assurance can be given that we will be able to maintain existing levels of insurance in the future at the same rates. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessOur insurance coverage may prove inadequate to satisfy future claims against us.
We and our directors and officers are subject to US securities and other laws. In order to attract and retain
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qualified board members and executive officers, we have obtained directors and officers liability insurance. There can be no assurance that we will be able to maintain directors and officers liability insurance at a reasonable cost, or at all.
Regulatory Matters
Mining Laws
The Mines and Minerals (Development and Regulations) Act, 1957, as amended, or the MMDR Act, the Mineral Concession Rules, 1960, as amended, or the MC Rules, and the Mineral Conservation and Development Rules, 1988, as amended, or the MCD Rules, govern mining rights and the operations of mines in India. The MMDR Act was enacted to provide for the development and regulation of mines and minerals under the control of India and it lays down the substantive law pertaining to the grant, renewal and termination of reconnaissance, mining and prospecting licenses. The MCD Rules outline the procedures for obtaining a prospecting license or the mining lease, the terms and conditions of such licenses and the model form in which they are to be issued. The MCD Rules lay down guidelines for ensuring mining is carried out in a scientific and environmentally friendly manner.
The Government of India announced the National Mineral Policy in 1993, or The National Mineral Policy, which was amended in 2008, to sustain and develop mineral resources so as to ensure their adequate supply for the present needs and future requirements of India in a manner which will minimize the adverse effects of mineral development on the forest, environment and ecology through appropriate protective measures. The aim of the National Mineral Policy is to achieve zero waste mining and the extraction and utilization of the entire run of mines within a framework of sustainable development through the establishment of a resource inventory and registry to be maintained by the IBM, manpower development through education and training, infrastructure development in mineral bearing areas and the facilitation of financial support for mining. The Government of India has also made various amendments to Indias mining laws and regulation to reflect the principles underlying the National Mineral Policy. A draft bill has been proposed by the Government to amend the existing Mines and Mineral Development and Regulation Act, 1957, that will make it mandatory for companies to share a portion of their revenue for lifetime livelihood support to persons affected by mining. This bill is still under preliminary discussion stage and is yet to be approved by the Government.
Grant of a Mining Lease
Only the government of the applicable state may grant a mining lease. The mining lease agreement governs the terms on which the lessee may use the land for the purpose of mining operations. If the land on which the mines are located belongs to private parties, the lessee must acquire the surface rights relating to the land from such private parties. If a private party refuses to grant the required surface rights to the lessee, the lessee is entitled to inform the state government and deposit with the state government compensation for the acquisition of the surface rights. If the state government deems that such amount is fair and reasonable, the state government has the power to order a private party to permit the lessee to enter the land and carry out such operations as may be necessary for the purpose of mining. For determining what constitutes a fair amount of compensation payable to the private party, state governments are guided by the principles of the Land Acquisition Act, 1894, as amended, or Land Acquisition Act, which generally governs the acquisition of land by governments from private individuals.
In case of land owned by the government, the surface right to operate in the lease area is granted by the government upon application as per the norms of that state government.
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If the mining operations in respect of any mining lease results in the displacement of any persons, the consent of such affected persons, and their resettlement and rehabilitation as well as payment of benefits in accordance with the guidelines of the applicable state government, including payment for the acquired land owned by those displaced persons, needs to be settled or obtained before the commencement of the mining project. In respect of minerals listed in the First Schedule of the MMDR Act, prior approval of the Government of India is required to be obtained by the state government for entering into the mining lease. The approval of the Government of India is granted on the basis of the recommendations of the state governments, although the Government of India has the discretion to overlook the recommendation of the state governments. On receiving the clearance of the Government of India, the state government grants the final mining lease and prospecting license. The lease can be executed only after obtaining the mine plan approval from the IBM, which is valid for a period of five years. No person can acquire one or more mining leases for any mineral or prescribed group of associated minerals in a state covering a total area of 10 square kilometers. However, the Government of India may, if necessary in the interest of development of any mineral, relax this requirement.
The maximum term of a mining lease is 30 years and the minimum term is 20 years. A mining lease may be renewed for further periods of 20 years or less at the option of the lessee. Renewals are subject to the lessee not being in default of any applicable laws, including environmental laws. The MC Rules provide that if a lessee uses the minerals for its own industry, then such lessee is generally entitled to a renewal of its mining lease for a period of 20 years, unless it applies for a lesser period. The lessee is required to apply to the relevant state government for the renewal of the mining lease at least one year prior to the expiry of the mining lease. Any delay in applying for a renewal of the mining lease may be waived by the applicable state government provided that the application for renewal is made prior to expiry of the mining lease. In the event that the state government does not make any orders relating to an application for renewal prior to the expiration of the mining lease, the mining lease is deemed to be extended until such time the state government makes the order on the application for renewal. The Goa Daman and Diu Mining Concessions (Abolition and Declaration as Mining Leases) Act, 1987 abolished the mining concessions granted in perpetuity under the Portuguese regime and declared such mining concessions as mining leases under the MMDR Act.
Protection of the Environment
The MMDR Act also deals with the measures required to be taken by the lessee for the protection and conservation of the environment from the adverse effects of mining. The MCD Rules require every lessee to take all possible precautions for the protection of the environment and control of pollution while conducting mining operations in any area. The required environmental protection measures include, among others, prevention of water pollution, measures in respect of surface water, total suspended solids, ground water pH, chemicals and suspended particulate matter in respect of air pollution, noise levels, slope stability and impact on flora and fauna and the local habitation. The National Mining Policy emphasises that no mining lease would be granted to any party without a proper mining plan, including an environmental plan approved and enforced by statutory authorities and which provides for controlling environmental damage, restoration of mined areas and for planting trees according to prescribed norms.
Labor Conditions
Working conditions of mine laborers are regulated by the Mines Act, 1952, as amended from time to time,
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which sets forth standards of work, including number of hours of work, leave requirements, medical examination, weekly days of rest, night shift requirements and other requirements to ensure the health and safety of workers employed in mines.
Royalties
Royalties on the minerals extracted or a dead rent component, whichever is higher, are payable to the relevant state government by the lessee in accordance with the MMDR Act. The mineral royalty is payable in respect of an operating mine from which minerals are removed or consumed and is computed in accordance with a prescribed formula. The Government of India has been granted broad powers to modify the royalty scheme under the MMDR Act, but may not do so more than once every three years.
In addition, the lessee must pay the occupier of the surface land over the mining lease an annual compensation determined by the state government. The amount depends on whether the land is agricultural or non-agricultural.
Environment Laws
Our business is subject to environmental laws and regulations. The applicability of these laws and regulations varies from operation to operation and is also dependent on the jurisdiction in which we operate. Compliance with relevant environmental laws is the responsibility of the occupier or operator of the facilities.
Our operations require various environmental and other permits covering, among other things, water use and discharges, stream diversions, solid waste disposal and air and other emissions. Major environmental laws applicable to our operations include:
The Environment (Protection) Act, 1986 or EPA
The EPA is an umbrella legislation in respect of the various environment protection laws in India. The EPA vests in the Government of India the power to take any measures it deems necessary or expedient for protecting and improving the quality of the environment and preventing and controlling environmental pollution. Penalties for violation of the EPA include fines up to Rs. 100,000 or imprisonment of up to five years, or both. The MoEF, in exercise of powers conferred under the EPA, issued a notification on January 6, 2011 declaring coastal stretches as coastal regulation zones and thereby imposing restrictions on industries, operations and processes in a coastal regulation zone.
The EIA Notification issued under the EPA and the Environment (Protection) Rules, 1986 requires prior MoEF approval if any new project in certain specified areas is proposed to be undertaken. To obtain environmental clearance, a no-objection certificate must first be obtained from the applicable regulatory authority. This is granted after a notified public hearing, submission and approval of an environmental impact assessment report that sets out the operating parameters such as the permissible pollution load and any mitigating measures for the mine or production facility and an environmental management plan. Under the EPA and the Environment (Protection) Rules, 1986, as amended, the Government of India has issued a notification (S.O. 1533(E)) dated September 14, 2006, or EIA Notification, which requires that prior approval of the MoEF, Government of India, or State Environment Impact Assessment, or EIA Authority, as the case may be, be obtained for the establishment of any new project and for expansion or modernisation of existing projects specified in the EIA Notification (including power projects). An application for
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environment clearance is made after identification of the prospective site for the project or activity to which the application relates, but prior to commencing construction activity or preparation of land at the site. Certain projects which require approval from a State Environment Impact Assessment Authority, or SEIAA may not require an EIA report. For projects that require preparation of an EIA report, public consultation involving public hearing and written responses is conducted by the State Pollution Control Board, prior to submission of a final EIA report. The environment clearance (for commencement of the project) is valid for up to 30 years for mining projects and five years for all other projects and activities. This period of validity may be extended by the concerned regulator for up to five years. The EIA Notification states that obtaining of prior environment clearance includes four stages, i.e., screening, scoping, public consultation and appraisal.
The MoEF has, by circular (No. J-11013/41/2006-IA.II(I)) dated November 1, 2010, decided that proposals for obtaining environment clearance for projects that rely on the availability of coal as a raw material, including thermal power projects, will be considered only after the availability of firm coal linkage and the status of environment and forestry clearances of the source of the coal, i.e., the linked coal mine or block, are known. If a project is dependent on coal sourced from outside India, a copy of a signed MoU between the foreign coal supplier and project proponent is required to be submitted to the MoEF prior to environment clearance being granted. All proposals for environment clearance that are currently pending either before the MoEF or State Environment Impact Assessment Authority, or SEIAA, will be deferred and delisted until the conditions of the circular are complied with by the project proponents.
The MoEF has, by office memorandum (No. J-11013/41/2006-IA.II(I)) dated November 16, 2010, requested State governments to initiate action against projects where substantial progress relating to construction has been made and significant investments been made without obtaining requisite prior environment clearance. The memorandum prescribes the procedure for rectifying instances of non-compliance with the EIA Notification. Prior to environment clearance being granted, the concerned entity would be required to mandatorily highlight the violation before its board of directors or managing director or chief operating officer for consideration of its environmental policy or plan of action, and provide written commitment in the form of a formal resolution, to the MoEF or SEIAA within 90 days from receiving the communication from the MoEF or SEIAA, which will be uploaded onto the websites of the MoEF or SEIAA. If the project proponent does not file a response with the MoEF or SEIAA within 90 days, it will be assumed that the project proponent is no longer interested in pursuing the project and the project file will be closed, after which the procedure for obtaining environment clearance will be required to be initiated afresh if the project proponents are desirous of pursuing the project.
Laws Relating to Coal Mines
The Coal Mines (Nationalization) Act, 1973, or Coal Nationalization Act, Coking Coal Mines (Nationalization) Act, 1972, Coal Mines (Taking Over of Management) Act, 1973, Coking Coal Mines (Emergency Provision) Act, 1971, Coal Bearing Areas (Acquisition and Development) Act, 1957, and Coal Mines (Conservation and Development) Act, 1974, govern the mining rights of coal mines and coal mining operations in India. Under the Coal Nationalization Act, on and from May 1, 1973, the right, title and interest of the owners of coal mines were transferred to the Government of India and the Government of India is required to pay a specified amount for such transfer to the owner. The Coal Nationalization Act prohibits any person from carrying on coal mining operations in India, except for: (a) the Government of India or a Government Company including corporations owned, managed or controlled by the Government of India; (b) a person to whom a sub-lease has been granted by the Government of India or such company or corporation mentioned in (a) above; or (c) a company which is engaged in the production of iron and steel, generation of power, washing of coal obtained from a mine, or such other end use as the Government of India may notify.
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Distribution of Coal
The New Coal Distribution Policy, 2007, or NCD Policy, was issued by the Ministry of Coal to regulate the distribution of coal. The NCD Policy removes the classification of consumers into core and non-core sectors, and requires verification of consumers of erstwhile non-core sector consumers and cancellation of allocation to such consumers not found to be bona fide. The NCD Policy also deals with distribution and pricing of coal to different consumers or sectors like the defence sector, railways, power utilities, and integrated steel plants, provides for an exclusive distribution policy for consumers in the small and medium sector, replacement of the linkage system with enforceable fuel supply agreements, and policies for new consumers and a fresh scheme for e-auction of coal.
Draft Mining Act
The MoM has prepared the draft Mines and Minerals (Development and Regulation) Act, 2010, or Draft Mining Act, which seeks to decentralise powers to the States and increase revenues to the Government of India, including through rationalisation of royalties, taxes and cesses, and the offer of mining blocks on auction basis pursuant to promotional regional exploration by the State government. The Draft Mining Act mandates that with respect to the land in which minerals vest, the holder of a mining lease or prospecting licence be liable to pay reasonable compensation to the stakeholders holding occupation, usufruct or traditional rights of the surface of the land over which the licence and lease has been granted, as mutually agreed (failing which the relevant State government will determine compensation payable). The proposal includes the formation of a National Mineral Royalty Commission consisting of representatives of the Government of India, the State governments and the mining industry, to review the existing royalty payable. The Draft Mining Act would require to be passed by the Indian Parliament, before it comes into effect.
Mining Bill
The Mining Bill was introduced in the upper house of the Indian Parliament and proposes several amendments to the Mines Act, 1952, including significant enhancement to the monetary penalties and terms of imprisonment for violations under the Mines Act, 1952.
Power Sector
Licencing Requirements
Under the Electricity Act, 2003, or Electricity Act, transmission and distribution of, and trading in, electricity require licences from the appropriate Central or State Electricity Regulatory Commissions (respectively, CERCs and SERCs, and collectively, ERCs), unless exempted in accordance with the Electricity Act. CERC has jurisdiction over generating companies owned or controlled by the Government of India or which have a composite scheme for generation and sale in more than one State. SERCs have jurisdiction over generating stations within State boundaries, except those under CERCs jurisdiction. The respective ERC determines the tariff for supply of electricity from a generating company to a licencee, transmission, wheeling and retail sale of electricity. The Electricity Act was amended in 2007 to exempt captive power generation plants from licencing requirements.
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Generation
Currently, any generating company in India can establish, operate and maintain a generating station if it complies with the technical standards relating to connectivity with the grid. Generating companies are permitted to sell electricity to any licencees and where permitted by the respective SERCs, to consumers. The respective ERCs determine the tariff for supply of electricity from a generating company to any distribution licencee, transmission of electricity, wheeling of electricity and retail sale of electricity. CERC has jurisdiction over generating companies owned or controlled by the Government of India and those generating companies who have entered into or otherwise have a composite scheme for generation and sale in more than one State. SERCs have jurisdiction over generating stations within State boundaries, except those under CERCs jurisdiction.
In order to qualify as a captive generating plant, the Electricity Rules, 2005, or Electricity Rules require that not less than 26% of the ownership of the plant be held by a captive user and not less than 51% of the aggregate electricity generated in such plant, determined on an annual basis, be consumed for captive use. If the minimum percentage of captive use is not complied with in any year, the entire electricity generated is treated as supplied by a generating company and benefits available to a captive generating plant (such as exemption from payment of certain levies and surcharges) will not apply in such year.
Transmission
The Electricity Act allows generating companies open access to transmission lines. The provision of open access is subject to the availability of adequate transmission capacity as determined by the Central or State Transmission Utility. CERC amended its rules in 2009, permitting any captive generating plant using 25% of its own power to sell electricity through an open access system without requiring a separate licence. The balance may be sold through the Indian Energy Exchange, also without requiring a separate licence.
Tariff Principles
Under the Electricity Act, ERCs determine tariff for supply of electricity by a generating company (as well as for transmission, wheeling and retail sale of electricity). In case of shortage of electricity supply, the ERC may fix the minimum and maximum tariff for sale or purchase of electricity, pursuant to an agreement entered into between a generating company and licencee or between licencees, for up to one year. Under guidelines issued by the MoP, the determination of tariff for a particular power project depends on the mode of participation in the project, i.e., (i) the MoU route, based on tariff principles prescribed by CERC (cost plus basis, comprising capacity charge, energy charge, unscheduled interchange charge and incentive payments); or (ii) the competitive bidding route, where tariff is market based.
Bidding route: The Guidelines for Determination of Tariff by Bidding Process for Procurement of Power by Distribution Licencees, 2005, or Bidding Guidelines, envisage two types of bids: Case I bids, where location, technology and fuel are not specified by the procurers, that is, the generating company is free to choose the site and technology for the generation plant; and Case II bids, where procurement is location and fuel specific. The Bidding Guidelines envisage a two-step process pre-qualification and final bid. For long-term procurement (for seven or more years), a two-stage process featuring separate request for qualification, or RFQ, and request for proposal, or RFP, stages is required. Bidders are required to submit a technical and financial bid at RFP stage. For medium-term procurement (for up to seven years but exceeding one year), the procurer may, at its option, adopt a single-stage tender process (combining the RFP and RFQ processes). Individual power producers, or IPPs, may typically bid at two parameters: fixed or capacity
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charge; and variable or energy charge, which comprises fuel cost for electricity generated. Bidders are typically permitted to quote a base price and an acceptable escalation formula. The MoP has issued guidelines for competitive bidding as well as draft documentation in the form of model PPAs.
MoU Route: The MoU route involves negotiation between the State power utility and developer. Cost determination under the MoU route involves determination of receivables of capital cost and approval of capital costs by CEA, approval of interest rates and local and foreign debt by CEA, finalizing term of loans and/or other debt, finalizing the extent of foreign exchange protection, fixing operating parameters within prescribed ceilings, identifying deemed generation provisions, evaluating the extent of dispatchability, evaluating the level of incentive payments, identifying change, in law in terms of tax or any other matter, identifying the extent of working capital permissible, evaluating the premium on fuel prices for assured supply, identifying fuel supply and transportation risk and issues, evaluating escalations in operations and maintenance and insurance expenses permissible, evaluating the extent of maintenance of spares permissible, and rebates in respect of prompt payment.
The Tariff Policy, 2006 requires all procurement of power after January 6, 2006 to be through the bidding route. Certain State governments in India have continued to purchase power under the MoU route, with the view that the Tariff Policy is indicative and not binding.
The CERC (Terms and Conditions of Tariff) Regulations, 2009, or Tariff Regulations, apply where tariff for a generating station or unit (other than those based on non-conventional energy sources) and transmission system is yet to be determined by CERC. Tariff for supply of electricity from a thermal generating station comprises two parts: capacity charge (for recovery of annual fixed cost); and energy charge (for recovery of primary fuel cost and limestone cost where applicable). Tariff in respect of a generating station may be determined for the whole generating station, or a stage, unit, or block of the generating station. The generating company may apply for determination of tariff in respect of the units of the generating station completed or projected to be completed within six months from the date of application.
National Electricity Policy
In compliance with the Electricity Act, the Government of India announced the National Electricity Policy in February 2005. The National Electricity Policy aims at achieving the following objectives:
| access to electricityavailable for all households by 2010; |
| availability of powerdemand to be fully met by 2012 and energy and peaking shortages to be overcome and adequate spinning reserve to be available; |
| supply of reliable and quality power of specified standards in an efficient manner and at reasonable rates; |
| per capita availability of electricity to be increased to over 1,000 units by 2012; |
| minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012; |
| financial turnaround and commercial viability of electricity sector; and |
| protection of consumers interests. |
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National Electricity Plan
The Electricity Act requires CEA to frame a National Electricity Plan once in five years and revise such plan from time to time in accordance with the National Electricity Policy. CEA released a National Electricity Plan in April 2007 which includes:
| short-term and long-term demand forecast for different regions; |
| suggested areas or locations for capacity additions in generation and transmission keeping in view the economics of generation and transmission, losses in the system, load centre requirements, grid stability, security of supply, quality of power including voltage profile and environmental considerations including, rehabilitation and resettlement; |
| integration of such possible locations with transmission system and development of national grid including type of transmission systems and requirement of redundancies; |
| different technologies available for efficient generation, transmission and distribution; and |
| fuel choices based on economy, energy security and environmental considerations. |
Mega Power Projects
Under the Mega Power Policy introduced by the MoP on November 10, 1995 and amended on December 14, 2009, power projects which meet the following criteria are eligible to be classified as mega power projects:
| a thermal power plant with capacity of 1,000 MW or more; or |
| a thermal power plant with a capacity of 700 MW or more, in the States of Jammu and Kashmir, Sikkim, Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland and Tripura; or |
| a hydro electricity power project of capacity 500 MW or more; or |
| a hydro electricity power plant of a capacity of 350 MW or more, in the States of Jammu and Kashmir, Sikkim, Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland and Tripura. |
Mega power projects are eligible for certain concessions and benefits, including waiver of customs duty for import of capital goods for setting up such projects and certain income tax benefits. Mega Power Policy benefits have been extended to brownfield projects where the size of the expansion unit would not be not less than that provided in the earlier phase of the project certified as a mega power project.
Ultra Mega Power Projects
With the aim of meeting Indias significant power requirements, the Government of India proposed the construction of UMPPs in 2006. The award of the projects is based on competitive bidding processes, with the amount of normalised tariff for 25 years being a significant factor in their selection. UMPPs will be
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awarded to developers on a build-own-operate basis. Each UMPP will provide power generation capacity of 4,000 MW and use coal as fuel. The Government of India will facilitate land and environmental clearances, off-take agreements, payment security mechanisms and fuel linkages in some cases, to ensure efficient implementation of the UMPPs.
Forest (Conservation) Act, 1980, or Forest Act, and the Forest Conservation Rules, 2003
The Forest Act requires consent from the relevant authorities prior to clearing forests by felling trees. The final clearance in respect of both forests and the environment is given by the Government of India, through the MoEF. However, all applications have to be made through the respective state governments who will recommend the application to the Government of India. The penalties for non-compliance can include closure of the mine or prohibition of mining activity, stoppage of the supply of energy, water or other services and monetary penalties on and imprisonment of the persons in charge of the conduct of the business of the company.
Hazardous Wastes (Management and Handling) Rules, 1989, or Hazardous Wastes Rules
The Hazardous Wastes Rules aim to regulate the proper collection, reception, treatment, storage and disposal of hazardous waste by imposing an obligation on every occupier and operator of a facility generating hazardous waste to dispose such waste without adverse effect on the environment, including through the proper collection, treatment, storage and disposal of such waste. Every occupier and operator of a facility generating hazardous waste must obtain an approval from the relevant State Pollution Control Board. The occupier is liable for damages caused to the environment resulting from the improper handling and disposal of hazardous waste and any fine that may be levied by the respective State Pollution Control Boards.
Water (Prevention and Control of Pollution) Act, 1974, or Water Act
The Water Act aims to prevent and control water pollution as well as restore water quality by establishing and empowering State Pollution Control Boards. Under the Water Act, any individual, industry or institution discharging industrial or domestic waste water must obtain the consent of the relevant State Pollution Control Board, which is empowered to establish standards and conditions that are required to be complied with. If the required standards and conditions are not complied with, the State Pollution Control Board may serve a notice on the concerned person, cause the local Magistrates to pass an injunction to restrain the activities of such person and impose fines.
Water (Prevention and Control of Pollution) Cess Act, 1977, or Water Cess Act
Under the Water Cess Act, a lessee engaged in mining is required to pay a surcharge calculated based on the amount of water consumed and the purpose for which the water is used. A rebate of up to 25% on the surcharge payable is available to those industries which install any plant for the treatment of sewage or trade effluent, provided that they consume water within the quantity prescribed for that category of industries and also comply with the effluent standards prescribed under the Water Act or the EPA. Penalties for non compliance include imprisonment of any person in contravention of the provisions of the Water Cess Act for a period up to six months or a fine of Rs. 1,000 or both.
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Air (Prevention and Control of Pollution) Act, 1981, or Air Act
Pursuant to the provisions of the Air Act, any individual, industry or institution responsible for emitting smoke or gases by way of use of fuel or chemical reactions must obtain the consent of the relevant State Pollution Control Board prior to commencing any mining or manufacturing activity. The State Pollution Control Board is required to grant consent within a period of four months of receipt of an application, but may impose conditions relating to pollution control equipment to be installed at the facilities and the quantity of emissions permitted. The penalties for the failure to comply with the provisions of the Air Act include imprisonment of up to seven years and the payment of a fine as may be deemed appropriate.
Employment and Labor Laws
We are subject to various labor, health and safety laws which govern the terms of employment of the our laborers at our mining and manufacturing facilities, their working conditions, the benefits available to them and the general relationship between our management and such laborers. These include:
The Industrial Disputes Act, 1947, or IDA
The IDA seeks to preempt industrial tensions in an establishment and, provide the mechanics of dispute resolution, collective bargaining and the investigation and settlement of industrial disputes between unions and companies. While the IDA provides for the voluntary reference of industrial disputes to arbitration, it also empowers the appropriate government agency to refer industrial disputes for compulsory adjudication and prohibit strikes and lock-outs during the pendency of conciliation proceedings before a board of conciliation or adjudication proceedings before a labor court.
Factories Act, 1948, or Factories Act
The Factories Act regulates occupational safety, health and welfare of workers of industries in which 10 or more workers are employed in a manufacturing process being carried out with the aid of power. The Factories Act includes provisions as to the approval of factory building plans before construction or extension, investigation of complaints, maintenance of registers and the submission of yearly and half-yearly returns. Penalties for non-compliance include imprisonment of the occupier and manager for up to two years or fine, or both and further fine for each day of continued contravention.
Contract Labor (Regulation and Abolition) Act, 1970, or CLRA
The CLRA has been enacted to regulate the employment of contract labor. The CLRA applies to every establishment in which 20 or more workmen are employed or were employed on any day of the preceding 12 months as contract labor. The CLRA vests the responsibility on the principal employer of an establishment to register as an establishment that engages contract labor. Likewise, every contractor to whom the CLRA applies must obtain a license and may not undertake or execute any work through contract laborers except in accordance with the license issued.
To ensure the welfare and health of contract labor, the CLRA imposes certain obligations on the contractor in relation to establishment of canteens, rest rooms, drinking water, washing facilities, first aid and other facilities and payment of wages. However, in the event the contractor fails to provide these amenities, the principal employer is under an obligation to provide these facilities within a prescribed time period.
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Employee State Insurance Act, 1948, or ESIA
The ESIA requires the provision of certain benefits to employees or their beneficiaries in the event of sickness, maternity, disability or employment injury. Every factory or establishment to which the ESIA applies is required to be registered in the manner prescribed under the ESIA. Every employee, including casual and temporary employees, whether employed directly or through a contractor, who is in receipt of wages up to Rs. 15,000 per month with effect from May 1,2010, is entitled to be insured under the ESIA. The ESIA contemplates the payment of a contribution by the principal employer and each employee to the Employee State Insurance Corporation. Penalties for failure to make contributions under the ESIA include imprisonment for a term which may extend to three years which shall not be less than one year, in case of failure to pay the employees contribution which has been deducted by him from the employees wages and shall also be liable for a fine and which shall not be less than six months, in any other case and shall also be liable for a fine.
Payment of Wages Act, 1936, or PWA
The PWA regulates the payment of wages to certain classes of employed persons and makes every employer responsible for the payment of wages to persons employed by such employer. No deductions are permitted from, nor is any fine permitted to be levied on wages earned by a person employed except as provided under the PWA.
Minimum Wages Act, 1948, or MWA
The MWA provides for a minimum wage payable by employers to employees. Under the MWA, every employer is required to pay the minimum wage to all employees, whether for skilled, unskilled, manual or clerical work, in accordance with the minimum rates of wages that have been fixed and revised under the MWA. Workmen are to be paid for overtime at overtime rates stipulated by the appropriate government. Contravention of the provisions of this legislation may result in imprisonment up to six months or a fine up to Rs. 500, or both. Further, state governments are empowered to stipulate higher penalty, in monetary terms, for contravention of the provisions of this legislation, if it deems fit to do so.
Workmens Compensation Act, 1923, or WCA
The WCA makes every employer liable to pay compensation if injury, disability or death is caused to a workman (including those employed through a contractor) due to an accident arising out of or in the course of his employment. If the employer fails to pay the compensation due under the WCA within one month from the date it falls due, the commissioner may direct the employer to pay the compensation amount along with interest and impose a penalty for non-payment.
Payment of Gratuity Act, 1972, or PGA
Under the PGA, an employee who has been in continuous service for a period of five years is eligible for gratuity upon retirement or resignation. The entitlement to gratuity in the event of superannuation or death or disablement due to accident or disease, will not be contingent on an employee having completed five years of continuous service. The maximum amount of gratuity payable to an employee must not exceed Rs. 350,000 which was increased to Rs. 1,000,000 with effect from May 24, 2010.
An employee in a factory is said to be in continuous service for a certain period notwithstanding that his service has been interrupted during that period by sickness, accident, leave, absence without leave, lay-off, strike, lock-out or cessation of work not due to the fault of the employee. The employee is also deemed to be
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in continuous service if the employee has worked (in an establishment that works for at least six days in a week) for at least 240 days in a period of 12 months or 120 days in a period of six months immediately preceding the date of reckoning.
Payment of Bonus Act, 1965, or PBA
The PBA provides for the payment of a minimum annual bonus to all employees regardless of whether the employer has made a profit or a loss in the accounting year in which the bonus is payable. Under the PBA every employer is bound to pay to every employee, in respect of the relevant accounting year, a minimum bonus equal to 8.33% of the salary or wage earned by the employee during the accounting year or Rs. 100, whichever is higher. If the allocable surplus, as defined in the PBA, available to an employer in any accounting year exceeds the aggregate amount of minimum bonus payable to the employees, the employer is bound to pay bonuses at a higher rate which is in proportion to the salary or wage earned by the employee and the allocable surplus during the accounting year, subject to a maximum of 20% of such salary or wage. Contravention of the provisions of the PBA by a company will be punishable by imprisonment for up to six months or a fine of up to Rs. 1,000, or both, against persons in charge of, and responsible to the company for, the conduct of the business of the company at the time of contravention.
Employees Provident Funds and Miscellaneous Provisions Act, 1952, or EPFA
The EPFA creates provident funds for the benefit of employees in factories and other establishments. Contributions are required to be made by employers and employees to a provident fund and pension fund established and maintained by the Government of India.
The employer is responsible for deducting employees contributions from the wages of employees and remitting the employees as well as its own contributions to the relevant fund. The EPFA empowers the Government of India to frame various funds such as the Employees Provident Fund Scheme, the Employees Deposit-linked Insurance Scheme and the Employees Family Pension Scheme.
Other Laws
Land Acquisition Act, 1894, or Land Acquisition Act
As per the provisions of the Land Acquisition Act, the central government or appropriate state government is empowered to acquire any land from private persons for public purpose subject to payment of compensation to the persons from whom the land is so acquired. The Land Acquisition Act further prescribes the manner in which such acquisition may be made by the central government or the appropriate state government. Additionally, any person having an interest in such land has the right to object to such proposed acquisition.
C. Corporate Structure
The following diagram summarizes the corporate structure of our consolidated group of companies and our relationship with Vedanta and other key entities as of March 31, 2011:
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* The corporate structure does not include our non-operating subsidiaries, Thalanga Copper Mines Proprietary Limited, and Sterlite (USA), Inc.
# Vedanta Resources Holdings Limited owns 100% of Vedanta Resources Finance Limited, or VRFL, and in turn VRFL holds 100% in Vedanta Resources Cyprus Limited, or VRCL. VRCL own 100% of Welter Trading.
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Notes:
(1) | Volcan is owned and controlled by the Anil Agarwal Discretionary Trust. Onclave, is the trustee of the Anil Agarwal Discretionary Trust and controls all voting and investment decisions of the Anil Agarwal Discretionary Trust. As a result, shares beneficially owned by Volcan may be deemed to be beneficially owned by the Anil Agarwal Discretionary Trust and, in turn, by Onclave. The beneficiaries of the Anil Agarwal Discretionary Trust are members of the Agarwal family, who are related to Mr. Anil Agarwal. Mr. Anil Agarwal, the Executive Chairman of Vedanta and our Non-Executive Chairman, as protector of the Anil Agarwal Discretionary Trust, may be deemed to have deemed beneficial ownership of shares that are beneficially owned by the Anil Agarwal Discretionary Trust. |
(2) | SOVL has exercised the second call option to acquire the Government of Indias remaining ownership interest in HZL although the exercise is currently subject to dispute. See - B. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCO for more information. |
(3) | We have exercised our option to acquire the remaining 49.0% of BALCO owned by the Government of India on March 19, 2004. The exercise of this option has been contested by the Government of India. The Government of India has the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. See B. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCO for more information. |
The principal members of our consolidated group of companies are as follows:
| SIIL. We are incorporated in Kolkata, State of West Bengal, India, our registered office is in Tuticorin, State of Tamil Nadu, India and we are headquartered in Mumbai. We have been a public listed company in India since 1988 and our equity shares are listed and traded on the NSE and BSE. Our ADSs are listed on the NYSE. Vedanta, through Twin Star and MALCO, owns 57.7% of our issued share capital and has management control of us. Vedantas 57.7% ownership interest in us is equal to the sum of Twin Stars 54.6% ownership interest in us plus 78.6% of the 3.1% ownership interest in us of MALCO (reflecting Vedantas 78.6% ownership interest in MALCO). We are a majority-owned and controlled subsidiary of Vedanta. The remainder of our share capital is held by Bhadram Janhit Shalika (previously known as the SIL Employees Welfare Trust), Life Insurance Corporation of India, or LIC, and other institutional and public shareholders (42.3%). We operate our copper business within Sterlite, except for our Australian copper mine, which is owned and operated by our wholly-owned subsidiary CMT. |
| BALCO. BALCO is incorporated in New Delhi, State of Delhi, India and is headquartered at Korba in the State of Chhattisgarh. We own 51.0% of BALCOs share capital and have management control of the company. The Government of India owns the remaining 49.0%. We exercised an option to acquire the Government of Indias remaining ownership interest in BALCO on March 19, 2004, which has been contested by the Government of India. Further, the Government of India retains the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. See B. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCO for more information. BALCO owns and operates our aluminum business. |
| HZL. HZL is incorporated in Jaipur, State of Rajasthan, India and is headquartered in Udaipur in Rajasthan. HZL is listed on the NSE and BSE. We own 64.9% of HZLs share capital through our |
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wholly-owned subsidiary SOVL. The remainder of HZLs share capital is owned by the Government of India (29.5%) and institutional and public shareholders and employees of HZL (5.6%). Through SOVL, we have management control of HZL, which owns and operates our zinc business, and a call option to acquire the Government of Indias remaining ownership interest at a fair market value to be determined by an independent appraiser. SOVL has exercised the second call option to acquire the Government of Indias remaining ownership interest in HZL although the exercise is currently subject to dispute. See B. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCO for more information. |
| Sterlite Energy. Sterlite Energy is incorporated in Mumbai, State of Maharashtra, India, and its registered office is located in Tuticorin, State of Tamil Nadu. Sterlite Energy is our wholly-owned subsidiary. TSPL is a wholly owned subsidiary of Sterlite Energy. |
| SIL. SIL (formerly Sterlite Paper Limited) was incorporated on June 25, 1999, State of Maharashtra, India, and its registered office is located in Tuticorin, State of Tamil Nadu. SIL is our wholly owned subsidiary. During fiscal 2011, SIL acquired the zinc business of Anglo American Plc which included the acquisition of 100.0% stake in Skorpion, which owns the Skorpion mine and refinery in Namibia, a 74.0% stake in BMM, which owns the Black Mountain mine and the Gamsberg Project, in South Africa and a 100.0% stake in Lisheen which owns the Lisheen mine in Ireland. |
| Skorpion. Skorpion, previously Anglo Base Namibia Holdings (Proprietary) Limited, previously Ambase Exploration (Namibia) Proprietary Limited was incorporated on June 16, 1998. The company has its head quarters at the Skorpion Zinc mine site, which is situated 25 km north of Rosh Pinah Namibia. The companys registered office is situated at 24 Orban Street, Klein Windhoek, Namibia. The company holds the entire share capital in the following companies: Skorpion Zinc Proprietary Limited, Namzinc Proprietary Limited and Skorpion Skorpion Zinc Proprietary Limited is an investment holding company, holding the entire share capital in Namzinc and Skorpion. Namzinc operates a zinc refinery, who procures oxide zinc ore from Skorpion, who in turn extracts the ore from an open pit zinc deposit. |
| BMM. BMM is an underground mining operation located at Aggeneys in the Northern Cape. It produces zinc, lead and copper concentrates which are sold both locally and exported to international customers through the Saldanha harbour. The zinc mine at Black Mountain is an underground operation, mining a polymetallic ore body, with an attached concentrator producing approximately 28,000 tons of zinc, 50,000 tons of lead, 2,000 tons of copper and 55 tons of silver in concentrate, annually. Exxaro Resources (through its wholly owned subsidiary, Exxaro Base Metals) holds the remaining 26% interest in BMM. The predominant mining method is ramp in stope cut and fill. The planned production rate is 1.56 mtpa plant feed and the share hoisting capacity is approximately 150,000 tpa. All production stopes are backfilled and waste filled, integrated into the mining sequence. |
| Vedanta Lisheen Finance Limted: Lisheen is located in County Tipperary in Ireland, 160 km SW of Dublin, Republic of Ireland Lisheen is a world-class zinc operation, consisting of an underground mine, concentrator and backfill plant, producing approximately 175,000 tons of zinc in concentrate annually and has an expected mine life to 2014. In addition, Lisheen produces 20,000 tons of lead concentrate annually. The Lisheen zinc deposit is located in the Rathdowney Trend, which comprises sedimentary rocks, mainly limestone, which were formed approximately 320 million years ago. The |
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mine commenced production in 1999, following a successful development partnership between Minorco (merged with Anglo American in 1999) and Ivernia West. Anglo American subsequently acquired Ivernias stake in 2003 to gain 100% ownership. Lisheen mine extracts lead and zinc ore from underground, processes this into zinc and lead concentrates and sells these concentrates to smelters and customers in Europe, Asia, North Africa and the US. The deposit was discovered in 1990 and construction commenced in 1997 and in late 1999 production commenced from the two main orebodies. The production from third orebody commenced in 2006. The average depth is approximately 190 meters below surface and as pre current planning and financial forcasts the end of production is scheduled to 2014. |
The key entities that control us are as follows:
| Volcan. Volcan was incorporated in the Bahamas on November 25, 1992, and is owned and controlled by the Anil Agarwal Discretionary Trust. Onclave is the trustee of the Anil Agarwal Discretionary Trust and controls all voting and investment decisions of the Anil Agarwal Discretionary Trust. Mr. Anil Agarwal, the Executive Chairman of Vedanta and our Non-Executive Chairman, controls the Anil Agarwal Discretionary Trust. Vedanta, Volcan, the Anil Agarwal Discretionary Trust, Onclave and Mr. Anil Agarwal are parties to a relationship agreement that regulates the ongoing relationship among them. Volcan owns approximately 61.5% of the issued ordinary share capital of Vedanta. |
| Vedanta. On April 22, 2003, Vedanta was created as a new company wholly-owned by Volcan. We and a number of other companies owned directly or indirectly by the Agarwal family at that time became subsidiaries of Vedanta. On December 10, 2003, Vedanta completed an initial public offering of its shares in the United Kingdom and its shares were listed on the LSE. Volcans ownership interest in Vedanta is 61.5% as of March 31, 2011. Vedanta is a leading metals and mining company that is listed on the LSE and included in the FTSE 100 Index. We are a majority-owned and controlled subsidiary of Vedanta. We are a party to a shared services agreement with Vedanta and other entities regarding the sharing of management services. See Item 7. Major Shareholders and Related Party Transactions. In 2004, Vedanta, through its wholly-owned subsidiary, VRHL, acquired 51.0% of KCM, which is incorporated in Zambia. In April 2008, Vedanta acquired a further 28.4% of KCM. KCM is the largest copper metals and mining company in Zambia and exports substantially all of its copper production to the Middle East and Southeast Asia. KCM competes with us on the world copper markets. In April 2007, Vedanta acquired a 51.0% controlling interest in Sesa Goa Limited, which was incorporated in India, is Indias largest private sector iron ore producer and exports substantially all of its iron ore production to leading global steel companies in China, Europe and Japan. |
| MALCO. MALCO was incorporated in 1960 in the State of Tamil Nadu, India where it is also headquartered. MALCO was delisted from the NSE and BSE on June 19, 2009. Vedanta has management control of MALCO. |
We also have an associate company, Vedanta Aluminium, which is incorporated in the State of Maharashtra, India, and is 70.5%-owned by Vedanta through Twin Star and Welter Trading, following a Rs. 4,421 million investment in March 2005. In September 2008, Twin Star sold 25.0% of its interest in Vedanta Aluminium to Welter Trading, a wholly-owned subsidiary of Twin Star. We own the remaining 29.5% non-controlling interest in Vedanta Aluminium. Vedanta Aluminium is part
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of Vedantas consolidated group of companies but is not part of our consolidated group of companies. See B. Business OverviewOur BusinessOverview.
D. Property, Plant and Equipment
See B. Business OverviewOur BusinessOur Copper BusinessPrincipal Facilities, B. Business OverviewOur BusinessOur Zinc BusinessPrincipal Facilities, B. Business OverviewOur BusinessOur Aluminum BusinessPrincipal Facilities, and B. Business OverviewOur BusinessOur Zinc International BusinessPrincipal Facilities.
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
Not applicable
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following discussion of our business, financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. Some of the statements in the following discussion are forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth under Item 3. Key InformationD. Risk Factors and elsewhere in this annual report. Our consolidated financial statements and the financial information discussed below, have been prepared in accordance with IFRS.
Overview
We are a non-ferrous metals and mining company with operations in India, Australia, Namibia, South Africa and Ireland. We also have a non-controlling interest in Vedanta Aluminium, an alumina refining and aluminum smelting company, and are developing a commercial power generation business in India that leverages our experience in building and managing captive power plants used to support our copper, zinc and aluminum businesses. We have experienced significant growth in recent years through various expansion projects which have expanded our copper smelting business, by acquiring our zinc business in 2002, the acquisition of the zinc business of Anglo American Plc in Namibia, South Africa & Ireland during the year and the acquisition of our aluminum businesses in 2001, through the Government of Indias privatization programs and by successfully growing our acquired businesses. We believe our experience in operating and expanding our business in India will allow us to capitalize on attractive growth opportunities arising from Indias large mineral reserves, relatively low cost of operations and large and inexpensive labor and talent pools.
Our revenue and operating profit increased from Rs. 212,192 million and Rs. 43,090 million in fiscal 2009 to Rs. 244,903 million and Rs. 53,834 million in fiscal 2010, representing increases of 15.4% and 25.0% respectively and further increased from Rs. 244,903 million and Rs. 53,834 million in fiscal 2010 to Rs. 302,472 million ($6,791.0 million) and Rs. 67,574 million ($1,517.1 million) in fiscal 2011, representing an increase of 23.5% and 25.5%, respectively.
The following tables are derived from our selected consolidated financial data and set forth:
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| the revenue for each of our business segments as a percentage of our revenue on a consolidated basis; |
| the operating profit for each of our business segments as a percentage of our operating profit on a consolidated basis; and |
| the segment profit, calculated by adjusting operating income for depreciation and amortization for each of our business segments as a percentage of our segment profit on a consolidated basis. |
Year Ended March 31, | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
(In percentages) | ||||||||||||
Revenue: |
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Copper |
54.9 | 53.3 | 51.8 | |||||||||
Zinc India |
26.3 | 32.4 | 32.5 | |||||||||
Zinc International |
| | 3.3 | |||||||||
Aluminum |
18.5 | 11.6 | 10.0 | |||||||||
Power |
0.3 | 2.7 | 2.4 | |||||||||
Others |
| | | |||||||||
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Total |
100.0 | 100.0 | 100.0 | |||||||||
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Operating Profit: |
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Copper |
25.8 | 5.8 | 13.6 | |||||||||
Zinc India |
58.4 | 81.9 | 75.3 | |||||||||
Zinc International |
| | 2.4 | |||||||||
Aluminum |
15.1 | 5.9 | 5.2 | |||||||||
Power |
0.7 | 6.4 | 3.6 | |||||||||
Others |
| | (0.1 | ) | ||||||||
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Total |
100.0 | 100.0 | 100.0 | |||||||||
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Segment Profit(1) : |
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Copper |
26.0 | 8.3 | 14.1 | |||||||||
Zinc India |
54.4 | 76.1 | 69.2 | |||||||||
Zinc International |
| | 5.3 | |||||||||
Aluminum |
17.8 | 8.9 | 7.3 | |||||||||
Power |
1.8 | 6.7 | 4.2 | |||||||||
Others |
| | (0.1 | ) | ||||||||
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Total |
100.0 | 100.0 | 100.0 | |||||||||
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Note:
(1) | Segment profit is calculated by adjusting operating profit for depreciation and amortization. Our segment profit may not be comparable to similarly titled measures reported by other companies due to potential inconsistencies in the method of calculation. We have included our segment profit because we believe it is an indicative measure of our operating performance and is used by investors and analysts to evaluate companies in our industry. Our segment profit should be considered in addition to, and not as a substitute for, other measures of financial performance and liquidity reported in accordance with IFRS. We believe that the inclusion of supplementary adjustments applied in our presentation of segment profit are appropriate because we believe it is a more indicative measure of our baseline performance as it excludes certain charges that our management considers to be outside of our core operating results. In addition, our segment profit is among the primary indicators that our management uses as a basis for planning and forecasting of future periods. The following table reconciles operating profit to segment profit for the periods presented: |
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Year Ended March 31, | ||||||||||||||||
2009 | 2010 | 2011 | 2011 | |||||||||||||
(Rs. in millions) | (Rs. in millions) | (Rs. in millions) | (US Dollar in millions) | |||||||||||||
Copper: |
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Operating profit |
11,121 | 3,138 | 9,198 | 206.5 | ||||||||||||
Plus: Depreciation and amortization |
2,191 | 1,982 | 2,049 | 46.0 | ||||||||||||
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Segment profit |
13,312 | 5,120 | 11,247 | 252.5 | ||||||||||||
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Zinc India: |
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Operating profit |
25,158 | 44,071 | 50,914 | 1,143.1 | ||||||||||||
Plus: Depreciation and amortization |
2,615 | 3,053 | 4,429 | 99.4 | ||||||||||||
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Segment profit |
27,773 | 47,124 | 55,343 | 1,242.5 | ||||||||||||
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Zinc International: |
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Operating profit |
| | 1,592 | 35.7 | ||||||||||||
Plus: Depreciation and amortization |
| | 2,655 | 59.6 | ||||||||||||
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Segment profit |
| | 4,247 | 95.3 | ||||||||||||
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Aluminum: |
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Operating profit |
6,494 | 3,189 | 3,495 | 78.5 | ||||||||||||
Plus: Depreciation and amortization |
2,609 | 2,310 | 2,371 | 53.2 | ||||||||||||
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Segment profit |
9,103 | 5,499 | 5,866 | 131.7 | ||||||||||||
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Power: |
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Operating profit |
323 | 3,445 | 2,437 | 54.7 | ||||||||||||
Plus: Depreciation and amortization |
608 | 715 | 917 | 20.6 | ||||||||||||
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Segment profit |
931 | 4,160 | 3,354 | 75.3 | ||||||||||||
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Others: |
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Operating profit |
(6 | ) | (9 | ) | (62 | ) | (1.4 | ) | ||||||||
Plus: Depreciation and amortization |
1 | 1 | 1 | | ||||||||||||
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Segment profit |
(5 | ) | (8 | ) | (61 | ) | (1.4 | ) | ||||||||
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Business Summary
Our company is comprised of the following business segments:
| Copper. Our wholly-owned copper business is principally one of custom smelting and includes a smelter, refinery, phosphoric acid plant, sulphuric acid plant, a copper rod plant, a doré anode plant and two captive power plants at Tuticorin in the State of Tamil Nadu in Southern India and a refinery and two copper rod plants at Silvassa in Western India. In addition, we own the Mt. Lyell copper mine in Tasmania, Australia, which provides a small percentage of our copper concentrate requirements, and a precious metal refinery in Fujairah in the UAE. Our primary products are copper cathodes and copper rods. Revenue and operating profit from our copper business have increased from Rs. 130,608 million and Rs.3,138 million in fiscal 2010 to Rs. 156,610 million ($3,516.2 million) and Rs. 9,198 million ($206.5 million) in fiscal 2011, representing increases of 19.9% and 193.1%, respectively. Revenue from our copper business for fiscal 2010 had increased from Rs. 116,525 million in fiscal 2009 to Rs. 130,608 million in fiscal 2010 representing an increase of 12.1% and a decrease in operating profit from Rs.11,121 million in fiscal 2009 to Rs. 3,138 million in fiscal 2010 representing a decrease of 71.8%. |
| Zinc India. Our zinc business in India is owned and operated by HZL, Indias leading zinc producer with a 82% market share by volume of the Indian zinc market in fiscal 2011, according to ILZDA. We have a 64.9% ownership interest in HZL. The remainder of HZL is owned by the Government of India (29.5%) and institutional and public shareholders (5.6%). HZL is a fully integrated zinc producer with operations including four lead-zinc mines, four hydrometallurgical zinc smelters, one lead smelter, one |
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lead zinc smelter, five sulphuric acid plants, a silver refinery and five captive power plants in the State of Rajasthan in Northwest India, one hydrometallurgical zinc smelter and a sulphuric acid plant in the state of Andhra Pradesh in Southeast India, and a zinc ingot melting and casting plant at Haridwar in the State of Uttarakhand in North India. HZLs primary products are zinc and lead ingots. Revenue and operating profit of our zinc India business have increased from Rs. 79,434 million and Rs. 44,071 million in fiscal 2010 to Rs. 98,444 million ($2,210.2 million) and Rs. 50,914 million ($1,143.1 million) in fiscal 2011, representing increases of 23.9% and 15.5%, respectively. Revenue and operating profit of our zinc India business have increased from Rs. 55,724 million and Rs. 25,158 million in fiscal 2009 to Rs. 79,434 million and Rs. 44,071 million in fiscal 2010, representing increases of 42.5% and 75.2%, respectively. |
| Zinc International. In fiscal 2011, we acquired the zinc business of Anglo American Plc for a total cash consideration of Rs. 69,083 million ($1,513.1 million). This acquisition resulted in our 100.0% ownership of the Skorpion mines in Namibia, the 74.0% ownership of BMM which includes the Black Mountain mine and the Gamsberg project in South Africa and the 100.0% ownership of the Lisheen mines in Ireland. The zinc business of Anglo American Plc has been categoriesd as a separate segment Zinc-International. The revenue and operating profit of the segment Zinc-International are Rs. 9,961 million ($223.6 million) and Rs. 1,592 million ($35.7 million), respectively for the period from the respective date of acquisitions till March 31, 2011. |
| Aluminum. Our aluminum business is primarily owned and operated by BALCO. We have a 51.0% ownership interest in BALCO. The remainder of BALCO is owned by the Government of India. We have exercised our option to acquire the Government of Indias remaining 49.0% ownership interest, though the exercise of this option has been contested by the Government of India and the Government of India retains the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. BALCOs operations include two bauxite mines, one alumina refinery, two aluminum smelters and two captive power plants. Operations at the older 100,000 tpa aluminum smelter was partially suspended from February 2009 and ceased on June 5, 2009. Following the shutdown of the 100,000 tpa aluminum smelter, the 270 MW captive power is now used for commercial purpose as power generated by the power plant is sold to third parties. BALCOs primary products are aluminum ingots, rods and rolled products. Revenue and operating profit of our aluminum business have increased from Rs. 28,289 million and Rs. 3,189 million in fiscal 2010 to Rs. 30,175 million ($677.5 million) and Rs. 3,495 million ($78.5 million) in 2011, representing increases of 6.7% and 9.6%, respectively. Revenue and operating profit of our aluminum business have decreased from Rs. 39,170 million and Rs. 6,494 million in fiscal 2009 to Rs. 28,289 million and Rs. 3,189 million in fiscal 2010, representing decreases of 27.8% and 50.9%, respectively. |
| Power. Our commercial power generation business includes the 170.9 MW of wind power plants commissioned by HZL and a 270 MW power plant at BALCOs Korba facility which was previously used for captive use before the shutdown of the 100,000 tpa aluminum smelter at Korba on June 5, 2009. Our power business is still under development. In respect of Sterlite Energys first power project, a 2,400 MW thermal coal-based power facility (comprising four units of 600 MW each) in Jharsuguda in the State of Orissa the first unit of 600 MW has been commissioned in March 2011 and the remaining three units are expected to be commissioned in fiscal 2012, with full completion anticipated by the fourth quarter of fiscal 2012. We have obtained coal block allocations of 112.2 million tons from the Ministry of Coal of the Government of India to support this facility. |
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These allocated coal blocks are regarded as non-reserve coal deposits. Further, in July 2008, Sterlite Energy was awarded the tender for a project to build a 1,980 MW (increased to 2,640 MW in fiscal 2011) thermal coal-based commercial power plant at Talwandi Sabo, in the State of Punjab, India, by the Government of Punjab. The project is expected to be completed by second quarter of 2014. On October 30, 2009, Sterlite Energy filed an initial offering document with the Securities and Exchange Board of India for a proposed initial public offering of its equity shares for an estimated offering size of Rs. 51,000 million ($1,145.0 million) While the permission from SEBI to proceed with the initial public offering lapsed in April 2011, we continue to explore various financing options for Sterlite Energy including an initial public offering. Revenue of our power business has increased from Rs. 6,572 million in fiscal 2010 to Rs. 7,282 million ($163.5 million) in fiscal 2011, representing an increase of 10.8% and operating profit has decreased from Rs. 3,445 million in fiscal 2010 to Rs. 2,437 million ($54.7 million) in fiscal 2011, representing decrease of 29.3%. Revenue and operating profit of our power business have increased from Rs. 773 million and Rs. 323 million in fiscal 2009 to Rs. 6,572 million and Rs. 3,445 million in fiscal 2010 representing an increase of 750.2% and 966.6% respectively.
| Others. Our other business segment primarily includes our equity investment in Vedanta Aluminium. We hold a 29.5% non-controlling interest in Vedanta Aluminium, which is not consolidated into our financial results and which is accounted for as an equity investment. |
Recent Developments
Zinc International Acquisition
On May 10, 2010, Sterlite agreed to acquire the zinc business of Anglo American Plc for a total consideration of Rs. 69,083 million ($1,513.1 million). The zinc business comprises of:
(1) | a 100.0% stake in Skorpion which owns the Skorpion mine and refinery in Namibia; |
(2) | a 74.0% stake in BMM, which includes the Black Mountain mine and the Gamsberg Project, in South Africa; and |
(3) | a 100.0% stake in Lisheen, which owns the Lisheen mine in Ireland. |
On December 3, 2010, we announced the completion of the acquisition of 100.0% stake in Skorpion by SIL, a wholly-owned subsidiary of Sterlite for a consideration of Rs. 32,098 million ($706.7 million). On February 4, 2011, we announced the completion of the acquisition of the 74.0% stake in BMM for a consideration of Rs. 11,965 million ($260.2 million). On February 15, 2011, we announced the completion of the acquisition of 100.0% stake in Lisheen for a consideration of Rs. 25,020 million ($546.2 million). The purchase price for the zinc business was paid in US dollars and has been converted into Indian Rupees based on the exchange rate as on the date of each such acquisition.
Asarco Acquisition
Sterlite and Sterlite USA entered into an agreement with Asarco, a US-based copper mining, smelting and refining company based in Tucson, Arizona, United States, on May 30, 2008 for us to acquire substantially all of the operating assets of Asarco (the May 2008 Agreement). This agreement was renegotiated and a new agreement was entered into on March 6, 2009 (the March 2009 Agreement). The consummation of the March 2009 Agreement was contingent upon the confirmation of a Chapter 11 plan of re-organisation proposed by Asarco and sponsored by Sterlite USA (the Debtor Plan), by the US Bankruptcy Court for the Southern District of Texas, Corpus Christi Division. As part of Asarcos re-organisation plans, various parties, including Grupo Mexico S.A.B. de C.V. through its subsidiaries, also proposed a re-organisation plan (the Parent Plan). The March 2009 Agreement provided for the settlement and release of any potential claims against us arising out of the May 2008 Agreement. The US District Court considered both plans and on November 13, 2009, it confirmed the Parent Plan and rejected the Debtor Plan. We filed an appeal against this decision of the US District Court, but the appeal was dismissed as being equitably moot.
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On March 17, 2010, Asarco filed a complaint in the US Bankruptcy Court for the Southern District of Texas, Corpus Christi Division, against us and Sterlite USA alleging that we and Sterlite USA had breached the May 2008 Agreement by, among other things, refusing to pay the $2.6 billion purchase price as allegedly required by the May 2008 Agreement and refusing to assume the liabilities and contractual obligations as allegedly required by the May 2008 Agreement. Asarco is seeking to recover from us and Sterlite USA its alleged damages suffered as a result of the alleged breach and certain other amounts, including costs associated with Asarcos efforts to complete their reorganization and costs, disbursements and attorneys fees in connection with the proceedings. Asarco has claimed these damages to be in the range of $533 million to $1,509 million and has also claimed applicable pre-judgment interest.
We and Sterlite USA believe that Asarcos claim has no merit and it did not suffer any damages, as it received substantially higher consideration under the Parent Plan than possible under the May 2008 Agreement. The May 2008 Agreement was only a stalking horse bid, the consummation of which was subject to various approvals from creditors of Asarcos estate, the U.S. Bankruptcy Court and competition from any other bidders. The Parent Plan paid all the creditors in full along with interest and provided substantial benefits to the equity holders. Asarcos estate provided substantial tax benefits to the equity holders. The Parent Plan provided for a cash contribution of $2.205 billion to the estate of Asarco, a promissory note of $280 million to the trust set up for the benefit of asbestos claimants, assumption of certain liabilities and waiver of certain claims against Asarco. Asarcos estate also provided substantial tax benefits to the equity holders. Asarco disclosed in the joint disclosure statement filed by it during the bankruptcy proceedings, in its view that the recovery, if any, against such potential claims may be approximately $100 million.
Further, Asarco terminated the March 2009 Agreement and has drawn the $50 million provided as deposit under this agreement. We have filed an application to the US Bankruptcy Court for the return of the $50 million drawn by Asarco. The trial on Asarcos complaint and our application was completed on August 17, 2011 in the U.S. Bankruptcy Court and the decision is awaited.
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Vizag
We incorporated a special purpose vehicle, Vizag General Cargo Berth Private Limited, or VGCB, on April 20, 2010 for the coal berth mechanization project at Visakhapatnam Port. The project is to be carried out on design, build, finance, operate, transfer basis and the concession agreement between Vizag Port Trust and VGCB was signed on June 10, 2010. VGCB is owned by SIIL and Leighton Contractors (India) Limited in the ratio of 74:26 on the basis of a share purchase and shareholders agreement dated September 17, 2010. The project is expected to be completed in 24 months from the date of the award of the concession, following which commercial operations of the mechanized and modernized coal berth is expected to commence. The concession period is 30 years from the date of the award of the concession. Vizag Port Trust has specified certain conditions to be satisfied, before the concession is awarded to VGCB. VGCB has 120 days from June 10, 2010 to fulfill the conditions. On October 8, 2010, VGCB entered into an agreement with the port authority, Vishakhapatnam Port Trust, which provides for the initial capacity of the
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upgraded berth to 10.2 mtpa with an option to upgrade to 12.5 mtpa and that the Vishakhapatnam Port Trust will receive a share of the revenue earned from the berth.
The expected costs for the project is Rs. 6,640 million ($149.1 million) of which Rs. 883 million ($20.0 mllion) has been spent. Construction has commenced and completion of the berth is expected to be in fiscal 2013.
Paradip port
We incorporated a special purpose vehicle called Paradip Multi Cargo Berth Private Limited, or PMCB on February 18, 2011 for setting up a multipurpose berth to handle clean cargo including containers at Paradip port, situated in the Jagatsinghpur, District of Orissa, on the east cost of India. We have a 74.0% interest in a consortium between Sterlite and Leighton Contractors (I) Private Limited, or Leighton, which won the bid to build, own and operate this new berth at Paradip port.
The new berth is expected to facilitate the movement of cargo such as aluminum ingots, steel and containers and to have a capacity to handle up to 5.0 mpta of cargo. Upon receipt of environmental approval by the port authority, Paradip Port Trust, the consortium will enter an agreement with Paradip Port Trust, to operate the berth on a build-operate-transfer basis for 30 years commencing on the date of award of concession. The Paradip Port Trust will receive a share of the revenue earned from the berth.
The expected costs for the project is Rs. 3,920 million ($88.0 million) and construction has not commenced.
Central Excise
The Central Excise Department of the Government of India issued in June 2010, an ex-parte notice for reversal of Cenvat credit of Rs. 3,150 million along with interest of Rs. 88 million for the non compliance of Rules 4(5a) and 4(6) of the Cenvat Credit Rules, in respect of non-return of job work challans (or notices) for the period March 1, 2009 to September 30, 2009 within a stipulated time. In addition, it also alleged that we violated the advance license conditions for the period 2005 to 2009. We filed four writ petitions WP No. 8123, 8135, 9744 and 9755 in 2010 in the High Court of Madras against the Central Excise Department. An associated contempt petition was also filed by us. All the above petitions were heard on July 29, 2010 and the High Court of Madras in relation to WP No. 8123 remanded the matter to be heard and determined afresh by a new set of officers of the Central Excise Department. The High Court of Madras granted a stay in relation to WP No. 8135 till a fresh enquiry was made. Further, the High Court of Madras disposed WP No. 9744, 9755 and the contempt petition.
The Central Excise Department deputed the Assistant Commissioner of Central Excise to conduct an enquiry for the alleged non-compliance of Rules 4(5a) and 4(6) of the Cenvat Credit Rules in respect of non-return of job work challans who issued a show cause notice dated September 9, 2010 to the Company on similar grounds as stated in the ex-parte notice.
We have filed two writ appeals WA No. 704 and 705 of 2011 in the High Court of Madras challenging the orders passed with respect to the writ petitions 8135 and 9744 of 2010. The writ petitions were admitted on August 1, 2011 and the court directed other party to maintain status quo. These matters came up for hearing on August 29, 2011. The matter has been adjourned for hearing for four weeks after September 12, 2011.
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Tuticorin SmelterMadras High Court Order
In response to the various writ petitions filed in the year 1996 to 1998 challenging the environment clearances for setting up of the copper smelter at Tuticorin, the Madras High Court concluded its hearings in February 2010 and by its order of September 28, 2010 ordered the closure of the smelter at Tuticorin. SIIL filed a special leave petition before the Supreme Court of India against the order of the Madras High Court. The Supreme Court granted an interim stay over the order of the Madras High Court. The Supreme Court reserved the order for the interim directions on September 6, 2011 and we await the decision. SIIL believes that it will successfully defend its position.
Factors Affecting Results of Operations
Our results of operations are primarily affected by commodity prices, our cost of production, our production output, government policy in India and exchange rates.
Metal Prices and Copper TcRc
Overview
Our results of operations are significantly affected by the treatment charge and refining charge, or TcRc, of copper in our copper business and the commodity prices of the metals that we produce, which are based on LME prices, in our zinc and aluminum businesses. Both the TcRc of copper and the commodity prices of the metals that we produce can vary significantly when supply of and demand for copper smelting and refining capacity and the metals we produce fluctuate. While copper smelters and metal producers are unable to influence the market rate of the TcRc or commodity prices directly, events such as changes in copper smelting or commodity production capacities, temporary price reductions or other attempts to capture market share by individual smelters and metal producers, including by our consolidated group of companies, may have an effect on market prices. Moreover, the prices realized by us can, to some extent, be affected by the particular terms we are able to negotiate for the contractual arrangements we enter into with buyers. Price variations and market cycles, including recent volatility for both LME prices and the copper TcRc, have historically influenced, and are expected to continue to influence, our financial performance.
The recovery in demand and commodity prices backed by growth momentum in China, Brazil and India appears well founded. The medium and long term outlook for the resource sector remains positive. For a further discussion of global market and economic conditions and the risks to our business, see Item 3. Key InformationD. Risk FactorsRisks Relating to Investments in Indian Companies, Global Economic Conditions and International OperationsRecent global economic conditions have been unprecedented and challenging and have had, and continue to have, an adverse effect on the Indian financial markets and the Indian economy in general, which has had, and may continue to have, a material adverse effect on our business, our financial performance and the prices of our equity shares and ADSs.
Copper
The revenue of our copper business fluctuates based on the volume of our sales and the LME price of copper. However, as our copper business is primarily one of custom smelting and refining, with only a small
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percentage of our copper concentrate requirements sourced from our own mine, the profitability of our copper business is significantly dependent upon the market rate of the TcRc. We purchase copper concentrate at the LME-linked price for the relevant quotational period less a TcRc that we negotiate with our suppliers but which is influenced by the prevailing market rate for the TcRc. The market rate for the TcRc is significantly dependent upon the availability of copper concentrate, worldwide copper smelting capacity and transportation costs. The TcRc that we are able to negotiate is also substantially influenced by the TcRc terms established by certain large Japanese custom smelters. The profitability of our copper business as to the portion of our copper business where we source copper concentrate from third parties, which accounted for 92.9% of our copper concentrate requirements in fiscal 2011, is thus dependent upon the amount by which the TcRc we are able to negotiate exceeds our smelting and refining costs. The profitability of our copper operations is also affected by the prices we receive upon the sale of by-products, such as sulphuric acid and precious metals, which are generated during the copper smelting and refining process. The prices we receive for by-products can vary significantly, including as a result of changes in supply and demand and local market factors in the location the by-product is produced. The following table sets forth the average TcRc that we have realized for each of the last three fiscal years:
Year Ended March 31, | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
(in US cents per pound) | ||||||||||||
Copper TcRc |
11.7 | ¢ | 13.6 | ¢ | 11.9 | ¢ |
The LME price of copper affects our profitability as to the portion of our copper business where we source copper concentrate from our own mine, which accounted for 7.1% of our copper concentrate requirements in fiscal 2011 and which is expected to decrease as a percentage in the future as the reserves of our sole remaining copper mine, Mt. Lyell in Tasmania, Australia, are expected to be exhausted by fiscal 2014 and to the extent we seek to increase our copper smelting and refining capacity. The following table sets forth the daily average copper LME price for each of the last three fiscal years:
Year Ended March 31, | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
(in US dollars per ton) | ||||||||||||
Copper LME |
$ | 5,885 | $ | 6,112 | $ | 8,138 |
Zinc and Aluminum
The revenue of our zinc and aluminum businesses fluctuate based on the volume of our sales and the respective LME prices of zinc and aluminum. Our zinc business is fully integrated, so its profitability is dependent upon the difference between the LME price of zinc and our cost of production, which includes the costs of mining and smelting. BALCO is a partially integrated producer and in fiscal 2011 sourced 100.0% of its alumina requirements from third party suppliers, including 32.0% from international and domestic suppliers and 68.0% from Vedanta Aluminium,. Going forward, we expect BALCO to source a majority of its alumina requirements from Vedanta Aluminium. For the portion of our aluminum business where the alumina is sourced from BALCOs own bauxite mines and alumina refinery, profitability is dependent upon the LME price of aluminum less our cost of production, which includes the costs of bauxite mining, the refining of bauxite into alumina and the smelting of alumina into aluminum. For the portion of our aluminum business where alumina is sourced from third parties, including Vedanta Aluminium, profitability is dependent upon the LME price of aluminum less the cost of the sourced alumina and our cost of production. The following table sets forth the daily average zinc and aluminum LME prices for each of the last three fiscal years:
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Year Ended March 31, | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
(in US dollars per ton) | ||||||||||||
Zinc LME |
$ | 1,563 | $ | 1,936 | $ | 2,185 | ||||||
Aluminum LME |
2,234 | 1,868 | 2,257 |
India Market Premium
Generally, our products sold in India are sold at a premium to the LME market price due to a number of factors including the customs duties levied on imports by the Government of India, the costs to transport metals to India and regional market conditions. See - Government Policy. As a result, we endeavor to sell as large a quantity of our products as possible in India.
Hedging
We have historically engaged in hedging strategies to a limited extent to partially mitigate our exposure to fluctuations in commodity prices, as further described in Item 11. Quantitative and Qualitative Disclosures About Market RiskQualitative AnalysisCommodity Price Risk.
Cost of Production
Our results of operations are, to a significant degree, dependent upon our ability to efficiently run our operations and maintain low costs of production. Efficiencies relating to recovery of metal from the ore, process improvements, by-product management and increasing productivity help drive our costs down. Costs associated with mining and metal production include energy costs, ore extraction and processing costs at our captive mines, labor costs and other manufacturing expenses. Cost of production also includes cost of alumina for our aluminum business. Cost of production does not include the cost of copper concentrate for our copper business, though such cost is included in our cost of sales.
Energy cost is the most significant component of the cost of production in our metal production businesses. Most of our power requirements are met by captive power plants, which are primarily coal-fueled. Thermal coal, diesel fuel and fuel oil, which are used to operate our power plants, and metcoke, which is used in the zinc smelting process, are currently sourced from a combination of long-term and spot contracts. Our aluminum business, which has high energy consumption due to the power-intensive nature of aluminum smelting, sources approximately 66.0% of its thermal coal requirement from a subsidiary of Coal India under a five-year supply agreement entered into in August 2006. Shortages of coal at Coal India may require that a greater amount of higher priced imported coal be utilized. For example, in April 2005, a shortage of coal led Coal India to reduce the amount of coal supplied to all its customers, except utilities, including BALCO, forcing BALCO to utilize higher priced imported coal.
However, in January 2006, we were allotted a 31.5 million ton share in the Madanpur coal block for use in HZLs captive power plant. This allocated coal block is regarded as non-reserve coal deposits and is currently in the post-exploration but pre-development stage. The forest diversion proposal was rejected by the MoEF by a letter dated December 30, 2009. The environmental clearance and approval for forest diversion were rejected by the MoEF and thus, a letter of rejection was issued by the state government on January 23, 2010. We have made our submissions to the MoEF. Thereafter, the Prime Ministers Office constituted a committee of secretaries to review the rejection of the environmental clearance and approval.
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The Prime Ministers Office also constituted a Group of Ministers to resolve the issue of forest clearance. The matter is now being discussed at the Group of Ministers meetings.
In addition, in November 2007, we were allotted a 211.0 million ton share of a coal block by the Ministry of Coal for use in BALCOs captive power plant. These allocated coal blocks are regarded as non-reserve coal deposits. In October 2008, the Ministry of Coal approved BALCOs mining plan although certain other approvals including environmental approval and forest clearance from the regulatory authorities are still pending. We expect mine development activities to commence upon the receipt of all regulatory approvals. Any change in coal prices or the mix of coal that is utilized, primarily whether the coal is sourced locally or imported, can affect the cost of generating power.
For our zinc business and the portions of our copper and aluminum businesses where we source the ore from our own mines, ore extraction and processing costs affect our cost of production. In our zinc and copper businesses, the ore extraction and processing costs to produce concentrates are generally a small percentage of our overall cost of production of the finished metals. In our aluminum business, the bauxite ore extraction cost is not significant but the refining cost to produce alumina from bauxite ore represents approximately one-third of the cost of production of aluminum. In addition, a significant cost of production in our zinc business is the royalty that HZL pays on the lead-zinc ore that is mined, which royalty is a function of the LME prices of zinc and lead. See - Government PolicyTaxes and Royalties.
Labor costs are principally a function of the number of employees and increases in compensation from time to time. Improvements in labor productivity in recent years have resulted in a decrease in the per-unit labor costs. We outsource a majority of BALCOs and CMTs mining operations, a substantial portion of HZLs mining operations and a limited number of functions at our copper, zinc and aluminum smelting operations to third party contractors.
Other manufacturing expenses include, among other things, additional materials and consumables that are used in the production processes and routine maintenance to sustain ongoing operations. None of these represents a significant portion of our costs of production.
Cost of production as reported for our metal products includes an offset for any amounts we receive upon the sale of the by-products from the refining or smelting processes. We divide our cost of production by the daily average exchange rate for the year to calculate the US dollar cost of production per lb or ton of metal as reported.
The following table sets forth our average realized TcRc and cost of production for each of our metals for each of the last two fiscal years:
Year Ended March 31, | ||||||||||||||||||||
Unit of Measurement |
2009 | 2010 | 2011 | |||||||||||||||||
(in US dollars per ton, except as indicated) | ||||||||||||||||||||
Treatment charge and refining charge (TcRc)(1) |
¢ | /lb | 11.7 | 13.6 | 11.9 | |||||||||||||||
Cost of production(2) |
||||||||||||||||||||
Copper smelting and refining (3) |
¢ | /lb | 3.1 | 10.5 | 4.0 | |||||||||||||||
Zinc India (4) |
$ | 710 | 850 | 990 | ||||||||||||||||
Zinc International (5) |
||||||||||||||||||||
Skorpion |
$ | | | 1,161 | ||||||||||||||||
BMM |
$ | | | 1,009 | ||||||||||||||||
Lisheen |
$ | | | 917 | ||||||||||||||||
Aluminum(6) |
$ | 1,700 | 1,542 | 1,784 |
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Notes:
(1) | Represents our average realized TcRc for the period. |
(2) | Cost of production is not a recognized measure under IFRS. We have included cost of production as a measure of effectiveness because we believe it is an indicative measure of our operating performance and is used by investors and analysts to evaluate companies in our industry. Our computation of cost of production should be considered in addition to, and not as a substitute for, other measures of financial performance and liquidity reported in accordance with IFRS. We believe that the cost of production measure is a meaningful measure of our production cost efficiency as it is more indicative of our production or conversion costs and is a measure that our management considers to be controllable. Cost of production is a measure intended for monitoring the operating performance of our operations. This measure is presented by other non-ferrous metal companies, though our measure may not be comparable to similarly titled measures reported by other companies. Cost of production as reported for our metal products consists of direct cash cost of production and excludes non-cash cost and indirect cost (such as depreciation and interest payments), and are offset for any amounts we receive upon the sale of the by-products from the refining or smelting process. Cost of production is divided by the daily average exchange rate for the year to calculate US dollar cost of production per lb or per ton of metal as reported. |
The following table reconciles segment cost, calculated as segment sales less segment profit, to cost of production for the periods presented: |
Year Ended March 31, | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
(Rs. in millions, except Production output and Cost of production) |
||||||||||||
Copper(3): |
||||||||||||
Segment sales |
Rs. | 116,670 | Rs. | 130,608 | Rs. | 156,610 | ||||||
Less: |
||||||||||||
Segment profit |
(13,312 | ) | (5,120 | ) | (11,247 | ) | ||||||
|
|
|
|
|
|
|||||||
103,358 | 125,488 | 145,363 | ||||||||||
Less: |
||||||||||||
Purchased concentrate/rock |
(94,873 | ) | (114,923 | ) | (135,651 | ) | ||||||
By-product/free copper net sale |
(4,337 | ) | (1,981 | ) | (4,686 | ) | ||||||
Cost for downstream products |
(1,613 | ) | (1,543 | ) | (1,638 | ) | ||||||
Others, net |
(1,556 | ) | (3,386 | ) | (2,153 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
Rs. | 979 | Rs. | 3,655 | Rs. | 1,235 | ||||||
|
|
|
|
|
|
|||||||
Production output (in tons) |
312,833 | 334,202 | 303,991 | |||||||||
Cost of production(a) |
3.1 ¢/lb | 10.4 ¢/lb | 4.0 ¢/lb | |||||||||
Zinc India(4): |
||||||||||||
Segment sales |
Rs. | 55,724 | Rs. | 79,434 | Rs. | 98,444 | ||||||
Less: |
||||||||||||
Segment profit |
(27,773 | ) | (47,124 | ) | (55,343 | ) | ||||||
|
|
|
|
|
|
|||||||
27,951 | 32,310 | 43,101 | ||||||||||
Less: |
||||||||||||
Cost of tolling including raw material cost |
(409 | ) | | | ||||||||
Cost of intermediary product sold |
(1,301 | ) | (3,060 | ) | (3,350 | ) | ||||||
By-product revenue |
(4,848 | ) | (1,871 | ) | (3,762 | ) |
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Cost of lead metal sold |
(2,079 | ) | (2,652 | ) | (3,028 | ) | ||||||
Others, net |
(1,312 | ) | (1,406 | ) | (815 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
Rs. | 18,002 | Rs. | 23,321 | Rs. | 32,146 | ||||||
|
|
|
|
|
|
|||||||
Production output (in tons) |
551,724 | 578,411 | 712,471 | |||||||||
Cost of production (per ton)(a) |
$ | 710 | $ | 850 | $ | 990 | ||||||
Zinc International(5): |
||||||||||||
Segment sales |
Rs. | - | Rs. | | Rs. | 9,961 | ||||||
Less: |
||||||||||||
Segment profit |
| | (4,247 | ) | ||||||||
|
|
|
|
|
|
|||||||
| | 5,714 | ||||||||||
Less: |
||||||||||||
Cost of intermediary product sold |
| | (82 | ) | ||||||||
By-product revenue |
| | (706 | ) | ||||||||
Cost of lead metal sold |
| | (453 | ) | ||||||||
Royalty |
| | (197 | ) | ||||||||
Others, net |
| | (345 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total |
| | Rs. | 3,931 | ||||||||
|
|
|
|
|
|
|||||||
Production output (in tons) Skorpion |
| | 49,698 | |||||||||
Cost of Production (per ton) (a) Skorpion |
| | $ | 1,161 | ||||||||
Production output (in tons) BMM |
| | 7,593 | |||||||||
Cost of production (per ton) (a) BMM |
| | $ | 1,009 | ||||||||
Production output (in tons) Lisheen |
| | 22,775 | |||||||||
Cost of Production (per ton) (a) Lisheen |
| | $ | 917 | ||||||||
Aluminum(6): |
||||||||||||
Segment sales |
Rs. | 39,336 | Rs. | 28,367 | Rs. | 30,245 | ||||||
Less: |
||||||||||||
Segment profit |
(9,103 | ) | (5,499 | ) | (5,866 | ) | ||||||
|
|
|
|
|
|
|||||||
30,233 | 22,868 | 24,379 | ||||||||||
Less: Cost of intermediary product sold |
| (304 | ) | | ||||||||
By-product revenue |
(328 | ) | (126 | ) | (229 | ) | ||||||
Cost for downstream products |
(1,966 | ) | (1,767 | ) | (2,597 | ) | ||||||
Others, net |
(314 | ) | (1,455 | ) | (973 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
Rs. | 27,625 | Rs. | 19,216 | Rs. | 20,580 | ||||||
|
|
|
|
|
|
|||||||
Production output (hot metal) (in tons) |
355,733 | 262,760 | 253,157 | |||||||||
Cost of production (per ton)(a) |
$ | 1,700 | $ | 1,542 | $ | 1,784 |
(a) | Exchange rates used in calculating cost of production were based on the daily Reserve Bank of India, or RBI, reference rates for the years ended March 31, 2009, 2010 and 2011 of Rs. 45.91 per $1.00, Rs. 47.42 per $1.00 and Rs. 45.48 per $1.00, respectively. |
(3) | Cost of production relates only to our custom smelting and refining operations and consists of the cost of converting copper concentrate into copper cathodes, including the cost of freight of copper anodes from Tuticorin to Silvassa and excluding the benefit of the phosphoric acid plant. Revenues earned from the sale of sulphuric acid and copper metal recovered in excess of paid copper metal are deducted from the cash costs. The total cash costs are divided by the total number of pounds of copper metal produced to calculate the cost of production per pound of copper metal produced. |
(4) | Our Zinc India operations are fully integrated. As a result, cost of production of zinc consists of the total direct cost of producing zinc from the mines and smelters, including extracting ore from the mines, converting the ore into zinc concentrate and smelting to produce zinc ingots. Our zinc segment includes |
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lead and silver. Silver is a by-product of lead and accordingly, there are no additional processing costs for silver. Revenue earned from the sale of silver is reported as profit in this segment. Revenue earned from the sale of sulphuric acid is deducted from the total costs to calculate the total cash costs to HZL of producing zinc metal. Royalties paid are included in the cost of production of zinc. The total cash cost is divided by the total number of tons of zinc metal produced to calculate the cost of production per ton of zinc metal produced. HZLs cost of production in the last month of fiscal 2011, or its exit cost of production for fiscal 2011, was $792 per ton excluding royalty. |
(5) | Our Zinc International segment consists of the Skorpion mine and refinery in Namibia, Black Mountain mine project in South Africa and Lisheen mine in Ireland. Skorpion produces special high grade zinc ingots. As a result, cost of production of zinc at Skorpion consists of the total direct cost of procuring zinc ore from the mining company and producing zinc in the refinery through a leaching refining and electrowinning process. Skorpion does not produce any material by-products. BMM produces zinc and lead in concentrate. Hence, the cost of production at BMM consists of direct mining costs, concentrator costs, direct services cost and allocated indirect costs. Lisheen produces zinc and lead in concentrate. Therefore, the cost of production at Lisheen consists of direct mining costs, mill processing costs, overhead costs, treatment charges and other direct cash costs. The by-product revenue of lead and silver are credited to the cost of production to arrive at the net cost of production. Royalties paid are excluded in the cost of production of zinc as the same is payable on turnover. The total cash cost is divided by the total number of tons of zinc metal produced or zinc metal in concentrate produced to calculate the cost of production per ton of zinc metal produced or zinc metal in concentrate produced. |
(6) | Cost of production of aluminum for BALCOs smelters includes the cost of producing bauxite and conversion of bauxite into aluminum metal, for the portion of BALCOs operations that are integrated from production of bauxite to aluminum metal, and the cost of conversion of alumina into aluminum metal, for the portion of BALCOs operations where alumina is sourced from third parties. Cost of production of aluminum consists of total direct cash costs. Revenue earned from the sale of by-products, such as vanadium, reduces the total cash costs. The total cost is divided by the total quantity of hot metal produced to calculate the cost of production per ton of aluminum hot metal produced. Hot metal production output is used instead of the cast metal production output disclosed elsewhere in this annual report in calculating cost of production as the hot metal production, which excludes the value-added cost of casting, is the measure generally used in the aluminum metal industry for calculating cost of production. In response to global economic conditions and a decline in commodity prices, starting in February 2009, BALCO suspended part of its operations at its 100,000 tpa aluminum smelter and ceased operations at this smelter on June 5, 2009. The operations of the refinery have been temporarily suspended since September 2009. As the 100,000 tpa aluminum smelter had a higher cost of production than the newer (and remaining) 245,000 tpa smelter, and partly as a result of efforts by BALCO to decrease its operating costs in response to the recent global economic conditions, BALCOs exit cost of production for fiscal 2011 was $1,848 per ton. |
Production Volume and Mix
Production volume has a substantial effect on our results of operations. We are generally able to sell all of the products we can produce, so our revenue generally fluctuates as a result of changes in our production volumes. Production volumes depend on our production capacities, which have increased in recent years across all of our businesses. For our mining operations, production volumes also depend upon the quality and consistency of the ore. Per-unit production costs are significantly affected by changes in production volumes in that higher volumes of production generally reduce the per-unit production costs. Therefore, our
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production volumes are a key factor in determining our overall cost competitiveness. We have benefited from significant economies of scale as we have increased production volumes in recent years. For example, operations at BALCOs older 100,000 tpa aluminum smelter were partially suspended from February 2009 and ceased on June 5, 2009. The following table summarizes our production volumes for our primary products for the last three fiscal years:
Year Ended March 31, | ||||||||||||||
Product | 2009 | 2010 | 2011 | |||||||||||
(tons) | ||||||||||||||
Copper |
Copper cathode(1) | 312,833 | 334,202 | 303,991 | ||||||||||
Copper rods | 219,879 | 196,882 | 187,892 | |||||||||||
Zinc India |
Zinc | 551,724 | 578,411 | 712,471 | ||||||||||
Lead | 60,323 | 64,319 | 57,294 | |||||||||||
Zinc International |
||||||||||||||
Skorpion |
Zinc | | | 49,698 | ||||||||||
BMM |
Copper (3) | | | 673 | ||||||||||
Zinc(3) | | | 7,593 | |||||||||||
Lead(3) | | | 9,324 | |||||||||||
Lisheen |
Zinc(3) | | | 22,775 | ||||||||||
Lead(3) | | | 3,913 | |||||||||||
Aluminum |
Ingots | 172,263 | 54,173 | 27,927 | ||||||||||
Rods | 127,120 | 148,279 | 160,665 | |||||||||||
Rolled Products(2) | 57,399 | 65,973 | 66,706 |
Notes:
(1) | Copper cathode is used as a starting material for copper rods. Approximately one ton of copper cathode is required for the production of one ton of copper rods. |
(2) | Includes production capitalized in fiscal 2011 of 8,856 tons. |
(3) | Refers to mined metal content in concentrate. |
In addition, the mix of products we produce can have a substantial impact on our results of operations as we have different operating margins in each of our businesses, and within each business our operating margins vary between the lower margins of primary metals and the higher margins of value-added products such as copper rods and aluminum rolled products. For example, copper cathodes are converted in our copper rod plant into copper rods, a value-added product which has a higher margin than copper cathodes. As copper rods have higher margins, we endeavor to sell as large a percentage of copper rods as possible. As the production volume of our various products fluctuate primarily based on market demand and our production capacity for such products, the percentage of our revenue from those products will also fluctuate between higher and lower margin products, which will in turn cause our operating profit and operating margins to fluctuate.
Periodically, our facilities are shut down for planned and unplanned repairs and maintenance which temporarily reduces our production volume.
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Government Policy
India Customs Duties
We sell our products in India at a premium to the LME price, due in part to the customs duties payable on imported products. Our profitability is affected by the levels of customs duties as we price our products sold in India generally on an import-parity basis. We also pay a premium on certain raw materials that we import or which are sourced locally but which are priced on an import-parity basis as a result of customs duties, with copper concentrate, coal, petroleum products, alumina, carbon and caustic soda being the primary examples. The following table sets forth the customs duties that were applicable for the periods indicated:
January 22, 2007 to April 28, 2008 |
April 29, 2008 to January 2, 2009 |
January 3, 2009 to February 28, 2011 |
March 1, 2011 to Present |
|||||||||||||
Copper |
5.0 | % | 5.0 | % | 5.0 | % | 5.0 | % | ||||||||
Copper concentrate |
2.0 | % | 2.0 | % | 2.0 | % | 2.5 | % | ||||||||
Zinc |
5.0 | % | 0.0 | % | 5.0 | % | 5.0 | % | ||||||||
Aluminum |
5.0 | % | 5.0 | % | 5.0 | % | 5.0 | % |
In addition, the Finance Act (2 of 2004) of India, which has been in effect since July 8, 2004, levies an additional surcharge at the rate of 2.0% of the total customs duty payable which has been further increased to 3.0% of the total customs duty payable effective March 1, 2007. We are also liable to pay an additional duty of customs, or CVD, of 10.0% (prior to February 27, 2010, the CVD was 8.0%) of the assessable value and basic custom duty, which is levied on imports in India.
In January 2004, the special additional duty, or SAD, of 4.0% which was also levied on imports of copper, zinc and aluminum was abolished, reducing the effective customs duties levied on all imports. The Government of India may reduce or abolish customs duties on copper and aluminum in the future, although the timing and extent of such reductions cannot be predicted. As we sell the majority of the commodities we produce in India, any further reduction in Indian tariffs on imports will decrease the premiums we receive in respect of those sales. Our profitability is dependent to a small extent on the continuation of import duties and any reduction would have an adverse effect on our results of operations and financial condition.
On February 28, 2011, the Indian government announced the following changes which took effect from March 1, 2011:
| There will be a 1.0% excise duty on fly ash. |
| The import duty on copper concentrate and rock phosphate will be increased from 2.0% to 2.5%. |
Export Incentives
The Government of India provides a variety of export incentives to Indian companies. Indian exports of copper, aluminum and zinc receive assistance premiums from the Government of India. Export incentives do not outweigh the Indian market price premiums. Accordingly, notwithstanding the export incentives, we endeavor to sell as large a quantity of our products as possible domestically.
In fiscal 2010 and 2011, exports accounted for 45.9% and 41.3%, respectively, of our copper businessrevenue. The following table sets forth the export assistance premiums, either as Indian Rupees per ton of exports or as a percentage of the FOB value of exports, on copper cathode and copper rods for the period indicated:
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July 15, 2006 to August 31, 2008 |
September 1, 2008 to September,19,2010 |
September,19,2010 to Present |
||||||||||
(percentage of FOB value of exports) | ||||||||||||
Copper cathode |
2.2 | %(1) | 2.2 | %(3) | 2.0 | % | ||||||
Copper rods |
2.2 | %(2) | 2.2 | %(4) | 2.2 | %(5) |
Notes:
(1) | Subject to a cap of Rs. 7,500 per ton. |
(2) | Subject to a cap of Rs. 7,760 per ton. |
(3) | Subject to a cap of Rs. 7,000 per ton. |
(4) | Subject to a cap of Rs. 9,800 per ton. |
(5) | Subject to a cap of Rs. 7,500 per ton. |
In fiscal 2010 and 2011, exports accounted for 35.8% and 38.2% respectively, of our Zinc India business revenue. The following table sets forth the export assistance premiums, as a percentage of the FOB value of exports, on zinc concentrate, zinc ingots and lead concentrate for the periods indicated:
October 9, 2007 to November 3, 2008 |
November 4, 2008 | November 5, 2008
to Present |
||||||||||
(percentage of FOB value of exports) | ||||||||||||
Zinc concentrate |
3.0 | % | 2.0 | % | 3.0 | % | ||||||
Zinc ingots |
5.0 | % | 4.0 | % | 5.0 | % | ||||||
Lead concentrate |
3.0 | % | 3.0 | % | 3.0 | % |
In fiscal 2010 and 2011, exports accounted for 4.7% and 1.8% respectively, of our aluminum business revenue. The following table sets forth the export assistance premiums, as a percentage of the FOB value of exports, on aluminum ingots, aluminum rods and aluminum rolled products for the periods indicated: -
October 9, 2007 to Present | ||||
(percentage of FOB value of exports) | ||||
Aluminum ingots |
3.0 | % | ||
Aluminum rods |
5.0 | % | ||
Aluminum rolled products |
4.0 | % |
The Government of India may further reduce export incentives in the future, which would adversely affect our results of operations.
Taxes and Royalties
Income tax on Indian companies during fiscal 2011 was charged, at a statutory rate of 30.0% plus a surcharge of 7.5% on the tax and has an additional charge of 3.0% on the tax including surcharge, which results in an effective statutory tax rate of 33.2%. The surcharge has been reduced to 5.0% and accordingly the effective tax rate at present is 32.5%. We have in the past had an effective tax rate lower than the statutory rate, benefiting from tax incentives on infrastructure projects in specific locations.
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Profits of companies in India are subject to either regular income tax or a Minimum Alternate Tax (MAT), whichever is greater. The effective MAT rate during fiscal 2011 was, 19.9% of the book profits as prepared under generally accepted accounting principles in India, or Indian GAAP. In view of the recent changes effected in the Finance Bill, the effective MAT rate is 20.0%. Amounts paid as MAT may be applied towards regular income taxes payable in any of the succeeding ten years subject to certain conditions.
A tax on dividends declared and distributed by Indian companies during fiscal 2011 was charged at an effective tax rate of 16.6%. The effective current tax on dividend is 16.2% in the view of the reduction in the applicable surcharge from 7.5% to 5.0%. This tax is payable by the company distributing the dividends. Dividends from our subsidiaries to us are also subject to this tax, though we do not pay income tax upon the receipt of any such dividends.
We currently pay an excise duty of 10.0% (prior to December 6, 2008, the excise duty was 14.0%, from December 6, 2008 to February 23, 2009, the excise duty was 10.0%, from February 24, 2009 to February 26, 2010, the excise duty was 8.0%) and an additional charge of 3.0% on the excise duty based on all of our domestic production intended for domestic sale. We charge the excise duty and additional charge to our domestic customers.
We are also subject to government royalties. We pay royalties to the State Governments of Chhattisgarh and Rajasthan in India based on our extraction of bauxite and lead-zinc ore. Most significant of these is the royalty that HZL is currently required to pay to the State of Rajasthan, where all of HZL mines are located, at a rate of 8.4% with effect from August 13, 2009 (which was 6.6% prior to August 13, 2009) of the zinc LME price payable on the zinc metal contained in the concentrate produced and 12.7% (which was 5.0% prior to August 13, 2009) of the lead LME price payable on the lead metal contained in the concentrate produced. The royalties paid by BALCO on extraction of bauxite are not material to our results of operations. We also pay royalties to the State Government of Tasmania in Australia based on the operations at CMT at a rate equal to the sum of 1.6% of the revenue plus 0.4 times the profit multiplied by the profit margin over revenue, subject to a cap of 5.0% of revenue.Our royalties in Zinc International business are 3.0%, 7.6% and 3.5% of turnover of Skorpion, BMM and Lisheen respectively.
There are several tax incentives available to companies operating in India, including the following:
| profits from newly established units in special economic zones are entitled to a tax holiday for a specified period; |
| profits from newly constructed power plants (including for captive use) benefit from a tax holiday for a specified period; |
| investments in projects where alternative energy such as wind energy is generated can claim large tax depreciation in the first year of operations; and |
| income from investment in mutual funds is exempt from a tax subject to certain deductions. |
We have benefited from these tax incentives. Such benefits have resulted in lower effective tax rates, both within SIIL and in some of our operating subsidiaries such as BALCO and HZL. HZLs new export unit, effective from the quarter ended June 30, 2008, has benefited from its 100% export unit status, where profits on export sales are exempt from tax for a specified period. BALCO and HZL have considerable
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investments in captive power plants enjoying tax exemptions, and HZL has also benefited from establishing wind energy generating projects. HZL also benefits from a tax holiday exemption with respect to its newly commissioned zinc ingot melting and casting plant at Haridwar in the State of Uttrakhand in North India. In addition, a large part of SIILs and HZLs investment of surplus cash are in tax exempt instruments.
Exchange Rates
We sell commodities that are typically priced by reference to US dollar prices. However, a majority of our direct costs in our zinc and aluminum businesses and our smelting and refining costs in our copper business are incurred in Indian Rupees and to a much lesser extent in Australian dollars. Also, all costs with respect to imported material for all our businesses are generally incurred in US dollars. As a result, an increase in the value of the US dollar compared to the Indian Rupee, and to a lesser extent the Australian dollar, is generally beneficial to our results of operations, except to the extent that the increase results in increased costs of copper concentrate, alumina and other imported materials for our businesses. A decrease in the value of the US dollar relative to the Indian Rupee or Australian dollar has the opposite effect on our results of operations. For more information on the fluctuations in the value of the Indian Rupee against the US dollar and the Australian dollar, see Item 10. Additional InformationD. Exchange ControlsExchange Rates.
Power Business
We expect our future results of operations to be affected by our entry into the commercial power generation business. The effect of this new business will depend on the timing of and our success in executing this plan. See Item 4. Information on the CompanyB. Business OverviewOur BusinessOur Commercial Power Generation Business for additional details on our plans for this business.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with IFRS. In the course of preparing these financial statements, our management has made estimates based on, and assumptions that impact, the amounts recognized in our consolidated financial statements. For a discussion of our significant accounting policies, see note 3 to our consolidated financial statements included in this annual report. We believe the critical accounting estimates described below are those that are both important to reflect our financial condition and results and require difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Mine properties
The costs of mining properties, which include the costs of acquiring and developing mining properties and mineral rights, are capitalised as property, plant and equipment under the heading Mining properties in the year in which they are incurred.
When a decision is taken that a mining property is viable for commercial production, all further pre-production primary development expenditure other than land, buildings, plant and equipment, etc is capitalised as part of the cost of the mining property until the mining property is capable of commercial production. From that point, capitalised mining properties are amortized on a unit-of-production basis over the total estimated remaining commercial reserves of each property or group of properties and are subject to impairment review.
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Stripping costs/secondary development expenditure incurred during the production stage of operations of an ore body is charged to the statement of income immediately.
In circumstances where a property is abandoned, the cumulative capitalized costs relating to the property are written off in the period.
Commercial reserves are proved and probable reserves. Changes in the commercial reserves affecting unit of production calculations are dealt with prospectively over the revised remaining reserves.
Useful Economic Lives of Assets and Impairment
Property, plant and equipment, other than mine properties, are depreciated over their useful economic lives. Our management reviews the useful economic lives at least once a year and any changes could affect the depreciation rates prospectively and hence the asset carrying values.
We also review our property, plant and equipment, including mine properties, for possible impairment if there are events or changes in circumstances that indicate that the carrying value of an asset may not be recoverable and exceeds its fair value. In assessing property, plant and equipment for impairment, factors leading to significant reductions in profits such as changes in commodity prices, our business plans and significant downward revisions in the estimated mining reserves are taken into consideration. The carrying value of the assets and associated mining reserves is not recoverable if it exceeds the sum of the discounted cash flows expected to result from the use and eventual disposition of the assets. This involves management estimate of commodity prices, market demand and supply, economic and regulatory climates, longterm mine plans and other factors. Any subsequent changes to cash flow due to changes in the above mentioned factors could impact on the carrying value of the assets.
Investment in Vedanta Aluminium
Due to the ongoing delay in obtaining approval for the Niyamgiri mines and expansion of the alumina refinery, we have reviewed the carrying value of our investments in Vedanta Aluminium for any impairment. We have concluded that no impairment is necessary based on the availability of alternate sources to obtain bauxite. We expect the necessary approvals for the expansion of the alumina refinery in due course.
Contingencies and Commitments
We also have significant capital commitments in relation to various capital projects which are not recognized on the statement of financial positions. In the normal course of business, contingent liabilities may arise from litigation and other claims against the company. Guarantees are also provided in the normal course of business. There are certain obligations which our management has concluded, based on all available facts and circumstances, are not probable of payment or are very difficult to quantify reliably, and such obligations are treated as contingent liabilities and disclosed in the notes but are not reflected as liabilities in the consolidated financial statements. Although there can be no assurance regarding the final outcome of the legal proceedings in which we are involved, it is not expected that such contingencies will have a material effect on our financial position or profitability.
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Income Tax
In preparing consolidated financial statements, the Company recognizes income taxes in each of the jurisdictions in which it operates. There are many transactions and calculations for which the ultimate tax determination is uncertain. We recognize liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.
Restoration, Rehabilitataion and Environmental Cost
Provision is made for costs associated with restoration and rehabilitation of mining sites as soon as the obligation to incur such costs arises. Such restoration and closure costs are typical of extractive industries and they are normally incurred at the end of the life of the mine. The costs are estimated on the basis of mine closure plans and the estimated discounted costs of dismantling and removing these facilities and the costs of restoration are capitalised when incurred reflecting the Companys obligations at that time. A corresponding provision is created on the liability side. The capitalised asset is charged to the income statement over the life of the asset through depreciation over the life of the operation and the provision is increased each period through unwinding the discount on the provision. Management estimates are based on local legislation and/or other agreements. The actual costs and cash outflows may differ from estimates because of changes in laws and regulations, changes in prices, analysis of site conditions and changes in restoration technology.
Retirement Benefits
The Company operates or participates in a number of defined benefit and defined contribution pension schemes, the assets of which are (where funded) held in separately administered funds. For defined benefit pension schemes, the cost of providing benefits under the plans is determined separately each year for each plan using the projected unit credit method by independent qualified actuaries. Actuarial gains and losses arising in the year are recognised in full in the statement of income for the year. For defined contribution schemes, the amount charged to the statement of income in respect of pension costs and other post-retirement benefits is the contributions payable in the year.
Results of Operations
Overview
Consolidated Statement of Income
The following table is derived from our selected consolidated financial data and sets forth our historical operating results as a percentage of revenue for the periods indicated:
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Year Ended March 31, | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
(In percentages) | ||||||||||||
Consolidated Statement of Income: |
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Revenue |
100.0 | 100.0 | 100.0 | |||||||||
Other operating income |
1.8 | 0.8 | 0.8 | |||||||||
|
|
|
|
|
|
|||||||
Total revenue |
101.8 | 100.8 | 100.8 | |||||||||
Cost of sales |
(77.8 | ) | (74.3 | ) | (74.8 | ) | ||||||
Distribution expenses |
(1.6 | ) | (1.2 | ) | (1.2 | ) | ||||||
Administration expenses |
(2.1 | ) | (3.3 | ) | (2.5 | ) | ||||||
Operating profit |
20.3 | 22.0 | 22.3 | |||||||||
Investment and other income |
8.8 | 5.6 | 7.3 | |||||||||
Finance and other costs |
(2.9 | ) | 0.1 | 0.4 | ||||||||
Share in profit/(loss) of associates |
(1.5 | ) | 0.8 | (1.0 | ) | |||||||
|
|
|
|
|
|
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Profit before taxes |
24.7 | 28.5 | 28.9 | |||||||||
Income Tax expense |
(3.7 | ) | (5.4 | ) | (6.2 | ) | ||||||
Profit for the period |
21.0 | 23.1 | 22.7 | |||||||||
Profit attributable to: |
||||||||||||
Equity holders of the parent |
15.2 | 16.1 | 16.1 | |||||||||
Non-controlling interest |
5.8 | 7.0 | 6.6 |
Net revenue by Geographic Location
The primary markets for our products are India and the Far East. Our exports to the Far East are primarily to China, South Korea, Singapore and Thailand. Other markets include a variety of countries mostly in the Middle East and Europe. We endeavor to sell as large a quantity of our products as possible in India due to the Indian market premium that we receive on sales in India. The following table sets forth our revenue from each of our primary markets and our revenue from each of our primary markets as a percentage of our total revenue for the periods indicated:
Year Ended March 31, | ||||||||||||||||||||||||||||
2009 | 2010 | 2011 | ||||||||||||||||||||||||||
in millions, except percentages) | ||||||||||||||||||||||||||||
Revenue (in Rs.) |
% of Revenue | Revenue (in Rs.) |
% of Revenue | Revenue (in Rs.) |
Revenue (in $) |
% of Revenue | ||||||||||||||||||||||
India |
140,330 | 66.1 | % | 155,218 | 63.4 | % | 187,454 | 4,208.7 | 62.0 | % | ||||||||||||||||||
Far East(1) |
41,563 | 19.6 | % | 43,242 | 17.6 | % | 32,488 | 729.4 | 10.7 | % | ||||||||||||||||||
Other(2) |
30,299 | 14.3 | % | 46,443 | 19.0 | % | 82,530 | 1,852.9 | 27.3 | % | ||||||||||||||||||
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|
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|
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|
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Total |
212,192 | 100.0 | % | 244,903 | 100.0 | % | 302,472 | 6,791.0 | 100.0 | % | ||||||||||||||||||
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Notes:
(1) | Far East includes a number of countries, primarily China, South Korea, Malaysia and Taiwan. |
(2) | Other includes Nigeria,Oman, UAE, Saudi Arabia, Sri Lanka, Belgium, Nepal and Switzerland. |
Customer Concentration
The following table sets forth for the periods indicated:
| the percentage of our revenue accounted for by our 10 largest customers on a consolidated basis; and |
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| for each of our three primary businesses, the percentage of the revenue of such business accounted for by the 10 largest customers of such business. |
Year Ended March 31, | ||||||||||||
(in %) | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
Consolidated |
32.4 | 29.1 | 38.2 | |||||||||
Copper |
32.5 | 27.2 | 33.5 | |||||||||
Zinc India |
23.6 | 32.3 | 36.5 | |||||||||
Zinc International |
| | 96.0 | |||||||||
Aluminum |
44.6 | 28.9 | 49.3 |
No single customer accounted for 10.0% or more of our revenue on a consolidated basis or for any of our primary businesses in any of the periods indicated.
Comparison of years ended March 31, 2010 and March 31, 2011
Revenue, Other Operating Income and Operating Profit
Consolidated
Revenue increased from Rs. 244,903 million in fiscal 2010 to Rs. 302,472 million ($6,791.0 million) in fiscal 2011, an increase of Rs. 57,569 million, or 23.5%. Revenue increased primarily as a result of acquisition of zinc business of Anglo American Plc comprising of a 100.0% stake in Skorpion, 74.0% stake in BMM and 100.0% stake in Lisheen, commissioning of one unit of 600 MW power plant by Sterlite Energy, higher daily average LME prices of metals and higher daily average London Bullion Market Association, or LBMA, prices of precious metals, partially offset by appreciation of the Indian Rupee against the US dollar by 3.9% and lower production due to a planned shutdown in copper segment.
Other operating income increased from Rs. 1,907 million in fiscal 2010 to Rs. 2,366 million ($53.1 million) in fiscal 2011, an increase of Rs. 459 million, or 24.1%. The increase was primarily due to the increased revenue from the sale of scrap from the zinc segment and profit on sale of assets held for sale in aluminum segment.
Operating profit increased from Rs. 53,834 million in fiscal 2010 to Rs. 67,574 million ($1,517.1 million) in fiscal 2011, an increase of Rs. 13,740 million, or 25.5%. The increase was due to higher sales volumes from our zinc business, rise in the daily average LME prices of zinc and aluminum, acquisition of zinc business of Anglo American Plc comprising of a 100.0% stake in Skorpion, 74.0% stake in BMM and 100.0% stake in Lisheen and commissioning of one unit of 600 MW power plant, which was partially offset by decline in the TcRc in copper business by 12.4%. In addition, during the fiscal 2011, 253 and 215 employees in BALCO and Hindustan Zinc Limited, respectively, opted for a voluntary retirement scheme and the expenses pursuant to our voluntary retirement scheme resulting in an increase in expenses leading to a decrease in our operating profit by Rs. 322 million and Rs. 211 million, respectively. Operating margin increased from 22.0% in fiscal 2010 to 22.3% in fiscal 2011 as a result of an increase in the operating margins in our copper and aluminum business.
Contributing factors to our consolidated operating income were as follows:
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| cost of sales increased from Rs. 181,928 million in fiscal 2010 to Rs. 226,134 million ($5,077.1 million) in fiscal 2011, an increase of Rs. 44,206 million, or 24.3%. Cost of sales increased primarily due to higher input prices, higher royalty costs and higher production volumes in our Zinc India business and acquisition of zinc business of Anglo American Plc comprising of a 100.0% stake in Skorpion, 74.0% stake in BMM and 100.0% stake in Lisheen. Cost of sales as a percentage of revenue increased from 74.3% in fiscal 2010 to 74.8% in fiscal 2011. |
| distribution expenses increased slightly from Rs. 3,022 million in fiscal 2010 to Rs. 3,516 million ($78.9million) in fiscal 2011, an increase of Rs. 494 million, or 16.3%. As a percentage of revenue, however, selling and distribution expenses remained the same in fiscal 2010 and fiscal 2011 at 1.2%. The increase in distribution expenses was due to acquisition of zinc business of Anglo American Plc comprising of a 100.0% stake in Skorpion, 74.0% stake in BMM and 100.0% stake in Lisheen. |
| administration expenses decreased from Rs. 8,026 million in fiscal 2010 to Rs. 7,614 million ($171 million) in fiscal 2011, a decrease of Rs. 412 million, or 5.1%. As a percentage of revenue, administration expenses decreased from 3.3% in fiscal 2010 to 2.5% in fiscal 2011. These expenses decreased primarily due to a one time provision of Rs. 2,735 million in fiscal 2010 for the acquisition of Asarco. This decrease has been partly offset by an increase in administration expenses due to the acquisition of zinc business of Anglo American Plc comprising of a 100.0% stake in Skorpion, 74.0% stake in BMM and 100.0% stake in Lisheen. |
Copper
Revenue in the copper segment increased from Rs. 130,608 million in fiscal 2010 to Rs. 156,610 million ($3,516.2 million) in fiscal 2011, an increase of Rs. 26,002 million, or 19.9%. This increase was primarily due to higher daily average copper LME prices, which was partially offset by lower sales volume during the fiscal 2011 by 9% and appreciation of the Indian Rupee against the US dollar by 3.9% between fiscal 2010 and 2011. Specifically:
| copper cathode production decreased from 334,202 tons in fiscal 2010 to 303,991 tons in fiscal 2011, a decrease of 9.0%. The production in the fiscal 2011 was lower as compared to the fiscal 2010, primarily due to the planned bi-annual plant maintenance shut down for 26 days in June and July 2010 and stabilization issues faced during post shut down ramp-up. Copper cathode sales decreased from 136,362 tons in fiscal 2010 to 116,590 tons in fiscal 2011, a decrease of 14.5%, due to decreased production. |
| production of copper rods decreased from 196,882 tons in fiscal 2010 to 187,892 tons in fiscal 2011, a decrease of 4.6%. Copper rod sales decreased from 196,883 tons in fiscal 2010 to 186,737 tons in fiscal 2011, a decrease of 5.2%. The decrease in sales was due to the decrease in production. |
| sales of copper in the Indian market increased from 206,150 tons in fiscal 2010 to 206,653 tons in fiscal 2011, an increase of 0.2%, and our exports decreased from 127,095 tons in fiscal 2010 to 96,674 tons in fiscal 2011, a decrease of 23.9%. We endeavor to sell as large a quantity of our products as possible domestically, where we receive an Indian market premium. Our domestic sales as a percentage of total sales increased from 61.9% in fiscal 2010 to 68.1% in fiscal 2011. |
| the daily average copper cash settlement price on the LME increased from $6,112 per ton in fiscal 2010 to $8,138 per ton in fiscal 2011, an increase of 33.1%. |
Operating profit in the copper segment increased from Rs. 3,138 million in fiscal 2010 to Rs. 9,198 million ($206.5 million) in fiscal 2011, an increase of Rs. 6,060 million, or 193.1%. Operating margin increased from 2.4% in fiscal 2010 to 5.9% in fiscal 2011. The increase in operating profit was primarily
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due to higher by-product realization and higher metal recovery by 0.4%, which was partially offset by an appreciation of the Indian Rupee against the US dollar by 3.9% between fiscal 2010 and 2011. In particular:
| TcRc rates decreased from an average of 13.6¢/lb realized in fiscal 2010 as compared to an average of 11.9¢/lb realized in fiscal 2011. |
| cost of production, which consists of cost of smelting and refining costs, decreased significantly from 10.4¢/lb in fiscal 2010 to 4.0¢/lb in fiscal 2011, primarily due to higher realization on the sale of sulphuric acid by-product and higher metal recovery of 0.4%. |
Zinc India
Revenue in the Zinc India segment increased from Rs. 79,434 million in fiscal 2010 to Rs. 98,444 million ($2,210.2 million) in fiscal 2011, an increase of Rs. 19,010 million, or 23.9%. This increase was primarily due to a 12.9% increase in the daily average zinc LME price in fiscal 2011 as compared to fiscal 2010, an increase in sales volume enabled by increased production which was partially offset by an appreciation of the Indian Rupee against the US dollar by 3.9% between fiscal 2010 and 2011. Specifically:
| zinc ingot production increased from 578,411 tons in fiscal 2010 to 712,471 tons in fiscal 2011, an increase of 23.2%, due to ramp-up of production from our first hydrometallurgical zinc smelter at Dariba and improved operational efficiencies. Zinc ingot sales increased from 577,685 tons in fiscal 2010 to 712,603 tons in fiscal 2011, an increase of 23.4%, enabled by the higher production and strong market demand in India as well as in the rest of Asia. |
| zinc ingot sales in the domestic market increased from 385,881 tons in fiscal 2010 to 411,617 tons in fiscal 2011, an increase of 6.7%. Our domestic sales as a percentage of total sales decreased from 66.8% in fiscal 2010 to 57.8% in fiscal 2011. Export sales increased from 191,805 tons of zinc in fiscal 2010 to 300,986 tons of zinc in fiscal 2011, an increase of 56.9% due to better demand in the global market. |
| the daily average zinc cash settlement price on the LME increased from $1,936 per ton in fiscal 2010 to $2,185 per ton in fiscal 2011, an increase of 12.9%. |
| zinc concentrate sales decreased from 223,489 dry metric tons in fiscal 2010 to 65,957 dry metric tons in fiscal 2011. This decrease was primarily due to higher captive consumption. We sold surplus lead concentrate of 30,929 dry metric tons in fiscal 2010 and 38,457 dry metric tons in fiscal 2011 to third parties. This increase was primarily due to the availability of surplus lead concentrate. |
| lead ingot production decreased from 64,319 tons in fiscal 2010 to 57,294 tons in fiscal 2011, a decrease of 10.9%, as a result of unplanned shutdown of lead smelter at Chanderiya. Lead ingot sales decreased from 64,391 tons in fiscal 2010 to 57,229 tons in fiscal 2011, a decrease of 11.1%, due to decrease in production. |
| silver ingot production increased from 138,550 kg in fiscal 2010 to 148,082 kg in fiscal 2011, an increase of 6.9%, primarily due to higher silver content in the mined ore. The daily average silver London Bullion Market Association, or LBMA, price increased by 51.6% in fiscal 2011 as compared to fiscal 2010. Sale of silver ingots increased from 139,130 kg in fiscal 2010 to 146,558 kg in fiscal 2011, an increase of 5.3% enabled by the increase in production. |
| the daily average lead cash settlement price on the LME increased from $1,990 per ton in fiscal 2010 to $2,244 per ton in fiscal 2011, an increase of 12.8%. |
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Operating profit in the zinc segment increased from Rs. 44,071 million in fiscal 2010 to Rs. 50,914 million ($1,143.1 million) in fiscal 2011, an increase of Rs. 6,843 million, or 15.5%. Operating margin decreased from 55.5% in fiscal 2010 to 51.7% in fiscal 2011. The increase in operating income was primarily due to the increase in the daily average zinc and lead LME prices of 12.9 % and 12.8%, respectively, between fiscal 2010 and fiscal 2011, and increase in sales volume, partially offset by an appreciation of the Indian Rupee against the US dollar and higher operating costs.
Zinc International
On May 10, 2010, Sterlite agreed to acquire the zinc business of Anglo American Plc for a total consideration of Rs. 69,083 million ($1,513.1 million). The zinc business comprises of:
(1) | a 100.0% stake in Skorpion which owns the Skorpion mine and refinery in Namibia; |
(2) | a 74.0% stake in BMM, which includes the Black Mountain mine and the Gamsberg Project, in South Africa; and |
(3) | a 100.0% stake in Lisheen, which owns the Lisheen mine in Ireland. |
On December 3, 2010, we announced the completion of the acquisition of 100.0% stake in Skorpion by SIL, a wholly-owned subsidiary of Sterlite for a consideration of Rs. 32,098 million ($706.7 million). On February 4, 2011, we announced the completion of the acquisition of the 74.0% stake in BMM for a consideration of Rs. 11,965 million ($260.2 million). On February 15, 2011, we announced the completion of the acquisition of 100.0% stake in Lisheen for a consideration of Rs. 25,020 million ($546.2 million). The purchase price for the zinc business was paid in US dollars and has been converted into Indian Rupees based on the exchange rate as on the date of each such acquisition. For further information, see Item 4. Our Business Our Zinc International Business.
Revenue and operating profit in the Zinc International business segment was Rs. 9,961 million ($ 223.6 million) and Rs. 1,592 million ($ 35.7 million) respectively for the period from the respective acquisition dates till March 31, 2011.
Aluminum
Revenue to external customers in the aluminum segment increased from Rs. 28,289 million in fiscal 2010 to Rs. 30,175 million ($677.5 million) in fiscal 2011, an increase of Rs. 1,886 million, or 6.7%. This increase was primarily due to the 20.8% increase in daily average aluminum LME prices in fiscal 2011 compared to fiscal 2010 which was partially offset by appreciation of the Indian Rupee against the US dollar by 3.9% between fiscal 2010 and 2011 and lower volume during the year as compared to the previous year. Specifically:
| aluminum production decreased from 268,425 tons in fiscal 2010 to 255,298 tons in fiscal 2011, a decrease of 4.9%, primarily due to the complete ramp down of the old 100,000 tpa smelter at Korba. However production from the new smelter at Korba slightly increased by 1.5% from 249,552 tons in fiscal 2010 to 253,392 tons in fiscal 2011. |
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| aluminum sales decreased from 267,802 tons in fiscal 2010 to 247,412 tons in fiscal 2011, a decrease of 7.6%, due to captively consumption of 7,418 MT of Rolled Products and 1,438 MT Busbars in the smelter expansion project. Sales of aluminum ingots decreased from 51,069 tons in fiscal 2010 to 26,510 tons in fiscal 2011, a decrease of 48.1%, as a result of the phased shutdown of the old Korba smelter. Wire rod sales increased from 148,239 tons in fiscal 2010 to 160,723 tons in fiscal 2011, an increase of 8.4%, as a result of increased production and increased demand for this product, particularly in the electrical sector, and reflects our continued focus on the sale of value-added products. Rolled product sales decreased from 65,419 tons in fiscal 2010 to 60,149 tons in fiscal 2011, a decrease of 8.1%, primarily due to captively consumption of 7,418 MT of Rolled Products in the smelter expansion project. |
| aluminum sales in the domestic market decreased from 250,970 tons in fiscal 2010 to 241,894 tons in fiscal 2011, a decrease of 3.6%, due to captive consumption of 7,418 MT of Rolled Products and 1,438 MT Busbars in the smelter expansion project. Our aluminum exports decreased from 16,832 tons in fiscal 2010 to 5,518 tons in fiscal 2011, as a result of higher premiums in the domestic market. We endeavor to sell as large a quantity of our products as possible domestically, where we receive an Indian market premium. Our domestic sales as a percentage of total sales increased from 93.7% in fiscal 2010 to 97.8% in fiscal 2011, due to the increased demand of the value added product in the domestic market, particularly in the power market. |
| the daily average aluminum cash settlement price on the LME increased from $1,868 per ton in fiscal 2010 to $2,257 per ton in fiscal 2011, an increase of 20.8%. |
Operating profit in the aluminum segment increased from Rs. 3,189 million in fiscal 2010 to Rs. 3,495 million ($78.5 million) in fiscal 2011, an increase of Rs. 306 million, or 9.6%. Operating margin increased from 11.2% in fiscal 2010 to 11.6% in fiscal 2011. The increase in operating profit was primarily due to increase in the daily average aluminum LME price.
Power
Revenue in the power segment increased from Rs. 6,572 million in fiscal 2010 to Rs. 7,282 million ($163.5 million) in fiscal 2011, an increase of Rs. 710 million, primarily due to sale of power generated by the 270 MW power plant at Korba in external power market and sale of power from Sterlite Energys first unit of 600 MW power plant commissioned during the fourth quarter of fiscal 2011 which was partially offset by lower realization in 270 MW power plant at Korba.
Operating profit in the power segment decreased from Rs. 3,445 million in fiscal 2010 to Rs. 2,437 million ($54.7 million) in fiscal 2011, a decrease of Rs. 1,008 million, primarily due to lower realization, higher cost of generation of power and higher depreciation.
Others
Operating loss in our other business segment increased from Rs. 9 million in fiscal 2010 to Rs. 62 million ($1.4 million) in fiscal 2011.
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Investment and Other income
Investment and other income increased from Rs. 13,811 million in fiscal 2010 to Rs. 21,933 million ($492.4 million) in fiscal 2011, an increase of Rs. 8,122 million ($182.4 million), or 58.8%, primarily due to an increase in fair value gain on financial assets held for trading (net of dividend income), an increase in interest income on bank deposits, loans and receivables consequent to increased deployment of funds in bank deposits, loans and receivables.
Finance costs
Finance costs decreased from an income of Rs. 214 million in fiscal 2010 to an income of Rs. 1,096 million ($24.6 million) in fiscal 2011. This decrease in finance costs was primarily due to an increased gain on fair value of conversion option offset by a decrease in foreign exchange gain.
Share in profit / loss of associate
Share in profit of associate was Rs. 2,051 million in fiscal 2010. Share in the loss of associate was Rs. 3,082 million ($69.2 million) in fiscal 2011. The decrease is primarily related to interest cost relating to loans taken for expansion of projects as well as increased depreciation.
Tax expense
Tax expense increased from Rs. 13,247 million in fiscal 2010 to Rs. 18,810 million ($422.3 million) in fiscal 2011. Our effective income tax rate, calculated as tax expense owed divided by our profit before taxes was 18.9% in fiscal 2010 and 21.5% in fiscal 2011. The effective tax rate was higher in fiscal 2011 primarily due to lower tax exemption for the export oriented units as compared to fiscal 2010, which were partially offset by tax holiday exemptions for the new zinc ingot melting and casting plant at Haridwar in the State of Uttrakhand in North India, tax holiday exemption on the newly commissioned 16 MW wind power plant and 80 MW thermal captive power plant at our zinc business and 540 MW thermal captive power plant at our aluminum business, and higher tax free dividend and investment income.
Non-controlling interest
Profit attributable to non-controlling interest increased from Rs. 17,400 million in fiscal 2010 to Rs. 19,813 million ($444.8 million) in fiscal 2011, an increase of Rs. 2,413 million ($54.2 million), or 13.9%. This increase was mainly due to higher profits in our zinc business and new acquisitions in fiscal 2011. Non controlling interest as a percentage of profit decreased from 30.7% in fiscal 2010 to 28.8% in fiscal 2011.
Comparison of years ended March 31, 2009 and March 31, 2010
Revenue, Other Operating Income and Operating Profit
Consolidated
Revenue increased from Rs. 212,192 million in fiscal 2009 to Rs. 244,903 million in fiscal 2010, a increase of Rs. 32,711 million, or 15.4%. Revenue increased primarily as a result of an increase in sales volume in our copper and zinc businesses due to higher production, higher daily average LME prices in copper and zinc segment, sale of power from BALCOs 270 MW power plant at Korba due to the planned permanent shut down of the old 100,000 tpa aluminum smelter, partially offset by appreciation of the Indian Rupee against the US dollar by 3.3%, lower daily average LME prices in aluminum segments, lower by- product realizations and lower production in our aluminum segment due to the shut down of the 100,000 tpa aluminum smelter at BALCOs Korba facility.
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Other operating income decreased from Rs. 3,750 million in fiscal 2009 to Rs. 1,907 million in fiscal 2010, a decrease of Rs. 1,843 million, or 49.1%. The decrease was primarily due to the sale of power on a merchant basis from the 270 MW power plant pursuant to the permanent shutdown of BALCOs smelter at Korba and the recognition of Rs. 491 million in amounts due to us from an insurance policy covering loss of profit on account of the unplanned shut down of the cooling tower at the Tuticorin facility, which covered a substantial portion of our estimated losses during fiscal 2009.
Operating profit increased from Rs. 43,090 million in fiscal 2009 to Rs. 53,834 million in fiscal 2010, an increase of Rs. 10,744 million, or 24.9%. The increase was due to higher sales volumes from our copper and zinc business, rise in the daily average LME prices of zinc and copper and an increase in TcRc in the copper business by 16.2%, which was partially offset by decline in the daily average LME prices of aluminum. In addition, during the fiscal 2010, 250 BALCO employees retired and we incurred voluntary retirement services expenses pursuant to our voluntary retirement scheme which resulted in a decrease in our operating profit by Rs. 234 million. Operating margin increased from 20.3% in fiscal 2009 to 22.9% in fiscal 2010 as a result of an increase in the operating margins in our zinc business due to increases in the daily average zinc LME prices.
Contributing factors to our consolidated operating income were as follows:
| cost of sales increased from Rs. 165,097 million in fiscal 2009 to Rs. 181,928 million in fiscal 2010, an increase of Rs. 16,831 million, or 10.2%. Cost of sales increased primarily due to higher input prices, higher production volumes in our copper and zinc business and increase in capacity of zinc business. Cost of sales as a percentage of revenue decreased from 77.8% in fiscal 2009 to 74.3% in fiscal 2010 due to the higher daily average copper and zinc LME prices in fiscal 2010. |
| distribution expenses decreased slightly from Rs. 3,388 million in fiscal 2009 to Rs. 3,022 million in fiscal 2010, a decrease of Rs. 366 million, or 10.8%. As a percentage of revenue, however, selling and distribution expenses also decreased from 1.6% in fiscal 2009 to 1.2% in fiscal 2010. |
| administration expenses increased from Rs. 4,367 million in fiscal 2009 to Rs. 8,026 million in fiscal 2010, an increase of Rs. 3,659 million, or 83.8%, primarily as a result of the drawing of letter of credit of $50 million by Asarco, impairment of assets held for sale at BALCO and increase in exploration and technical consultancy costs at HZL. As a percentage of revenue, administration expenses increased from 2.1% in fiscal 2009 to 3.3% in fiscal 2010. These expenses increased primarily in our zinc and aluminum business as a result of an increase in capacities and the scale of our operations. |
Copper
Revenue in the copper segment increased from Rs. 116,525 million in fiscal 2009 to Rs. 130,608 million in fiscal 2010, an increase of Rs. 14,083 million, or 12.1%. This increase was primarily due to higher sales volume of copper cathodes and higher daily average copper LME prices, which was partially offset by appreciation of the Indian Rupee against the US dollar by 3.3% between fiscal 2009 and 2010. Specifically:
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| copper cathode production increased from 312,833 tons in fiscal 2009 to 334,202 tons in fiscal 2010, a increase of 6.8%. The production in the fiscal 2009 was lower as compared to the fiscal 2010, primarily due to the planned bi-annual plant maintenance shut down for 26 days in May and June 2008 and stabilization issues faced during post shut down ramp-up. Copper cathode sales increased from 92,163 tons in fiscal 2009 to 136,362 tons in fiscal 2010, an increase of 47.9%, due to increased production. |
| production of copper rods decreased from 219,879 tons in fiscal 2009 to 196,882 tons in fiscal 2010, a decrease of 10.5%. Copper rod sales decreased from 220,409 tons in fiscal 2009 to 196,883 tons in fiscal 2010, a decrease of 10.7%. The decrease in sales was due to the decrease in production. |
| sales of copper in the Indian market increased from 198,457 tons in fiscal 2009 to 206,150 tons in fiscal 2010, an increase of 3.9%, and our exports increased from 114,115 tons in fiscal 2009 to 127,095 tons in fiscal 2010, an increase of 11.4%. We endeavor to sell as large a quantity of our products as possible domestically, where we receive an Indian market premium. Our domestic sales as a percentage of total sales decreased from 63.5% in fiscal 2009 to 61.9% in fiscal 2010. |
| the daily average copper cash settlement price on the LME increased from $5,885 per ton in fiscal 2009 to $6,112 per ton in fiscal 2010, an increase of 3.9%. |
Operating profit in the copper segment decreased from Rs. 11,121 million in fiscal 2009 to Rs. 3,138 million in fiscal 2010, a decrease of Rs. 7,983 million, or 71.8%. Operating margin decreased from 9.5% in fiscal 2009 to 2.4% in fiscal 2010. The decrease in operating profit was primarily due to decline in by-product realization, which was partially offset by an appreciation of the Indian Rupee against the US dollar by 3.3% between fiscal 2009 and 2010. In particular:
| TcRc rates increased from an average of 11.7¢/lb realized in fiscal 2009 as compared to an average of 13.6¢/lb realized in fiscal 2010 as a result of a global improvement of the TcRc market resulting in a significant increase in the market TcRc rate. |
| cost of production, which consists of cost of smelting and refining costs, increased significantly from 3.1¢/lb in fiscal 2009 to 10.4¢/lb in fiscal 2010, primarily due to lower realization on the sale of sulphuric acid by-product. |
| drawing of $50 million letter of credit by Asarco after the rejection of the plan proposed by us for the acquisition of Asarco. |
Zinc
Revenue in the zinc segment increased from Rs. 55,724 million in fiscal 2009 to Rs. 79,434 million in fiscal 2010, an increase of Rs. 23,710 million, or 42.5%. This increase was primarily due to a 23.9% increase in the daily average zinc LME price in fiscal 2010 as compared to fiscal 2009, an increase in sales volume enabled by increased production and partially offset by an appreciation of the Indian Rupee against the US dollar by 3.3% between fiscal 2009 and 2010. Specifically:
| zinc ingot production increased from 551,724 tons in fiscal 2009 to 578,411 tons in fiscal 2010, an increase of 4.8%, due to ramp-up of production from our first hydrometallurgical zinc smelter at Chanderiya and improved operational efficiencies. Zinc ingot sales increased from 552,328 tons in fiscal 2009 to 577,685 tons in fiscal 2010, an increase of 4.6%, enabled by the higher production and strong market demand in India as well as in the rest of Asia. |
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| zinc ingot sales in the domestic market increased from 331,704 tons in fiscal 2009 to 385,881 tons in fiscal 2010, an increase of 16.3%. Our domestic sales as a percentage of total sales increased from 60.1% in fiscal 2009 to 66.8% in fiscal 2010 due to higher production and strong market demand in India. Export sales decreased from 220,627 tons of zinc in fiscal 2009 to 191,805 tons of zinc in fiscal 2010, a decrease of 13.1% due to better realization and demand in the domestic market. |
| the daily average zinc cash settlement price on the LME increased from $1,563 per ton in fiscal 2009 to $1,936 per ton in fiscal 2010, an increase of 23.9%. |
| zinc concentrate sales increased from 76,261 dry metric tons in fiscal 2009 to 223,489 dry metric tons in fiscal 2010. This increase was primarily due to lower captive consumption. We sold surplus lead concentrate of 56,487 dry metric tons in fiscal 2009 and 30,929 dry metric tons in fiscal 2010 to third parties. This decrease was primarily due to the non-availability of surplus lead concentrate as a result of higher consumption of lead concentrate to produce metal with a higher concentration of lead at the ISPTM pyrometallurgical smelter. |
| lead ingot production increased from 60,323 tons in fiscal 2009 to 64,319 tons in fiscal 2010, an increase of 6.6%, as a result of improved production of lead from the pyrometallurgical process. Lead ingot sales increased from 60,564 tons in fiscal 2009 to 64,391 tons in fiscal 2010, an increase of 6.3%, enabled by the increase in production. |
| silver ingot production increased from 105,555 kg in fiscal 2009 to 138,550 kg in fiscal 2010, an increase of 31.3%, primarily due to higher silver content in the mined ore. The daily average silver London Bullion Market Association, or LBMA, price increased by 14.4% in fiscal 2010 as compared to fiscal 2009. Sale of silver ingots increased from 103,126 kg in fiscal 2009 to 139,130 kg in fiscal 2010, an increase of 34.9% enabled by the increase in production. |
| the daily average lead cash settlement price on the LME increased from $1,660 per ton in fiscal 2009 to $1,990 per ton in fiscal 2010, a increase of 19.9%. |
Operating profit in the zinc segment increased from Rs. 25,158 million in fiscal 2009 to Rs. 44,071 million in fiscal 2010, a increase of Rs. 18,913 million, or 75.2%. Operating margin increased from 45.1% in fiscal 2009 to 55.5% in fiscal 2010. The increase in operating income was primarily due to the increase in the daily average zinc and lead LME prices of 23.9 % and 19.9%, respectively, between fiscal 2009 and fiscal 2010, and increase in sales volume, partially offset by an appreciation of the Indian Rupee against the US dollar and higher operating costs.
Aluminum
Revenue to external customers in the aluminum segment decreased from Rs. 39,170 million in fiscal 2009 to Rs. 28,289 million in fiscal 2010, a decrease of Rs. 10,881 million, or 27.8%. This decrease was primarily due to the complete ramp down of the old 100,000 tpa smelter at Korba on June 5, 2009 and a 16.4% decrease in daily average aluminum LME prices in fiscal 2010 compared to fiscal 2009, appreciation of the Indian Rupee against the US dollar by 3.3% between fiscal 2009 and 2010. Specifically:
| aluminum production decreased from 356,782 tons in fiscal 2009 to 268,425 tons in fiscal 2010, a decrease of 24.8%, primarily due to the complete ramp down of the old 100,000 tpa smelter at Korba. Production from the new smelter at Korba slightly decreased by 0.4% from 250,499 tons in fiscal 2009 to 249,552 tons in fiscal 2010. |
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| aluminum sales decreased from 356,512 tons in fiscal 2009 to 267,802 tons in fiscal 2010, a decrease of 24.9%, due to lower production as a result of the phased shut down of the old 100,000 tpa Korba smelter commencing in February 2009 which ceased operations on June 5, 2009 due to higher operational costs. Sales of aluminum ingots decreased from 172,173 tons in fiscal 2009 to 54,144 tons in fiscal 2010, a decrease of 68.6%, as a result of the phased shutdown of the old Korba smelter. Wire rod sales increased from 127,019 tons in fiscal 2009 to 148,239 tons in fiscal 2010, an increase of 16.7%, as a result of increased production and increased demand for this product, particularly in the electrical sector, and reflects our continued focus on the sale of value-added products. Rolled product sales increased from 57,399 tons in fiscal 2009 to 65,419 tons in fiscal 2010, an increase of 14.0%, primarily due to increased demand in the construction and the transport sector. |
| aluminum sales in the domestic market decreased from 289,991 tons in fiscal 2009 to 250,970 tons in fiscal 2010, a decrease of 13.5%, due to lower production as a result of the phased shut down of the old 100,000 tpa Korba smelter commencing in February 2009 which ceased operations on June 5, 2009. Our aluminum exports decreased from 66,523 tons in fiscal 2009 to 16,832 tons in fiscal 2010, as a result of higher premiums in the domestic market. We endeavor to sell as large a quantity of our products as possible domestically, where we receive an Indian market premium. Our domestic sales as a percentage of total sales increased from 81.3% in fiscal 2009 to 93.7% in fiscal 2010, due to the increased demand of the value added product in the domestic market, particularly in the power market. |
| the daily average aluminum cash settlement price on the LME declined from $2,234 per ton in fiscal 2009 to $1,868 per ton in fiscal 2010, a decrease of 16.38%. |
Operating profit in the aluminum segment decreased from Rs. 6,494 million in fiscal 2009 to Rs. 3,189 million in fiscal 2010, a decrease of Rs. 3,305 million, or 50.9%. Operating margin decreased from 16.5% in fiscal 2009 to 11.2% in fiscal 2010. The decrease in operating profit was primarily due to the shut down of the old 100,000 tpa smelter at Korba and a decrease in the daily average aluminum LME price.
Power
Revenue in the power segment increased from Rs. 773 million in fiscal 2009 to Rs. 6,572 million in fiscal 2010, an increase of Rs. 5,799 million, primarily due to sale of power generated by the 270 MW power plant at Korba in external power market to optimize our returns following the closure of our old aluminum smelter at BALCOs Korba facility.
Operating profit in the power segment increased from Rs. 323 million in fiscal 2009 to Rs. 3,445 million in fiscal 2010, an increase of Rs. 3,122 million, primarily due to sale of power in the external market generated by the 270 MW power plant at Korba.
In order to present a more accurate picture of our segment performance, a new reporting segment has been created to disclose the revenue and profitability of our power business. Currently, the power business comprises the 123 MW wind power generators at HZL and the 270 MW power plant at BALCO. Our power business is still under development and we expect to have meaningful operating results for our commercial power generation business segment in fiscal 2011.
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Others
Operating loss in our other business segment increased from Rs. 6 million in fiscal 2009 to Rs. 9 million in fiscal 2010.
Investment and Other income
Investment and other income decreased from Rs. 18,772 million in fiscal 2009 to Rs. 13,811 million in fiscal 2010, a decrease of Rs. 4,961 million, or 26.4%, primarily due to exchange loss on loans to subsidiaries and affiliates.
Finance costs
Finance costs decreased from Rs. 6,244 million in fiscal 2009 to an income of Rs. 214 million in fiscal 2010, a decrease of Rs. 6,458 million, or 103.4%. The decrease in finance cost was primarily due to foreign exchange gains.
Share in profit / loss of associate
Share in loss of associate was Rs. 3,160 million in fiscal 2009. Share in the profit was Rs. 2,051 million in fiscal 2010. The increase is primarily related to foreign exchange gains.
Tax expense
Tax expense increased from Rs. 7,782 million in fiscal 2009 to Rs. 13,247 million in fiscal 2010. Our effective income tax rate, calculated as tax expense owed divided by our profit before taxes was 14.8% in fiscal 2009 and 18.9% in fiscal 2010. The effective tax rate was higher in fiscal 2010 primarily due to lower tax exemption for the export oriented units as compared to fiscal 2009, which were partially offset by tax holiday exemptions for the new zinc ingot melting and casting plant at Haridwar in the State of Uttrakhand in North India, tax holiday exemption on the newly commissioned 16 MW wind power plant and 80 MW thermal captive power plant at our zinc business and 540 MW thermal captive power plant at our aluminum business, and higher tax free dividend and investment income.
Non-controlling interest
Profit attributable to non-controlling interest increased from Rs. 12,448 million in fiscal 2009 to Rs. 17,400 million in fiscal 2010, an increase of Rs. 4,952 million, or 39.8 %. This increase was mainly due to higher profits in our zinc business in fiscal 2010. Non-controlling interest as a percentage of profit increased from 27.9% in fiscal 2009 to 30.7% in fiscal 2010.
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Liquidity and Capital Resources
Comparison of years ended March 31, 2010 and March 31, 2011
Liquidity
As of March 31, 2011, we had cash and short term investments (excluding restricted cash and cash equivalents) totaling Rs. 224,598 million ($5,042.6 million) and no significant near-term debt redemption obligations, and we had, on a standalone basis, cash and short term investments (excluding restricted cash and cash equivalents) totaling Rs. 50,603 million ($1,136.1 million). We expect that our current cash and short term investments, together with our cash flows from operations, will be our principal sources of cash to satisfy our capital requirements for the next few years We also obtained cash from shareholder contributions to our share capital, offerings of our equity shares or ADSs and by issue of FCCNs during 2010. While we believe that our current and anticipated sources of cash will be adequate to satisfy our capital requirements, recent global market and economic conditions have increased the cost of and decreased the availability of credit and adversely affected the financial markets and economy in India, the United States and most other western and emerging economies, which in turn has had, and may continue to have, a material adverse effect on our business, our financial performance and the prices of our equity shares and ADSs. See Item 3. Key InformationD. Risk FactorsRisks Relating to Investments in Indian Companies, Global Economic Conditions and International Operations.
Capital Requirements
Our principal capital requirements include:
| capital expenditures, towards expansion of capacities in existing businesses including modernization of facilities; |
| the establishment of our commercial power generation business; |
| consolidation of our ownership in our various subsidiaries; and |
| acquisitions of complementary businesses that we determine to be attractive opportunities. |
We continue to consider increasing capacities of our existing businesses through greenfield and brownfield projects and through acquisitions as one of our major growth strategies, though we are actively monitoring global market and economic conditions and the outlook for commodity prices, as well as our current and anticipated liquidity positions, as we constantly evaluate our desired rate of growth in pursuing this strategy.
Our business is heavily dependent on plant and machinery for the production of our copper, zinc and aluminum products, as well as investments in our mining operations and our commercial power generation business. Investments to maintain and expand production facilities are, accordingly, an important priority and have a significant effect on our cash flows and future results of operations. Our capital expenditures in fiscal 2009, 2010 and 2011 were Rs. 40,623 million, Rs. 61,875 million and Rs. 50,016 million ($1,122.9 million), respectively, largely due to our capacity expansion and new projects across our zinc, aluminum and energy businesses.
We currently expect capital expenditures of approximately Rs. 6,090 million ($136.7 million) over the next year by HZL to complete brownfield expansion projects to increase HZLs lead production capacity by 100,000 tpa, increase mining output and silver production, which would increase HZLs zinc-lead production capacity to 1,064,000 tpa with fully integrated mining and captive power generation capacities. These projects are being undertaken at HZLs Rajpura Dariba complex, Sindesar Khurd and Kayar mines in the State of Rajasthan in Northwest India. The Sindesar Kurd mine along with its associated mill was commissioned in fiscal 2011. The Kayar mine is expected to start mining activity progressively from mid-2013.
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BALCO is building a 1,200 MW coal-based captive power plant in Chhattisgarh at an estimated cost of Rs. 46,500 million ($1,044.0 million) consisting of four units of 300 MW each. These units will be commissioned progressively, by the second quarter of fiscal 2013. The capital expenditure spent on this project as of March 31, 2011 is Rs. 30,674 million ($688.7 million).
In order to enhance aluminum production capacity to 1.0 million tons, BALCO entered into a memorandum of understanding with the State Government of Chhattisgarh on August 8, 2007, for a potential investment to build an aluminum smelter with a capacity of 650,000 tpa at Chhattisgarh, at an estimated cost of Rs. 81,000 million ($1,818.6 million). BALCO has commenced the implementation process of the first phase of expansion for setting up a 325,000 tpa aluminum smelter at an estimated cost of Rs. 38,000 million ($853.2 million) which uses pre-baked technology from the Guiyang AluminiumMagnesium Design & Research Institute, or GAMI, of China. The project is scheduled to be commissioned in the second quarter of fiscal 2013. The capital expenditure spent on this project as of March 31, 2011 is Rs. 15,715 million ($352.8 million).
Sterlite Energy is investing approximately Rs. 82,000 million ($1,841.0 million) to build a 2,400 MW thermal coal-based sub-critical power facility (comprising four units of 600 MW each) in Jharsuguda in the State of Orissa. As of March 31, 2011, Rs. 57,105 million ($1,282.1 million) has been spent on the project.
The 1,980 MW coal-based thermal commercial power plant at Talwandi Sabo in the State of Punjab in India is expected to be completed by second quarter of fiscal 2014 at an estimated cost of Rs. 92,450 million ($2,075.7 million). In addition, TSPL signed an MoU with the Government of Punjab in October 2010 to expand the current capacity of the Talwandi Sabo coal-based thermal power plant by 660MW. The estimated cost for the additional unit is Rs. 25,000 million ($561.3 million) and is expected to be completed in the fourth quarter of fiscal 2014. As of March 31, 2011, we had spent Rs. 16,733 million ($375.7 million) on this project.
In fiscal 2012 and 2013, we have scheduled loan repayment obligations, denominated in a mix of Indian Rupees and US dollars of Rs. 7,817 million ($175.5 million) and Rs. 9,221 million ($207.0 million), respectively, for various outstanding long-term loans. We plan to finance our capital expenditures and our loan repayment obligations out of our cash flows from operations and financing activities. Our failure to make planned expenditures could adversely affect our ability to maintain or enhance our competitive position and develop higher margin products.
Consistent with our strategy to consolidate our ownership interests in our key subsidiaries, we had exercised the second call option to acquire the Government of Indias remaining ownership interest in HZL although the exercise is currently subject to dispute. See Item 4. Information on the CompanyB. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCO for more information. The option value will be the fair market value determined by an independent appraiser, and will entail significant capital requirements. Based solely on the market price of HZLs shares on the NSE on September 23, 2011 of Rs. 125.9 ($2.8) per share, and not including the other factors that the independent appraiser may consider, one possible estimation of the exercise price to acquire all of the Government of Indias 1,247,950,590 shares of HZL would be Rs. 157,117 million ($3,527.5 million). If the Government of India sells its remaining ownership interest in HZL through a public offer, we may look into alternative means of increasing our ownership interest in HZL.
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In addition, we have exercised our option to acquire the Government of Indias remaining 49.0% ownership interest in BALCO, although the exercise of this option has been contested by the Government of India and the Government of India retains the right and has expressed an intention to sell 5.0% of BALCO to BALCO employees. See Item 4. Information on the CompanyB. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCO for more information.
We may in the future make acquisitions of mines, plants or minerals and metals businesses that complement or enhance our existing businesses.
We have consistently paid dividends including tax on dividend amounting to Rs. 3,315 million for fiscal 2009, Rs. 3,437 million for fiscal 2010 and Rs. 3,674 million ($82.5 million) in fiscal 2011.
Capital Resources
We plan to finance our capital requirements through a mix of cash flows from operating and financing activities. We do not depend on off-balance sheet financing arrangements.
Net Cash provided by/ used in Operating Activities
Net cash provided by continuing operating activities was Rs. 127,529 million ($2,863.2 million) in fiscal 2011 compared to net cash provided by continuing operating activities of Rs. 14,249 million in fiscal 2010. The cash used in operating assets and liabilities (working capital) in fiscal 2011 was Rs.898 million ($20.1 million) compared to net cash provided Rs. 1,082 million in fiscal 2010. We believe our current working capital is sufficient for our present capital requirements.
Net Cash Used in Investing Activities
Net cash used in investing activities was Rs. 117,582 million in fiscal 2010 and Rs. 128,562 million ($2,886.4 million) in fiscal 2011. The net cash used in to acquire the zinc business of Anglo American Plc comprising of a 100.0% stake in Skorpion, 74.0% stake in BMM and 100.0% stake in Lisheen was Rs. 53,526 million ($1,210.7 million) and the cash used in towards our expansion projects across our copper, zinc, power and aluminum businesses was Rs. 50,016 million ($1,122.9 millon).
Net Cash Provided by Financing Activities
Net cash provided by financing activities was Rs. 20,650 million ($463.6 million) in fiscal 2011, primarily as a result of the net proceeds from long-term and short-term debts of Rs. 23,477 million ($527.1 million) and an increase in working capital loan of Rs. 1,692 million ($38.0 million) which were partially offset by net repayment of acceptances of Rs. 4,676 million ($105.0 million) and payment of dividends of Rs. 4,743 million ($106.5 million). Net cash provided by financing activities was Rs. 102,322 million in fiscal 2010 primarily as a result of net proceeds from short term and long term debts of Rs 9,403 million which were partially offset by repayment of working capital loan of Rs 1,194 million and by a payment of dividends of Rs. 4,163 million. Net cash provided by financing activities includes Rs 76,529 million in fiscal 2010 as a result of proceeds from the ADS offering, net of expense.
We tap both the domestic and offshore markets for our long-term funding needs. Since we have sizeable imports and exports, we access both import and export credits, based on cost effectiveness, both in the Indian Rupee and in foreign currencies, to finance our short-term working capital requirements. We have in place both secured and unsecured borrowings, with our secured borrowings being generally Indian Rupee denominated bonds.
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We have tapped different segments of borrowing resources, including banks and capital markets, both in India and overseas. We have credit ratings of above investment grade from the local rating agencies such as Credit Rating Information Services of India Limited and ICRA Limited. We therefore have not had, and do not believe that we will have, difficulty in gaining access to short-term and long-term financing sufficient to meet our current requirements.
Comparison of years ended March 31, 2009 and March 31, 2010
Liquidity
As of March 31, 2010, we had cash and short term investments (excluding restricted cash and cash equivalents) totaling Rs. 213,043 million and no significant near-term debt redemption obligations and we had, on a standalone basis, cash and short term investments totaling Rs. 82,325 million. We expect that our current cash and short term investments, together with our cash flows from operations, will be our principal sources of cash to satisfy our capital requirements for the next few years. We also obtained cash from shareholder contributions to our share capital, offerings of our equity shares or ADSs during 2010. While we believe that our current and anticipated sources of cash will be adequate to satisfy our capital requirements, recent global market and economic conditions have increased the cost of and decreased the availability of credit and adversely affected the financial markets and economy in India, the United States and most other western and emerging economies, which in turn has had, and may continue to have, a material adverse effect on our business, our financial performance and the prices of our equity shares and ADSs. See Item 3. Key InformationD. Risk FactorsRisks Relating to Investments in Indian Companies, Global Economic Conditions and International Operations.
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Capital Resources
We plan to finance our capital requirements through a mix of cash flows from operating and financing activities. We do not depend on off-balance sheet financing arrangements.
Net Cash Provided by Operating Activities
Net cash provided by continuing operating activities was Rs. 14,249 million in fiscal 2010 compared to net cash provided by continuing operating activities of Rs. 72,103 million in fiscal 2009. The cash provided by operating assets and liabilities (working capital) in fiscal 2010 was Rs. 1,082 million. The cash provided by operating assets and liabilities in fiscal 2009 was Rs. 8,220 million. We believe our current working capital is sufficient for our present capital requirements.
Net Cash Used in Investing Activities
Net cash used in investing activities was Rs. 94,813 million in fiscal 2009 and Rs. 117,582 million in fiscal 2010. The major part of the cash used in investing activities for fiscal 2009 and 2010 was towards our expansion projects across our copper, zinc, power and aluminum businesses. We also used cash to loan to subsidiaries and affiliates.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was Rs. 102,322 million in fiscal 2010, primarily as a result of the net proceeds from long-term and short-term debts of Rs. 9,403 million which were partially offset by repayment of working capital loan of Rs. 1,194 million and payment of dividends of Rs. 4,163 million. Net cash provided by financing activities includes Rs 76,529 million in fiscal 2010 as a result of proceeds from the ADS offering, net of expense. Net cash provided by financing activities was Rs. 13,442 million in fiscal 2009 primarily as a result of a net proceeds from short term and long term debts of Rs 15,388 million which were partially offset by repayment of working capital loan of Rs 3,588 million and by a payment of dividends of Rs. 3,812 million.
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Outstanding Loans
The principal loans held by us and our subsidiaries, and the amounts outstanding thereunder, as of March 31, 2011 were as follows:
Working capital loans
We have credit facilities from various banks for meeting working capital requirements, generally in the form of credit lines for establishing letters of credit, packing credit in foreign currency, or PCFC, cash credit, bank guarantees and bills discounting. Amounts due under working capital loans as of March 31, 2010 and March 31, 2011 were Rs. 1,337 million and Rs. 3,029 million ($68.0 million) respectively. The working capital loan of Rs. 3,029 million ($68.0 million) outstanding as of March 31, 2011 consist of Rs. 1,069 million ($24.0 million) and Rs.1,050 million ($23.6 million) under a US dollar denominated loan at SIIL and Fujairah, respectively, Rs. 401 million ($9.0 million) at Sterlite Energy and Rs. 509 million ($11.4 million) at BALCO under a cash credit facility. Interest on the working capital loan facility under US dollar denominated is based on the London Inter-Bank Offer Rate, or LIBOR, plus 85 basis points and 180 basis points for SIIL and Fujairah respectively. Weighted average interest on cash credit facility is 10.9%. The working capital loans of BALCO and Sterlite Energy are secured against the current assets and movable and immovable properties of the respective entities except for US Dollar denominated loan facility as of March 31, 2011 at Fujairah which is secured against the inventories and receivables of Fujairah and corporate guarantees by Vedanta Resources Plc. The SIIL US Dollar denominated loan facility is unsecured.
Foreign currency loans
In November 2008, BALCO obtained a US dollar denominated unsecured loan facility of $25.0 million from DBS Bank Limited, arranged by DBS Bank Limited, Mumbai Branch, to meet its capital expenditure requirement on projects. The rate of interest payable on this facility is LIBOR plus 345 basis points. The loan is repayable in three equal yearly installments beginning November 2013. The amount outstanding under this facility as of March 31, 2010 and March 31, 2011 was $25 million (Rs.1,089 million).
In June 29, 2009, Sterlite Energy entered into US dollar denominated secured term loan facility of $140.0 million with India Infrastructure Finance (UK) Company Limited as lender and SBI as facility agent to finance the costs of purchasing machinery and equipment from overseas, supplied in connection with the building of its 2,400 MW thermal coal-based power facility in Jharsuguda in the State of Orissa. The rate of interest payable under this facility is six-month LIBOR plus 480 basis points from August 2009. 60% of the loan is repayable in 48 quarterly installments beginning on a date falling six months after the date of commercial operation of the last unit of the power facility, 36% of the loan amount is repayable at the end of 12 years from June 29, 2009 in a single installment and the balance 4% of the outstanding loan is repayable in eight quarterly installments commencing from December 2022. The facility is secured by, among other things, a first charge over the movable and immovable properties and tangible or intangible assets of Sterlite Energy as well as charges over certain of its bank accounts. As of March 31, 2011, Sterlite Energy has not drawn down on the loan.
In February 2011, on account of the acquisition of BMM, short term borrowing from Exxaro Base Metals (Proprietary) Limited (Exxaro) amounting to ZAR 218.7 million was also extended. Exxaro owns 26.0%
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non-controlling equity interest in BMM. This loan is subordinated to the other debt until such time that BMMs total current and non-curent assets fair value exceed its total current and non-current liabilities. As of March 31, 2011, the balance due under this loan was Rs. 1,426 million ($32.0 million).
In February 2011, THLZL took a short term borrowing from VRHL for the acquisition of BMM amounting to $348.5 million. This loan is bearing an interest rate of LIBOR plus 200 basis points and is repayable within one year. As of March 31, 2011, the balance due under this loan was Rs. 4,845 million ($108.8 million). This loan is unsecured.
Term loans
As of March 31, 2011, the Company had three term loans which consist of two term loans from ICICI Bank Limited, or ICICI Bank and one term loan from Jammu and Kashmir Bank, or J&K Bank.
Pursuant to the approval of the Board for Industrial and Financial Reconstruction, or BIFR, for the rehabilitation scheme of India Foils Limited, or IFL in November 2008, SIIL assumed two loans aggregating to Rs. 1,023 million granted by ICICI Bank, on the same terms and conditions by way of two novation agreements entered into among SIIL, IFL and ICICI Bank. The interest rates for these facilities were linked to ICICI bank benchmark advance rate or I-BAR. The first loan of Rs. 1,020 million, of which Rs. 773 million was transferred to SIIL pursuant to the novation agreement, has an effective interest rate of 10.5% from December 2009, and is repayable in 12 quarterly installments beginning from November 2008, of which Rs. 619 million was paid by March 31, 2011. The second loan of Rs. 250 million has an effective interest rate of 11.0% per annum is repayable in 16 quarterly installments beginning from November 2008, of which Rs. 156 million was repaid by March 31, 2011. As of March 31, 2011, SIIL had repaid Rs. 775 million of these loans, out of the total loan amount of Rs. 1,023 million. As of March 31, 2010, and March 31, 2011 the balances due under the two loans were Rs. 558 million and Rs. 248 million ($5.6 million), respectively. These loans are unsecured.
In June 2009, Sterlite Energy obtained an Indian Rupee term loan facility of Rs. 1,000 million from J&K Bank, of which Rs. 200 million had been drawn down. The interest rate of the loan is 25 basis points below SBAR. The purpose of the loan is to meet capital expenditure requirements on projects. As of March 31, 2010 and March 31, 2011 the balance due under the loan was Rs. 200 million ($4.5 million). This is an unsecured loan.
In June 29, 2009, Sterlite Energy entered into an Indian Rupee term loan facility from a syndicate of banks, with SBI acting as facility agent, of Rs. 55,690 million ($1,250.3 million), to finance the cost of building a 2,400 MW thermal coal-based power facility at Jharsuguda in the State of Orissa. The interest rate is 25 basis points below SBAR. The facility is secured by, among other things, a first charge over the movable and immovable properties and tangible or intangible assets of Sterlite Energy as well as charges over certain of its bank accounts. The loan is repayable in 48 quarterly installments beginning on a date falling six months after the date of commercial operation of the last unit of the power facility. As of March 31, 2011, Sterlite Energy has not drawn down on this facility. All amounts drawn down by Sterlite Energy under the loan facilities granted by IDBI, SBI, PNB and J&K Bank will be deemed to be a draw down under this loan facility from the initial draw down date of this facility.
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Buyers credit
Sterlite Energy had utilized extended credit terms relating to purchases of property, plant and equipment for its projects. As of March 31, 2010, and March 31, 2011, the balance due under this facility was Rs. 13,717 million and Rs. 10,191 million ($228.8 million), respectively. These loans are outstanding as on March 31, 2011 and bear interest at LIBOR plus 148 basis points. These are unsecured debts.
BALCO availed buyers credit facility from DBS Bank Limited, Singapore for meeting project expenditure requirements on January 2009. As of March 31, 2010 and March 31, 2011, the balances due under this facility were Rs. 1,126 million and Rs. 1,112 million ($25.0 million), respectively. These loans bear interest at LIBOR plus 70 basis points. The balance due under the said facility is repayable from September 2011 to January 2012. These loans bear an interest at LIBOR plus 70 basis points. These are unsecured debts.
In April 2009, BALCO obtained a one time capex letter of credit limit of $100 million from SBI, which is secured by first pari passu charges on the movable and immovable fixed assets of BALCO. As of March 31, 2010 and March 31, 2011, the balance outstanding under this facility was Rs. 4,337 million and Rs. 4,317 million ($96.9 million), respectively. The interest rate on this facility is LIBOR plus 200 basis points. The balance due under the said facility is repayable from November 2011 to April 2012. The facility was funded by SBI Hongkong and the Bank of Baroda London.
In June 2009, BALCO obtained a non-fund based limit of Rs. 6,250 million from AXIS Bank for the purchase of capital goods for projects, which is secured by a subservient charge on the current assets and movable fixed assets of BALCO. As of March 31, 2010 and March 31, 2011, the balance outstanding under this facility was Rs. 4,145 million and Rs. 4,093 million ($91.9 million), respectively.The interest rate on this facility is LIBOR plus 200 basis points. The said outstanding amount is repayable from December 2011 to November 2012. The facility was funded by SBI Hong Kong, SBI Singapore, the Bank of Baroda, London and DBS Bank, Singapore.
In January 2010, BALCO obtained a non-fund based limit of Rs. 6,000 million from ICICI Bank for the purpose of import of capital goods, which is secured by exclusive charge on assets to be imported under the facility. As of March 31, 2010 and 2011, the balance outstanding under this facility was Rs.930 million and Rs. 4,931 million ($110.7 million), respectively. The interest rate on this facility is LIBOR plus 200 basis points. The said outstanding amount is repayable from March 2012 to December 2012. The facility was funded by SBI Tokyo, HSBC Mauritius, Bank of Baroda London, Bank of Baroda New York, SBI Bahrain and SBI Canada.
In May 2010, BALCO obtained uncommitted buyers credit facility of $50 million from DBS Bank Limited, Singapore for the import of capital goods for projects. The facility is secured by first pari passu charge on capital goods imported under the facility and the creation of charge is pending on March 31, 2011. the interest rate on this facility is LIBOR plus 175 basis points. Although the outstanding balance is repayable from April 2012 to June 2013, the bank may at its absolute discretion demand immediate repayment of amounts outstanding under this uncommitted buyers credit facility. The balance outstanding under the facility as on March 31, 2011 is Rs. 1,226 million ($27.5 million).
In December 2010, BALCO obtained a non-fund based limit of Rs. 2,500 million from ICICI Bank for the purpose of import of capital goods, which is secured by exclusive charge on assets to be imported under the facility. As of March 2011, the balance outstanding under this facility was Rs. 871 million ($19.6 million) .The interest rate on this facility is LIBOR plus 198 basis points. The said outstanding amount is repayable from June 2013 to February 2014. The facility was funded by Bank of Baroda London, Bank of Baroda New York and SBI Bahrain.
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In August 2010, Talwandi Sabo obtained a non-fund based limit of Rs.10,000 million from ICICI Bank for the purpose of import of capital goods, which is secured by unconditional and irrevocable corporate guarantee from SIIL and a first charge on a pari passu basis on all the movable assets of Talwandi Sabo. As of March 2011, the balance outstanding under this facility was Rs. 911 million ($20.5 million) .The interest rate on this facility is LIBOR plus 200 basis points. The said outstanding amount is repayable from July 2013 to February 2014.
Non-convertible debentures
In April 2003, SIIL issued Rs.1,000 million Indian Rupee denominated non-convertible debentures to Life Insurance Corporation of India, or LIC. The debentures were issued in two tranches. Tranche A, in the amount of Rs. 400 million , due in April 2010 and Tranche B, in the amount of Rs. 600 million , due in April 2013. Interest payable on these debentures is linked to annualized Government of India securities rates plus 190 basis points. These debentures are secured by certain of the Companys immovable properties. The current interest rate is fixed at 8.24%. As of March 31, 2010, and March 31, 2011 the outstanding balances were Rs. 1,000 million and Rs. 600 million ($13.5 million), respectively.
In November 2008, BALCO issued Rs. 5,000 million in Indian Rupee denominated non-convertible debentures to LIC. The debentures are repayable in three equal yearly installments beginning in November 2013. The applicable interest rate is 12.25% per annum. The debentures are secured and have a pari passu charge on BALCOs movable and immovable properties tangible or intangible assets, other than BALCOs current assets to the extent of 1.33 times the issued amount of the debentures.
Talwandi Sabo has issued non convertible debentures, or NCD, of Rs. 15,000 million to ICICI Bank at a rate of 9.8% per annum. The first tranche of Rs. 7,500 million was issued in December 2010 and the second tranche for the balance amount was issued in January 2011. The NCDs are secured by first pari passu charge on the assets of TSPL both present and future, with a minimum asset cover of 1.25 times during the lifetime of the NCDs (including the debt service reserve account) and unconditional and irrevocable corporate guarantee by SIIL. Debentures have a tenure of 13 years from the respective date of allotment, repayable in twelve equal quarterly installments after 10 years of allotment. As of March 31, 2011 amount outstanding was Rs. 14,963 million ($335.9 million).
Commercial paper
In March 2011, we issued Rs.12,000 million Indian Rupee denominated commercial paper to various mutual fund companies at a coupon rate of 9.73% per annum. The effective discount rate was 9.67% per annum. The commercial paper was issued for short periods and the maturity periods for the commercial paper was June 21, 2011. As of March 31, 2011, the commercial paper outstanding balance is Rs. 11,745 million ($263.7 million).
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Convertible notes
Convertible Senior Notes ,or Convertible Notes, due 2014
On October 29, 2009, we raised US$500 million by issue of 4.0% Convertible Notes of $1,000 each. Subject to certain exceptions, the note holders have an option to convert these Convertible Notes into ADSs (each ADS now represents four equity shares. Prior to the bonus issue and the share split of the equity shares of the Company on June 25, 2010, each ADS represented one equity share.) at any time prior to business day immediately preceding the maturity date at a conversion rate of 42.8688 ADSs per $1,000 principal amount of notes which is equal to a conversion price of approximately $23.33 per ADS . The conversion price could be subject to adjustments should certain events occur. Further, at any time after November 4, 2012, we have a right to redeem in whole or parts of the Convertible Notes, subject to meeting certain conditions. The amount which the company is required to pay contractually on October 30, 2014 is US$500 million, unless previously converted, redeemed or purchased and cancelled.
At inception, the difference between the proceeds received on issuance of the Convertible Notes and the fair value of the conversion option (which is an embedded derivative) has been allocated to the Convertible Notes to establish its initial carrying cost. Subsequently, the conversion option has been measured at fair value through profit and loss with changes in fair value recognised in the statement of income, and the Convertible Notes have been carried at amortised cost using an effective interest rate method.
The conversion option amounting to Rs. 5,963 million and Rs. 2,757 million ($61.9 million) and un-amortised borrowing costs amounting to Rs. 242 million and Rs.131 million ($2.9 million) as of March 31, 2010 and March 31, 2011, respectively, are included along with the notes in statement of financial position. Change in the fair value of conversion option has been presented under Note 7 on Finance and other costs.
Export Obligations
We had export obligations of Rs. 86,229 million and Rs. 117,988 million ($2,649.0 million) as of March 31, 2010 and 2011 respectively on account of concessional rates received on import duties paid on capital goods under the Export Promotion Capital Goods Scheme enacted by the Government of India which is to be fulfilled over the next eight years. If we are unable to meet these obligations, our liability would be Rs. 16,001 million ($359.3 million), reduced in proportion to actual exports. Due to the remote likelihood of us being unable to meet our export obligations, we do not anticipate a loss with respect to these obligations and hence have not made any provision in our consolidated financial statements.
Guarantees
As of March 31, 2011, we have given the following guarantees in the normal course of business:
| Guarantees including corporate guarantees on the issuance of customs and excise duty bonds amounting to Rs. 11,292 million and Rs. 12,022 million ($269.9 million) for the import of goods, including capital equipment at concessional rates of duty as of March 31, 2010 and 2011 respectively. We do not anticipate any liability on these guarantees. |
| Corporate guarantee of Rs. 34,000 million and Rs. 32,000 million ($718.5 million) on behalf of Vedanta Aluminium for obtaining credit facilities as of March 31, 2010 and 2011 respectively. We also issued corporate guarantees of Rs. 14,386 million and Rs. 14,384 million ($322.9 million) on behalf of Vedanta Aluminium for importing capital equipment at concessional rates of duty under the Export Promotion Capital Goods Scheme enacted by the Government of India for the referred periods. Vedanta Aluminium is obliged to export goods worth eight times the value of concessions enjoyed in a period of eight years following the date of import, failing which we will be liable to pay the dues to the Government of India. As of March 31, 2010 and 2011, we determined that we have no liability on these corporate guarantees. |
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| Bank guarantee of AUD 5.0 million (Rs. 231 million or $5.2 million) as of March 31, 2011 (Previous year AUD 5.0 million or Rs. 207 million), in favor of the Ministry for Economic Development, Energy and Resources, as a security against rehabilitation liabilities on behalf of CMT. The same guarantee is backed up by the issuance of a corporate guarantee of Rs. 320 million ($7.2 million). These liabilities have been fully recognized in our consolidated financial statements. We do not anticipate any additional liability on these guarantees. |
| Bank indemnity guarantees amounting to AUD 2.9 million (Rs. 134 million or $3.0 million) as of March 31, 2011 (Previous year AUD 2.9 million or Rs. 119 million), in favor of the State Government of Queensland, Australia, as a security against rehabilitation liabilities that are expected to occur at the closure of the mine. The same guarantee is backed up by the issuance of a corporate guarantee of Rs. 132 million ($3 million). The environmental liability has been fully recognized in our consolidated financial statements. We do not anticipate any additional liability on these guarantees. |
| Performance bank guarantees amounting to Rs. 2,201 million and Rs. 3,678 million ($82.6 million) as of March 31, 2010 and 2011 respectively. These guarantees are issued in the normal course of business while bidding for supply contracts or in lieu of advances received from customers. The guarantees have varying maturity dates with a maximum of up to three years. These are contractual guarantees and are enforceable if the terms and conditions of the contracts are not met and the maximum liability on these contracts is the amount mentioned above. We do not anticipate any liability on these guarantees. |
| Bank guarantees for securing supplies of materials and services in the normal course of business. The value of these guarantees as of March 31, 2010 and 2011 was Rs. 1,203 million and Rs. 2,438 million ($54.7 million) respectively. We have also issued bank guarantees in the normal course of business for an aggregate value of Rs. 515 million and Rs. 182 million ($4.1 million) for litigation, against provisional valuation and for other liabilities as of March 31, 2010 and 2011 respectively. We do not anticipate any liability on these guarantees. |
Our outstanding guarantees cover obligations aggregating Rs. 63,597 million and Rs. 64,704 million ($1,452.7 million) as of March 31, 2010 and 2011 respectively, the liabilities for which have not been recorded in our consolidated financial statements.
Contractual Obligations
The following table sets out our total future commitments to settle contractual obligations as of March 31, 2011:
Particulars |
Payment Due by Period | ( in millions) | ||||||||||||||||||||||||||||||||||||||
Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years |
||||||||||||||||||||||||||||||||||||
(Rs.) | (US Dollar) |
(Rs.) | (US Dollar) |
(Rs.) | (US Dollar) |
(Rs.) | (US Dollar) |
(Rs.) | (US Dollar) |
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Bank loans and borrowings |
41,454 | 930.7 | 7,817 | 175.5 | 13,705 | 307.7 | 4,127 | 92.7 | 15,805 | 354.8 | ||||||||||||||||||||||||||||||
Convertible Notes |
19,922 | 447.3 | | | | | 19,922 | 447.3 | | | ||||||||||||||||||||||||||||||
Capital commitments |
137,629 | 3,090.0 | 85,272 | 1,914.5 | 52,352 | 1,175.4 | 5 | 0.1 | | | ||||||||||||||||||||||||||||||
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Total |
199,005 | 4,468.0 | 93,089 | 2,090.0 | 66,057 | 1,483.1 | 24,054 | 540.1 | 15,805 | 354.8 | ||||||||||||||||||||||||||||||
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Our total future commitments to settle contractual obligations as of March 31, 2011 were Rs. 199,005 million ($4,468 million), representing a Rs. 13,001 million ($291.9 million) increase as compared to our total future commitments to settle contractual obligations as of March 31, 2010.
We also have commitments to purchase copper concentrate for our copper custom smelting operations. These commitments are based on future copper LME prices which are not ascertainable as of the date of this annual report.
Off-Balance Sheet Arrangements
In the normal course of business, we enter into certain capital commitments and also give certain financial guarantees. The aggregate amount of indemnities and other guarantees, on which we do not expect any material losses, was Rs. 80,705 million ($1,812 million) as of March 31, 2011. Details of our guarantees are set out in - Guarantees. Details of our capital expenditures and commitments and contingencies are as follows:
Capital Expenditures and Commitments
Our principal financing requirements primarily include:
| capital expenditures, towards expansion of capacities in existing businesses including modernization of facilities; |
| the establishment of our planned commercial power generation business; |
| consolidation of our ownership in our various subsidiaries; and |
| acquisitions of complementary businesses that we determine to be attractive opportunities. |
The following table shows our capital expenditures spent in fiscal 2009, 2010 and 2011:
For Year Ended March 31, | ||||||||
2009 | 2010 | 2011 | 2011 | |||||
(in millions) | ||||||||
Capital Expenditures | Rs. 40,623 | Rs. 61,875 | Rs. 50,016 | $1,122.9 |
We had significant capital commitments as of March 31, 2010 and 2011 amounting to Rs. 123,305 million and Rs. 137,629 million ($3,090.0 million) respectively, related primarily to capacity expansion projects.
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Contingencies
Certain of our operating subsidiaries have been named as parties to legal actions by third party claimants, and by the Indian sales tax, excise and related tax authorities for additional sales tax, electricity cess, excise and indirect duties. These claims primarily relate either to the assessable values of sales and purchases or to incomplete documentation supporting the Companys tax returns. As of March 31, 2010 and 2011, the total claim related to these liabilities is Rs. 5,158 million and Rs. 6,372 million ($143.1 million) respectively. The Company has evaluated these contingencies and estimated that some of these claims may result in loss contingencies and hence has recorded Rs. 101 million and Rs. 145 million ($3.3 million) as current liabilities as of March 31, 2010 and 2011 respectively.
The claims by third party claimants amounted to Rs. 4,897 million and Rs. 4,972 million ($111.6 million) as of March 31, 2010 and 2011 respectively. No liability has been recorded against these claims, based on our expectation that none of these claims will become our obligations. Although the results of legal actions cannot be predicted with certainty, it is the opinion of the Companys management, after taking appropriate legal advice, that the likelihood of these claims becoming its obligations is remote and, as a result, the resolution of these claims will not have a material effect, if any, on our business, financial condition or results of operations. Therefore, we have not recorded any additional liability beyond what is stated above in relation to litigation matters in the consolidated financial statements.
Vedanta Aluminium has certain disputes which are in appeal. Disputed liabilities in appeal primarily relates to entry tax on the import of goods and others amounting to Rs. 765 million and Rs. 2,095 million ($47.0 million), being the proportionate share of the Company in the referred contingencies as of March 31, 2010 and 2011 respectively. Therefore, the Company has evaluated these contingencies and estimated that the likelihood of these disputes becoming an obligation is remote and as a result, will not have any material effect on Companys financial conditions or results of operations.
Recent Accounting Pronouncements
At the date of authorization of these consolidated financial statements, the following standards interpretations and amendments, which have not been applied in these financial statements, were in issue but were not yet effective:
IFRS 7 was amended in May 2010 and October 2010, as part of Improvements to IFRSs 2010. The effect of the amendments were to provide (a) qualitative disclosures in the context of quantitative disclosures to enable users to link related disclosures to form an overall picture of the nature and extent of risks arising from financial instruments and (b) help users of financial statements to evaluate the risk exposures relating to transfers of financial assets and the effect of those risks on an entitys financial position. The amendments issued in May 2010 are effective for annual periods beginning on or after January 1, 2011 and those issued in October 2010 are effective for annual periods beginning on or after July 1, 2011. Early application is permitted. The Company is currently evaluating the impact, if any, the adoption of these amendments will have on the Companys consolidated financial statements.
IAS 19 Employee benefits the amendments make important improvements by eliminating the option to defer the recognition of gains and losses, known as the corridor method, streamlining the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income (OCI), enhancing the disclosure requirements for defined benefit plans. IAS 19 is applicable prospectively from the financial year beginning on or after January 1, 2013. Earlier application is permitted. The Company is currently evaluating the impact, if any, the adoption of these amendments will have on the Companys consolidated financial statements.
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The following new IFRSs were issued during the year and are applicable to annual reporting periods beginning on or after January 01, 2013.
IFRS 9 Financial Instruments was issued by IASB in October 2010 as part of its project for revision of the accounting guidance for financial instruments. The new standard provides guidance with respect to classification and measurement of financial assets and financial liabilities. The standard will be effective for annual periods beginning on or after January 1, 2013, with early application permitted. The Company is currently evaluating the impact, if any, the adoption of this standard will have on the Companys consolidated financial statements.
IFRS 10 Consolidated Financial Statements establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 supersedes the requirements relating to consolidated financial statement in IAS 27Consolidated and Separate Financial Statement (amended 2008) and also supersedes SIC 12, ConsolidationSpecial Purpose Entities. Earlier application is permitted. The Company is currently evaluating the impact, if any, the adoption of this standard will have on the Companys consolidated financial statements.
IFRS 11 Joint Arrangements classifies joint arrangements as either joint operations (combining the existing concepts of jointly controlled assets and jointly controlled operations) or joint ventures (equivalent to the existing concept of a jointly controlled entity). Joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations for the liabilities. Joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. IFRS 11 requires the use of the equity method of accounting for interests in joint ventures thereby eliminating the proportionate consolidation method. IFRS 11 supersedes IAS 31Interest in Joint Ventures (amended 2008) and SIC 13Jointly Controlled EntitiesNon Monetary Contribution by Ventures. The Company is currently evaluating the impact, if any, the adoption of this standard will have on the Companys consolidated financial statements.
IFRS 12 Disclosure of Interests in Other Entities applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. The IFRS requires an entity to disclose information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities; and the effects of those interests on its financial position, financial performance and cash flows. IFRS 12 replaces disclosure requirements in IAS 27Consolidated and Separate Financial Statements (amended 2008), IAS 28Investment in Associates and IAS 31Interest in Joint Ventures (amended 2008). The Company is currently evaluating the impact, if any, the adoption of this standard will have on the Companys consolidated financial statements.
IFRS 13 Fair value measurement defines fair value and sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. It seeks to increase consistency and comparability in fair value measurements and related disclosures through a fair value hierarchy. IFRS 13 is to be applied for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The Company is currently evaluating the impact, if any, the adoption of this standard will have on the Companys consolidated financial statements.
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In May 2010, the IASB issued Improvements to IFRSa collection of amendments to certain IFRSsas part of its program of annual improvements to its standards, which is intended to make necessary, but non-urgent, amendments to standards that will not be included as part of another major project.
The amendments resulting from these improvements mainly have effective dates for annual periods beginning on or after January 1, 2011, although entities are permitted to adopt them earlier.
Improvements to IFRSs issued in May 2010 approved amendments to :
IFRS 3 Business Combinations
IFRS 7 Financial Instruments: Disclosures
IAS 1 Presentation of Financial Statements
IAS 27 (revised 2008) Consolidated and Separate Financial Statements
IAS 34 Interim Financial Reporting
The Company is currently evaluating the impact, if any, the adoption of these improvements will have on the Companys consolidated financial statements.
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. Directors and Senior Management
Our board of directors consists of seven directors.
The following table sets forth the name, age (as of March 31, 2011) and position of each of our directors, executive officers and significant employees as of the date hereof:
Name | Age | Position | ||||
Directors |
||||||
Anil Agarwal(1) |
58 | Non-Executive Chairman | ||||
Navin Agarwal(2) |
50 | Whole Time Director and Executive Vice-Chairman | ||||
Dindayal Jalan(2)(3)(4) |
54 | Whole Time Director and Chief Financial Officer | ||||
Berjis Minoo Desai(1)(4)(6)(7)(8) |
54 | Non-Executive Director | ||||
Gautam Bhailal Doshi(1)(6)(7) |
58 | Non-Executive Director | ||||
Sandeep H. Junnarkar(4)(6)(7)(10) |
59 | Non-Executive Director | ||||
A.R. Narayanaswamy(6)(7)(9) |
59 | Non-Executive Director | ||||
Executive Officers |
||||||
Mahendra Singh Mehta(11) |
55 | Group Chief Executive Officer and Chief Executive Officer, SIIL | ||||
Rajagopal Kishore Kumar(15) (16) |
48 | Chief Executive Officer, Zinc International Division | ||||
Vinod Bhandawat(12) |
43 | Chief Financial Officer, Konkola Resources Plc | ||||
Tarun Jain(13) |
51 | Director of Finance | ||||
A.Thirunavukkarasu |
50 | Group Head of Corporate Human Resource | ||||
Dilip Golani |
45 | President and Group Head of Management Assurance | ||||
Other Significant Employees |
||||||
Copper Business |
||||||
Jeyakumar Janakaraj |
40 | Chief Executive Officer, CMT |
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P. Ramnath(5) |
52 | Chief Executive Officer, Sterlite copper operations at Tuticorin and Silvassa | ||||
Zinc Business |
||||||
Akhilesh Joshi(2) |
57 | Chief Operating Officer and Whole Time Director, HZL | ||||
Shyam Lal Bajaj |
57 | Chief Financial Officer, HZL | ||||
Zinc International Business | ||||||
Rajagopal Kishore Kumar(15) (16) | 48 | Chief Executive Officer, Zinc International Division | ||||
Aluminum Business | ||||||
S.K. Roongta(17) | 61 | Managing Director, Vedanta Aluminium Limited | ||||
Mansoor Siddiqi | 57 | Director, Vedanta Aluminium Limited | ||||
V. Ramanathan | 51 | Chief Financial Officer, Vedanta Aluminium Limited | ||||
Pramod Suri(2) (14) | 53 | Chief Executive Officer and Whole Time Director, Vedanta Aluminium Limited and Director of Sterlite Energy | ||||
Gunjan Gupta(2) | 44 | Chief Executive Officer and Whole Time Director, BALCO | ||||
Dinesh Mantri | 45 | Chief Financial Officer, BALCO | ||||
Bibhu Prasad Mishra | 49 | Chief Operating Officer, BALCO | ||||
Power Business |
||||||
Baldev Krishnan Sharma |
58 | Chief Executive Officer and Whole Time Director, TSPL |
Notes: |
(1) | Member of the Remuneration Committee. |
(2) | A Whole Time Director is a director who is employed full-time in rendering services to the management of the company with respect to which he is a director. An individual can be a whole time director with respect to only one company, although he or she may accept the position of non-whole time director in other companies. In addition to Messrs. Dindayal Jalan, Akhilesh Joshi, Pramod Suri, Gunjan Gupta and Mr. Navin Agarwal is also considered to be a Whole Time Director. Mr.Mansoor Siddiqi ceased as Whole Time Director and was appointed as director of Vedanta Aluminim Limited with effect from February 18, 2011. |
(3) | Appointed as a Whole Time Director with effect from December 24, 2008 for a period of two years. Mr. Jalan was re-appointed as Whole Time Director for a further period of two years with effect from December 24, 2010 to December 23, 2012. In addition, Mr. Jalan was our Chief Financial Officer prior to June 15, 2009 and was re-appointed as Chief Financial Officer with effect from March 31, 2011. |
(4) | Member of the Shareholders and Investors Grievance Committee. |
(5) | Appointed as Chief Executive Officer of Sterlite Copper Operations at Tuticorin and Silvassa with effect from September 8, 2011 |
(6) | Member of the Audit Committee. |
(7) | Independent director. Mr. Sandeep H. Junnarkar and Mr. Gautam Bhailal Doshi, were appointed to the board of directors with effect from June 29, 2001. Mr. Berjis Minoo and Mr. A.R. Narayanaswamy were appointed to the board of directors on January 29, 2003 and July 23, 2011 respectively. |
(8) | Chairman of the Remuneration Committee. |
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(9) | Chairman of the Audit Committee. |
(10) | Chairman of the Shareholders and Investors Grievance Committee. |
(11) | Appointed as Chief Executive Officer of SIIL with effect from March 31, 2011. |
(12) | Ceased to be Chief Financial Officer of SIIL with effect from January 25, 2011. |
(13) | Resigned as Whole Time Director with effect from March 31, 2009, following which he is no longer a director of our company. However, he remains an executive officer of the company as our Director of Finance. |
(14) | Ceased to be Whole Time Director of BALCO with effect from October 1, 2009 and appointed as Whole Time Director of Sterlite Energy with effect from October 5, 2009. |
(15) | Ceased to be Chief Executive Officer of SIIL with effect from March 31, 2011. |
(16) | Appointed as Chief Executive Officer of Zinc International Division with effect from February 24, 2011. |
(17) | Appointed as Managing Director of Vedanta Aluminium Limited with effect from June 2, 2011. |
Directors
Anil Agarwal, who founded the Vedanta group in 1976, is our Non-Executive Chairman and was appointed to our board of directors in 1978. Mr. Agarwal is based in the United Kingdom. In addition to his role as Non-Executive Chairman, Mr. Agarwal is also the executive chairman of Vedanta and a director of BALCO, STL, Sterlite Energy and Vedanta Aluminium. Mr. Agarwal was previously our Chairman and Managing Director and Chief Executive Officer from 1980 until the expiration of his term in October 2004. Mr. Agarwal was also the chief executive officer of Vedanta from December 2003 to March 2005. Mr. Agarwal has over 35 years of experience as an industrialist and has been instrumental in our growth and development since our inception. Mr. Agarwal is the son of Mr. Dwarka Prasad Agarwal, one of our directors until March 31, 2009, and the brother of Mr. Navin Agarwal. The business address of Mr. Agarwal is 75 Nehru Road, Vile Parle (East), Mumbai, Maharashtra 400099, India.
Navin Agarwal is our Executive Vice-Chairman and was appointed to our board of directors in August 2003. Mr. Agarwal is based in Mumbai, India. His responsibilities as Executive Vice-Chairman include executing our business strategy and managing the overall performance and growth of our organization. Mr. Agarwal joined our company at its inception. In addition to his role as Executive Vice-Chairman, Mr. Agarwal is also the chairman of KCM and MALCO, the deputy executive chairman of Vedanta and a Vice-Chairman of BALCO, HZL, Vedanta Aluminium, Sterlite Iron & Steel Company Limited, Sterlite Infrastructure Private Limited, Sterlite Infrastructure Holdings Private Limited, Malco Power Company Limited, Malco Industries Limited, Hare Krishna Packaging Private Limited,,Vedanta Resources Holdings Limited and Vedanta Resources Investments Limited. As between these various positions, Mr. Agarwal is principally employed by us and devotes most of his time to matters relating to us, though under the shared services agreement described in Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions he does from time to time spend a small percentage of his time on matters relating to Vedanta and its subsidiaries. Mr. Agarwal has over 25 years of experience in general management and commercial matters. Mr. Agarwal has completed the Owner/President Management
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Program at Harvard University and has a Bachelor of Commerce from Sydenham College, Mumbai, India. Mr. Agarwal is the son of Mr. Dwarka Prasad Agarwal and the brother of Mr. Anil Agarwal. The business address of Mr. Agarwal is 75 Nehru Road, Vile Parle (East), Mumbai, Maharashtra 400099, India.
Dindayal Jalan is our Whole Time Director and Chief Financial Officer. Mr. Jalan joined our company as the president of our Australian operations and was responsible for the business and operations of CMT and TCM from January 2001 to February 2002 before becoming our chief financial officer (metals) of our company. He was appointed as our chief financial officer in March 2003 and held that position until June 2009. Further Mr. Jalan was re-appointed as Chief Financial Officer of our company with effect from March 31, 2011. Mr. Jalan has been the chief financial officer of Vedanta since October 2005. Mr. Jalan is also a director of SOVL, Vedanta Resources Finance Limited, Vedanta Resources Jersey Limited, Vedanta Resources Jersey II Limited, Vedanta Investment Jersey Limited, Sesa Resources Limited (earlier V S Dempo & Company Private Limited ), Sesa Mining Corporation Limited (earlier Dempo Mining Corporation Private Limited), TCM, CMT, TSPL, Paradip Multi Cargo Berth Private Limited, Vizag General Cargo Berth Private Limited, Twinstar Energy Holdings Limited, Twinstar Mauritius Holdings Limited, THL Zinc Ventures Limited, THL Zinc Limited and Pecvest 17 (Proprietary) Limited., South Africa Mr. Jalan has over 32 years of experience working in various companies in the engineering, mining and non-ferrous metals industries. Mr. Jalan has a Bachelor of Commerce and is a member of the Institute of Chartered Accountants of India.
Berjis Minoo Desai is our Non-Executive Director and was appointed to our board of directors in January 2003. Mr. Desai is based in Mumbai, India. Mr. Desai is a solicitor and has been the managing partner of Messrs J. Sagar Associates since April 2003 specializing in mergers and acquisitions, securities, financial and international business laws and international commercial arbitration. Prior to that, Mr. Desai was a partner at Messrs Udwadia, Udeshi & Desai from 1997 to 2003. Mr. Desai has a Bachelor of Arts and a Bachelor of Law from the University of Mumbai and a Master of Law from the University of Cambridge, UK. Mr. Desai is also a director of several companies including The Great Eastern Shipping Company Limited, NOCIL Limited, Praj Industries Limited, Emcure Pharmaceuticals Limited, Greatship (India) Limited, Edelweiss Capital Limited, Centrum Fiscal Private Limited, Capricorn Studfarm Private Limited, Capricorn Agrifarms & Developers Private Limited, Capricorn Plaza Private Limited, Equine Bloodstock Private Limited, Deepak Nitrate Limited, Himatsingka Seide Limited, JSA Law Limited and JSA Lex Holdings Limited. The business address of Mr. Desai is Vakils House, 18 Sprott Road, Ballard Estate, Mumbai, Maharashtra 400001, India.
Gautam Bhailal Doshi is our Non-Executive Director and was appointed to our board of directors in December 2001. Mr. Doshi is based in Mumbai, India. Mr. Doshi is a chartered accountant. Since August 2005, he has been the group managing director of the Reliance ADA Group Limited. Prior to that, he was a partner of RSM & Co. in India from September 1997 to July 2005. Mr. Doshi has more than 27 years of experience in the areas of audit, finance and accounting. Mr. Doshi has a Bachelor of Commerce from the University of Mumbai and a Master of Commerce from the University of Mumbai and is a Fellow Member of the Institute of Chartered Accountants of India. Mr. Doshi is also a director of Reliance Communcations Infrastructure Limited, Reliance Media Works Limited, Reliance Anil Dhirubhai Ambani Group Limited, Reliance Big TV Limited, Reliance Life Insurance Company Limited, Reliance Telecom Limited, Sonata Investments Limited, Piramal Life Sciences Limited, Digital Bridge Foundation and Reliance Broadcast Network Limited. The business address of Mr. Doshi is Reliance Centre, 3rd Floor, 19 Walchand Hirachand Marg, Ballard Estate, Mumbai, Maharashtra 400038, India.
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Sandeep H. Junnarkar is our Non-Executive Director and was appointed to our board of directors in June 2001. Mr. Junnarkar is based in Mumbai, India. Mr. Junnarkar is a solicitor and a partner of Messrs Junnarkar & Associates. Prior to that, he was a partner at Messrs Kanga & Co. from 1981 until 2002. Mr. Junnarkar specializes in banking and corporate law and regularly advises on all aspects of exchange control under the Foreign Exchange Management Act, 1999, as amended, or FEMA, and the Securities Contracts (Regulation) Act, 1956, or the SCRA. Mr. Junnarkar has a Bachelor of Law from the University of Mumbai and is a member of the Bombay Incorporated Law Society. Mr. Junnarkar is also a director of Everest Industries Limited, Excel Crop Care Limited, IL&FS Infrastructure Development Corporation Limited, Jai Corp. Limited, Jai Realty Ventures Limited, Reliance Industrial Infrastructure Limited, Reliance Industrial Investments & Holdings Limited, Reliance Ports and Terminals Limited, Sterlite Energy Limited and Sunshield Chemicals Limited. The business address of Mr. Junnarkar is 311/312 Embassy Centre, Nariman Point, Mumbai, Maharashtra 400021 India.
A. R. Narayanaswamy is our additional non-executive director and was appointed to our board of directors in July 2011. He is based in Mumbai. He has over 35 years of experience as a Chartered Accountant. Mr. Narayanaswamy has a Bachelor of Commerce from the University of Mumbai. He is a member of the Institute of Chartered Accountants of India. He consults for companies in accounting, financial management and information technology areas across several industry verticals. Mr. Narayanaswamy is also a director of HZL, STL, IBIS Softec Solutions Private Limited, IBIS Logistics Private Limited and IBIS Systems and Solutions Private Limited.
Executive Officers
Mahendra Singh Mehta is our Group Chief Executive Officer and Chief Executive Officer. Mr. Mehta joined our group in April 2000 and held various leadership positions within our group, including as the chief executive officer and director of HZL and as our commercial director for base metals. Prior to joining our group, Mr. Mehta worked with Lloyds Steel Industries Limited where he handled a wide portfolio of responsibilities, including marketing, procurement, working capital, finance and projects. Mr. Mehta is also the chief executive officer of Vedanta and was appointed as a director of Vedanta in October 2008. Mr. Mehta is the Chief Executive Officer of our company with effect from March 31, 2011. In addition, he is also a director of TSPL. Mr. Mehta has a Bachelor of Mechanical Engineering from MBM Engineering College, Jodhpur, and a Master of Business Administration from the Indian Institute of Management, Ahmedabad.
Rajagopal Kishore Kumar is the Chief Executive Officer of our Zinc International Division and also a non- executive director of KCM . Prior to this, Mr. Kumar headed our copper and zinc divisions and he has been responsible for the overall management of our copper and zinc businesses since December 2006 and October 2008, respectively. He was appointed as the Chief Executive Officer of our consolidated group of companies in October 2008 and remained in this position until March 2011. Mr. Kumar joined our company in April 2003 as vice president of marketing for HZL and became senior vice president of marketing for our copper division from June 2004 to December 2006, where he was responsible for copper marketing and concentrate procurement. Prior to joining our company, Mr. Kumar was employed by Hindustan Lever Limited for 12 years. Mr. Kumar has a Bachelor of Commerce from Kolkata University and is a member of the Institute of Chartered Accountants of India.
Tarun Jain is our Director of Finance. Mr. Jain joined Sterlite in 1984 and has over 26 years of experience in the corporate finance, audit and accounting, tax and secretarial practice. He is responsible for our strategic financial matters, including corporate finance, corporate strategy, business development and
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mergers and acquisitions. Mr. Jain is a graduate of the Institute of Cost and Works Accountants of India and a Fellow Member of the Institute of Chartered Accountants of India and the Institute of Company Secretaries of India. Mr. Jain is also a director of Sterlite USA, BALCO, Vedanta Aluminium, SOVL, SIL (formerly known as Sterlite Paper limited) and Twin Star.
Vinod Bhandawat is presently the Chief Financial Officer for Konkola Resources Plc. Mr. Bhandawat joined the Vedanta group in 1998 and has held various positions, including acting as the chief financial officer of our company from June 2009 to January 2011. Prior to joining the Vedanta group, Mr. Bhandawat was employed in various positions by companies with operations in India, including holding the positions of manageraccounts with Century Enka Limited and business controller with ABB Limited (formerly Asea Brown Boveri). He is also a Director of Sterlite Infra Limited (formerly known as Sterlite Paper Limited), Sterlite Opportunities and Ventures Limited, Vizag General Cargo Berth Private Limited, CMT and TCM. Mr. Bhandawat has a Bachelor of Commerce from Kolkata University and is a member of the Institute of Chartered Accountants of India and the Institute of Company Secretaries of India.
A. Thirunavukkarasu is our Group Head of Corporate Human Resources. Mr. Thirunavukkarasu is responsible for the strategic and operational aspects of human resources. He joined SIIL in April 2004. Mr. Thirunavukkarasu was SIILs general manager of human resources and subsequently became the senior vice president of human resources for our Copper Division until July 2007 when he became our Group Head of Corporate Human Resources. Prior to that, Mr. Thirunavukkarasu has held various positions in the human resources departments of several companies including Hindustan Levers Limited, English Electric Co. of India Limited. and TVS Electronics Limited. Mr. Thirunavukkarasu has a Masters in Social Work from Loyola College, Chennai.
Dilip Golani is President and group Head of Management Assurance . He headed management assurance function of the Group from April 2000 to July 2004. Mr.Golani headed sales and marketing division for Hindustan Zinc Limited and group performance management function from August 2004 to November 2005. Prior to joining the Group in April 2000, he was member of the Unilever corporate audit team responsible for auditing Unilever group companies in Central Asia, Middle East and Africa regions. At Unilever, Mr. Golani was responsible for managing the operations and marketing functions for one of the export businesses of Unilever India (Hindustan Unilever Limited). Mr. Dilip Golani has over 20 years experience and has worked with organizations like Ranbaxy Laboratories Limited and Union Carbide India Limited. Mr. Golani is a Bachelor in Mechanical Engineering from Motilal National Institute of Technology, Allahabad and a Post Graduate Diploma in Industrial Engineering and Management from the National Institute of Industrial Engineering, Mumbai.
Other Significant Employees
Copper Business
Jeyakumar Janakaraj is the Chief Executive Officer of CMT. Mr. Janakaraj joined our group in September 1995 as a mechanical engineer in our copper division at Tuticorin. He subsequently joined HZL as a senior manager in July 2002 and worked in various capacities, including as head of projects for HZLs mines and smelters. Prior to joining our group, Mr. Janakaraj was with Essar Steel from 1992 to 1995 as a junior engineer. In September 2006, Mr. Janakaraj was awarded a Gold Medal by the Indian Institute of Metals, Kolkata, for his significant contributions to the non-ferrous metallurgical industry. Mr. Janakaraj is also a director of operations for KCM. Mr. Janakaraj has a Bachelor of Mechanical Engineering from the PSG College of Technology, Bharathiar University, Coimbatore.
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P. Ramnath is the Chief Executive Officer of Sterlite copper operations in Tuticorin and Silvassa. Mr. Ramnath joined our group in September 2011. Prior to joining our group, Mr. Ramnath worked at Jubiliant Organosys, Praxair India, SNF Ion Exchange, Bakelite Hylam Limited and Reliance Industries Limited. Prior to joining us, Mr. Ramnath was also the chief operating officer of JK Paper Limited. Mr. Ramnath has a Bachelor of Technology from Osmania University, Hyderabad and a Post Graduate Diploma from the Indian Institute of Management, Bengaluru.
Zinc Business
Akhilesh Joshi is the Chief Operating Officer and Whole Time Director of HZL. He joined HZL in 1976 as an assistant engineer for mining and worked in various capacities at both underground and opencast mines of HZL. Mr. Joshi became the General Manager of HZL when HZL became a part of the Vedanta group. He has also served as the unit headRAM and became Senior Vice President (Mines) in April 2008. Mr. Joshi played a significant role in the expansion projects for the Rampura Agucha mine and is in charge of the mining activities at HZL. Mr. Joshi is a Bachelor of Engineering (Mining) from M.B.M. Engineering College, Jodhpur.
Shyam Lal Bajaj is the Chief Financial Officer of HZL and is responsible for its finance and accounting functions and its information technology, legal, insurance, compliance and treasury departments. Mr. Bajaj joined our group in June 1995 as general manager of SIIL. Prior to his present appointment in December 2005, he was the chief financial officer of Sterlite Optical and Technologies Limited. Prior to that, Mr. Bajaj held various positions at S.S. Kothari & Co., SAE (India) Limited and most recently, as the deputy general manager of MP Iron Steel Co., a unit of Hindurstan Development Corporation Limited. Mr. Bajaj is a member of the Institute of Chartered Accountants of India.
Aluminum Business
S.K. Roongta is the Managing Director of Vedanta Aluminium Limited with effect from June 2011. Mr. Roongta joined our group in 2011. He is responsible for the aluminum business of BALCO and VAL including the power plants. Prior to his present appointment, he was Chairman of Sail Authority of India Limited or SAIL. Mr Roongta has an experience of four decades with SAIL and has held key positions in marketing division before being appointed as Director (Commercial) in 2004 and later as Chairman in 2006 of the SAIL Board. Mr. Roongta has a Bachelor of Engineering from the Birla Institute of Technology and Science, Pilani, and is a gold medalist in Post Graduate Diploma in Business Management in International Trade from Indian Institute of Foreign Trade, Delhi.
Mansoor Siddiqi is the Director of Vedanta Aluminium Limited with effect from February 2011. Mr. Siddiqi joined our group in 1991. Prior to his present appointment, he was the director of projects for our group and was in charge of managing our expansion projects in our aluminum business. Prior to joining our group, Mr. Siddiqi worked at Hindustan Copper Limited and has 30 years of experience in various areas of operations and project management. He was a whole time director of Vedanta Aluminium Limited until February 8, 2011 and continued as director and is a director of Vizag General Cargo Berth Private Limited and Paradip Multi Cargo Berth Private Limited. Mr. Siddiqi has a Bachelor of Technology from the Indian Institute of Technology, Delhi, and a Diploma in Management from the All India Management Association, Delhi.
V. Ramanathan is the Chief Financial Officer of Vedanta Aluminium Limited and is responsible for the finance and accounting functions of our associated company, Vedanta Aluminium, including management assurance, legal and compliance and corporate secretarial. Mr. Ramanathan joined our group in 1992. Prior to that, he was with Coimbatore Agro Industries Limited and Malabar Building Limited. Mr. Ramanathan has a Bachelor of Science from the University of Madras and is a member of the Institute of Chartered Accountants of India.
Pramod Suri is the Chief Executive Officer and Whole Time Director of Vedanta Aluminium with effect from August 1, 2011 and a Director of Sterlite Energy. He is responsible for the operations of Vedanta Aluminium and Sterlite Energy. Mr. Suri was previously the president for BALCO operations. He joined the
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group in 2004 as the head of BALCOs 245,000 tpa aluminum smelter at Korba. Prior to joining our group, Mr. Suri was employed as the vice president of JK Industries Limited from January 2001 to March 2004. Mr. Suri has also held positions in INDAL, CEAT Limited and Goodyear South Asia Tyres Private Limited. Mr Suri has a Masters degree in Chemistry from the Indian Institute of Technology, Delhi.
Gunjan Gupta is the Chief Executive Officer and Whole Time Director of BALCO. Mr. Gupta joined BALCO in 2005 and served as the vice president of marketing and the business head for the 245,000 tpa smelter complex at Korba. He became chief executive officer of BALCO in March 2008 before becoming our Chief Executive Officer and Whole Time Director of BALCO in October 2008. Mr. Gupta has worked in various positions including business development, sales and business process re-engineering at Tata Steel and Arcelor Mittal. Mr. Gupta worked in the sales and marketing division of Tata Steel from 1990 to 1999. From 1999 to 2002, he joined SIIL in the sales and marketing division and became the head of copper marketing. During the period from 2002 to 2003, Mr. Gupta joined BALCO and MALCO in the aluminum sales and marketing division. Mr. Gupta joined Arcelor Mittal Steel in the sales and marketing division and he has worked with the Arcelor Mittal Group from 2003 to 2006. He has served as director of global sales and long steel products in several central and eastern European plants, including in the Czech Republic, Poland, Romania, Bosnia and Herzegovina. Mr. Gupta has a Bachelor of Chemical Engineering from the Indian Institute of Technology, Roorkee and a Master of Business Administration from the Faculty of Management Studies, Delhi.
Dinesh Mantri is the Chief Financial Officer of BALCO since July 2009. Prior to this, he was with AV Birla group for a period of seven years at Grasim and Birla Copper and Singapore based Tolaram group. He also served in South Africa for three years from 1997 to 2000 and is associated with Vedanta for last ten years in various capacities with MALCO , HZL and Vedanta Aluminium. He has 22 years experience in finance and accountinf functions. Mr. Mantri is a Bachelor of Commerce from University of Rajasthan. He is also a member of the Institute of Chartered Accountants of India.
Bibhu Prasad Mishra is the Chief Operating Officer of BALCO since July 2008. Prior to this, he worked at NALCO, Aluminium Bahrain and MOZAL and has 26 years experience in aluminum smelting operations. Mr. Prasad has a degree in Metallurgical Engineering from The National Institute of Technology, Rourkela and in Industrial Enginerring from IIIE, Mumbai. He has also done in Masters in Business Administration from Herriot Watt University, United Kingdom.
Power Business
Mr. Baldev Krishnan Sharma is the chief executive officer and Whole Time Director of TSPL. Mr. Sharma has over 35 years of experience in the areas of commercial, marketing and business operations management. Mr. Sharma joined the Vedanta group in 1997 and prior to that was associated with West Coast Paper Mills. Mr. Sharma has a Bachelor of Science degree and a MBA from Punjab University, India.
B. Compensation
Compensation of Directors and Executive Officers
The aggregate compensation we paid our executive directors and executive officers for fiscal 2011 was Rs. 259.6 million ($5.8 million), which includes Rs. 185.2 million ($4.2 million) paid towards salary, bonuses, allowances and non-cash payments, Rs. 55.1 million ($1.2 million) paid by us to Vedanta for the fair value of share options granted to our executive directors and executive officers under the Vedanta LTIP,
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and Rs. 19.3 million ($0.4 million) paid towards benefits such as contributions to the provident fund and superannuation fund. The total compensation paid to our most highly compensated executive during fiscal 2011 was Rs. 97 million ($2.2 million) (of which Rs. 71.4 million ($1.6 million) comprised salary, bonuses and allowances, Rs. 16.7 million ($0.4 million) comprised payment by us to Vedanta for the fair value of share options granted under the Vedanta LTIP, and Rs. 9 million ($0.2 million) comprised benefits such as contribution to the provident fund and superannuation fund.
The following table sets forth the compensation paid to our directors and executive officers in fiscal 2011, where the disclosure of compensation is required on an individual basis in India or is otherwise publicly disclosed by us:
Name |
Salary, Bonuses, Allowances and Perquisites |
Fair Value of
Share Options granted under the Vedanta LTIP |
Contribution to Provident and Superannuation Funds |
|||||||||
(Rs. in millions) | ||||||||||||
Navin Agarwal |
71.37 | 16.68 | 8.97 | |||||||||
Dindayal Jalan |
19.25 | 5.58 | 1.91 | |||||||||
Mahendra Singh Mehta |
23.13 | 6.77 | 1.87 | |||||||||
Tarun Jain |
42.84 | 10.66 | 4.69 | |||||||||
Kishore Kumar |
| 4.84 | | |||||||||
A.Thirunavukkarasu |
8.93 | 3.00 | 0.53 | |||||||||
Dilip Golani |
13.31 | 4.03 | 0.86 | |||||||||
Vinod Bhandawat |
6.36 | 3.51 | 0.48 |
The aggregate compensation paid or payable to our non-executive directors for fiscal 2011 was Rs. 5.31 million ($0.1 million), which comprised Rs. 0.81 million in sitting fees and Rs. 4.5 million ($0.1 million) in commissions.
We adopted the Vedanta LTIP in February 2004. Under the Vedanta LTIP, our directors and executive officers will be granted share awards which will entitle them to acquire the ordinary shares of Vedanta based on the performance of Vedantas total shareholder return against a peer group of companies comprising the FTSE Worldwide Mining Index (excluding precious metals) measured over a three-year performance period and Vedantas financial performance.
Outstanding Awards or Options
As of March 31, 2011, our directors and executive officers as a group held options under the Vedanta LTIP to acquire an aggregate of 212,113 ordinary shares of Vedanta representing approximately 0.07% of Vedantas share capital. The awards are exercisable at the end of the three-year performance period commencing from the date of each grant at an exercise price of $0.10 per ordinary share. The awards expire six months after their date of grant. For more information, see - Vedanta Long-Term Incentive Plan.
Employee Benefit Plans
We maintain employee benefit plans in the form of certain statutory and welfare schemes covering substantially all of our employees. The total amount set aside by us to provide pension, retirement or similar benefits as of March 2010 and 2011 was Rs. 856 million and Rs. 1,948 million ($43.7 million) respectively.
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Provident Fund
In accordance with Indian law, all of our employees in India are entitled to receive benefits under the Provident Fund, a defined contribution plan to which both we and the employee contribute monthly at a pre-determined rate (currently 12.0% of the employees base salary). These contributions are made to the Government Provident Fund and we have no further obligation under this fund apart from our monthly contributions. We contributed an aggregate of Rs. 345 million and Rs. 510 million ($11.5 million) in fiscal 2010 and 2011, respectively.
Gratuity
In accordance with Indian law, we provide for gratuity pursuant to a defined benefit retirement plan covering all of our employees in India. Our gratuity plan provides for a lump sum payment to vested employees on retirement or on termination of employment in an amount based on the employees salary and length of service with us. The gratuity plan provides a lump sum payment to vested employees at retirement, disability or termination of employment, in an amount based on the employees last drawn salary and the number of years of employment with us. The assets of the plan, to the extent the plan is funded, are held in separate funds managed by LIC and a full actuarial valuation of the plan is performed on an annual basis. Our liability for the gratuity plan was Rs. 800 million and Rs. 1,616 million ($36.3 million) in fiscal 2010 and 2011, respectively.
Superannuation Fund
It is our current policy for all of our non-unionized employees in a managerial position and above to pay into a superannuation fund a sum equal to 15.0% of their annual base salary which is payable to the employee in a lump sum upon his retirement or termination of employment. We contributed an aggregate of Rs. 20 million and Rs. 46 million ($1.0 million) in fiscal 2010 and 2011, respectively.
Compensated Absence
Our liability for compensated absences is determined on an actual basis for the entire unused vacation balance standing to the credit of each employee at each calendar year-end. Contributions to such liability are charged to income in the year in which they accrue. Liability for the compensated absences was Rs. 1,010 million and Rs. 1,365 million ($30.6 million) in fiscal 2010 and 2011, respectively.
Vedanta Long-Term Incentive Plan
We are a participating company in the Vedanta LTIP which was adopted by Vedanta to grant share options to its employees or employees of its subsidiaries. Awards under the plan may be granted to any employee of Vedanta or any of its subsidiaries who is not within six months of such employees normal retirement date.
The awards are indexed to and settled by Vedanta shares. The awards provide for a fixed exercise price denominated in Vedantas functional currency at 10 US cents per share. Vedanta is obligated to issue the shares. In accordance with the terms of agreement between Vedanta and us, the grant date fair value of the awards is recovered by Vedanta from us. The amount recovered by Vedanta has been recognized as compensation expense over the requisite service period of three years.
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The Vedanta LTIP is consistent with our reward philosophy, which aims to provide superior rewards for outstanding performance, and to provide a high proportion of at risk remuneration for executive directors and senior employees. The maximum value of Vedanta ordinary shares which may be conditionally awarded in any financial year to a participant in the Vedanta LTIP who is an executive director is restricted to 100% of that executive directors annual base salary.
The performance target which currently applies to vesting of awards is our performance as measured against comparative total shareholder return against a peer group of companies comprising the FTSE Worldwide Mining Index (excluding precious metals).
As of March 31, 2011, our directors and executive officers as a group held options under the Vedanta LTIP to acquire an aggregate of 212,113 ordinary shares of Vedanta representing approximately 0.07% of Vedantas share capital.
Limitations on Liability and Indemnification Matters
Section 201 of the Indian Companies Act provides that a company may indemnify any director, officer or auditor against any liability incurred by such director, officer or auditor in defending any civil or criminal proceedings, in which a judgment is given in favor of such director, officer or auditor or in which he or she is acquitted or discharged or in connection with application made by a director or an officer to the High Court of the relevant state for relief, because he or she has reason to apprehend that any proceeding will or might be brought against him in respect of any negligence, default, breach of duty, misfeasance or breach of trust, in which relief has been granted by the High Court of the relevant state.
Section 201 also provides that, except for such indemnity described above, any provision, whether contained in the articles of association of a company or in an agreement with the company or in any other instrument, for exempting any director, officer or auditor of the company from, or indemnifying him or her against, any liability which, by any rule of law, would otherwise attach to such director, officer or auditor in respect of any negligence, default, misfeasance, breach of duty or breach of trust of which he or she may be guilty in relation to the company, shall be void.
C. Board Practices
Composition of the Board
Our board of directors currently consists of seven directors. Four of our seven directors, namely, Mr. Berjis Minoo Desai, Mr. Gautam Bhailal Doshi, Mr. Sandeep H. Junnarkar and Mr. A.R. Narayanaswamy satisfy the independence requirements of the NYSE rules.
Under the Indian Companies Act, our shareholders must approve the salary, bonus and benefits of all directors at an annual general meeting of the shareholders. Mr. Navin Agarwal and Mr. Dindayal Jalan have entered into service contracts with us which will expire on July 31, 2013 and December 23, 2012, respectively. However, either we or the director may terminate the respective service contract upon 90 days notice to the other party or payment in lieu of. None of their service contracts provide for benefits upon termination of their employment.
Under the service contracts, each of Messrs. Agarwal and Jalan is entitled to be paid a basic salary, performance incentives to be determined by our board of directors and perquisites including a housing allowance, medical and insurance reimbursement, club membership fees reimbursement and leave travel
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concessions for himself and his family. The basic salaries of Messrs. Agarwal and Jalan in fiscal 2011 were Rs. 2.2 million ($0.1 million) and Rs. 0.5 million ($0.01 million) per month, respectively. In addition, Mr. Agarwal is entitled to be paid a commission based on our net profits for a particular fiscal year as determined by our board of directors, subject to a maximum allowable under Indian law. Mr. Jalan is entitled to receive a bonus equal to 20.0% of his respective basic salary.
The rest of our directors have no fixed term of office and they serve as directors on our board of directors until their resignation or removal from office by a resolution of our shareholders, until they cease to be directors by virtue of the provision of law or they are disqualified by law or our articles of association from being directors.
Committees of the Board
Our equity shares are currently listed and traded on the NSE and the BSE, and our ADSs are currently listed and traded on the NYSE. In addition to compliance with the NYSE corporate governance rules applicable to us as a foreign private issuer, we maintain our corporate governance arrangements in accordance with Indian regulations for companies listed on the NSE and the BSE. In particular, we have established an audit committee and a remuneration committee in accordance with Indian corporate governance requirements.
Our board of directors currently has an audit committee, a remuneration committee and a shareholders and investors grievance committee, which have the composition and general responsibilities described below.
Audit Committee
The audit committee consists of four directors: Mr. A. R. Narayanaswamy (Chairman), Mr. Gautam Bhailal Doshi, Mr. Berjis Minoo Desai and Mr. Sandeep H. Junnarkar. Each of Messrs. Desai, Doshi, Junnarkar and Narayanaswamy satisfies the independence requirements of Rule 10A-3 of the Securities Exchange Act of 1934 as amended, or the Exchange Act and the NYSE rules. The principal duties and responsibilities of our audit committee are as follows:
| to serve as an independent and objective party to monitor our financial reporting process and internal control systems; |
| to review and appraise the audit efforts of our independent accountants and exercise ultimate authority over the relationship between us and our independent accountants; and |
| to provide an open avenue of communication among the independent accountants, financial and senior management and the board of directors. |
The audit committee has the power to investigate any matter brought to its attention within the scope of its duties. It also has the authority to retain counsel and advisors to fulfill its responsibilities and duties. Mr. A.R. Narayanaswamy was elected as our audit committee financial expert on July 25, 2011 within the requirements of the rules promulgated by the SEC relating to listed-company audit committees.
The audit committee held six meetings in fiscal 2011.
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Remuneration Committee
The remuneration committee consists of three directors: Mr. Berjis Minoo Desai (Chairman), Mr. Gautam Bhailal Doshi and Mr. Anil Agarwal. Two of the three directors on our remuneration committee are independent directors, namely, Messrs. Desai and Doshi. The scope of this committees duties include determining the compensation and commission to be paid to and the terms of appointment of each of our executive directors, taking into account our profits and performance, external competitive environment and our growth plans.
The remuneration committee held three meetings in fiscal 2011.
Share/ Debenture Transfer Committee
The share and debenture transfer committee consists of two members: Mr. C. Prabhakaran and Mr. Rajiv Choubey. The principal duties and responsibilities of this committee are to approve transfers of shares or debentures and to consider stock splits and consolidation requests received from our shareholders.
The share and debenture transfer committee held sixteen meetings in fiscal 2011.
Shareholders and Investors Grievance Committee
The shareholders and investors grievance committee consists of three directors: Mr. Sandeep H. Junnarkar (Chairman), Mr. Berjis Minoo Desai and Mr. Dindayal Jalan. Mr. Dindayal Jalan was appointed as a member of the shareholders and investors grievance committee effective April 27, 2009. Two of three directors on our shareholders and investors grievance committee are independent directors, namely, Messrs. Junnarkar and Desai. The principal duties and responsibilities of this committee are to oversee the reports received from the registrar and transfer agent and to facilitate the prompt and effective resolution of complaints from our shareholders and investors.
The shareholders and investors grievance committee held four meetings in fiscal 2011.
D. Employees
See Item 4. Information on the CompanyB. Business OverviewOur BusinessEmployees.
E. Share Ownership for Directors and Executive Officers:
The following table sets forth information with respect to the beneficial ownership of our equity shares as of June 30, 2011 by each of our directors and all our directors and executive officers as a group. As used in this table, beneficial ownership means the sole or shared power to vote or direct the voting or to dispose of or direct the sale of any security. A person is deemed to be the beneficial owner of securities that can be acquired within 60 days upon the exercise of any option, warrant or right. Equity shares subject to options, warrants or rights that are currently exercisable or exercisable within 60 days are deemed outstanding for computing the ownership percentage of the person holding the options, warrants or rights, but are not deemed outstanding for computing the ownership percentage of any other person. The amounts and percentages as of March 31, 2011 are based on an aggregate of 3,361,207,534 equity shares outstanding as of that date.
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Equity Shares Beneficially Owned | ||||||||
Name |
Number | Percent | ||||||
Anil Agarwal(1) |
1,939,086,376 | 57.7 | % | |||||
Navin Agarwal |
| | ||||||
Tarun Jain |
| | ||||||
Dindayal Jalan |
| | ||||||
Berjis Minoo Desai |
| | ||||||
Gautam Bhailal Doshi |
| | ||||||
Sandeep H. Junnarkar |
72,000 | * | ||||||
Mahendra Singh Mehta |
1,100 | * | ||||||
Rajagopal Kishore Kumar |
2,800 | * | ||||||
Vinod Bhandawat |
| | ||||||
A.Thirunavukkarasu |
| | ||||||
Dilip Golani |
1,000 | * | ||||||
|
|
|
|
|||||
All our directors and executive officers as a group (12 persons) |
1,939,163,276 | 57.7 | % | |||||
|
|
|
|
Notes: |
* | Represents beneficial ownership of less than 1.0%. |
(1) | Consists of 1,939,086,376 equity shares beneficially owned by Vedanta. Volcan owns 61.5% of the issued ordinary share capital of Vedanta. Volcan is 100% owned and controlled by the Anil Agarwal Discretionary Trust. Onclave is the trustee of the Anil Agarwal Discretionary Trust and controls all voting and investment decisions of the Anil Agarwal Discretionary Trust. As a result, shares beneficially owned by Volcan may be deemed to be beneficially owned by the Anil Agarwal Discretionary Trust and, in turn, by Onclave. The beneficiaries of the Anil Agarwal Discretionary Trust are members of the Agarwal family, who are related to Mr. Anil Agarwal. Mr. Anil Agarwal, the Executive Chairman of Vedanta and our Non-Executive Chairman, as protector of the Anil Agarwal Discretionary Trust, may be deemed to have deemed beneficial ownership of shares that are beneficially owned by the Anil Agarwal Discretionary Trust. Vedanta, Volcan, the Anil Agarwal Discretionary Trust, Onclave and Mr. Anil Agarwal are parties to a relationship agreement that regulates the ongoing relationship among them. See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated PartiesVedanta. As a result of this agreement, Volcan, the Anil Agarwal Discretionary Trust, Onclave and Mr. Anil Agarwal disclaim beneficial ownership of the shares beneficially owned by Vedanta. |
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. Major Shareholders
The following table sets forth information regarding beneficial ownership of our equity shares as of March 31, 2011 held by each person who is known to us to have 5.0% or more beneficial share ownership based on an aggregate of 3,361,207,534 equity shares outstanding as of that date.
Beneficial ownership is determined in accordance with the SEC rules and includes shares over which the indicated beneficial owner exercises voting and/or investment power or receives the economic benefit of ownership of such securities. Equity shares subject to options currently exercisable or exercisable within 60 days are deemed outstanding for the purposes of computing the percentage ownership of the person holding the options but are not deemed outstanding for the purposes of computing the percentage ownership of any other person.
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Name of Beneficial Owner |
Number of
Shares Beneficially Owned |
Percentage Beneficially Owned |
||||||
Vedanta Resources Plc(1) |
1,939,086,376 | 57.7 | % |
Note: |
(1) | Vedanta has beneficial ownership of 1,939,086,376 equity shares, consisting of 1,671,144,924 equity shares held by Twin Star and 41,371,963 equity shares presenting ADSs held by Twin Star representing 165,487,852 underlying equity shares and 102,453,600 equity shares held by MALCO. Twin Star and Welter Trading hold 78.6% and 16.0% of the outstanding shares of MALCO and Twin Star is a controlling shareholder of MALCO. Twin Star is a wholly-owned subsidiary of VRHL, and VRHL is in turn a wholly-owned subsidiary of Vedanta; accordingly, our shares beneficially owned by Twin Star and MALCO may be regarded as being beneficially owned by VRHL and Vedanta. Volcan owns approximately 61.7% of the issued ordinary share capital of Vedanta. Volcan is 100.0% owned and controlled by the Anil Agarwal Discretionary Trust. Onclave is the trustee of the Anil Agarwal Discretionary Trust and controls all voting and investment decisions of the Anil Agarwal Discretionary Trust. As a result, securities beneficially owned by Volcan may be deemed to be beneficially owned by the Anil Agarwal Discretionary Trust and, in turn, by Onclave. The beneficiaries of the Anil Agarwal Discretionary Trust are members of the Agarwal family, who are related to Mr. Anil Agarwal. Mr. Anil Agarwal, the Executive Chairman of Vedanta and our Non-Executive Chairman, as protector of the Anil Agarwal Discretionary Trust, may be deemed to have deemed beneficial ownership of shares that may be beneficially owned by the Anil Agarwal Discretionary Trust. Vedanta, Volcan, the Anil Agarwal Discretionary Trust, Onclave and Mr. Anil Agarwal are parties to a relationship agreement that regulates the ongoing relationship among them. See- B. Related Party TransactionsRelated PartiesVedanta. As a result of this agreement, Volcan, the Anil Agarwal Discretionary Trust, Onclave and Mr. Anil Agarwal disclaim beneficial ownership of the shares beneficially owned by Vedanta. |
As of March 31, 2011, there were approximately 221,842 holders of our equity shares of which 104 have registered addresses in the United States. As of the same date, 437,090,736 of our ADSs representing 109,272,684 equity shares, representing 13.0% of our outstanding equity shares, were held by a total of 14 registered holders of record with addresses in and outside of the US. Since certain of these equity shares and ADSs were held by brokers or other nominees, the number of record holders in the US may not be representative of the number of beneficial holders or where the beneficial holders are resident. Each of our equity shares is entitled to one vote on all matters that require a vote of shareholders, and none of our shareholders has any contractual or other special voting rights.
B. Related Party Transactions
The following is a summary of material transactions we have engaged in with our controlling shareholder, Vedanta, and its subsidiaries and other related parties, including those in which we or our management have a significant equity interest. In addition, the following contains a discussion of how we intend to handle conflicts of interest and allocations of business opportunities between us and our affiliates, directors and executive officers. For further discussion of related party transactions, see Note 33 to our consolidated financial statements included elsewhere in this annual report.
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Related Parties
Volcan and the Agarwal Family
Volcan owns 61.7% of Vedanta. Volcan is 100% owned and controlled by the Anil Agarwal Discretionary Trust. Onclave is the trustee of the Anil Agarwal Discretionary Trust and controls all voting and investment decisions of the Anil Agarwal Discretionary Trust. Mr. Anil Agarwal, the Executive Chairman of Vedanta and our Non-Executive Chairman, is the protector of the Anil Agarwal Discretionary Trust. Vedanta, Volcan, the Anil Agarwal Discretionary Trust, Onclave and Mr. Anil Agarwal are parties to a relationship agreement that regulates the ongoing relationship among them. See - Vedanta. Mr. Anil Agarwal, his father, Mr. Dwarka Prasad Agarwal, one of our directors until March 31, 2009, and his son, Mr. Agnivesh Agarwal, the Non-Executive Chairman of HZL, also have a controlling interest in STL, a publicly listed company in India which was spun-off from the Vedanta group in July 2000, except for nominal interests in STL held by MALCO and us.
Vedanta
As of March 31, 2011, Vedanta had beneficial ownership of 1,939,086,376 of our equity shares, including 1,836,632,776 equity shares (54.6%) held by Twin Star and 102,453,600 (3.1%) equity shares held by MALCO. Twin Star and Welter Trading hold 78.6% and 16.0% of the outstanding shares of MALCO and Twin Star is a controlling shareholder of MALCO. Twin Star is a wholly-owned subsidiary of VRHL, and VRHL is in turn a wholly-owned subsidiary of Vedanta. As a result, Vedanta is the beneficial owner of 57.7% of our equity shares.
Vedanta, Volcan, the Anil Agarwal Discretionary Trust, Onclave and Mr. Anil Agarwal are parties to a relationship agreement. The principal purpose of the relationship agreement is to enable Vedanta to carry on its business independently of Volcan and its direct and indirect shareholders, and their respective associates, or the Volcan Parties, as required by the listing rules of the Financial Services Authority of the United Kingdom, or the FSA, and to ensure that transactions and relationships, including all matters that are the subject of the shared services agreement (as described below) with the Volcan Parties are at arms length and on a normal commercial basis. The relationship agreement will terminate in respect of Volcan at such time as each of the Volcan Parties, acting individually or jointly by agreement, cease to be a controlling shareholder of Vedanta for the purposes of the listing rules of the FSA or if Vedanta is de-listed from the LSE. In addition, the relationship agreement will terminate in respect of Onclave and Mr. Anil Agarwal if any of them individually or acting jointly ceases to be a controlling shareholder of Vedanta or Volcan. Currently, a controlling shareholder of a company for the purposes of the listing rules of the FSA is any person (or persons acting jointly by agreement whether formal or otherwise) who is entitled to exercise, or to control the exercise of 30.0% or more of the rights to vote at general meetings of such company or is able to control the appointment of directors who are able to exercise a majority of the votes at board meetings of such company.
Under the relationship agreement:
| the parties agree to ensure that Vedanta is capable, at all times, of carrying on its business independently of the Volcan Parties as required by the listing rules of the FSA; |
| Vedantas board of directors and nominations committee and any other committee of Vedantas board of directors (other than the audit committee or the remuneration committee or any committee which may be established by the board of directors in connection with a specific transaction, the constitution of which is approved by the board of directors) to which significant powers, authorities |
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or discretions are delegated shall at all times comprise a majority of directors who are independent of the Volcan Parties and who are free from any business or other relationship with the Volcan Parties which could materially interfere with the exercise of the directors judgment concerning Vedanta; |
| Vedantas remuneration committee and audit committee shall at all times consist only of non-executive directors; |
| Volcan is entitled to nominate for appointment to the board of directors of Vedanta such number of persons as is one less than the number of directors who are independent of the Volcan Parties and who are free from any business or other relationship with the Volcan Parties which could materially interfere with the exercise of the directors judgment concerning Vedanta; |
| neither Mr. Anil Agarwal nor any non-independent directors shall be permitted, unless the independent directors agree otherwise, to vote on any resolutions of Vedantas board of directors or of a committee of the board to approve the entry into, variation, amendment, novation or abrogation or enforcement of any contract, arrangement or transaction with any of the Volcan Parties; |
| Volcan shall not exercise voting rights attaching to its shares in Vedanta or any resolution to approve the entry into, variation, amendment, novation or abrogation of any transactions or arrangements between Vedanta and the Volcan Parties; |
| the Volcan Parties represented and warranted to Vedanta that at the time of the execution of the relationship agreement they did not own, directly or indirectly, any interests in the smelting, refining, mining or sale of any base metals or mineral otherwise than through Vedanta or any member of the Vedanta group; |
| the Volcan Parties agreed to, directly or indirectly, acquire or otherwise invest in any company, business, business operation or other enterprise which engages in the smelting, refining or mining of base metals or minerals only through Vedanta or other member of the Vedanta group. However, this agreement does not prevent, restrict or limit: |
| the acquisition or ownership by the Volcan Parties of not more than 5.0% in aggregate of any class of shares, debentures or other securities in issue from time to time of any company which engages in the smelting, refining or mining of base metals or minerals which is for the time being listed on any stock exchange; or |
| the acquisition or ownership, directly or indirectly, by the Volcan Parties of any interest in, a base metal or mineral property or asset (together with any associated property, plant and equipment), which is not adjacent or geographically proximate to an existing property or operation of Vedanta group so as to give them operational synergies, where the acquisition cost (including assumed indebtedness), including any related capital expenditures committed at the date of acquisition for the following 12 months, is equal to $50 million or less, for which purpose any acquisitions of two or more related or adjacent base metal or mineral properties or assets shall be aggregated when calculating the acquisition cost, provided that the relevant interested party (i) is not an officer or director of a Vedanta group company; and (ii) before acquiring such property or asset, first made the opportunity to acquire such property or asset available to the Vedanta group, with a reasonable period for the independent directors of Vedanta to consider the opportunity, on terms no less favorable than those on which they are proposed to be acquired by the interested party and a majority of the independent directors has determined that the Vedanta group should not make the acquisition; and |
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| transactions and relationships between Vedanta and the Volcan Parties must be conducted at arms length and on a normal commercial basis, including those to be provided under the shared services agreement. |
Key Mangement Personnel
See Note 33 of Notes to the Consolidated Financial StatementsRelated Party Transaction PartiesVedanta.
Related Transactions
Shared Services AgreementSTL, Sterlite Gold Limited, Vedanta and Sterlite
We entered into a shared services agreement dated December 5, 2003 with STL, Sterlite Gold Limited, or Sterlite Gold, which was an affiliated company at that time, and Vedanta as part of Vedantas listing on the LSE in December 2003. Under this agreement, we and Vedanta agreed to continue to provide STL and Sterlite Gold with certain advisory services on an ongoing basis consisting primarily of access to certain of the directors, officers and employees of the Vedanta group. In fiscal 2010 and 2011, we received Rs. nil from STL, respectively, under the shared services agreement. On September 27, 2007, Vedanta sold its entire interest in Sterlite Gold to an unaffiliated third party, and as of such date Sterlite Gold ceased to be an affiliated company of ours.
Under the shared services agreement:
| a party may terminate the shared services agreement or a particular service which is provided pursuant to the shared services agreement if another party commits a material breach of the shared services agreement or upon another party becoming subject to or entering into arrangements in the context of insolvency. A party may also terminate a particular service on three months notice; |
| the services under the shared services agreement will be provided by us or Vedanta, as the case may be, to STL and Sterlite Gold and the transactions between the parties will be on an arms length basis; |
| the cost of access to certain of the directors, officers and employees of such member of the Vedanta group shall be paid by STL or Sterlite Gold, as the case may be, to us or Vedanta, as appropriate; and |
| the cost of the services provided pursuant to the shared services agreement is calculated by apportioning the total salary cost to us or the Vedanta group of the employment of the relevant director, officer or employee to STL or Sterlite Gold, as appropriate based on the time spent for each such member of the Vedanta group. |
On April 13, 2006, a letter agreement was executed by Vedanta, Sterlite Gold, STL and us, to:
| amend the list of employees of Vedanta who may be hired under the shared services agreement to reflect only those individuals who actually performed the services; |
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| amend the amount to be paid to Vedanta based on estimated cost plus 20.0%; and |
| allow only 25.0% of Mr. Anil Agarwals salary costs to be taken into account when determining the charge to STL and Sterlite Gold, to reflect the limited services provided to STL and Sterlite Gold since the listing of Vedanta. |
Representative Office AgreementVedanta and Sterlite
We entered into a representative office agreement with Vedanta on March 29, 2005 under which Vedanta agreed to provide technical and commercial materials to us to enable us to promote our business or raise funds overseas, and to be our non-exclusive overseas representative, for which we have agreed to pay an amount of $2.0 million (Rs. 89.1 million) per year to Vedanta. This agreement has been extended up to March 31, 2012.
Consultancy AgreementVedanta and Sterlite
We entered into a consultancy agreement with Vedanta on March 29, 2005 under which Vedanta agreed to provide strategic planning and consultancy services to us and our subsidiaries in various areas of business such that we are able to finalize and implement our plans for growth and are able to raise the necessary finances. The terms of this agreement were negotiated by us and Vedanta and we believe them to be fair and reasonable, though this agreement was not negotiated on an arms length basis. Under this agreement, Vedanta has agreed to make certain of its employees available to us and we have agreed to pay a service fee to Vedanta on the basis of, among other things, the amount of time spent in providing the services and associated costs, with a mark-up of 40.0%. The anticipated fee used for reference in the agreement, which is based on a relevant proportion of the expected annual budgeted costs for fiscal 2005 plus the mark-up of 40.0%, is $3.0 million (Rs. 133.6 million) per year. This agreement will terminate on March 31, 2012.
Outsourcing Services AgreementVedanta and Sterlite
We entered into a service agreement with Vedanta on April 1, 2010, under which we shall provide accounting, treasury and related services at the request of Vedanta from time to time. In consideration of above, Vedanta has agreed to pay us service charges aggregating to an amount of $0.2 million (Rs. 8.9 million) per year.
Issuance of Equity Shares by Vedanta AluminiumSterlite, Twin Star and Vedanta Aluminium
Prior to March 2005, Vedanta Aluminium was a wholly-owned subsidiary of ours that was part of our consolidated group of companies. In March 2005, Vedanta Aluminium issued equity shares to Twin Star in exchange for consideration of Rs. 4,421 million from Twin Star. As a result of this sale of equity shares by Vedanta Aluminium, Twin Star acquired a 70.5% ownership interest in Vedanta Aluminium and we ceased to consolidate Vedanta Aluminium in our consolidated financial statements. The terms of this sale were negotiated between Vedanta Aluminium and Twin Star on an arms length basis, with an independent appraiser hired to establish the sale price. During fiscal 2007, Vedanta Aluminium issued to us 1,133,737 equity shares of par value Rs. 10 per equity share for cash at a price of Rs. 1,160 per equity share on a rights basis. Accordingly, we paid a sum of Rs. 1,315 million ($29.3 million). We subscribed for our full proportionate share so as to maintain our shareholding in Vedanta Aluminium at 29.5%. During fiscal 2010, we have received 69,437,960 equity shares on account of the split of the value of the shares from Rs. 10 to Rs. 2 per share and 165,322,677 equity shares on account of the bonus issue in the ratio of 1.90:1 from Vedanta Aluminium. As of March 31, 2011, we have 252,120,127 equity shares in Vedanta Aluminium.
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Issuance of Debentures by Vedanta AluminiumSterlite and Vedanta Aluminium
In fiscal 2008, pursuant to two memoranda of understanding entered into between Vedanta Aluminium and us on August 29, 2007 and December 23, 2007, Vedanta Aluminium issued to us 1.6 billion zero % optionally fully convertible debentures at par value of Rs. 10 per debenture. Accordingly, we paid a sum of Rs. 16,000 million ($356 million). The debentures are convertible in full or in part into equity shares at such premium as may be determined by a merchant banker or any other expert agency in the field based on fair value at any time within five years from the date of allotment unless we request for an extension of the redemption date by up to five years. Debentures that have not been converted to equity shares prior to the redemption date shall be redeemed on the fifth anniversary of the date of allotment of such debentures, or at the expiry of the extension period. In September 2008, 265,840,200 debentures of Rs. 2,658 million ($59.7 million) had been converted into 1,772,268 equity shares of Rs. 10 each at a premium of Rs. 1,490 per share. During the fiscal 2010, Vedanta Aluminium has paid Rs. 13,342 million ($299.6 million) to us towards redemption of its 1,334,159,800 debenture.
In fiscal 2009, pursuant to a term sheet for the issue of 15,000 non-convertible debentures at par value of Rs. 1.0 million per debenture, Vedanta Aluminium issued to us 6,850 such debentures. Interest at the rate of 9.75% is payable semi-annually. Accordingly, we paid a sum of Rs. 6,850 million. In April and May 2009, Vedanta Aluminium issued the remaining 8,150 debentures to us and we paid a sum of Rs. 8,150 million. The debentures are redeemable at par one year from the date of allotment. In fiscal 2011, 8,150 debentures were redeemed by Vedanta Aluminium and we received a sum of Rs. 8,150 million ($183.0 million).
In fiscal 2010, pursuant to a letter of allotment for the issue of 10,000 non-convertible debentures at par value of Rs. 1 million per debenture, Vedanta Aluminium issued to us 10,000 such debentures. Interest at the rate of 8.0% is payable semi-annually. Accordingly, we paid a sum of Rs. 10,000 million ($224.5 million). The debentures are redeemable at par one year from the date of allotment. In fiscal 2011, 10,000 debentures were redeemed by Vedanta Aluminium and we received a sum of Rs. 10,000 million ($224.5 million).
Loan AgreementSterlite and Vedanta Aluminium
We entered into a loan agreement with Vedanta Aluminium on February 4, 2008, under which we agreed to lend to Vedanta Aluminium Rs. 10,000 million ($224.5 million) for a term of ten years. As of March 31, 2011, the amount outstanding under the loan was approximately Rs. 8,890 million ($200.0 million). Interest is payable in arrears on the outstanding amount of the loan at the prevailing RBI bank rate plus 2.0% per annum every quarter on January 1, April 1, July 1 and October 1, until the loan is fully repaid. The entire loan together with all interest accrued thereon shall be repaid on or before the expiry of 10 years from the date of the last disbursement of the loan which shall be no later than March 31, 2010.
We entered into a loan agreement with Vedanta Aluminium on February 5, 2010, which was effective from December 10, 2009, under which we agreed to lend to Vedanta Aluminium Rs. 5,000 million ($112.3 million) for a term of one year. Interest is payable in arrears on the outstanding amount of the loan at 8.0% per annum every quarter on January 1, April 1, July 1 and October 1, until the loan is fully repaid. The entire loan together with all interest accrued thereon shall be repaid on or before the expiry of one year from the date of disbursement of the loan. In fiscal 2011, Vedanta Aluminium fully repaid Rs. 5,000 million ($112.3 million).
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Further, we entered into a loan agreement with Vedanta Aluminium on February 5, 2010, which was effective from December 25, 2009, under which we agreed to lend to Vedanta Aluminium Rs. 25,000 million ($561.3 million) for a term of one year. Interest is payable monthly in arrears on the outstanding amount of the loan at 8.0% per annum every month on the first day of the next month for the corresponding preceding month, until the loan is fully repaid. The entire loan together with all interest accrued thereon shall be repaid on or before the expiry of one year from the date of disbursement of the loan. In fiscal 2011, Vedanta Aluminium fully repaid Rs. 25,000 million ($561.3 million).
Further, we entered into a loan agreement with Vedanta Aluminium on February 11, 2010, which was effective from January 26, 2010, under which we agreed to lend to Vedanta Aluminium Rs. 45,000 million ($1,010.3 million) for a term of one year. Interest is payable monthly in arrears on the outstanding amount of the loan at 8.0% per annum every month on the first day of the next month for the corresponding preceding month, until the loan is fully repaid. The entire loan together with all interest accrued thereon shall be repaid on or before the expiry of one year from the date of disbursement of the loan. In fiscal 2011, we have repaid Rs. 19,500 million ($437.8 million) and rolled over the balance amount of Rs. 25,500 million for a period of one year with interest rate of 10%. As of March 31, 2011, the amount outstanding under the loan was Rs. 25,500 million ($572.5 million).
Further, we entered into a loan agreement with Vedanta Aluminium on April 6, 2010, under which we agreed to lend to Vedanta Aluminium Rs. 25,000 million ($561.3 million) for a term of one year. Interest is payable monthly in arrears on the outstanding amount of the loan at 8.0% per annum every month on the first day of the next month for the corresponding preceding month, until the loan is fully repaid. The entire loan together with all interest accrued thereon shall be repaid on or before the expiry of one year from the date of disbursement of the loan. As of March 31, 2011, the amount outstanding under the loan was Rs. 25,000 million ($561.3 million).
Further, we entered into a loan agreement with Vedanta Aluminium on September 29, 2010, under which we agreed to lend to Vedanta Aluminium Rs. 20,000 million ($449.0 million) for a term of one year. Interest is payable monthly in arrears on the outstanding amount of the loan at 8.0% per annum every month on the first day of the next month for the corresponding preceding month, until the loan is fully repaid. The entire loan together with all interest accrued thereon shall be repaid on or before the expiry of one year from the date of disbursement of the loan. As of March 31, 2011, the amount outstanding under the loan was Rs. 20,000 million ($449.0 million).
Loan AgreementTHL Zinc Limited and Black Mountain Mining (Proprietary) Limited
On February 15, 2011, on account of the acquisition of BMM, a short term loan (BMM shareholder loan) was extended by THL Zinc Limited to BMM for an amount of ZAR 622.5 million. This loan is interest free and has no fixed repayment terms. This loan has been subordinated to other debts until such time BMMs total assets and total current assets fairly valued exceed its total liabilities and total current liabilities. As on March 31, 2011, the loan balance outstanding was ZAR 622.5 million. This BMM shareholder loan was earlier extended by Anglo American Plc.
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Loan AgreementVedanta Jersey Investment Limited and Monte Cello BV
Monte Cello BV (wholly owned subsidiary of the company) entered into agreement with Vedanta Jersey Investment Limited (wholly owned subsidiary of Vedanta) on April 1, 2010 to make available loan facility which shall not exceed $150 million at an interest rate of 2.25% per annum. As of March 31, 2011, the amount outstanding under the loan was $68 million for a period of one year.
Loan AgreementWelter Trading and Monte Cello BV
Monte Cello BV (wholly owned subsidiary of the company) entered into agreement with Welter Trading (Vedanta is ultimate parent company) in the November 3, 2010 to make available loan facility which shall not exceed $100 million. at an interest rate of 2.25% per annum. As of March 31, 2011, the amount outstanding under the loan was $100 million for a period of one year.
Sale of Aluminium Conductor BusinessSTL and Sterlite
On August 30, 2006, Sterlite entered into an agreement to sell its aluminum conductor business, also known as its power transmission line division, as a going concern on an as is where is basis, subject to existing encumbrances and charges and together with the power transmission line divisions assets, debts, and liabilities, to STL for a consideration of Rs. 1,485 million ($33.3 million). The terms of this transaction were negotiated between Sterlite and STL on an arms length basis, with an independent appraiser hired to establish the sale price. Under the terms of this agreement, Sterlite may not carry on or engage directly or indirectly in any business which competes with any part of the power transmission line division business for a period of five years from the completion of the sale. The sale of this non-core business was approved by Sterlites shareholders on September 30, 2006.
GuaranteesSterlite, CMT, TCM and Vedanta Aluminium
We have provided guarantees on behalf of CMT, TCM and Vedanta Aluminium. See Item 5. Operating and Financial Review and ProspectsGuarantees.
Acquisition of Sterlite EnergyTwin Star Infrastructure Limited, Mr. Anil Agarwal, Mr. Dwarka Prasad Agarwal and Sterlite
We acquired 100% of the outstanding shares of Sterlite Energy on October 3, 2006 from Twin Star Infrastructure Limited, Mr. Anil Agarwal and Mr. Dwarka Prasad Agarwal, one of our directors until March 31, 2009, for a total consideration of Rs. 4.9 million ($0.1 million), an amount equal to the par value of all of the outstanding shares of Sterlite Energy. The terms of the acquisition were negotiated on an arms length basis and were reviewed and approved by our board of directors, with the interested directors, Mr. Anil Agarwal and Mr. Dwarka Prasad Agarwal, abstaining from the vote.
Issuance of Debentures by Sterlite EnergySterlite and Sterlite Energy
In fiscal 2007, Sterlite Energy issued to us 586 million zero % optionally fully convertible debentures at par value of Rs. 10 per debenture. Accordingly, we paid a sum of Rs. 5,860 million ($131.6 million). The debentures are convertible in full or in part into equity shares at a mutually agreed premium at any time prior to the redemption date of the debentures. Debentures that have not been converted into equity shares prior to the redemption date shall be redeemed on the fifth anniversary of the date of allotment of such debentures. On November 5, 2007, we exercised our option to convert all the debentures into 586 million equity shares of Sterlite Energy. In fiscal 2008, Sterlite Energy issued to us 60 million zero % optionally fully convertible
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debentures of par value Rs. 100 each. We paid a total sum of Rs. 1,650 million ($37.0 million) in three tranches as part payment for the debentures. The debentures are convertible in full or in part into equity shares at par value. Debentures that have not been converted into equity shares prior to the redemption date shall be redeemed on the fifth anniversary of the date of allotment of such debentures. On October 3, 2007, Sterlite Energy sub-divided its shares and reduced the par value of its equity shares from Rs. 100 to Rs. 10. On November 5, 2007, we exercised our option to convert all the debentures into 600 million partly paid up equity shares of Sterlite Energy with a par value of Rs. 10 each. As the equity shares issued to us were partly paid up, Sterlite Energy subsequently made a call for, and we made payment of, the balance sum of Rs. 4,350 million ($97.7 million) as full payment for the entire par value of each equity share.
Sponsor Support AgreementSterlite and Sterlite Energy
We entered into a sponsor support agreement on June 29, 2009 with Sterlite Energy and the State Bank of India, as facility agent, in connection with the Rs. 55,690 million ($1,250.3 million) term loan facility granted to Sterlite Energy by a syndicate of banks to finance its construction of a 2,400 MW thermal coal-based power facility in Jharsuguda in the State of Orissa. Under the sponsor support agreement, we undertook to, among other things, contribute Rs. 20,500 million ($460.3 million) to the capital of Sterlite Energy by subscribing for additional shares in order to ensure that Sterlite Energys debt to equity ratio does not exceed 75:25 during the term of the facility, meet any project cost overruns by contributing additional capital or by providing or arranging for unsecured and subordinated loans to be made available to Sterlite Energy, retain control of Sterlite Energy until the loan is fully repaid, meet all export obligations as required under the Export Promotion of Capital Good Scheme, fund the development of the coal blocks in Rampia and Dip Side Rampia in the State of Orissa that were jointly allocated by the Ministry of Coal to Sterlite Energy and other companies, and in the event that Sterlite Energy is unable to timely discharge its obligations under the loan agreement due to the occurrence of certain events, to provide additional funds to Sterlite Energy in order to enable Sterlite Energy to meet those obligations. In addition, we agreed to indemnify the lenders, the security trustee and the facility agent against all losses and claims incurred by them as a result of any breach of the loan agreement by Sterlite Energy.
Conflicts of Interest and Allocations of Business Opportunities
From time to time, conflicts of interest have in the past and will in the future arise between us and our affiliates, including our controlling shareholder, Vedanta, and other companies controlled by Vedanta, our directors and our executive officers. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our Relationship with Vedanta. With respect to transactions between us and our affiliates, directors and executive officers that involve conflicts of interests, we have in the past undertaken and will continue in the future to undertake such transactions in compliance with the rules for interested or related party transactions of the LSE on which Vedanta is listed, the NYSE on which our ADSs are listed and the NSE and BSE.
The rules applicable to LSE-listed companies, which would apply to transactions between us and the controlling shareholders of Vedanta, namely Volcan and the Agarwal family, require that the details of a related party transaction be notified to a regulatory information service and disclosed to the FSA as soon as possible after the terms of the transaction are agreed upon. There is also a requirement that a circular containing information about the related party transaction be sent to all shareholders and that their approval of the related party transaction be obtained either before the transaction is entered into or, if the transaction is conditional on shareholder approval, before the transaction is completed. The related party and its associates must be excluded from voting on the related party transactions. The requirement of shareholder approval does not apply to transactions where the gross assets of the transaction as a percentage of the gross
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assets of the listed company, the profits attributable to the assets of the transaction as a percentage of the profits of the listed company, the consideration for the transaction as a percentage of the aggregate market value of all the ordinary shares (excluding treasury shares) of the listed company and the gross capital of the company or business being acquired as a percentage of the gross capital of the listed company, does not exceed 5%. However, the listed company must, before entering into the related party transaction, inform the FSA of the details of the proposed related party transaction, provide the FSA with a written confirmation from an independent adviser acceptable to the FSA that the terms of the proposed related party transaction with the related party are fair and reasonable as far as the shareholders of the listed company are concerned and undertake in writing to the FSA to include details of the related party transaction in the listed companys next published annual accounts, including, if relevant, the identity of the related party, the value of the consideration for the transaction or arrangement and all other relevant circumstances. Related party transactions where all the above percentage ratios are 0.25% or less have no requirements under the rules applicable to LSE-listed companies. Where several separate transactions occur between a company and the same related party during a 12-month period, the transactions must be aggregated for the purpose of applying the percentage ratio tests.
As part of our listing with the NYSE, we were required to confirm to the NYSE that we will appropriately review and oversee related party transactions on an ongoing basis. These related party transactions include transactions between us and our controlling shareholder, Vedanta, and its affiliates. The NYSE reviews the public filings of its listed companies as to related party transactions. Under the rules of the NYSE, we are required to have an independent audit committee comprised entirely of independent directors. We have had an independent audit committee comprised entirely of independent directors since our ADS offering in June 2007. One of the functions of the independent audit committee is to review any related party transactions by us or any of our subsidiaries or affiliates. In addition, under the rules of the NYSE, we are required to obtain shareholder approval for any issuance of our equity shares, or securities convertible into or exercisable for our equity shares, to any related party, except that such approval would not be required for sales of our equity shares to our controlling shareholder or its affiliates in an amount not to exceed 5% of the number of our equity shares outstanding prior to such issuance and at a price equal to or greater than the higher of the book or market value of our equity shares.
Under the listing agreements we have entered into with the NSE and BSE, we are required to ensure that our disclosures in relation to material and significant related party transactions in our annual reports are in compliance with Indian GAAP. Specifically, we are required to place before the audit committee and publish in our annual reports a statement in summary form of the related party transactions entered into by us during the previous fiscal year, providing details of whether such transactions were undertaken in the ordinary course of business and details of material individual transactions with related parties or others which were not on an arms length basis, together with our managements justification for such transactions. Under the listing agreements, our audit committee is required to review and discuss with the management the disclosures of any related party transactions, as defined under Indian GAAP, in our annual financial statements.
We also have used and will continue to use independent appraisers in appropriate circumstances to help determine the terms of related party transactions. We have had and will continue to have an audit committee comprised entirely of independent directors which is responsible for reviewing any related-party transaction by us or any of our subsidiaries or affiliates.
We are continually seeking to identify and pursue business opportunities. However, Vedanta, as our controlling shareholder, has the power to determine in its sole discretion what corporate opportunities we
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may pursue and whether to pursue a corporate opportunity itself or through one of its other subsidiaries, which may benefit such companies instead of us and which could be detrimental to our interests. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our Relationship with VedantaVedanta may decide to allocate business opportunities to other members of the Vedanta group instead of to us, which may have a material adverse effect on our business, results of operations, financial condition and prospects. Vedanta has in the past allocated and expects in the future to allocate corporate opportunities among itself and its various subsidiaries based on a number of factors, including the nature of the opportunity, the availability of funds at the relevant subsidiary to pursue the opportunity and which subsidiary it believes can most successfully take advantage of the opportunity.
C. Interest of Experts and Counsel
Not applicable
ITEM 8. | FINANCIAL INFORMATION |
A. Consolidated Statements and Other Financial Information
Please see Item 18 for a list of the financial statements filed as part of this annual report.
Legal Proceedings
Except as described below, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened, of which we are aware) which we believe could reasonably be expected to have a material adverse effect on our results of operations or financial position. See note 31 to our consolidated financial statements included elsewhere in this annual report for more information.
We have commenced proceedings against the Government of India which has disputed our exercise of the call option to purchase its remaining 49.0% ownership interest in BALCO.
Certain proceedings are ongoing before an arbitral tribunal constituted in accordance with the terms of the shareholders agreement between us and the Government of India with respect to our exercise of our call option to acquire the remaining shares of BALCO held by the Government of India. The claim amount is not presently quantifiable. A final award in the matter was pronounced on January 22, 2011. As per the award, clauses 5.3, 5.4 and 5.1(a) and 5.8 of the shareholders agreement were held to be void, ineffective and inoperative by virtue of being violative of sub section (2) of Section 111A of the Companies Act, 1956. SIIL filed an Application before the High Court of Delhi for setting aside the award under Section 34 of the Arbitration and Conciliation Act, 1996. See Item 4. Information on the CompanyB. Business OverviewOur BusinessOptions to Increase Interests in HZL and BALCO.
Appeal proceedings in the High Court of Bombay brought by SEBI to overrule a decision by the SAT that we have not violated regulations prohibiting fraudulent and unfair trading practices.
In April 2001, SEBI ordered prosecution proceedings to be brought against us, alleging that we have violated regulations prohibiting fraudulent and unfair trading practices and also passed an order prohibiting us from accessing the capital markets for a period of two years. This order of SEBI was overruled by the SAT on October 22, 2001 on the basis of lack of sufficient material evidence to establish that we had,
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directly or indirectly, engaged in market manipulation and that SEBI had exercised its jurisdiction incorrectly in prohibiting us from accessing the capital markets. On November 9, 2001, SEBI appealed to the High Court of Bombay. In addition, SEBI has initiated criminal proceedings against us, our Non-Executive Chairman, Mr. Anil Agarwal, Mr. Tarun Jain, one of our executive officer until March 31, 2009, and the Chief Financial Officer of MALCO at the time of the alleged price manipulation, which proceedings have been stayed by the High Court of Bombay pending final arguments. The claim amount in respect of both civil and criminal proceedings is not presently quantifiable. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our BusinessAppeal proceedings in the High Court of Bombay have been brought by Securities and Exchange Board of India, or SEBI, to overrule a decision by the Securities Appellate Tribunal, or SAT, that we have not violated regulations prohibiting fraudulent and unfair trading practices. The next date of hearing of civil and criminal matter before the High Court of Bombay is yet to be notified. Recently, the Additional Metropolitan Magistrate, Mumbai summoned these individuals to appear before him. The next date of the proceedings before the Metropolitan Magistrate Court is December 26, 2011.
We are involved in certain litigation seeking cancellation of permits and environmental approval for the alleged violation of certain air, water and hazardous waste management regulations at our Tuticorin plant.
Various writ petitions were filed before the High Court of Madras sometime in 1996-1998 by the National Trust for Clean Environment and certain private citizens in relation to the operations of our smelter at Tuticorin in the State of Tamil Nadu, India. The smelter has been in operation since 1997. These writ petitions alleged that sulphur dioxide emissions from our copper smelting operations at Tuticorin are causing air, water and hazardous waste pollution resulting in damage to the marine ecosystem and the lives of people living in and around Tuticorin. The petitioners were seeking an order from the High Court of Madras for discontinuation of our current operations at Tuticorin and revocation of the environmental permits granted to us by the Tamil Nadu Pollution Control Board, or TNPollution Control Board, and the MoEF in relation to our Tuticorin smelter plant. The Court, after detailed hearing and examination by various committees, permitted us to operate our copper smelter at full capacity to know the adverse impact, if any, on the environment. The above writ petitions were finally heard on February 12, 2010 before the Madras High Court wherein we contended that these writ petitions have become infructuous and liable to be dismissed since we had complied with all the conditions imposed and is successfully running the copper smelter and has received periodic consents from the TNPollution Control Board and has also received environmental clearances from MoEF for our various expansion projects. However, by an order dated September 28, 2010, the Madras High Court has ordered the closure of the our copper smelting plant at Tuticorin. We have filed a special leave petition before the Supreme Court of India against the order of the High Court of Madras for staying the order passed by High Court of Madras on September 29, 2010 as an interim relief and also allow to file an appeal against the said order. The Supreme Court heard the special leave petition on October 1, 2010 and granted an interim stay over the order of the High Court of Madras and extended the interim stay from time to time. The supreme court has in the interim directed that an independent assessment be conducted after joint inspectin with the TNPollution Control Board, Central pollution Control Board and the petitioners group. The Supreme Court directed the TN Pollution Control Board to suggest control measures to be undertaken by the Company. The Supreme Court has reserved the order for the interim directions on September 6, 2011. We believe that we will successfully defend our position.
Further, another writ petition has been filed in December 2009 in Madras High Court by one Mr. Pushparayan, challenging the grant of environmental clearance for Sterlites expansion project from 400,000 ton per annum to 800,000 ton per annum of copper production. The petitioner is seeking an order from the
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Madras High Court for declaring the environmental clearance as bad in law for want of public hearing for the aforesaid expansion of the smelter plant. The writ petition filed has been admitted without any adverse order or direction. The matter has been heard since January 5, 2010. Our submission that the petitioner should have filed an appeal before the NEAA has not been accepted by the Court who directed the matter to be decided on merits. On April 16, 2010, counter-affidavits have been filed by the TNPollution Control Board and the MoEF. Further, the Additional Solicitor General representing MoEF argued the case on merits. The matter was scheduled for further hearing expected to be held on October 4, 2010. We sought adjournments in this matter in view of the pendency of special leave petition regarding operation of our existing plant at Tuticorin. The writ petition was scheduled for further hearing on September 7, 2011 and is adjourned for another four weeks.
Petitions have been filed in the Supreme Court of India and the High Court of Orissa to seek the cessation of construction of Vedanta Aluminiums refinery in Lanjigarh and related mining operations in Niyamgiri Hills.
One petition was filed before the High Court of Orissa challenging the project, but the same were kept in abeyance as the case containing the same issues were heard simultaneously by the Supreme Court, therefore after the Supreme Court order dated August 8, 2008, the said petition has become ineffective.
Certain non-governmental organizations and an individual have filed interlocutory applications in 2004 challenging the project on the ground of wild life, tribal. These interlocutory applications were filed in an environment-related public interest litigation brought before the Supreme Court of India. A Central Empowered Committee, set up by the Supreme Court of India, issued a report dated September 21, 2005 which expressed the view that the MoEF should not have permitted the project before undertaking an in-depth study about the ecological effects of the proposed bauxite mine surrounding the Niyamgiri Hills and that the project would result in the displacement of indigenous tribes.
The Supreme Court, on detailed report of various studies by expert agencies along with a detailed report on the impact of flora, fauna and tribal habitation due to bauxite mining from the MoEF and the State of Orissa, passed an order in November 2007. The studies included impact of mining on biodiversity including wildlife and its habitat in the proposed mining by Wild Life Institute of India, Dehradun, or WII, and related to soil erosion, impact on ground vibration hydro-geological characteristic including ground porosity, permeability and flow of natural water sources or streams to be carried out by the Central Mine Planning and Designing Institute, or CMPDI, Ranchi.
The order of the Supreme Court provided that if the State of Orissa, OMC and we jointly agree to the rehabilitation package proposed by the court, and we notify the court that we are agreeable to the package, the court may consider granting clearance to the project. MoEF granted us environmental clearance for the mining of bauxite. After the grant of environmental clearance, certain groups of persons and individuals have filed appeal challenging the grant of the environmental clearance before the NEAA on the same issues which were raised during hearing in Supreme Court. The NEAA dismissed the appeals by its order dated September 15, 2010 and has refused to consider the issues already considered in the Supreme Court under the principle of res judicata, but has advised the MoEF to consider the two EIAs prepared for the mining project. Pursuant to the NEAA order, additional conditions, if any are required, can be imposed by MoEF in the environmental clearance, which remains inoperable for the time being, until MoEF reconsiders the matter.
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The MoEF on August 24, 2010 rejected the forest clearance for the Niyamgiri Mines to Orissa Mining Corporation (OMC) , which is one of the sources of supply of Bauxite to Vedanta Aluminium.Against this order of the MoEF, OMC filed a writ petition in the Supreme Court on October 24, 2010. The Surpeme Court issued a notice on the writ by its order dated April 21, 2011 and directed the MoEF to file its reply within four weeks. In the meantime, the MoEF by its order dated July 11, 2011, cancelled the environmental clearance granted to OMC for its Niyamgiri mines. OMC has filed an application in the Supreme Court against this order of the MoEF on August 1, 2011. The MoEF directed Vedanta Aluminium to maintain status quo on the expansion of its refinery on October 20, 2010. Against this order, Vedanta Aluminium filed a writ petition in the High Court of Orissa and the court by its order dated July 19, 2011 dismissed the writ. Vedanta Aluminium made an application to the MoEF to reconsider the grant of the environmental clearance for its Niyamgiri mines. The Supreme Court has issued a notice to the MoEF and directed the listing of both matters for final disposal in January 2012.
BALCO is involved in various litigations in relation to the alleged encroachment of land on which the Korba smelter is situated and the State Government of Chhattisgarh has issued notices to BALCO alleging that BALCO had encroached on state-owned land.
BALCO has occupied certain land on which the Korba smelter is situated since its establishment, which is the subject matter of a dispute for alleged encroachment by BALCO on government-owned land, among others.
BALCO petitioned the High Court of Chhattisgarh in 1996 to direct the State Government of Chhattisgarh to execute a lease deed in respect of this land in BALCOs favor. The High Court of Chhattisgarh passed an interim order in 2004 directing that the State Government of Chhattisgarh take no action against BALCO.
In 2005, in response to several show cause notices issued against BALCO alleging encroachment of government land, BALCO filed an amendment petition with the High Court of Chhattisgarh seeking to quash these show cause notices. The High Court of Chhattisgarh directed that the status quo be maintained and that BALCO should not engage in any deforestation activities on the land until the next hearing date, which has not yet been determined. By clarificatory order dated July 2, 2007, the High Court of Chhattisgarh directed that BALCO may continue construction and engage in deforestation activities after receipt of the requisite environmental approvals. The petition has been adjourned until the disposal of the public interest writ petition filed by an organization known as Sarthak before the Supreme Court.
BALCO has no formal lease deed in relation to this land. BALCO is currently engaged in a dispute with the State Government of Chhattisgarh regarding alleged encroachment on state-owned land at its Korba smelter. On February 6, 2009, a single bench of the High Court of Chhattisgarh held that BALCO is in legal possession of the land and is required to pay premium and rent on the land according to the rates offered by the Government of Chhattisgarh in 1968. The State Government of Chhattisgarh has challenged this order in an appeal before the division bench of the High Court of Chhattisgarh. By an order dated February 25, 2010, the Division Bench of the High Court of Chhattisgarh dismissed the appeal. The dispute of encroachment, premium and rent has been decided and the State Government of Chhattisgarh has decided to issue a lease deed in favour of BALCO once the dispute on forest land presently pending before the Supreme Court is decided.
A public interest writ petition has also been filed by Sarthak before the Supreme Court of India alleging encroachment by BALCO over the land on which the Korba smelter is situated. It alleges that the land is
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classified as forest land and belongs to the State Government of Chhattisgarh and that BALCO has engaged in illegal felling of trees on that land. The Supreme Court of India has directed the petition to be listed before the Forest Bench of the Supreme Court of India. The Forest Bench has directed the CEC to submit a report on the petition. The CEC submitted a report on the petition to the Supreme Court of India on October 17, 2007, recommending that BALCO be directed to seek ex-post facto approval under the Forest Act for the allotment and non forestry use of the land in possession.
The matter was heard on April 23, 2010 for an interim application by BALCO for clearing the expansion on the land area limited to its proposed expansion. On April 23, 2010, pursuant to a contempt application filed by the petitioners alleging felling of trees, the Supreme Court directed CEC to examine the same and submit its report. The CEC has concluded its examination and is due to submit its report to the Supreme Court. In the event that the judgment of the Supreme Court is held against BALCO, BALCO may be required to pay the net present value of the land in question to convert the forest land to non-forest use. The maximum amount payable, based on the highest prescribed rate, is approximately Rs. 63.9 million ($1.4 million).
Demands against HZL by Department of Mines and Geology.
The Department of Mines and Geology of the State of Rajasthan issued several show cause notices in August, September and October 2006, aggregating Rs. 3,339 million ($75.0 million) in demand, to HZL in relation to alleged unlawful occupation and unauthorized mining of associated minerals other than zinc and lead at its Rampura Agucha, Rajpura Dariba and Zawar mines in Rajasthan, during the period from July 1968 to March 2006. In addition, the department has also demanded an aggregate of Rs. 48 million ($1.1 million) by way of alleged arrears in royalty payments at such mines on the grounds that the royalty payments had been incorrectly computed by HZL during the period from April 1971 to March 2000. HZL has filed writ petitions in the High Court of Rajasthan in Jodhpur and obtained a stay in respect of these demands in October and November 2006. The next hearing date has not been fixed.
Additionally, a writ petition was filed by HZL in October 2006 against the State Government of Rajasthan and the Union of India through the Department of Mines and Geology and others before the High Court of Rajasthan at Jodhpur with regards to a demand notice dated October 20, 2006 issued by the Mining Engineer of Rajasthan to HZL. As per the terms of the notice, the Department of Mines and Geology stated that the mining lease granted to HZL was for the extraction of zinc and lead but that HZL was also extracting cadmium and silver and was thus in violation of the terms of the lease for the Rampura Agucha mine. The Department of Mines and Geology has claimed Rs. 2,436 million ($54.7 million) as the price to be recovered from HZL for the extraction of cadmium and silver. HZL asserted in its writ petition that the lease was granted for lead, zinc and associated minerals and that cadmium and silver are associated minerals. Further, it has stated that the contested minerals are found alongside lead and silver in an inseparable form and cannot be extracted separately. It has also submitted that it has been paying the royalty on cadmium and silver, which has been duly accepted by the Department of Mines and Geology without objection. The High Court issued an order in October 2006 granting a stay and restrained the Department of Mines and Geology from undertaking any coercive measures to recover the penalty. In January 2007, the High Court issued another order granting the Department of Mines and Geology more time to file their reply and the High Court also directed the Department of Mines and Geology not to issue any orders canceling the lease. The next hearing date has not been fixed.
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Asarco has commenced proceedings against Sterlite and Sterlite USA in the US Bankruptcy Court claiming breach of our May 2008 Agreement.
On March 17, 2010, Asarco filed a complaint in the US Bankruptcy Court for the Southern District of Texas, Corpus Christi Division, against us and Sterlite USA alleging that we and Sterlite USA had breached the May 2008 Agreement by, among other things, refusing to pay the $2.6 billion purchase price as allegedly required by the May 2008 Agreement and refusing to assume the liabilities and contractual obligations as allegedly required under the May 2008 Agreement. Asarco is seeking to recover from us and Sterlite USA its alleged damages suffered as a result of the alleged breach and certain other amounts, including costs associated with Asarcos efforts to complete their reorganization and costs, disbursements and attorneys fees in connection with the proceedings. Asarco has claimed these damages to be in the range of $533 million to $1,509 million and has also claimed applicable pre-judgment interest.
We and Sterlite USA believe that Asarcos claim has no merit and it did not suffer any damages, as it received substantially higher consideration under the Parent Plan than possible under the May 2008 Agreement. The May 2008 Agreement was only a stalking horse bid, the consummation of which was subject to various approvals from the creditors of Asarcos estate, the U.S. Bankruptcy Court and competition from any other bidders. The reorganization plan proposed by Asarcos parent companies (Parent Plan) was finally approved by the US District Court and consummated. It paid all the creditors in full along with interest and provided substantial benefits to the equity holders. The Parent Plan provided for a cash contribution of $2.205 billion to the estate of Asarco, a promissory note of $280 million to the trust set up for the benefit of asbestos claimants, assumption of certain liabilities and waiver of certain claims against Asarco. Asarcos estate also provided substantial tax benefits to the equity holders. Asarco disclosed in the joint disclosure statement filed by it during the bankruptcy proceedings, in its view that the recovery, if, any, against such potential claims may be approximately $100 million.
The trial on Asarcos complaint was completed on August 17, 2011 in the U.S. Bankruptcy Court and the decision is awaited.
TCM is involved in a suit relating to damage to public property as a result of its mining activity.
The State of Queensland filed a petition against TCM and its joint venture partner, BML Holdings Proprietary. Limited (BML) on October 9, 2007 pursuant to section 179 of the Property Law Act, 1974, Australia before the Supreme Court in Queensland, Australia, in relation to relocation of a public road to a site where there is no subsidence.
In the second half of 2005, a nearby road, called Gregory road, developed cracking. The Australian department of main roads in Queensland (DMR) issued a notice to the joint venture company requiring reimbursement for the cost of relocating the road to an area where the road would not be subject to subsidence. The joint venture company obtained an indemnity under its public liability insurance policy of up to AUD 30 million and its insurance company, QBE Australia, a member of the QBE Insurance Group (QBE) is dealing with the claim directly with the DMR. QBEs geological technical expert has found an alternative of backfilling and/or buttressing the highway reward pit in order to stabilise cracking in the road at a cost of AUD 12 million to AUD 16 million. However, the DMR has submitted to construct a new road at a cost of AUD 27 million. Technical experts from both sides are in discussions to settle the matter. The claim is expected to be listed for hearing within the next ten months.
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Certain of our subsidiaries have been named in legal actions by third party claimants and by Indian sales tax, excise and related tax authorities for additional sales tax, excise and indirect duties.
Certain of our subsidiaries have been named as parties to legal actions where the claims primarily relate to either the assessable values of sales and purchases or to incomplete documentation supporting our tax returns. We have ongoing disputes with income tax authorities relating to the tax treatment of certain items. The total claims on account of the disputes with sales tax, excise and related tax authorities is Rs. 6,372 million ($143.1 million), of which Rs. 145 million ($3.3 million) has been recorded as current liabilities as of March 31, 2011. The claims by third party claimants amounted to Rs. 4,972 million ($111.6 million) as of March 31, 2011. We have not recorded any of these claims as current liabilities.
Dividend Policy
Under Indian law, a company declares dividends (including interim dividends) upon a recommendation by its board of directors and approval by a majority of the shareholders at the annual general meeting of shareholders held within six months of the end of each fiscal year. However, while final dividends can be paid out by a company only after such dividends have been recommended by the board of directors and approved by shareholders, interim dividends can be paid out with only a recommendation by the board of directors, though such action is subject to subsequent sanction by the shareholders at the annual general meeting held within six months from the end of the fiscal year. The shareholders have the right to decrease but not to increase the dividend amount recommended by the board of directors.
Under Indian law, a company is allowed to pay dividends (including interim dividends), in excess of 10.0% of its paid-up capital in any year from profits for that year only if it transfers a specified percentage of the profits of that year to reserves. We make such transfers for any dividends we pay to general reserves.
If profits for that year are insufficient to declare dividends (including interim dividends), the dividends for that year may be declared and paid out from accumulated profits on the following conditions:
| the rate of dividend to be declared shall not exceed the average of the rates at which dividends were declared in the five years immediately preceding that year or 10.0% of our paid-up share capital, whichever is less; |
| the total amount to be drawn from the accumulated profits earned in previous years and transferred to the reserves shall not exceed an amount equal to one-tenth of the sum of our paid-up share capital and net reserves, and the amount so drawn shall first be utilized to set off the losses incurred in the financial year before any dividend in respect of preference or equity share is declared; and |
| the balance of the reserves after such withdrawal shall not fall below 15.0% of our paid-up share capital. |
Dividends (including interim dividends) must be paid within 30 days from the date of the declaration and any dividend which remains unpaid or unclaimed after that period must be transferred within seven days to a special unpaid dividend account held at a scheduled bank. We must transfer any money which remains unpaid or unclaimed for seven years from the date of such transfer to the Investor Education and Protection Fund established by the Government of India.
The tax rates imposed on us in respect of dividends paid in prior periods have varied. Currently, the effective tax rate on dividends is 16.2%, which is a direct tax paid by us. Taxes on dividends are not payable by our shareholders and are not withheld or deducted from the dividend payments set forth above.
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Future dividends will depend on our revenue, cash flows, financial condition (including capital position) and other factors. ADS holders will be entitled to receive dividends payable in respect of the equity shares represented by ADSs. Cash dividends in respect of the equity shares represented by your ADSs will be paid to the depositary in Indian Rupees and, except as otherwise described under the deposit agreement governing the issuance of our ADSs, will be converted by the depositary into dollars. The depositary will distribute these proceeds to you. The equity shares represented by ADSs will rank equally with all other equity shares in respect of dividends. ADS holders will bear all of the currency exchange rate risk of the conversion of any dividends from Indian Rupees to dollars, and a decline in the value of the Indian Rupee as compared to the dollar would reduce the dollar value of any dividends we pay that are received by ADS holders.
B. Significant Changes
There has been no significant subsequent event following the close of the last financial year up to the date of this annual report that are known to us and require disclosure in this annual report for which disclosure was not made in this annual report.
ITEM 9. | THE OFFER AND LISTING |
A. Offer and Listing Details
Our ADSs evidenced by American Depositary Receipts, or ADRs, commenced trading on the NYSE, on June 20, 2007 at an initial offering price of $13.44 per ADS. The ADRs evidencing ADSs were issued by our depositary, Citibank, N.A., pursuant to a deposit agreement.
In July 2009, in connection with offering of ADS, each representing one equity share of par value Rs. 2, we issued 131,906,011 new equity shares in the form of ADSs, at a price of $12.15 per ADS, aggregating approximately $1,602.7 million. Out of 131,906,011 equity shares, 41,152,263 equity shares were issued to our parent company, Twin Star Holdings Limited, which is a wholly-owned subsidiary of Vedanta.
As of March 31, 2011, 3,361,207,534 of our equity shares were outstanding (including the 437,090,736 equity shares underlying our 109,272,684 ADSs outstanding as of such date). after giving effect to the bonus issue and share split. All our equity shares are registered shares.
Our outstanding equity shares are currently listed and traded on the NSE and BSE. For information regarding conditions in the Indian securities markets, see Item 3. Key InformationD. Risk FactorsRisks Relating to Investments in Indian Companies, Global Economic Conditions and International Operations. Our equity shares were previously listed on the Calcutta Stock Exchange Association Limited and were voluntarily delisted on May 9, 2008.
The following table shows:
| the reported high and low trading prices for our ADSs on the NYSE; |
| the imputed high and low trading prices for our equity shares, translated into US dollars, based on the Indian Rupee prices for such equity shares as quoted in the official list of each of the NSE and BSE and the noon buying rate of the Federal Reserve Bank of New York on the last business day of each period presented; and |
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| the average of the aggregate trading volume of our ADSs on the NYSE and our equity shares on the NSE and BSE, all as adjusted to reflect the five-for-two stock split on May 5, 2006. |
NYSE Price Per ADS |
Average NYSE Daily ADS Trading |
NSE Price Per Equity Share |
Average NSE Daily Equity Share Trading |
BSE Price Per Equity Share |
Average BSE Daily Equity Share Trading |
|||||||||||||||||||||||||||||||
High | Low | Volume | High | Low | Volume | High | Low | Volume | ||||||||||||||||||||||||||||
Fiscal Year |
||||||||||||||||||||||||||||||||||||
2005 |
$ | | $ | | | $ | 7.45 | $ | 3.48 | 27,633 | $ | 7.44 | $ | 3.06 | 32,489 | |||||||||||||||||||||
2006 |
| | | 15.90 | 5.00 | 91,999 | 15.91 | 5.14 | 46,686 | |||||||||||||||||||||||||||
2007 |
| | | 27.28 | 5.96 | 1,936,458 | 27.38 | 6.00 | 744,241 | |||||||||||||||||||||||||||
2008(1) |
28.97 | 11.12 | 1,807,316 | 29.18 | 10.23 | 1,443,249 | 28.73 | 10.23 | 331,833 | |||||||||||||||||||||||||||
2009 |
23.00 | 3.12 | 1,227,508 | 23.06 | 3.40 | 2,420,215 | 22.24 | 3.39 | 746,960 | |||||||||||||||||||||||||||
2010 |
20.10 | 6.70 | 1,930,177 | 18.40 | 7.71 | 2,979,722 | 18.38 | 7.69 | 663,956 | |||||||||||||||||||||||||||
2011 |
19.92 | 12.58 | 1,317,081 | 18.72 | 3.38 | 5,627,526 | 18.78 | 3.38 | 1,149,373 | |||||||||||||||||||||||||||
2012(2)(3) |
16.60 | 16.34 | 2,752,500 | 3.99 | 2.74 | 4,323,488 | 3.98 | 2.75 | 647,930 | |||||||||||||||||||||||||||
2010 |
||||||||||||||||||||||||||||||||||||
1st Quarter |
14.93 | 6.70 | 1,446,308 | 14.66 | 7.41 | 3,770,249 | 14.64 | 7.39 | 909,533 | |||||||||||||||||||||||||||
2nd Quarter |
16.22 | 10.52 | 2,755,950 | 16.06 | 11.27 | 4,087,396 | 16.07 | 11.35 | 924,496 | |||||||||||||||||||||||||||
3rd Quarter |
19.52 | 15.16 | 2,004,464 | 18.94 | 15.43 | 2,136,506 | 18.91 | 15.46 | 436,691 | |||||||||||||||||||||||||||
4th Quarter |
20.10 | 15.13 | 1,485,585 | 19.58 | 15.96 | 1,878,120 | 19.83 | 15.92 | 375,617 | |||||||||||||||||||||||||||
2011 |
||||||||||||||||||||||||||||||||||||
1st Quarter |
19.92 | 12.58 | 1,664,289 | 18.72 | 3.72 | 3,423,256 | 18.78 | 3.70 | 828,882 | |||||||||||||||||||||||||||
2nd Quarter |
15.79 | 15.49 | 5,638,200 | 3.85 | 3.34 | 3,170,237 | 3.83 | 3.34 | 1,830,019 | |||||||||||||||||||||||||||
3rd Quarter |
17.39 | 16.87 | 3,448,100 | 4.18 | 3.58 | 936,820 | 4.18 | 3.59 | 1,024,561 | |||||||||||||||||||||||||||
4th Quarter |
17.29 | 17.10 | 2,114,900 | 4.27 | 3.41 | 1,597,000 | 4.27 | 3.43 | 890,293 | |||||||||||||||||||||||||||
2012 |
||||||||||||||||||||||||||||||||||||
1st Quarter |
16.60 | 16.34 | 1,264,300 | 4.19 | 3.41 | 1,828,526 | 4.18 | 3.41 | 555,187 | |||||||||||||||||||||||||||
2nd Quarter(2) |
15.60 | 15.28 | 2,752,500 | 3.71 | 2.74 | 1,232,584 | 3.71 | 2.74 | 756,422 | |||||||||||||||||||||||||||
Last six months(3) |
||||||||||||||||||||||||||||||||||||
February 2011 |
14.99 | 14.81 | 1,974,700 | 3.83 | 3.38 | 5,188,187 | 3.83 | 3.39 | 821,375 | |||||||||||||||||||||||||||
March 2011 |
15.49 | 15.35 | 1,397,300 | 3.88 | 3.50 | 3,705,731 | 3.88 | 3.53 | 614,983 | |||||||||||||||||||||||||||
April 2011 |
16.60 | 16.34 | 1,264,300 | 4.27 | 3.85 | 5,180,857 | 4.26 | 3.85 | 792,186 | |||||||||||||||||||||||||||
May 2011 |
16.10 | 15.86 | 1,192,300 | 4.03 | 3.61 | 3,793,227 | 4.03 | 3.62 | 494,131 | |||||||||||||||||||||||||||
June 2011 |
15.61 | 15.14 | 1,194,800 | 3.87 | 3.36 | 3,812,757 | 3.87 | 3.37 | 422,335 | |||||||||||||||||||||||||||
July 2011 |
15.60 | 15.28 | 1,678,800 | 3.95 | 3.59 | 3,455,407 | 3.95 | 3.59 | 407,780 | |||||||||||||||||||||||||||
August 2011 |
14.73 | 14.29 | 2,538,000 | 3.52 | 2.74 | 6,145,258 | 3.53 | 2.74 | 1,073,532 | |||||||||||||||||||||||||||
September 16, 2011 |
12.08 | 11.71 | 2,752,500 | 2.97 | 3.00 | 6,633,162 | 2.97 | 2.70 | 816,620 |
Notes:
(1) | From June 20, 2007 for trading prices for our ADSs on the NYSE. |
(2) | Through September 16, 2011. |
(3) | Post split and bonus, with effect from June 25, 2010. |
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B. Plan of Distribution
Not applicable
C. Markets
Our ADSs are listed on the NYSE under the symbol SLT. Equity shares are listed in the Bombay Stock Exchange with stock code 500900 and in National Stock exchange with stock code STER/EQ.
D. Selling Shareholders
Not applicable
E. Dilution
Not applicable
F. Expenses of the Issue
Not applicable
ITEM 10. | ADDITIONAL INFORMATION |
A. Share Capital
Not applicable
B. Memorandum and Articles of Association
General
We were incorporated in Kolkata, the State of West Bengal, India, as a public company on September 8, 1975 as Rainbow Investment Limited. Our name was subsequently changed to Sterlite Cables Limited on October 19, 1976 and finally to Sterlite Industries (India) Limited on February 28, 1986. Our company identification number is L65990TN1975PLC062634. Our registered office is presently situated in the State of Tamil Nadu at SIPCOT Industrial Complex, Madurai Bypass Road, T.V. Puram P.O., Tuticorin, State of Tamil Nadu 628 002, India.
Our register of members is maintained at our registered office.
Our activities are regulated by our Memorandum and Articles of Association. Our current Memorandum and Articles of Association were recently amended by a special resolution of our shareholders passed in December 2007. In addition to our Memorandum and Articles of Association, our activities are regulated by certain legislation, including the Indian Companies Act, the SCRA and the Securities Contracts (Regulation) Rules, 1957, as amended, or the SCR Rules.
Our Memorandum of Association permits us to engage in a wide variety of activities, including all of the activities that we are currently engaged in or intend to be engaged in, as well as other activities that we currently have no intention of engaging in. Our objects are set out at clause 3 of our Memorandum of Association.
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Share Capital
Our authorized share capital has been increased from Rs. 1,850 million ($41.5 million) (925 million equity shares of par value Rs. 2 each) to Rs. 5,000 million, divided into 5,000 million equity shares of par value Rs. 1 per equity share. As of March 31, 2011 our issued share capital was Rs. 3,361.21 million, divided into 3,361,207,534 equity shares of par value Re. 1 per equity share.
As of March 31, 2011, 3,361,207,534 equity shares, par value Re. 1 per equity share, were issued and outstanding, of which 437,090,736 equity shares were held in the form of 109,272,684 ADS. Each ADS represents four equity share.
On October 29, 2009, we completed a offering of $500 million aggregate principal amount of convertible senior notes (Convertible Notes). The Convertible Notes are convertible into ADSs at an initial conversion price of approximately $23.33 per ADS, subject to adjustment in certain events. The Convertible Notes have a maturity date of October 30, 2014 and bears interest at the rate of 4.0% per annum. As of March 31, 2011, 500,000 Convertible Notes were outstanding.
Changes in Capital or our Memorandum of Association and Articles of Association
Subject to the Indian Companies Act and our Articles of Association, we may, by passing an ordinary resolution or a special resolution, as applicable, at a general meeting or through postal ballot:
| increase our authorized or paid up share capital; |
| consolidate all or any part of our shares into a smaller number of shares each with a larger par value; |
| split all or any part of our shares into a larger number of shares each with a smaller par value; |
| convert any of our paid-up shares into stock, and reconvert any stock into any number of paid-up shares of any denomination; |
| cancel shares which, at the date of passing of the resolution, have not been taken or agreed to be taken by any person, and diminish the amount of the authorized share capital by the amount of the shares so cancelled; |
| reduce our issued share capital; or |
| alter our Memorandum of Association or Articles of Association. |
Directors
Under our Articles of Association, a director is not required to hold any qualification shares. There is no age limit requirement for the retirement of the directors.
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Any director who is directly or indirectly interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into by us or on our behalf is required to disclose the nature of his interest at a meeting of the board of directors and such interested director shall not participate in any discussion of, or vote on, any contract, arrangement or proposal in which he is interested. In addition, we are prohibited from making loans, directly or indirectly, or providing any guarantee or security, directly or indirectly, in connection with any loans made by a third party, to our directors without the prior approval of the Central Government.
General Meetings of Shareholders
There are two types of general meetings of shareholders, an annual general meeting and an extraordinary general meeting. We must convene our annual general meeting within six months of the end of each financial year and must ensure that the intervening period between two annual general meetings does not exceed 15 months. The Registrar of Companies may extend this period in special circumstances at our request. Extraordinary general meetings may be convened at any time by our directors at their discretion or at the request of our shareholders holding in the aggregate not less than 10.0% of our paid-up capital. A notice in writing to convene a general meeting must set out the date, time, place and agenda of the meeting and must be provided to shareholders at least 21 days prior to the date of the proposed meeting. The requirement of the 21 days notice in writing may be waived if consent to shorter notice is received from all shareholders entitled to vote at the annual general meeting or, in the case of an extraordinary general meeting, from shareholders holding not less than 95.0% of our paid-up capital. General meetings are generally held at our registered office. Business may be transacted at a general meeting only when a quorum of shareholders is present. Five persons entitled to attend and to vote on the business to be transacted, each being a member or a proxy for a member or a duly authorized representative of a corporation which is a member, will constitute a quorum.
The annual general meetings deal with and dispose of all matters prescribed by our Articles of Association and by the Indian Companies Act, including the following:
| the consideration of our annual financial statements and report of our directors and auditors; |
| the election of directors; |
| the appointment of auditors and the fixing of their remuneration; |
| the authorization of dividends; and |
| the transaction of any other business of which notice has been given. |
Division of Shares
The Indian Companies Act provides that a company may sub-divide its share capital if its Articles of Association authorize the company to do so by adopting an ordinary resolution in its general meeting.
Our Articles of Association allow us in a general meeting to alter our Memorandum of Association and subdivide all or any of our equity shares into a larger number of shares with a smaller par value than originally fixed by the Memorandum of Association.
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Voting Rights
Subject to any special terms as to voting on which any shares may have been issued, every shareholder entitled to vote who is present in person (including any corporation present by its duly authorized representative) shall on a show of hands have one vote and every shareholder present in person or by proxy shall on a poll have one vote for each share of which he is the holder. In the case of joint holders, only one of them may vote and in the absence of election as to who is to vote, the vote of the senior of the joint holders who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders. Seniority is determined by the order in which the names appear in the register of members.
Voting is by show of hands unless a poll is ordered by the chairman of the meeting, who is generally the chairman of our board of directors but may be another director or other person selected by our board or the shareholders present at the meeting in the absence of the chairman, or demanded by a shareholder or shareholders holding at least 10% of the voting rights or holding paid-up capital of at least Rs. 50,000 (i.e. 50,000 shares of Rs. 1 each). Upon a poll, the voting rights of each shareholder entitled to vote and present in person or by proxy shall be proportionate to the capital paid-up on each share against our total paid-up capital. In the case of a tie vote, the chairman of the meeting, who is generally the chairman of our board of directors, has the right to cast a tie-breaking vote.
A shareholder may appoint any person (whether or not a shareholder) to act as his proxy to vote on a poll at any meeting of shareholders (or of any class of shareholders) in respect of all or a particular number of the shares held by him. A shareholder may appoint more than one person to act as his proxy and each such person shall act as proxy for the shareholder for the number of shares specified in the instrument appointing the person a proxy. The instrument appointing a proxy must be delivered to our registered office at least 48 hours prior to the meeting or in case of a poll, not less than 24 hours before the time appointed for taking of the poll. If a shareholder appoints more than one person to act as his proxy, each instrument appointing a proxy shall specify the number of shares held by the shareholder for which the relevant person is appointed as his proxy. A proxy does not have a right to speak at meetings. A corporate shareholder is also entitled to nominate a representative to attend and vote on its behalf at general meetings. Such a representative is not considered a proxy and he has the same rights as the shareholder by which he was appointed to speak at a meeting and vote at a meeting in respect of the number of shares held by the shareholder, including on a show of hands and a poll.
Subject to the Articles of Association and the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001, as amended, the Indian Companies Act allows a public company to issue shares with different rights as to dividend, voting or otherwise, provided that it has distributable profits as specified under the Indian Companies Act for a period of three financial years immediately preceding the issue of such shares and has filed its annual accounts and annual returns for the immediately preceding three years.
Quorum
Our Articles of Association provide that a quorum for a general meeting is at least five shareholders entitled to vote and present in person.
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Shareholder Resolutions
An ordinary resolution requires the affirmative vote of a majority of our shareholders entitled to vote in person or by proxy at a general meeting.
A special resolution requires the affirmative vote of not less than three-fourths of our shareholders entitled to vote in person or by proxy at a general meeting and casting a vote. The Indian Companies Act provides that to amend the Articles of Association, a special resolution approving such an amendment must be passed in a general meeting. Certain amendments, including a change in the name of the company, reduction of share capital, approval of variation of rights of special classes of shares and dissolution of the company require a special resolution.
Further, the Indian Companies Act requires certain resolutions such as those listed below to be voted on only by a postal ballot:
| amendments of the memorandum of association to alter the objects of the company and to change the registered office of the company under Section 146 of the Indian Companies Act; |
| alteration of the articles of association in relation to insertion of provisions defining private company; |
| the issue of shares with differential rights with respect to voting, dividend or otherwise; |
| the sale of the whole or substantially the whole of an undertaking of the company; |
| providing loans, extending guarantees or providing a security in excess of the limits prescribed under Section 372A of the Indian Companies Act; |
| varying the rights of the holders of any class of shares or debentures or other securities; |
| the election of a director by minority shareholders; and |
| the buy-back of shares. |
Dividends
Under the Indian Companies Act, unless the board of directors recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. The board of directors may also declare interim dividends that do not need to be approved by the shareholders. A company pays dividends recommended by the board of directors and approved by a majority of the shareholders at the annual general meeting of shareholders held within six months of the end of each fiscal year. The shareholders have the right to decrease but not increase the dividend amount recommended by the board of directors. Pursuant to a recent amendment to the listing agreement, listed companies are required to declare and disclose the dividends paid on a per share basis only. The dividend recommended by the board of directors and approved by the shareholders at a general meeting is distributed and paid to shareholders in proportion to the paid up value of their equity shares. The Indian Companies Act provides that shares of a company of the same class must receive equal dividend treatment. Dividends can only be paid in cash to the registered shareholder at a record date fixed on or prior to the annual general meeting or to his order or his bankers order. No shareholder is entitled to a dividend while any lien in respect of unpaid calls on any of such shareholders shares is outstanding.
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These distributions and payments are required to be paid to shareholders within 30 days of the annual general meeting where the resolution for declaration of dividends is approved. The dividend so declared is required to be deposited in a separate bank account within a period of five days from the date of declaration of such dividend. All dividends unpaid or unclaimed within a period of 30 days from the date of declaration of such dividend must be transferred within seven days of the end of such period to a special unpaid dividend account held at a scheduled bank. Any dividend which remains unpaid or unclaimed for a period of seven years from the date of the transfer to a scheduled bank must be transferred to the Investor Education and Protection Fund established by the Government of India and following such transfer, no claim shall lie against the company or the Investor Education and Protection Fund. Under the Indian Companies Act, dividends in respect of a fiscal year may be paid out of the profits of a company in that fiscal year or out of the undistributed profits of previous fiscal years or both, after providing for depreciation in a manner provided for in the Indian Companies Act.
Under the Indian Companies Act, we are only allowed to pay dividends in excess of 10.0% of our paid-up capital in respect of any fiscal year from our profits for that year after we have transferred to our reserves a percentage of our profits for that year ranging between 2.5% to 10.0% depending on the rate of dividend proposed to be declared in that year in accordance with the Companies (Transfer of Profits to Reserves) Rules, 1975. Reserves are defined in the Guidance Note on Terms Used in Financial Statements issued by the Institute of Chartered Accountants of India as the portion of earnings, receipts or other surpluses of an enterprise (whether capital or revenue) appropriated by the management for a general or specific purpose other than a provision for depreciation or diminution in the value of assets or for a known liability. The Indian Companies Act and the Companies (Declaration of Dividend out of Reserves) Rules, 1975 provide that if profits for that year are insufficient to declare dividends, the dividends for that year may be declared and paid out from our accumulated profits transferred by us to our reserves, subject to the following conditions:
| the rate of dividend to be declared shall not exceed the lesser of 10.0% of our paid-up capital or the average of the rates at which dividends were declared in the five years immediately preceding that year; |
| the total amount to be drawn from the accumulated profits may not exceed 10.0% of the sum of our paid-up capital and free reserves and any amount so drawn shall first be used to set off any losses incurred in that financial year; and |
| the balance of our reserves following such withdrawal shall not fall below 15.0% of our paid-up capital. |
Distribution of Assets on a Winding-up
In accordance with the Indian Companies Act, all surplus assets remaining after payments are made to employees, statutory creditors, tax and revenue authorities, secured and unsecured creditors and the holders of any preference shares (though not in that order), shall be distributed among our equity shareholders in proportion to the amount paid up or credited as paid-up on such shares at the commencement of the winding-up.
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Transfer of Shares
Under the Indian Companies Act, the shares of a public company are freely transferable, unless such a transfer contravenes applicable law or the regulations issued by the SEBI or the Sick Industrial Companies (Special Provisions) Act, 1985, as amended, or the SICA. The transferor is deemed to remain the holder until the transferees name is entered in the register of members.
In the case of shares held in physical form, we will register any transfers of equity shares in the register of members upon lodgment of the duly completed share transfer form, the relevant share certificate, or if there is no certificate, the letter of allotment, in respect of shares to be transferred together with duly stamped share transfer forms. In respect of electronic transfers, the depository transfers shares by entering the name of the purchaser in its register as the beneficial owner of the shares. In turn, we then enter the name of the depository in our records as the registered owner of the shares. The beneficial owner is entitled to all the rights and benefits and is subject to the liabilities attached to the shares held by the depository on his or her or its behalf.
Equity shares held through depositories are transferred in the form of book entries or in electronic form in accordance with the regulations laid down by SEBI. These regulations provide the regime for the functioning of the depositories and the participants and set out the manner in which the records are to be kept and maintained and the safeguards to be followed in this system.
SEBI requires that our equity shares for trading and settlement purposes be in book-entry form for all investors, except for transactions that are not made on a stock exchange and transactions that are not required to be reported to the stock exchange. Transfers of equity shares in book-entry form require both the seller and the purchaser of the equity shares to establish accounts with depository participants appointed by depositories established under the Depositories Act, 1996. Charges for opening an account with a depository participant, transaction charges for each trade and custodian charges for securities held in each account vary depending upon the practice of each depository participant.
The depository transfers equity shares by entering the name of the purchaser in its books as the beneficial owner of the equity shares. In turn, we will enter the name of the depository in our records as the registered owner of the equity shares. The beneficial owner is entitled to all the rights and benefits as well as the liabilities with respect to the equity shares that are held by the depository. The register and index of beneficial owners maintained by our depository is deemed to be a register and index of our members and debenture holders under the Depositories Act, 1996. Transfers of beneficial ownership held through a depository are exempt from stamp duty. For this purpose, we have entered into an agreement for depository services with the National Securities Depository Limited and the Central Depository Services India Limited.
The requirement to hold the equity shares in book-entry form will apply to the ADS holders when the equity shares are withdrawn from the depositary facility upon surrender of the ADSs. In order to trade the equity shares in the Indian market, the withdrawing ADS holder will be required to comply with the procedures described above.
Our Articles of Association provide for certain restrictions on the transfer of equity shares, including granting power to the board of directors in certain circumstances, to refuse to register or acknowledge a transfer of equity shares or other securities issued by us. Under the listing agreements with the NSE and BSE on which our equity shares are listed, in the event we have not effected the transfer of shares within one month or where we have failed to communicate to the transferee any valid objection to the transfer within the stipulated time period of one month, we are required to compensate the aggrieved party for the opportunity loss caused during the period of delay.
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If a company without sufficient cause refuses to register a transfer of equity shares within two months from the date on which the instrument of transfer is delivered to the company, the transferee may appeal to the company Law Board, or the CLB, seeking to register the transfer of equity shares. The CLB may, in its discretion, issue an interim order suspending the voting rights attached to the relevant equity shares before completing its investigation of the alleged contravention.
In addition, the Indian Companies Act provides that the CLB may direct a rectification of the register of members for a transfer of equity shares which is in contravention of SEBI regulations or the SICA or any similar law, upon an application by the company, a participant, a depository incorporated in India, an investor or SEBI.
Under the Companies (Second Amendment) Act, 2002, it is proposed that the CLB be replaced with the National Law Tribunal with effect from a date that is yet to be notified.
Disclosure of Ownership Interest
Section 187C of the Indian Companies Act requires that beneficial owners of shares of companies who are not registered as holders of those shares must make a declaration to the company specifying the nature of his or her or its interest, particulars of the registered holder of such shares and such other particulars as may be prescribed. Any lien, charge, promissory note or other collateral agreement created, executed or entered into with respect to any equity share by its registered owner, or any hypothecation by the registered owner of any equity share, shall not be enforceable by the beneficial owner or any person claiming through the beneficial owner if such declaration is not made. Failure by a person to comply with Section 187C will not affect the companys obligation to register a transfer of shares or to pay any dividends to the registered holder of any shares in respect of which the declaration has not been made.
Any investor who fails to comply with these requirements may be liable for a fine of up to Rs. 1,000 for each day such failure continues. Additionally, if the company fails to comply with the provisions of Section 187C, then the company and every defaulting officer may be liable for a fine of up to Rs. 100 for each day the default continues.
Alteration of Shareholder Rights
Under the Indian Companies Act, and subject to the provisions of the articles of association of a company and the relevant rules as issued by the Ministry of Corporate Affairs, where the share capital of a company is divided into different classes of shares, the rights of any class of shareholders can only be altered or varied with the consent in writing of the holders of not less than three-fourths of the issued shares of that class, by a special resolution passed at a general meeting of the holders of the issued shares of that class, or pursuant to a judicial order sanctioning a compromise or arrangement between the company and such class of shareholders.
Share Register and Record Dates
We maintain our register of members at our registered office and all transfers of shares should be notified to us at such address. Our register of members is open to inspection during business hours by shareholders without charge and by other persons upon payment of a fee as prescribed under the applicable law.
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The register and index of beneficial owners maintained by a depository under the Depositories Act, 1996 is deemed to be an index of members and register and index of debenture holders. We recognize as shareholders only those persons who appear on our register of members and we do not recognize any person holding any equity share or part thereof on trust, whether express, implied or constructive.
To determine which shareholders are entitled to specified shareholder rights, we may close the register of members. For the purpose of determining who our shareholders are, our register of members may be closed for periods not exceeding 45 days in any one year or 30 days at any one time. In order to determine our shareholders entitlement to dividends, it is our general practice to close the register of members for approximately ten to 20 days before the annual general meeting. The date on which this period begins is the record date. Under the listing agreements with each of the stock exchanges on which our equity shares are listed, we may, upon giving at least seven working days advance notice to the stock exchange, set a record date and/or close the register of members. The trading of our equity shares and the delivery of shares certificates may continue while the register of members is closed.
Annual Report
At least 21 days before an annual general meeting, we must circulate our annual report, which comprises of either a detailed or abridged version of our audited financial accounts, our directors report, our corporate governance report, and our auditors report, to the shareholders along with a notice convening the annual general meeting. In addition, we must furnish to the exchanges quarterly unaudited or audited results within 30 days after the end of each accounting quarter. In respect of results for the fourth quarter of that financial year, we can opt to publish audited results for the entire year within three months, and thus will not be required to publish unaudited results for the last quarter within 30 days. We are also required to send copies of our annual report to the NSE and BSE and to publish our financial results in at least one English language daily newspaper circulating in the whole or substantially the whole of India and also in a daily newspaper published in the language of the region where our registered office is situated. We are also required under the Indian Companies Act to make available upon the request of any shareholder our complete balance sheet and profit and loss account.
Under the Indian Companies Act, we must file with the Registrar of Companies our balance sheet and profit and loss account within 30 days of the date on which the balance sheet and profit and loss account were laid before the annual general meeting and our annual return within 60 days of the conclusion of that meeting.
Borrowing Powers
Our directors may raise, borrow or secure the payment of any sums of money for our purposes as they deem appropriate without the consent of a majority of the shareholders in a general meeting, provided that, the aggregate of the monies to be borrowed and the principal amount outstanding in respect of monies raised, borrowed or secured by us does not exceed the aggregate of our paid up share capital plus free reserves.
Issue of Equity Shares and Pre-emptive Rights
Subject to the provisions of the Indian Companies Act and our Articles of Association and to any special rights attaching to any of our equity shares, we may increase our share capital by the allotment or issue of new equity shares with preferred, deferred or other special rights or restrictions regarding dividends, voting,
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return of capital or other matters as we may from time to time determine by special resolution. We may issue preference shares that are redeemable or are liable to be redeemed at our option or the option of the holder in accordance with our Articles of Association.
Under the Indian Companies Act, new equity shares shall first be offered to existing shareholders in proportion to the amount they have paid up on their equity shares on the record date. The offer shall be made by written notice specifying:
| the right, exercisable by the shareholders of record, to renounce the equity shares offered in favor of any other person; |
| the number of equity shares offered; and |
| the period of the offer, which may not be less than 15 days from the date of the offer. If the offer is not accepted, it is deemed to have been declined. |
The offer is deemed to include a right exercisable by the person concerned to renounce the shares offered to him in favor of any other person. Our board of directors is permitted to distribute equity shares not accepted by existing shareholders in the manner it deems beneficial for us in accordance with our Articles of Association. Holders of ADSs may not be able to participate in any such offer.
However, under the provisions of the Indian Companies Act, new equity shares may be offered to non-shareholders, if this has been approved by a special resolution or by an ordinary resolution with the Government of Indias permission.
Capitalization of Profits and Reserves
Our Articles of Association allow our directors, with the approval of our shareholders by an ordinary resolution, to capitalize any part of the amount standing to the credit of our reserve accounts or to the credit of our profit and loss account or otherwise available for distribution. Any sum which is capitalized shall be appropriated among our shareholders in the same proportion as if such sum had been distributed by way of dividend. This sum shall not be paid out in cash and shall be applied in the following manner:
| paying up any amount remaining unpaid on the shares held by our shareholders; or |
| issuing to our shareholders, fully paid bonus equity shares (issued either at par or a premium). |
Any issue of bonus equity shares would be subject to the SEBI (Disclosure and Investor Protection) Guidelines, 2000, as amended, or SEBI Guidelines, which provide that:
| no company shall, pending the conversion of convertible securities, issue any bonus equity shares unless a similar benefit is extended to the holders of such convertible securities through a reservation of equity shares in proportion to such conversion; |
| the bonus issue shall be made out of free reserves built out of genuine profits or share premium collected in cash only; |
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| bonus equity shares cannot be issued unless all the partly paid up equity shares have been fully paid-up; |
| the company has not defaulted in the payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on redemption of such debentures; |
| a declaration of bonus equity shares in lieu of dividend cannot be made; |
| the company shall have sufficient reason to believe that it has not defaulted in the payment of statutory dues of the employees such as contribution to provident fund, gratuity and bonus; |
| any reserves created by a revaluation of fixed assets shall not be capitalized; |
| the articles of association of the company must contain provisions for the capitalization of reserves; and |
| the bonus issue must be implemented within two months from the date of approval by the board of directors. |
Purchase of Own Equity Shares
A company may reduce its capital in accordance with the Indian Companies Act and the regulations issued by SEBI by way of a share buy-back out of its free reserves or securities premium account or the proceeds of any shares or other specified securities (other than the kind of shares or other specified securities proposed to be bought back) subject to certain conditions, including:
| the buy-back must be authorized by the companys Articles of Association; |
| a special resolution authorizing the buy-back must be passed in a general meeting; |
| the buy-back is limited to 25.0% of the companys total paid up capital and free reserves in a fiscal year; |
| the ratio of debt owed is not more than twice the capital and free reserves after such buy-back; |
| the shares or other specified securities for share buy-back are fully paid-up; and |
| the buy-back is in accordance with the SEBI (Buy-Back of Securities) Regulations, 1998, as amended. |
The first two conditions mentioned above would not be applicable if the number of equity shares bought back is less than 10.0% of our total paid up equity capital and free reserves and if such buy-back is authorized by the board of directors, provided that no buy-back shall be made within 365 days from the date of any previous buy-back. If such buy-back constitutes more than 10.0% of the total paid-up equity capital and free reserves of the company, it must be authorized by a special resolution of the company in general meeting. Our Articles of Association permit us to buy-back our equity shares.
Any equity shares which have been bought back by us must be extinguished within seven days. Further, we will not be permitted to buy-back any securities for a period of one year or to issue new securities of the
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same kind for six months except by way of a bonus issue or in discharge of our existing obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity. A company is also prohibited from purchasing its own shares or specified securities through any subsidiary company including its own subsidiary companies or in the event of non-compliance with certain other provisions of the Indian Companies Act.
ADS holders will be eligible to participate in a share buy-back in certain cases. An ADS holder may acquire equity shares by withdrawing them from the depositary facility and then selling those equity shares back to us in accordance with the provisions of applicable law as discussed above. ADS holders should note that equity shares withdrawn from the depositary facility may only be redeposited into the depositary facility under certain limited circumstances as specified under the guidelines issued by the Government of India and the RBI relating to a sponsored ADS facility and fungibililty of ADSs. See - D. Exchange Controls.
There can be no assurance that the equity shares offered by an ADS investor in any buy-back of equity shares by us will be accepted by us. The position regarding regulatory approvals required for ADS holders to participate in a buy-back is not clear. ADS investors are advised to consult their Indian legal advisers prior to participating in any buy-back by us, including in relation to any regulatory approvals and tax issues relating to the share buy-back.
Rights of Minority Shareholders
The Indian Companies Act provides mechanisms for the protection of the rights of the minority shareholder. Where the share capital of a company is divided into different classes of shares and there has been variation in the rights attached to the shares of any class, the holders of not less than 10.0% of the issued shares of that class, who did not vote in favor of a resolution for the variation, have the right to apply to the CLB to have the variation cancelled and such variation shall not have any effect unless confirmed by the CLB.
Further, under the Indian Companies Act, shareholders holding not less than 10.0% of the issued share capital or shareholders representing not less than 10.0% of the total number of members or 100 members, whichever is lesser, provided that they have paid all calls and other sums due on their shares, have the right to apply to the CLB for an order to bring an end to the matter complained of, on the following grounds of oppression or mismanagement:
| that the companys affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members or in a manner prejudicial to the interests of the company; or |
| that a material change has taken place in the management or control of the company, whether by a change in its board of directors or management or in the ownership of the companys shares and by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company. |
Provisions on Squeeze Out of Minority Shareholders
Under the Indian Companies Act, where an arrangement or contract involving a transfer of shares or any class of shares of a company to another company has been approved by holders holding not less than 90.0% in value of such class of shares, the transferee company has the right to give notice to any dissenting shareholder, within a specified time and in a prescribed manner, that it desires to acquire its shares.
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Unless the CLB, upon an application made by a dissenting shareholder within a month of the aforementioned notice, orders otherwise, the transferee company has the right to acquire the shares of the dissenting shareholder on the same terms as those offered to the other shares to be transferred under the arrangement or contract.
Where, in pursuance of any such arrangement or contract, shares in a company are transferred to another company, and those shares, together with any other shares held by the transferee company (or its nominee or subsidiary company) in the transferor company, constitute not less than 90.0% in value of the shares, the transferee company is required to give notice of such fact to any remaining shareholders within a month of such transfer. Any such remaining shareholder may within three months of the notice from the transferee company, require the transferee company to acquire its shares. Where such notice is given by such remaining shareholder, the transferee company is bound to acquire those shares on the same terms as provided for under the arrangement or contract for the transfer of the other shares of the transferor company or on such terms as may be agreed or on terms that the CLB (upon an application of either the transferee company or the shareholder) thinks fit to order.
Book-Entry Shares and Liquidity
Our equity shares are compulsorily traded in book-entry form and are available for trading under both depository systems in India, namely, the National Securities Depository Limited and Central Depository Services (India) Limited. The International Securities Identification Number (ISIN) for our equity shares is INE 268A01031.
Comparison of Shareholders Rights
We are incorporated under the laws of India. The following discussion summarizes certain material differences between the rights of holders of our equity shares and the rights of holders of the common stock of a typical corporation incorporated under the laws of the State of Delaware which result from differences in governing documents and the laws of India and Delaware. The rights of holders of our ADSs differ in certain respects from those of holders of our equity shares.
This discussion does not purport to be a complete statement of the rights of holders of our equity shares under applicable law in India and our amended and restated Memorandum and Articles of Association or the rights of holders of the common stock of a typical corporation under applicable Delaware law and a typical certificate of incorporation and bylaws.
Delaware Law |
Indian Law | |
Annual and Special Meetings of Shareholders |
||
Shareholders of a Delaware corporation generally do not have the right to call meetings of shareholders unless that right is granted in the certificate of incorporation or bylaws. However, if a corporation fails to hold its | While shareholders of a company do not have any right to call for an annual general meeting, shareholders holding one-tenth of the voting share capital of the company have a right to request an extraordinary general meeting. However, in the event the company defaults in |
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annual meeting within a period of 30 days after the date designated for the annual meeting, or if no date has been designated for a period of 13 months after its last annual meeting, the Delaware Court of Chancery may order a meeting to be held upon the application of a shareholder. | holding an annual general meeting within 15 months from the date of its last annual general meeting, the Government of India may order a meeting to be held upon the application of any shareholder. | |
Quorum Requirements for Meetings of Shareholders | ||
A Delaware corporations certificate of incorporation or bylaws can specify the number of shares which constitute the quorum required to conduct business at a meeting, provided that in no event shall a quorum consist of less than one-third of the shares entitled to vote at a meeting. | Our Articles of Association specify that five members personally present constitute the quorum required to conduct business at a general meeting, which is consistent with Indian law requirements. | |
Board of Directors | ||
A typical certificate of incorporation and bylaws would provide that the number of directors on the board of directors will be fixed from time to time by a vote of the majority of the authorized directors. Under Delaware law, a board of directors can be divided into classes and cumulative voting in the election of directors is only permitted if expressly authorized in a corporations certificate of incorporation. | Our Articles of Association provide that unless otherwise determined by the shareholders at a general meeting, the number of directors shall not be less than three or more than 12. Under Indian law, the appointment and removal of directors (other than additional directors) is required to be approved by the shareholders. There is no concept under Indian law as to division of the board of directors into different classes or cumulative voting. | |
Removal of Directors | ||
A typical certificate of incorporation and bylaws provide that, subject to the rights of holders of any preferred stock, directors may be removed at any time by the affirmative vote of the holders of at least a majority, or in some instances a supermajority, of the voting power of all of the then outstanding shares entitled to vote generally in the election of directors, voting together as a single class. A certificate of incorporation could also provide that such a right is only exercisable when a director is being removed for cause (removal of a director only for cause is the default rule in the case of a classified board). | Under Indian law, a director of a company, other than a director appointed by the Government of India, may be removed by the affirmative vote of shareholders holding a majority of the voting share capital, provided that a special notice of the resolution to remove the director is given in accordance with the provisions of the Indian Companies Act. Under our Articles of Association, any director who has been appointed by any persons pursuant to the provisions of an agreement with us may be removed at any time by such person. |
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Filling Vacancies on the Board of Directors | ||
A typical certificate of incorporation and bylaws provide that, subject to the rights of the holders of any preferred stock, any vacancy, whether arising through death, resignation, retirement, disqualification, removal, an increase in the number of directors or any other reason, may be filled by a majority vote of the remaining directors, even if such directors remaining in office constitute less than a quorum, or by the sole remaining director. Any newly elected director usually holds office for the remainder of the full term expiring at the annual meeting of stockholders at which the term of the class of directors to which the newly elected director has been elected expires. | The board of directors has the power to fill a vacancy on the board and any director so appointed shall hold office only so long as the vacating director would have held such office if no vacancy had occurred. | |
Interested Director Transactions | ||
Under Delaware law, some contracts or transactions in which one or more of a Delaware corporations directors has an interest are not void or voidable because of such interest provided that some conditions, such as obtaining the required approval and fulfilling the requirements of good faith and full disclosure, are met. For an interested director transaction not to be voided, either the stockholders or the board of directors must approve in good faith any such contract or transaction after full disclosure of the material facts or the contract or transaction must have been fair as to the corporation at the time it was approved. If board approval is sought, the contract or transaction must be approved in good faith by a majority of disinterested directors after full disclosure of material facts, even though less than a majority of a quorum. | Under Indian law, contracts or arrangements in which one or more directors of an Indian company has an interest are not void or voidable because of such interest, provided that certain conditions, such as obtaining the required approval of the board of directors and disclosing the nature of the interest to the board of directors, are satisfied. Subject to a few exceptions, for an interested director transaction not to be voided, (a) the interested director is required to disclose the nature of his concern or interest at a meeting of the board of directors; (b) the board of directors is required to grant its consent to the contract or arrangement; (c) the interested director is not permitted to take part in the discussion of, or vote on, the contract or arrangement; and (d) the approval of the Government of India is required to be obtained in the event the paid up share capital of the company is more than Rs. 10 million. An interested director is not to be counted for the purposes of quorum at the time of any such discussion or vote and if the interested director does vote, the vote shall be void. The contravention of relevant provisions is punishable with fine. | |
Cumulative Voting | ||
Delaware law does not require that a Delaware corporation provide for cumulative voting. However, the certificate of incorporation of a Delaware corporation may provide that shareholders of any class or classes or of any series may vote cumulatively either at all elections or at elections under specified circumstances. | There is no concept of cumulative voting under Indian law. |
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Shareholder Action Without a Meeting | ||
Unless otherwise specified in a Delaware corporations certificate of incorporation, any action required or permitted to be taken by shareholders at an annual or special meeting may be taken by shareholders without a meeting, without notice and without a vote, if consents, in writing, setting forth the action, are signed by shareholders with not less than the minimum number of votes that would be necessary to authorize the action at a meeting. All consents must be dated. No consent is effective unless, within 60 days of the earliest dated consent delivered to the corporation, written consents signed by a sufficient number of holders to take the action are delivered to the corporation. | There is no concept of shareholder action without a meeting under Indian law. | |
Business Combinations | ||
With certain exceptions, a merger, consolidation or sale of all or substantially all the assets of a Delaware corporation must be approved by the board of directors and a majority (unless the certificate of incorporation requires a higher percentage) of the outstanding shares entitled to vote thereon. | The sale, lease or disposal of all or substantially all of the assets of an Indian company must be approved by the board of directors and shareholders holding a majority of the voting share capital of the company. | |
Delaware law also requires a special vote of stockholders in connection with a business combination with an interested stockholder as defined in Section 203 of the Delaware General Corporation Law. See - Interested Stockholders below. | Under the Indian Companies Act, the merger of two companies is required to be approved by a court of competent jurisdiction and by a three-fourths majority of each class of shareholders and creditors of the company present and voting at the meetings held to approve the merger. | |
Interested Stockholders | ||
Section 203 of the Delaware General Corporation Law generally prohibits a Delaware corporation from engaging in specified corporate transactions (such as mergers, stock and asset sales, and loans) with an interested stockholder for three years following the time that the stockholder becomes an interested stockholder. Subject to specified exceptions, an interested stockholder is a person or group that owns 15.0% or more of the corporations outstanding voting stock (including any rights to acquire stock pursuant to an option, warrant, agreement, arrangement or understanding, or upon the exercise of | Indian law does not prohibit corporate transactions but does require disclosure of related party transactions in the financial statements of the company. Under applicable accounting standards in India, during the time that a related party transaction exists, a company is required to disclose the name of the related parties, describe the relationship between the parties, describe the nature of the transactions and disclose the volume of the transactions either as an amount or as an appropriate proportion, the amounts or appropriate proportions of outstanding items pertaining to related parties at the balance sheet date and provisions for doubtful debts due from such parties at that date and the amounts written off or written back in the period in respect of debts due from or to related parties. |
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conversion or exchange rights, and stock with respect to which the person has voting rights only), or is an affiliate or associate of the corporation and was the owner of 15.0% or more of the voting stock at any time within the previous three years. | ||
A Delaware corporation may elect to opt out of, and not be governed by, Section 203 through a provision in either its original certificate of incorporation or its bylaws, or an amendment to its original certificate or bylaws that was approved by majority stockholder vote. With a limited exception, this amendment would not become effective until 12 months following its adoption. | Transactions undertaken between a company and a person having a substantial interest in the company would qualify as a related party transaction and would be required to be disclosed under applicable accounting standards in India. Under such accounting standards, a party is considered to have a substantial interest in a company if that party owns, directly or indirectly, 20.0% or more of the voting power in the company. | |
Limitations on Personal Liability of Directors | ||
A Delaware corporation may include in its certificate of incorporation provisions limiting the personal liability of its directors to the corporation or its shareholders for monetary damages for many types of breach of fiduciary duty. However, these provisions may not limit liability for any breach of the duty of loyalty, acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, the authorization of unlawful dividends, shares repurchases or shares barring redemptions, or any transaction from which a director derived an improper personal benefit. A typical certificate of incorporation would also provide that if Delaware law is amended so as to allow further elimination of, or limitations on, director liability, then the liability of directors will be eliminated or limited to the fullest extent permitted by Delaware law as so amended. However, these provisions would not be likely to bar claims arising under US federal securities laws. | Generally, Indian law provides that directors are not personally liable in respect of contracts of the company. However, where a director acts without the approval or ratification of the company, such director may be personally liable. Directors are also personally liable for breach of trust or misfeasance, both civilly and in some cases criminally. The Indian Companies Act contains certain provisions making directors personally liable to discharge certain monetary obligations in their capacity as directors, such as the non-refund of share application monies or excess application monies within the time limit stipulated by the Indian Companies Act. Similarly, the Indian Companies Act provides for civil liability of directors for misstatements in a prospectus issued by the company that has been signed by the directors, including the obligation to pay compensation to any persons subscribing to the shares of the company on the faith of statements made in the prospectus. Directors and officers liability insurance policies are available in India. However, the permissible coverage under such policies is subject to the same limitations as on the ability of the company to indemnify its directors as described under Indemnification of Directors and Officers. | |
Indemnification of Directors and Officers | ||
Under Delaware law, subject to specified limitations in the case of derivative suits brought by a corporations stockholders in its name, a corporation may indemnify any person who is made a party to any third party action, suit or proceeding on account of being a | Under Indian law, subject to specified exceptions, any provision, whether contained in the Articles of Association of a company or in any agreement, exempting or indemnifying any director, officer or auditor of the company against any liability in respect of any negligence, default, breach of duty or breach of trust |
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director, officer, employee or agent of the corporation (or was serving at the request of the corporation in such capacity for another corporation, partnership, joint venture, trust or other enterprise) against expenses, including attorneys fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit or proceeding through, among other things, a majority vote of a quorum consisting of directors who were not parties to the suit or proceeding, if the person: | which would by law otherwise attach to such director, officer or auditor, shall be void. However, pursuant to the exceptions permitted under Indian law, our Articles of Association provide for indemnification of any officer or agent against any liability incurred by such person in successfully defending any proceeding, whether civil or criminal, in which such person is acquitted in whole or in part on the grounds that such person had acted honestly and reasonably, or in connection with an application made by an officer or agent to the High Court of the relevant state for relief for reason that he or she has a reason to apprehend that any proceeding may be brought against him in respect of any negligence, default, breach of duty, misfeasance or breach of trust in which relief has been granted by such High Court. | |
acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or, in some circumstances, at least not opposed to its best interests; and
in a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. |
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Delaware law permits indemnification by a corporation under similar circumstances for expenses (including attorneys fees) actually and reasonably incurred by such persons in connection with the defense or settlement of a derivative action or suit, except that no indemnification may be made in respect of any claim, issue or matter as to which the person is adjudged to be liable to the corporation unless the Delaware Court of Chancery or the court in which the action or suit was brought determines upon application that the person is fairly and reasonably entitled to indemnity for the expenses which the court deems to be proper. | ||
To the extent a director, officer, employee or agent is successful in the defense of such an action, suit or proceeding, the corporation is required by Delaware law to indemnify such person for reasonable expenses incurred thereby. Expenses (including attorneys fees) incurred by such persons in defending any action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding upon receipt of an |
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undertaking by or on behalf of that person to repay the amount if it is ultimately determined that that person is not entitled to be so indemnified. | ||
Appraisal Right | ||
A shareholder of a Delaware corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which the shareholder may receive cash in the amount of the fair value of the shares held by that shareholder (as determined by a court) in lieu of the consideration the shareholder would otherwise receive in the transaction. | There is no concept of appraisal rights under Indian law. | |
Shareholder Suits | ||
Under Delaware law, a stockholder may bring a derivative action on behalf of the corporation to enforce the rights of the corporation, including for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. An individual also may commence a class action suit on behalf of himself or herself and other similarly situated stockholders where the requirements for maintaining a class action under Delaware law have been met. A person may institute and maintain such a suit only if such person was a stockholder at the time of the transaction which is the subject of the suit or his or her shares thereafter devolved upon him or her by operation of law. Additionally, under established Delaware case law, the plaintiff generally must be a stockholder not only at the time of the transaction which is the subject of the suit, but also through the duration of the derivative suit. Delaware law also requires that the derivative plaintiff make a demand on the directors of the corporation to assert the corporate claim before the suit may be prosecuted by the derivative plaintiff, unless such demand would be futile. In such derivative and class actions, the court has discretion to permit the winning party to recover attorneys fees incurred in connection with such action. | Under the Indian Companies Act, shareholders holding not less than one tenth of the issued share capital, shareholders representing not less than one tenth of the total number of members or one hundred members, provided that they have paid all calls and other sums due on their shares, have the right to request the CLB, a statutory body, for an order or injunction as to the taking or not taking of an action by the company on the following grounds of oppression or mismanagement: (a) that the companys affairs are being conducted in a manner prejudicial to public interest, in a manner oppressive to any member or members or in a manner prejudicial to the interests of the company; and (b) that a material change has taken place in the management or control of the company, whether by a change in the board of directors or management or in the ownership of the companys shares, and by reason of such change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company. |
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Inspection of Books and Records | ||
All shareholders of a Delaware corporation have the right, upon written demand, to inspect or obtain copies of the corporations shares ledger and its other books and records for any purpose reasonably related to such persons interest as a shareholder. | Pursuant to our Articles of Association, our board of directors has the authority to determine whether and to what extent and at what times and places and under what conditions or regulations our books are open to the inspection of the shareholders. Further, no shareholder of the company has the right to inspect any record of the company except as conferred under law or authorized by the board of directors or by the shareholders in a general meeting. The books containing the minutes of the proceedings of any general meetings of the shareholders are required to be kept at the registered office of the company and such materials are to be opened for inspection by any shareholder, without charge, subject to reasonable restrictions which may be imposed by a companys articles or the general meeting of the shareholders. If an inspection is refused, the company and every officer of the company in default will be punishable with a fine. Under Indian law, the audited financial statements for the relevant financial year, the directors report and the auditors report are required to be provided to the shareholders before the annual general meeting. | |
Amendment of Governing Documents | ||
Under Delaware law, amendments to a corporations certificate of incorporation require the approval of stockholders holding a majority of the outstanding shares entitled to vote on the amendment. If a class vote on the amendment is required by Delaware law, a majority of the outstanding stock of the class is required, unless a greater proportion is specified in the certificate of incorporation or by other provisions of Delaware law. Under Delaware law, the board of directors may amend bylaws if so authorized in the charter. The stockholders of a Delaware corporation also have the power to amend bylaws. | Under Indian Law, subject to certain specified amendments that require the additional approval of the central government, a company may make amendments to its articles with the approval of shareholders holding not less than 75.0% of the shares of the company. | |
Distributions and Dividends; Repurchases and Redemptions | ||
Delaware law permits a corporation to declare and pay dividends out of statutory surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets. |
Under Indian law, a company may only pay a dividend in an amount in excess of 10% of its paid up capital out of the profits of that year after it has transferred to the reserves of the company a percentage of its profits for that year ranging between 2.5% to 10.0% depending on the rate of dividend proposed to be declared in that year. If the profits for a year are insufficient, the dividend for that year may be declared out of the accumulated profits earned in previous years and transferred to reserves, subject to the following conditions: (i) the rate of dividend |
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Under Delaware law, any corporation may purchase or redeem its own shares, except that generally it may not purchase or redeem those shares if the capital of the corporation is impaired at the time or would become impaired as a result of the redemption. A corporation may, however, purchase or redeem capital shares that are entitled upon any distribution of its assets to a preference over another class or series of its shares if the shares are to be retired and the capital reduced. |
to be declared may not exceed the lesser of the average of the rates at which dividends were declared in the five years immediately preceding the year, or 10.0% of paid-up capital; (ii) the total amount to be drawn from the accumulated profits from previous years and transferred to the reserves may not exceed an amount equivalent to one tenth of the paid-up capital and free reserves and the amount so drawn is first to be used to set off the losses incurred in the financial year before any dividends in respect of preference or equity shares; and (iii) the balance of reserves after withdrawals must not be below 15.0% of paid-up capital. Shareholders have a right to claim a dividend, after such dividend has been declared by the company at a general meeting. Shareholders also have a right to claim the interim dividends, which may be declared only pursuant to a resolution of the companys board of directors. Dividends may be paid only in cash. Where a dividend has been declared by a company but has not been paid within 30 days from the date of declaration to any shareholder entitled to the payment of such dividend, a penalty can be imposed on a director who is knowingly a party to such default. | |
A company is prohibited from acquiring its own shares unless the consequent reduction of capital is effected and sanctioned by a High Court. However, pursuant to certain amendments to the Indian Companies Act, a company has been empowered to purchase its own shares or other specified securities out of its free reserves, or the securities premium account or the proceeds of any shares or other specified securities (other than the kind of shares or other specified securities proposed to be bought back), subject to certain conditions including: (a) the buy-back must be authorized by the articles of association of the company; (b) a resolution must be passed by shareholders holding not less than 75.0% of the outstanding shares in the general meeting of the company authorizing the buy-back; (c) the buy-back is limited to 25.0% of the total paid up capital and free reserves; (d) the ratio of debt owed by the company must not be more than twice the capital and free reserves after such buy-back; and (e) the buy-back must be in accordance with the SEBI (Buy-Back of Securities) Regulations, 1998. | ||
Conditions (a) and (b) mentioned above would not be applicable if the buy-back is for less than 10.0% of the total paid-up equity capital and free reserves of the company and such buy-back |
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has been authorized by the board of directors of the company. Further, a company buying back its securities is not permitted to buy-back any additional securities for a period of one year after the buy-back or to issue any securities of the same kind for a period of six months. | ||
A company is also prohibited from purchasing its own shares or specified securities directly or indirectly. |
Comparison of Corporate Governance Standards
The listing of our ADSs on the NYSE and our equity shares on the NSE and BSE cause us to be subject to NYSE listing standards and Indian corporate governance requirements set out in the listing agreements that we have entered into with the NSE and BSE.
The NYSE listing standards applicable to us, as a foreign private issuer, are considerably different from those applicable to companies incorporated in the United States. Under the NYSE rules, we need only (i) establish an independent audit committee that has specified responsibilities as described in the following table; (ii) provide prompt certification by our chief executive officer of any material non-compliance with any corporate governance rules of the NYSE; (iii) provide periodic (annual and interim) written affirmations to the NYSE with respect to our corporate governance practices; and (iv) provide a brief description of significant differences between our corporate governance practices and those followed by US companies.
The corporate governance requirements which apply to us as a listed company on the NSE and BSE are contained in Clause 49 of the listing agreements that we have entered into with the NSE and BSE. Clause 49 has been amended from time to time.
The following table summarizes certain material differences in the corporate governance standards applicable to us under our listing agreements with the NSE and BSE and the corporate governance standards for a NYSE-listed company, both to a typical US domestic issuer and the requirements that would be different for us as a foreign private issuer.
Standard for NYSE-Listed Companies |
Requirements under our Listing Agreements with the NSE and BSE | |
Director Independence | ||
A majority of the board must consist of independent directors. Independence is defined by various criteria including the absence of a material relationship between the director and the listed company. For example, directors who are employees, are immediate family of an executive officer of the company or receive over $120,000 per year in direct compensation from the listed company are not independent. Directors who are employees of or otherwise affiliated through immediate family with the listed companys independent auditor are also not independent. Determinations of independence were made by the board. | If the Chairman of the board of directors is an executive director, at least 50.0% of the board of directors should comprise of independent directors. If the Chairman of the board of directors is a non-executive director, then at least one third of the board should comprise of independent directors, provided that where the non-executive Chairman is a promoter of the company or is related to any promoter or person occupying a management position at the board of directors level or at one level below that, at least 50.0% of the board of directors should comprise of independent directors. Clause 49 of the listing agreements define an independent director to mean a non-executive |
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The non-management directors must meet at regularly scheduled executive sessions without management.
(The NYSE requirements for a board consisting of independent directors and non-management directors meeting at regularly scheduled executive sessions do not apply to us as a foreign private issuer.) |
director who (i) is receiving directors remuneration and does not have any other material pecuniary relationship or transaction with the company, its promoters, its directors, its senior management or its holding company or its subsidiaries or its associates, which may affect the independence of the director; (ii) is not related to promoters or management at the board level or at one level below the board; (iii) has not been an executive of the company in the immediately preceding three financial years; (iv) is not a partner or an executive and has not been a partner or executive during the preceding three financial years, of the statutory audit firm or the internal audit firm or the legal firm and consulting firm of the company; (v) is not a material supplier, service provider, customer, lessee, or lessor of the company; (vi) is not a shareholder, owning 2.0% or more of the voting shares of the company; and (vii) is not less than 21 years of age. | |
There is no comparable requirement under Indian law. | ||
Audit Committee |
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The audit committee must (i) be comprised entirely of independent directors; (ii) be directly responsible for the appointment, compensation, retention and oversight of any registered public accounting firm engaged (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the listed issuer, and each such registered public accounting firm must report directly to the audit committee; (iii) establish procedures for the receipt, retention and treatment of complaints with respect to accounting and auditing issues; (iv) establish procedures for the confidential, anonymous submission by employees of the listed issuer of concerns regarding questionable accounting or auditing matters; (v) be authorized to engage independent counsel and other advisers it deems necessary to perform its duties; and (vi) be given sufficient funding by the board of directors to compensate the independent auditors and other advisors as well as for the payment of ordinary administrative expenses incurred by the committee that are necessary or appropriate in carrying out its duties. | The listing agreements require that the role of the audit committee should include the following:
To oversee the companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.
To recommend to the board of directors the appointment and removal of the external auditor, fix the audit fee and also approve of payment to such auditor for any other services rendered by him.
To review with management the annual financial statements before submission to the board of directors, focusing primarily on matters required to be included in the Directors Responsibility Statement, any changes in accounting policies and practices, any major accounting entries based on exercise of judgment by management, any qualifications in the draft audit report, any significant adjustments arising out of the audit, the going concern assumption, compliance with |
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accounting standards, compliance with stock exchange and legal requirements concerning financial statements and any related party transactions. | ||
To review with management the statement of uses or application of funds raised through an issue of securities, the statement of funds utilized for purposes other than as stated in the offer document and the report submitted by the monitoring committee agency, and to make appropriate recommendations. | ||
To review with management the performance of external and internal auditors, and the adequacy of internal control systems. | ||
To review the adequacy of the internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. | ||
To discuss with internal auditors any significant findings and follow-up thereon. | ||
To review the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and report the matter to the board. | ||
To discuss with external auditors before the audit commences, the nature and scope of the audit as well as to conduct post-audit discussions to ascertain any area of concern. | ||
To review the companys quarterly financial statements and management policies. | ||
To examine the reasons for substantial defaults in payment to depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors. | ||
To review the functioning of whistle blower mechanism. | ||
To review the managements discussion and |
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analysis of financial condition and results of operation. | ||
To review the statement of significant related party transactions submitted by the management. | ||
To review the management letters/letters of internal control weaknesses issued by the statutory auditors. | ||
To review the internal audit reports relating to internal control weaknesses. | ||
To review the appointment, removal and terms of remuneration of the chief internal auditor. | ||
The audit committee must consist of at least three members, and each member must be independent within the meaning established by the NYSE and Rule 10A-3 under the Exchange Act. The audit committee members must be financially literate or become financially literate within a reasonable period of their appointment to the audit committee. | Clause 49 of the listing agreements require that a qualified and independent audit committee should be set up, which has a minimum of three members. Two-thirds of its members should be independent directors and the chairman of the audit committee should be an independent director. | |
Each listed company must have disclosed whether its board of directors has identified an audit committee financial expert (as defined under applicable rules of the SEC) and if not, the reasons why the board has not done so. | The listing agreements also require that all members of the audit committee should be financially literate and at least one member should have financial management and accounting expertise. | |
The audit committee must have a written charter that addresses the committees purpose and responsibilities. | In addition to the role of the audit committee described above, the audit committee is required to have powers that include the ability to investigate any activity within their terms of reference, seek information from any employee, obtain outside legal or other professional advice and secure attendance of outsiders with relevant expertise if this is considered necessary. | |
At a minimum, the committees purpose must be to assist the board in the oversight of the integrity of the companys financial statements, the companys compliance with legal and regulatory requirements, the independent auditors qualifications and independence and the performance of the companys internal audit function and independent auditors. | The listing agreements require an Indian listed company to have an internal audit function. | |
The duties and responsibilities of the audit committee include conducting a review of the independent auditing firms annual report describing the firms internal quality control procedures, any material issues raised by the most recent internal quality control review or peer review of the firm and any steps taken to address such issues. | Clause 49 of the listing agreements also require that the audit committee should meet at least four times in a year and not more than four months should lapse between two meetings. |
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The audit committee is also to assess the auditors independence by reviewing all relationships between the company and its auditor. It must establish the companys hiring guidelines for employees and former employees of the independent auditor. | ||
The committee must also discuss the companys annual audited financial statements and quarterly financial statements with management and the independent auditors, the companys earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies, and policies with respect to risk assessment and risk management. | ||
Each listed company must have an internal audit function. | ||
The committee must also meet separately, periodically, with management, with internal auditors (or other personnel responsible for the internal audit function) and with independent auditors and review with the independent auditor any audit problems or difficulties and managements response. | ||
The committee must report regularly to the board. | ||
(The NYSE audit committee requirements apply to us as foreign private issuers are not exempt from this requirement.) | ||
Compensation Committee | ||
Listed companies must have a compensation committee composed entirely of independent board members as defined by the NYSE listing standards. | The listing agreements state that a company may set up a remuneration committee, which should be comprised of at least three directors, all of whom shall be non-executive directors and the chairman of the remuneration committee shall be an independent director. | |
The committee must have a written charter that addresses its purpose and responsibilities. | ||
These responsibilities include (i) reviewing and approving corporate goals and objectives relevant to CEO compensation; (ii) evaluating CEO performance and compensation in light of such goals and objectives for the CEO; (iii) based on such evaluation, reviewing and approving CEO compensation levels; (iv) recommending to the board non-CEO compensation, incentive compensation plans and equity-based plans; and (v) producing a report on executive compensation as required by the SEC to be included in the companys annual proxy statement or annual report. The committee must also conduct an annual performance self-evaluation. |
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(The NYSE compensation committee requirements do not apply to us as a foreign private issuer.) | ||
Nominating/Corporate Governance Committee | ||
Listed companies must have a nominating/corporate governance committee composed entirely of independent board members. | There is no comparable provision under Indian law. | |
The committee must have a written charter that addresses its purpose and responsibilities, which include (i) identifying individuals qualified to become board members; (ii) selecting, or recommending that the board select, the director nominees for the next annual meeting of shareholders; (iii) developing and recommending to the board a set of corporate governance principles applicable to the company; (iv) overseeing the evaluation of the board and management; and (v) conducting an annual performance evaluation of the committee. |
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(The NYSE nominating/corporate governance committee requirements do not apply to us as a foreign private issuer.) |
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Equity-Compensation Plans | ||
Under Section 79A of the Indian Companies Act, a company may issue equity shares of an existing class of shares to employees or directors at a discount or for consideration other than cash if such issue is authorized by a special resolution passed by the company in a general meeting. | ||
Shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, with limited exceptions.
(The NYSE requirement for shareholder approval of equity-compensation plans does not apply to us as a foreign private issuer.) |
The SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, as amended, also require that a special resolution be passed by the shareholders of a company in a general meeting to approve an employee stock option or stock purchase scheme. | |
Corporate Governance Guidelines | ||
Listed companies must adopt and disclose corporate governance guidelines. | Corporate governance requirements for listed companies in India are included in Clause 49 of the listing agreements required to be entered into with the NSE and BSE. | |
(The NYSE requirement that corporate governance guidelines be adopted does not apply to us as a |
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foreign private issuer. However, we must disclose differences between the corporate governance standards to which we are subject and those of the NYSE.) | ||
Code of Business Conduct and Ethics | ||
All listed companies, United States and foreign, must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers.
(The NYSE requirement for a code of business conduct and ethics does not apply to us as a foreign private issuer.) |
Clause 49 of the listing agreements require that the board of directors shall lay down a code of conduct for all board members and senior management of a listed company. This code of conduct is required to be posted on the website of the company. Further, all board members and senior management personnel are required to affirm compliance with the code on an annual basis and the companys annual report must contain a declaration to this effect signed by its CEO. |
C. Material Contracts
The following is a summary of each of our material contracts, other than contracts entered into in the ordinary course of business, to which we are a party, for the two years immediately preceding the date of this annual report.
Shared Services Agreement dated December 5, 2003 among STL, Sterlite Gold, Vedanta and Sterlite
See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
Consultancy Agreement dated March 29, 2005 between Vedanta and Sterlite
See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
Representative Office Agreement dated March 29, 2005 between Vedanta and Sterlite
See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
Outsourcing Services Agreement betweenVedanta and Sterlite
See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
Outstanding loans
See Item 5. Operating and Financial Review and ProspectsOutstanding Loans.
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Option Agreement dated February 18, 2005 between Sterlite, IFL and ICICI Bank, Novation Agreement dated November 15, 2008 between IFL, ICICI Bank Limited and Sterlite in respect of the Rs. 772.5 million term loan facility and Novation Agreement dated November 15, 2008 between IFL, ICICI Bank Limited and Sterlite in respect of the Rs. 250 million term loan facility
On February 18, 2005, we entered into an option agreement with IFL and ICICI Bank pursuant to which, in consideration of the payment of an option fee of Rs. 2 million by ICICI Bank, we granted to ICICI Bank a put option to require us to purchase from ICICI Bank all amounts outstanding, due and payable by IFL to ICICI Bank under two term loan agreements, both dated February 8, 2005, as amended, or the Rupee Term Loan Agreements, between IFL and ICICI Bank. The option price is an amount equivalent to the amount outstanding under the Rupee Term Loan Agreements on the date of exercise of the put option. ICICI Bank is entitled to exercise the put option upon the occurrence of certain put option events, including any delay or default in the repayment of any amounts or the occurrence of an event of default under the Rupee Term Loan Agreements. In fiscal 2009, we, ICICI Bank and IFL entered into two novation agreements to take over the two term loans aggregating Rs. 1,023 million ($30.0 million) which was made by ICICI Bank to IFL. The option agreement has subsequently been terminated. See Item 5. Operating and Financial Review and ProspectsOutstanding Loans.
Corporate Guarantee dated February 8, 2005 by Sterlite to ICICI Bank on behalf of IFL
On February 8, 2005, we granted a guarantee in favor of ICICI Bank and agreed to pay on demand all amounts payable by IFL under the Rupee Term Loan Agreement in the event of any default on the part of IFL to comply with or perform any of the terms, conditions and covenants in the Rupee Term Loan Agreement. Subsequent to our entering into the novation agreements to take over the Rs. 1,023 million ($30.0 million) term loan which was originally made by ICICI Bank to IFL, our guarantee to ICICI Bank was terminated.
Loan agreement dated April 1, 2010 between Monte Cello BV and Vedanta Jersy Investment Limited
See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
Loan agreement dated November 3, 2010 between Monte Cello BV and Welter Trading Limited
See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
Loan Agreement dated February 4, 2008 between Sterlite and Vedanta Aluminium
See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
Loan Agreement dated February 15, 2011 between THL Zinc Limited and BMM
See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
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Memoranda of Understanding dated August 29, 2007 and December 23, 2007, as amended, between Sterlite and Vedanta Aluminium
See Item 7. Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
Term Sheet dated May 22, 2009 between Sterlite Industries (India) Limited and Vedanta Aluminium Limited relating to the subscription of 9.75% Non-Convertible Debentures.
See Item 7, Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
Sponsor Support Agreement dated June 29, 2009 among Sterlite, Sterlite Energy and the State Bank of India
See Item 7, Major Shareholders and Related Party TransactionsB. Related Party TransactionsRelated Transactions.
Share Purchase Agreement dated May 9, 2010 between Anglo Operations Limited, Taurus International S.A., Anglo South Africa Capital (Pty) Limited, Anglo American Services (UK) Limited, Welter Trading Limited and Vedanta Resources Plc.
See Item 4. Information on the CompanyOur BusinessOur Zinc International Business.
Amendment Agreement dated December 16, 2010 between Anglo Operations Limited, Taurus International S.A., Anglo South Africa Capital (Pty) Limited, Anglo American Services (UK) Limited, Weltcr Trading Limited, THL Zinc Limited, Labaume B.V., Pecvest 17 (Proprietary) Limited and Vedanta Resources Plc as an amendment to the Share Purchase Agreement dated May 9, 2010
See Item 4. Information an the CompanyOur BusinessOur Zinc International Business.
Corparate Guarantee dated December 8, 2010 given by SIIL to IL&FS Trust Company Limited on behalf of TSPL
See Item 5. Operating and Financial Review and ProspectsOutstanding Loans.
Share Purchase and Shareholders Agreement dated September 17, 2010 between SIIL, Leighton Contractors (India) Private Limited and Vizag General Cargo Berth Private Limited
See Item 5. Operating and Financial Review and ProspectsRecent Developments.
D. Exchange Controls
General
The Government of India regulates ownership of Indian companies by foreigners. Foreign investment in securities issued by Indian companies is generally regulated by the FEMA, read with the rules, regulations and notifications issued under FEMA. A person resident outside India can transfer any security of an Indian company or any other security to an Indian resident only in accordance with the terms and conditions specified in FEMA and the rules, regulations and notifications made thereunder or as permitted by the RBI.
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Foreign Direct Investment
The Government of India, pursuant to its liberalization policy, set up the Foreign Investment Promotion Board, or FIPB, to regulate all foreign direct investment. Foreign direct investment, or FDI, means investment by way of subscription and/or purchase of shares or securities convertible or exchangeable into shares of an Indian company by a non resident investor. FDI in India can be either through the automatic route where no prior approval of any regulatory authority is required or through the government approval route. Over a period of time, the Government of India has relaxed the restrictions on foreign investment. Subject to certain conditions, under current regulations, FDI in most industry sectors does not require prior approval of the FIPB or the RBI if the percentage of equity holding by all foreign investors does not exceed specified industry-specific thresholds. These conditions include certain minimum pricing requirements, compliance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as amended, or the Takeover Code, and ownership restrictions based on the nature of the foreign investor. FDI is prohibited in certain sectors such as retail trading. Also, certain investments require the prior approval of the FIPB, including:
| investments in excess of specified sectoral caps or investments in sectors in which FDI is not permitted or in sectors which specifically require approval of the FIPB; |
| investments by any foreign investor who had on January 12, 2005, an existing joint venture or a technology transfer/trade mark agreement in the same field as the Indian company in which the FDI is proposed. However, no prior approval is required if: (a) the investor is a venture capital funds registered with SEBI or a multinational financial institution, or (b) the existing joint venture, investment by either of the parties is less than 3%, or (c) the existing joint venture or collaboration is now defunct or sick, or (d) for transfer of shares of an Indian company engaged in the information technology sector or in the mining sector for the same area or mineral; |
| foreign investment of more than 24% in the equity capital of units manufacturing items reserved for small scale industries; and |
| all proposals relating to the acquisition of shares of an Indian company by a foreign investor (including an individual of Indian nationality or origin residing outside India and corporations established and incorporated outside India) which are not under the automatic route. |
The Government of India recently amended the method of calculating foreign investment in an Indian company pursuant to Press Note No. 2 (2009 Series) dated February 13, 2009 and Press Note No. 4 (2009 Series) dated February 25, 2009.
A person residing outside India (other than a citizen of Pakistan or Bangladesh) or any entity incorporated outside India (other than an entity incorporated in Pakistan or Bangladesh and an Overseas Corporate Body as defined in FEMA) has general permission to purchase shares, convertible debentures or preference shares of an Indian company, subject to certain terms and conditions.
Currently, subject to certain exceptions, FDI and investment by Non-Resident Indians, or NRIs (as such term is defined in FEMA), in Indian companies do not require the prior approval of the FIPB or the RBI. The Government of India has indicated that in all cases where FDI is allowed on an automatic basis without FIPB approval, the RBI would continue to be the primary agency for the purposes of monitoring and regulating foreign investment. The foregoing description applies only to an issuance of shares and not to a transfer of shares by Indian companies.
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Under the current regulations, in the case of mining and processing of aluminum, copper and zinc, FDI up to 100% is permitted under the automatic route.
Issue of ADSs
The Ministry of Finance, pursuant to the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993, as amended, or the ADR Scheme, has permitted Indian companies to issue ADSs. Certain relaxations in the ADR Scheme have also been notified by the RBI. The ADR Scheme provides that an Indian company may issue ADSs to a person resident outside India through a depositary without obtaining any prior approval of the Ministry of Finance of India or the RBI, except in certain cases. An Indian company issuing ADSs must comply with certain reporting requirements specified by the RBI. An Indian company may issue ADSs if it is eligible to issue shares to persons resident outside India under the FDI scheme. Similarly, an Indian company which is not eligible to raise funds from the Indian capital markets, including a company which has been restricted from accessing the securities market by the SEBI, will not be eligible to issue ADSs.
Investors do not need to seek specific approval from the Government of India to purchase, hold or dispose of ADSs. However, overseas corporate bodies, or OCBs, as defined under applicable RBI regulations, which are not eligible to invest in India and entities, prohibited to buy, sell or deal in securities by the SEBI are not eligible to subscribe to ADSs issued by Indian companies. We have obtained approval from the relevant Indian stock exchanges for listing of the equity shares underlying the ADSs.
The proceeds of an ADS issue may not be used for investment in stock markets and real estate. There are no other end-use restrictions on the use of the proceeds of an ADS issue. Further, issue-related expenses for an issue of ADSs shall be subject to a ceiling of 7.0% of the total issue size. Issue-related expenses beyond this ceiling would require the RBI approval.
Restrictions on Redemption of ADSs, Sale of the Equity Shares Underlying the ADSs and the Repatriation of Sale Proceeds
Other than mutual funds that may purchase ADSs subject to terms and conditions specified by the RBI and employees in connection with stock options, a person resident in India is not permitted to hold ADSs of an Indian company. Under Indian law, ADSs issued by Indian companies to non-residents have free transferability outside of India. Under the ADR Scheme, a non-resident holder of the ADSs may transfer such ADSs, or request that the overseas depositary bank redeem such ADSs. A non-resident holder of ADS can transfer or redeem the ADS into underlying equity shares of the company subject to the procedure specified under the ADR Scheme. In the case of redemption, the overseas depositary bank will request the domestic custodian bank to release the corresponding underlying shares in favor of the non-resident investor for being sold directly on behalf of the non- resident investor, or being transferred in the books of account of the company in the name of the non-resident.
The re-issuance of ADS is subject to availability of head room which is equivalent to the difference between the number of ADS originally issued and the number of ADS outstanding, as further adjusted for ADS redeemed into underlying shares and registered in the name of the non-resident investor. Accordingly, shares which are registered in the name of the non-resident investor post-redemption will not be eligible for participation under the limited two way fungibility scheme.
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Foreign investors holding ADS or equity shares equal to or more than 15.0% of the companys total equity capital/ voting rights may be required to make a public announcement of offer to the remaining shareholders of the company under the Takeover Code, when further acquisition of shares or ADS above 15.0% by the foreign investor exceeds the limits specified under the Takeover Code.
Investors who seek to sell any equity shares in India withdrawn from the depositary facility and to convert the Rupee proceeds from the sale into foreign currency and repatriate the foreign currency from India will also be subject to certain exchange control restrictions on the conversion of Rupees into dollars. The Government of India has relaxed restrictions on capital account transactions by resident Indians who are now permitted to remit up to $200,000 per financial year (April-March) for any permissible capital account transaction or a combination of capital account and current account transaction other than remittances made directly or indirectly to Bhutan, Nepal, Mauritius or Pakistan or to countries identified by the Financial Action Task Force as non co-operative countries and territories.
Fungibility of ADSs
As per the directions issued by the Ministry of Finance in coordination with RBI on the two-way fungibility of ADSs, an ADS holder who has redeemed the ADS into underlying equity shares and has sold it in the Indian Market is permitted to purchase to that extent, through a registered stock broker in India, shares of an Indian company for the purposes of converting the same into ADSs, subject, inter alia, to the following conditions:
| the shares of the Indian company are purchased on a recognized stock exchange in India; |
| the shares of the Indian company are purchased on a recognized stock exchange with the permission of the domestic custodian for the ADSs issued by the Indian company and such shares are deposited with the custodian after purchase; |
| the custodian agreement is amended to enable the custodian to accept shares from entities other than the company; |
| the number of shares of the Indian company so purchased does not exceed the head room which is equivalent to the difference between numbers of ADS originally issued and number of ADS outstanding, as further adjusted for ADS redeemed into underlying shares and registered in the name of the non-resident investor (and is further subject to specified sectoral caps); and |
| compliance with the provisions of the ADR Scheme and the guidelines issued thereunder. |
Sponsored ADS Facilities
The RBI has permitted existing shareholders of Indian companies to sell their shares through the issuance of ADSs against the block of existing shares of an Indian company, subject to the following conditions:
| the facility to sell the shares would be available pari passu to all categories of shareholders; |
| the sponsoring company whose shareholders propose to divest existing shares in the overseas market through the issue of ADSs will give an option to all its shareholders indicating the number of shares to be divested and the mechanism of determining the price under the applicable ADS norms. |
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If the shares offered for divestment are more than the pre-specified number to be divested, shares would be accepted from the existing shareholders in proportion to their existing shareholdings;
| the proposal for divestment of the shares would have to be approved by a special resolution of the Indian company; |
| the proceeds of the ADS issue raised abroad shall be repatriated to India within a period of one month from the closing of the issue. However, the proceeds of the ADS offering can also be retained abroad to meet the future foreign exchange requirements of the company; and |
| the issue-related expenses in relation to the public issue of ADSs under the ADR Scheme would be subject to a ceiling of 7% of the issue size, in the case of public issues, and 2.0% of the issue size, in the case of private placements. Issue-related expenses would include underwriting commissions and charges, legal expenses and reimbursable expenses. Issue-related expenses shall be passed on to shareholders participating in the sponsored issue on a pro-rata basis. Issue-related expenses beyond the ceiling would require the approval of the RBI. |
Corporate Actions
The ADS holders are entitled to receive the benefits of corporate actions such as bonus, split and dividend in proportion to the number of equity shares represented by the ADS. The benefits are subject to the terms and conditions of the FEMA regulations and the offer documents of ADS issue.
Buyback of ADS
Shares issued under the ADR Scheme represented by the ADS, are eligible for participation in a buy back scheme, if any, announced by us. In the event that we decide to implement the buy back scheme for ADS holders, the option form for the buy back scheme will be distributed to the ADS custodian who will submit the same to the overseas depository. ADS holders who wish to participate in the buy back scheme may exercise the buy back option by converting the ADS into ordinary equity shares and surrendering those shares to the company under the buyback scheme.
FCCBs
Eligibility
Foreign Currency Convertible Bonds, or FCCBs, are convertible bonds issued by an Indian company expressed in foreign currency (such as US dollar), the principal and interest in respect of which is payable in foreign currency. FCCBs are required to be issued in accordance with the ADR and FCCB Scheme and subscribed by a non-resident in foreign currency and are convertible into equity shares of the issuing Indian company. The External Commercial Borrowing Guidelines, or ECB Guidelines, apply to FCCBs. The provisions of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations 2000, as amended, are also applicable to FCCBs and the issue of FCCBs must adhere to such provisions.
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Automatic Route
Under the terms of the ADR and FCCB Schemes and the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations 2000, as amended, read together with the ECB Guidelines, Indian companies are permitted to issue FCCBs under the automatic route in the manner set forth therein, subject to certain conditions specified therein, including:
| the issue of FCCBs are subject to the FDI sectoral caps prescribed by the Ministry of Finance; |
| a public issue of FCCBs is to be made through reputable lead managers; |
| FCCBs cannot be issued with attached warrants; |
| issue-related expenses shall not exceed 4.0% of the issue size; and |
| FCCBs issued under the automatic approval route to meet Indian Rupee expenditure are required to be hedged unless there is a natural hedge in the form of uncovered foreign exchange receivables. |
The FCCBs issued by us would be convertible into ADS subject to the terms and conditions of FEMA guidelines and the offering circular or issue prospectus of the FCCB. Upon receipt of the conversion notice from FCCB holders, the equity shares in the applicable ADS would be issued to the custodian based on which the holders of FCCB will obtain their allotted proportion of ADS. We have obtained in-principle approval from the NSE and BSE, where our equity shares are currently listed, and prior to allotment of the FCCBs, for listing the shares which will be issued upon conversion of the FCCBs into ADS. We are required to apply for and obtain the approval for listing and trading of the equity shares underlying the FCCBs after the completion of the allotment of the equity shares. Upon receipt of listing and trading approvals, the equity shares issued on conversion are expected to be listed on the NSE and the BSE and will be tradable on such stock exchanges once listed thereon, which is expected to occur within 45 days after the relevant conversion date unless we state otherwise.
Pricing of FCCB Issue
Pursuant to a circular dated November 27, 2008 issued by the Ministry of Finance, the pricing guidelines set forth in the ADS and FCCB Schemes have been amended. Pursuant to the circular, the issue price of FCCB and ADS should be not less than the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the two weeks preceding the relevant date, where the relevant date means the date of the meeting on which our Board of Directors or the Committee of Directors duly authorized by the Board of Directors decides to issue the FCCB or ADS.
Regulatory Filings
We are required to make the following filings in connection with the issuance of FCCBs and upon conversion of the FCCBs into equity shares:
| filing Form No. 83 with RBI through an authorised dealer; |
| filing of information with RBI subsequent to the issuance of FCCBs which would include: the total amount of FCCBs issued, the names of the investors resident outside India and the number of FCCBs issued to each of them, and the amount repatriated to India through normal banking channels duly supported by Foreign Inward Remittance Certificates; |
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| filing of the return of allotment with the Registrar of Companies, Goa, Daman and Diu, at the time of conversion of the FCCBs into equity shares; |
| on conversion of the FCCBs into equity shares, the filing of information with the Regional Office of the RBI in the prescribed Form FC-GPR, and to the Department of Statistics and Information Management, RBI within 7 days of the month to which it relates, in Form No. ECB-2; and |
| monthly filing of Form No. ECB-2 with RBI through an authorised dealer. |
Buy Back of FCCBs
RBI has permitted Indian companies to buy back the FCCBs under automatic and approval routes until December 31, 2009 and through the approval route until June 30, 2010. After June 30, 2010, buy back of the FCCBs may not be possible as there may not be any further extension of timeline by RBI for buy back.
Restrictions on equity shares underlying the ADSs issued arising on conversion of FCCBs and the repatriation of Sale Proceeds
FCCB holders who have converted the FCCBs into ADS in accordance with the provisions of the offering circular are entitled to the same rights and subject to the same conditions of normal ADS holders and may withdraw the equity shares underlying ADS from the depository at any time. A non- resident holder of ADS can transfer or redeem the ADS into underlying equity shares of the company subject to the procedure specified under the ADR Scheme. In the case of redemption, the overseas depositary bank will request for the domestic custodian bank to release the corresponding underlying shares in favor of the non-resident investor, for being sold directly on behalf of the non- resident investor, or being transferred in the books of account of the company in the name of the non-resident.
Foreign investors who elect to convert FCCB into ADS would be required to make a public announcement of offer to remaining shareholders of the company under the Takeover Code if the conversion results in their direct or indirect holding in the company equivalent to or in excess of 15.0% of the companys total equity capital or voting rights.
Investment by Foreign Institutional Investors
Pension funds, mutual funds, investment trusts, insurance or reinsurance companies, international or multinational organizations or agencies thereof, foreign governmental agencies, sovereign wealth funds or foreign central banks, endowment funds, university funds, foundation or charitable trusts or charitable societies investing on their own behalf and asset management companies, investment managers or advisors, banks or institutional portfolio managers, trustees, investing their proprietary funds or on behalf of broad based funds must register with SEBI as a foreign institutional investor, or FII, and obtain the approval of the RBI unless they are investing in securities of Indian companies through FDI.
FIIs who are registered with SEBI are required to comply with the provisions of the SEBI (Foreign Institutional Investors) Regulations, 1995, as amended, or the Foreign Institutional Investors Regulations. A registered FII may, subject to the pricing and ownership restrictions discussed below, buy and freely sell securities issued by any Indian company, realize capital gains on investments made through the initial amount invested in India, subscribe to or renounce rights offerings for shares, appoint a domestic custodian for custody of investments made and repatriate the capital, capital gains, dividends, income received by way of interest and any compensation received towards sale or renunciation of rights offerings of shares.
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Subject to the terms and conditions set out in the Foreign Institutional Investor Regulations, a registered FII or its sub-account may buy or sell equity shares, debentures and warrants of unlisted, listed or to be listed Indian companies through stock exchanges in India at ruling market price and also buy or sell shares or debentures of listed or unlisted companies other than on a stock exchange in compliance with the applicable SEBI/RBI pricing norms. Under the portfolio investment scheme under Schedule 2 to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 and the Foreign Institutional Investors Regulations, an FII is not permitted to hold more than 10.0% of the total issued capital of an Indian company in its own name; a foreign corporate or individual sub-account of the FII is not permitted to hold more than 5.0% of the total issued capital of an Indian company, and a broad based sub-account is not permitted to hold more than 10.0% of the total issued capital of an Indian company. The total holding of all FIIs together with their sub-accounts in an Indian company is subject to a cap of 24.0% of the total issued capital of the company, which may be increased up to the percentage of sectoral cap on FDI in respect of the said company pursuant to a resolution of the board of directors of the company and the approval of the shareholders of the company by a special resolution in a general meeting. Our board of directors and shareholders have approved an increase in the existing FII limit in our company to 49.0% of our total issued capital.
Regulation 15A of the Foreign Institutional Investors Regulations provides that an FII may issue or otherwise deal in offshore derivative instruments such as participatory notes, equity linked notes or any other similar instruments against underlying securities, listed or proposed to be listed on any stock exchange in India, only in favor of those entities which are regulated by any regulatory authority in the countries of their incorporation or establishment, subject to compliance with know your client requirements.
SEBI has clarified that certain categories of entities would be deemed to be regulated entities for purposes of Regulation 15A of the Foreign Institutional Investors Regulations. An FII is also required to ensure that no further issue or transfer of any offshore derivative instrument is made to any person other than a person regulated by an appropriate foreign regulatory authority.
There is uncertainty under Indian law about the tax regime applicable to FIIs that hold and trade ADSs. FIIs are urged to consult with their Indian legal and tax advisors about the relationship between the FII guidelines and ADSs and any equity shares withdrawn upon surrender of ADSs.
Portfolio Investment by Non-Resident Indians
A variety of methods for investing in shares of Indian companies are available to NRIs. Under the portfolio investment scheme, each NRI can purchase up to 5.0% of the paid-up share capital of an Indian company, subject to the condition that the aggregate paid-up share capital of an Indian company purchased by all NRIs through portfolio investments cannot exceed 10.0%. The 10.0% limit may be raised to 24.0% if a special resolution is adopted by the shareholders of the company. In addition to portfolio investments in Indian companies, NRIs may also make foreign direct investments in Indian companies under the FDI route discussed above. These methods allow NRIs to make portfolio investments in shares and other securities of Indian companies on a basis not generally available to other foreign investors.
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Overseas corporate bodies controlled by NRIs, or OCBs, were previously permitted to invest on more favorable terms under the portfolio investment scheme. The RBI no longer recognizes OCBs as an eligible class of investment vehicle under various routes and schemes under the foreign exchange regulations.
Transfer of Shares
Previously the sale of shares of an Indian company from a non-resident to a resident required RBI approval, unless the sale was made on a stock exchange through a registered stockbroker at the market price. The RBI has now granted general permission to persons resident outside India to transfer shares and convertible debentures held by them to an Indian resident, subject to compliance with certain terms and conditions and reporting requirements. A resident who wishes to purchase shares from a non-resident must, pursuant to the relevant notice requirements, file a declaration with an authorized dealer in the prescribed Form FC-TRS, together with the relevant documents and file an acknowledgment thereof with the Indian company to effect transfer of the shares. However, a non-resident to whom the shares are being transferred is required to obtain the prior permission of the Government of India to acquire the shares if he had on January 12, 2005, an existing joint venture or technology transfer agreement or trademark agreement in the same field other than in the information technology field to that in which the Indian company whose shares are being transferred is engaged, except:
| investments to be made by venture capital funds registered with SEBI or a multinational financial institution; |
| where the existing joint venture investment by either of the parties is less than 3.0%; |
| where the existing venture/collaboration is defunct or sick; or |
| for transfer of shares of an Indian company engaged in the information technology sector or in the mining sector for the same area or mineral. |
A non-resident may also transfer any security to a person resident in India by way of gift. The transfer of shares from an Indian resident to a non-resident does not require the prior approval of the Government of India or the RBI if the activities of the investee company are under the automatic route pursuant to the FDI Policy and are not under the financial services sector, the investor does not have an existing joint venture or technology transfer agreement or trademark agreement in the same field as described above, the non-resident shareholding is within sector limits under the FDI policy, the transaction is not under the Takeover Code and the pricing is in accordance with the guidelines prescribed by SEBI and the RBI.
A non-resident of India is generally permitted to sell equity shares underlying the ADSs held by him to any other non-resident of India without the prior approval of the RBI. However, approval by the FIPB is required if the person acquiring the shares has a previous venture or tie up in India in the same field in which the company whose shares are being transferred is engaged. Further, the RBI has granted general permission for the transfer of shares by a person resident outside India to a person resident in India, subject to compliance with certain pricing norms and reporting requirements.
Other than mutual funds that may purchase ADSs subject to terms and conditions specified by the RBI and employees in connection with stock options, a person resident in India is not permitted to hold ADSs of an Indian company. An ADS holder is permitted to surrender the ADSs held by him in an Indian company and to receive the underlying equity shares under the terms of the deposit agreement.
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Exchange Rates
Substantially all of our revenue is denominated or paid with reference to US dollars and most of our expenses are incurred and paid in Indian Rupees or Australian dollars. We report our financial results in Indian Rupees. The exchange rates among the Indian Rupee, the Australian dollar and the US dollar have changed substantially in recent years and may fluctuate substantially in the future. The results of our operations are affected as the Indian Rupee and the Australian dollar appreciate or depreciate against the dollar and, as a result, any such appreciation or depreciation will likely affect the market price of our ADSs in the United States.
Since our acquisition of the Zinc International companies, our transactions will also be in Namibia Dollars and South African Rand currencies.
The following table sets forth, for the periods indicated, information concerning the exchange rates between Indian Rupees and US dollars based on the rates quoted on Federal Reserve Bank of New York:
Period End(1) | Average(1)(2) | High | Low | |||||||||||||
Fiscal Year: |
||||||||||||||||
2006 |
44.48 | 44.17 | 46.26 | 43.05 | ||||||||||||
2007 |
43.10 | 44.93 | 46.83 | 42.78 | ||||||||||||
2008 |
40.02 | 40.13 | 43.05 | 38.48 | ||||||||||||
2009 |
50.87 | 45.84 | 51.96 | 39.73 | ||||||||||||
2010 |
44.95 | 47.39 | 50.48 | 44.94 | ||||||||||||
2011 |
44.54 | 45.50 | 47.49 | 44.05 | ||||||||||||
2012 (through September 16, 2011) |
47.27 | 44.94 | 47.58 | 44.00 | ||||||||||||
Month: |
||||||||||||||||
March 2011 |
44.54 | 44.91 | 45.24 | 44.54 | ||||||||||||
April 2011 |
44.24 | 44.30 | 44.51 | 44.00 | ||||||||||||
May 2011 |
45.04 | 44.90 | 45.33 | 44.27 | ||||||||||||
June 2011 |
44.59 | 44.81 | 45.00 | 44.59 | ||||||||||||
July 2011 |
44.20 | 44.40 | 44.62 | 44.03 | ||||||||||||
August 2011 |
45.79 | 45.31 | 46.15 | 44.06 |
Notes:
(1) | The exchange rates quoted by Federal Reserve Bank of New York at each period end and the average rate for each period may have differed from the exchange rates used in the preparation of financial statements included elsewhere in this annual report. |
(2) | Represents the average of the exchange rates quoted on Federal Reserve Bank of New York on the last day of each month during the period for all fiscal years presented and the average of the exchange rates quoted on Federal Reserve Bank of New York for all days during the period for all months presented. |
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The following table sets forth, for the periods indicated, information concerning the exchange rates between the Australian dollar and US dollars based on the Federal Reserve Bank of New York:
Period End(1) | Average(1)(2) | High | Low | |||||||||||||
Fiscal Year: |
||||||||||||||||
2006 |
1.40 | 1.33 | 1.42 | 1.28 | ||||||||||||
2007 |
1.23 | 1.30 | 1.39 | 1.23 | ||||||||||||
2008 |
1.10 | 1.15 | 1.27 | 1.06 | ||||||||||||
2009 |
1.44 | 1.31 | 1.65 | 1.02 | ||||||||||||
2010 |
1.09 | 1.18 | 1.44 | 1.07 | ||||||||||||
2011 |
0.97 | 1.06 | 1.22 | 0.97 | ||||||||||||
2012 (September 16, 2011) |
0.96 | 0.94 | 0.98 | 0.91 | ||||||||||||
Month: |
||||||||||||||||
March 2011 |
0.97 | 0.99 | 1.02 | 0.96 | ||||||||||||
April 2011 |
0.91 | 0.94 | 0.97 | 0.91 | ||||||||||||
May 2011 |
0.94 | 0.94 | 0.95 | 0.91 | ||||||||||||
June 2011 |
0.93 | 0.94 | 0.96 | 0.93 | ||||||||||||
July 2011 |
0.91 | 0.93 | 0.95 | 0.91 | ||||||||||||
August 2011 |
0.93 | 0.95 | 0.98 | 0.91 |
Notes:
(1) | The exchange rates quoted on Federal Reserve Bank of New York at each period end and the average rate for each period may have differed from the exchange rates used in the preparation of financial statements included elsewhere in this annual report. |
(2) | Represents the average of the exchange rates quoted on Federal Reserve Bank of New York on the last day of each month during the period for all fiscal years presented and the average of the exchange rates quoted on Federal Reserve Bank of New York for all days during the period for all months presented. |
Although we have translated selected Indian Rupee and Australian dollar amounts in this annual report into US dollars for convenience, this does not mean, and no representation is made, that the Indian Rupee or Australian dollar amounts referred to represent US dollar amounts or have been, could have been or could be converted to US dollars at any particular rate, the rates stated above, or at all. Unless otherwise stated herein, all translations in this annual report from Indian Rupees to US dollars are based on the exchange rate quoted by the Federal Reserve Bank of New York on March 31, 2011, which was Rs. 44.54 per $1.00, and all translations from Australian dollars to US dollars are based on the exchange rate quoted by the Federal Reserve Bank of New York on March 31, 2011, which was AUD 0.97 = $1.00.
E. Taxation
India Taxation
The following is a summary of the material Indian income tax, stamp duty and estate duty consequences of the purchase, ownership and disposal of the ADSs and the equity shares underlying the ADSs for non-resident investors of the ADSs. The summary only addresses the tax consequences for non-resident investors who hold the ADSs or the equity shares underlying the ADSs as capital assets and does not address the tax consequences which may be relevant to other classes of non-resident investors, including dealers. The summary proceeds on the basis that the investor continues to remain a non-resident when the income by way of dividends and capital gains are earned. The summary is based on Indian tax laws and relevant interpretations thereof as are in force as of the date of this annual report, including the Income Tax Act and
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the special tax regimes under Sections 115AC and 115ACA of the Income Tax Act read with the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipts Mechanism) Scheme, 1993, as amended, which provides for the taxation of persons resident in India on their global income and persons not resident in India on income received, accruing or arising in India or deemed to have been received, accrued or arisen in India, and is subject to change. This summary does not take into account the impact of proposals contained in the draft new Direct Tax Code which has been circulated to the India Government for public debate and the subsequent revised discussion paper. It is expected that the provisions of Direct Taxes Code would be implemented from April 01, 2012. This summary is not intended to constitute a complete analysis of all the tax consequences for a non-resident investor under Indian law in relation to the acquisition, ownership and disposal of the ADSs or the equity shares underlying the ADSs and does not deal with all possible tax consequences relating to an investment in the equity shares and ADSs, such as the tax consequences under state, local and other (for example, non-Indian) tax laws. Potential Investors should therefore consult their own tax advisers on the tax consequences of such acquisition, ownership and disposal of the ADSs or the equity shares underlying the ADSs under Indian law including specifically, the tax treaty between India and their country of residence and the law of the jurisdiction of their residence.
Residence
For the purpose of the Income Tax Act, an individual is considered to be a resident of India during the fiscal year if he is in India for at least 182 days or at least 60 days in a particular year and for a period or periods aggregating at least 365 days in the preceding four years. However, the 60 day period shall be read as 182 days in the case of (i) a citizen of India who leaves India in the previous year for employment overseas, or (ii) a citizen of India or a person of Indian origin living abroad who visits India and within the four preceding years has been in India for a period or periods aggregating to 365 days or more. A company is considered to be resident in India if it is incorporated in India or the control and management of its affairs is situated wholly in India. Individuals and companies who are not residents of India are treated as non-residents.
Taxation of Sale of the ADSs
It is unclear whether capital gains derived from the sale by a non-resident investor of rights in respect of ADSs will be subject to tax liability in India. This will depend on the view taken by Indian tax authorities on the position with respect to the situs of the rights being offered in respect of the ADSs. Under the ADR Scheme, the transfer of ADSs outside India by a non-resident holder to another non-resident does not give rise to any capital gains tax in India. However, Section 115AC of the Income Tax Act provides that income by way of long-term capital gains arising from the transfer of ADSs outside India by the non-resident holder to another non-resident is subject to tax at the rate of 10.0% plus applicable surcharge and education cess. In the circumstances, if at all, that capital gains arising from a transfer of ADSs are taxable under the Income Tax Act, the same would be subject to tax as long-term capital gains at the effective tax rate of 10.56% (including surcharge and education cess) if such ADSs have been held by the non-resident holder for more than three years. Otherwise, the capital gains shall be subject to tax as short-term capital gains at the normal income tax rates applicable to non-residents under the provisions of the Income Tax Act.
Withdrawal of Equity Shares in Exchange for the ADSs
The withdrawal of equity shares in exchange for the ADSs would not give rise to any capital gains liable to income tax in India.
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Taxation of Dividends
Dividends paid to non-resident holders of ADSs are not presently subject to tax in the hands of the recipient. However, the company that is distributing the dividend is liable to pay a dividend distribution tax currently at an effective tax rate of 16.2% (inclusive of applicable surcharge and cess) on the total amount distributed as dividend. Under Section 115 O (1A) of the Finance Act, 2008, effective April 1, 2008, an Indian company, subject to certain conditions, can set off the dividend income received from its subsidiaries against the amount of dividend income declared by it to its shareholders, therefore reducing the dividend distribution tax to the extent of such set-off.
Any distribution of additional ADS or equity shares to resident or non-resident shareholders would not be subject to any Indian tax.
Taxation of Sale of the Equity Shares
Sale of equity shares by any holder may occasion certain incidence of tax in India, as is discussed below. This discussion does not take into consideration the effect of the provisions contained in the new Direct Taxes Code 2010 which seeks to make sweeping changes in the regime of capital gains tax. Under applicable law, an equity sale of shares may be subject to a transaction tax and/or tax on income by way of capital gains. Capital gains accruing to a non-resident investor on the sale of the equity shares, whether to an Indian resident or to a person resident outside India and whether in India or outside India, may be subject to Indian capital gains tax in certain instances as described below.
Sale of the Equity Shares on a Recognized Stock Exchange
In accordance with applicable Indian tax laws, any income arising from a sale of the equity shares of an Indian company through a recognized stock exchange in India is subject to a securities transaction tax. Such tax is payable by a person irrespective of residential status and is collected by the recognized stock exchange in India on which the sale of the equity shares is effected. Capital gains realized in respect of equity shares held by the non-resident investor for more than 12 months will be treated as long-term capital gains and will not be subject to tax in the event such transaction is chargeable to the securities transaction tax.
Capital gains realized in respect of shares held by the non-resident investor for 12 months or less will be treated as short-term capital gains and will be subject to tax at the effective tax rate of 16.2% (15% plus applicable surcharge and education cess) in the event such transaction is subject to the securities transaction tax. Withholding tax on capital gains on sale of shares is required to be deducted under Section 195 of the Income Tax Act at the prescribed rates.
For the purpose of computing the capital gain tax on the sale of equity shares, the cost of acquisition of the equity shares would be deemed to be the historical cost of acquiring the ADSs. For the purpose of computing capital gains on the sale of equity shares, the sale consideration received or accruing on such sale shall be reduced by the cost of acquisition of such equity shares and any expenditure incurred wholly and exclusively in connection with such sale. Under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Mechanism) Scheme, 1993, or Scheme, the purchase price of equity shares in an India listed company received in exchange for ADSs will be the market price of the underlying shares on the date that the depository gives notice to the custodian of the delivery of equity shares in exchange for such corresponding ADSs. The market price is the price of the equity shares prevailing in the
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BSE or the NSE as applicable. There is no corresponding provision under the Income Tax Act providing for the use of market price as the basis for determination of the purchase price of the equity shares. In the event that the tax department denies the use of market price as the basis for determination of the purchase price of the equity shares, the original purchase price of the ADSs shall be considered as the purchase price of the equity shares for computing the capital gains tax.
According to the Scheme, a non-residents holding period for the purpose of determining the applicable capital gains tax rate relating to equity shares received in exchange for ADSs commences on the date of notice of redemption by the depository to the custodian.
It is unclear as to whether section 115AC and the Scheme are applicable to a non-resident who acquires the shares outside India from a non-resident holder of equity shares after receipt of equity shares upon conversion of the ADSs.
Securities Transaction Tax
With respect to sales and purchases of equity shares on a recognized stock exchange, both the buyer and seller are required to pay a securities transaction tax at the rate of 0.125% of the transaction value of the securities sold and purchased if the transaction involves the actual delivery of equity shares on the recognized stock exchange.
Sale of the Equity Shares otherwise than on a Recognized Stock Exchange
Capital gains realized in respect of equity shares listed in India and held by a non-resident investor for more than 12 months will be treated as long-term capital gain. It is unclear whether it is subjected to tax at the effective tax rate of 10.8% or 21.6% (including surcharge and education cess). Capital gains realized in respect of equity shares held by the non-resident investor for 12 months or less will be treated as short-term capital gains and will be subject to tax at the normal income tax rates applicable to non-residents under the provisions of the Income Tax Act. Withholding tax on capital gains on sale of equity shares is required to be deducted under Section 195 of the Income Tax Act at the prescribed rates.
Capital Losses
The losses arising from a transfer of a capital asset in India can only be set off against capital gains and not against any other income in accordance with the Income Tax Act. A long-term capital loss may be set off only against a long-term capital gain. To the extent the losses are not absorbed in the year of transfer, they may be carried forward for a period of eight years immediately succeeding the year for which the loss was first computed and may be set off against the capital gains assessable for such subsequent years. In order to get the benefit of set-off of the capital losses in this manner, the non-resident investor must file appropriate and timely tax returns in India.
Tax Treaties
The above mentioned tax rates and the consequent taxation are subject to any benefits available to a non-resident investor under the provisions of any agreement for the avoidance of double taxation entered into by the Government of India with the country of tax residence of such non-resident investor. The investors are advised to consult their tax advisors the residential status for the purpose of treaty benefits in the event the investments are made through special purpose vehicle in an overseas jurisdiction.
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Withholding Tax on Capital Gains
Any taxable gain realized by a non-resident from the sale of ADSs and equity shares shall be subject to withholding tax at source and withheld by the buyer. However, no withholding tax is required to be withheld under Section 196D (2) of the Income Tax Act from any income accruing to a FII as defined in Section 115AD of the Income Tax Act on the transfer of securities. The FII is required to pay the tax on its own behalf.
Buy-Back of Securities
Indian companies are not subject to tax on the buy-back of their equity shares. However, shareholders will be taxed on the resulting gains from the share buy-back. We would be required to deduct tax at source in proportion to the capital gains tax liability of our shareholders.
Stamp Duty
Upon the issuance of the equity shares underlying the ADSs, we are required to pay a stamp duty for each equity share equal to 0.1% of the issue price. Under Indian stamp law, no stamp duty is payable on the acquisition or transfer of equity shares in book-entry form. However, a sale of equity shares by a non-resident holder will be subject to Indian stamp duty at the rate of 0.25% on the market value of equity shares on the trade date, although such duty is customarily borne by the transferee. A transfer of ADSs is not subject to Indian stamp duty.
Wealth Tax, Gift Tax and Inheritance Tax
The holding of ADSs by non-resident investors, the holding of the equity underlying shares by the depositary in a fiduciary capacity and the transfer of the ADSs between non-resident investors and the depositary is exempt from payment of wealth tax. Further, there is no tax on gifts and inheritances which applies to the ADSs, or the equity shares underlying the ADSs.
Service Tax
Brokerage or commission fees paid to stockbrokers in connection with the sale or purchase of equity shares are subject to an Indian service tax at the effective tax rate of 10.3% collected by the stockbroker. Further, pursuant to Section 65(101) of the Finance Act (2 of 2004) a sub-broker is also subject to this service tax.
Minimum Alternate Tax
The Income Tax Act imposes a MAT on companies the income tax payable on the total income is less than 19.93% (inclusive of surcharge and cess) of its book profit on its book profits. Amounts paid as MAT may be applied towards regular income taxes payable in any of the succeeding ten years subject to certain conditions. The manner of computing the MAT which can be claimed as a credit is specified in the Income Tax Act. The Finance Act, 2007, included income eligible for deductions under section 10A and 10B of the Act in the computation of book profits for the levy of MAT, and determined that MAT is payable on income which falls within the ambit of section 10A and 10B of the Act. The Finance Act 2011 had increased the rate of MAT to 20.01% from April 1, 2011 and accordingly it applies to financial year commencing April 1, 2011.
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The Direct Taxes Code 2010, effective from April 1, 2012 levies a 20.0% tax on book profit. Although the Code when introduced contained a levy of MAT on gross assets, the revised Direct Taxes Code 2010 has restored the tax on book profit. The tax credit for taxes paid on book profit shall be allowable for a period of 15 years (as against the existing limit of 10 years) and MAT provisions shall apply to special economic zone developers and special economic zone units.
Tax Credit
A non-resident investor may be entitled to a tax credit with respect to any withholding tax paid by us or any other person for such non-resident investors account in accordance with the laws of the applicable jurisdiction.
United States Federal Income Taxation
The following discussion describes certain material United States federal income tax consequences to US Holders (defined below) under present law of an investment in the ADSs or equity shares. This summary applies only to investors that hold the ADSs or equity shares as capital assets (generally, property held for investment) and that have the US dollar as their functional currency. This discussion is based on the United States Internal Revenue Code of 1986, as amended, as in effect on the date of this annual report and on United States Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.
The following discussion neither deals with the tax consequences to any particular investor nor describes all of the tax consequences applicable to persons in special tax situations such as:
| banks; |
| certain financial institutions; |
| insurance companies; |
| regulated investment companies; |
| real estate investment trusts; |
| broker dealers; |
| United States expatriates; |
| traders that elect to mark-to-market method of accounting; |
| tax-exempt entities; |
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| persons liable for the alternative minimum tax; |
| persons holding an ADS or equity share as part of a straddle, hedging, conversion or integrated transaction; |
| persons that actually or constructively own 10.0% or more of the total combined voting power of all classes of our voting stock; |
| persons who acquired ADSs or equity shares pursuant to the exercise of any employee share option or otherwise as compensation; or |
| persons holding ADSs or equity shares through partnerships or other pass-through entities. |
INVESTORS SHOULD CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE UNITED STATES FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE AND LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF ADSs OR EQUITY SHARES.
The discussion below of the United States federal income tax consequences to US Holders will apply to you if you are a beneficial owner of ADSs or equity shares and you are, for United States federal income tax purposes,
| an individual who is a citizen or resident of the United States; |
| a corporation (or other entity taxable as a corporation for United states federal income tax purposes) created or organized in the United States or under the laws of the United States, any State thereof or the District of Columbia; |
| an estate, the income of which is subject to United States federal income taxation regardless of its source; or |
| a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more United States persons for all substantial decisions of the trust or (2) was in existence on August 20, 1996, was treated as a domestic trust on the previous day and has a valid election in effect under the applicable United States Treasury regulations to be treated as a United States person. |
If a partnership or other entity or arrangement treated as a partnership for United States federal income tax purposes holds ADSs or equity shares, the tax treatment of a partner will generally depend upon the status and the activities of the partnership. A US Holder that is a partner in a partnership holding ADSs or equity shares is urged to consult its tax advisor.
The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement and any related agreement will be complied with in accordance with their terms. If you hold ADSs, you should be treated as the holder of the underlying equity shares represented by those ADSs for United States federal income tax purposes.
The United States Treasury has expressed concerns that parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming, by US Holders of ADSs, of foreign tax credits for
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United States federal income tax purposes. Such actions would also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain non-corporate US Holders, as described below. Accordingly, the availability of foreign tax credits or the reduced tax rate for dividends received by certain non-corporate US Holders could be affected by future actions that may be taken by the United States Treasury or parties to whom ADSs are pre-released.
Taxation of Dividends and Other Distributions on the ADSs or Equity Shares
Subject to the PFIC rules discussed below, the gross amount of any distributions we make to you with respect to the ADSs or equity shares generally will be includible in your gross income as foreign source dividend income on the date of receipt by the depositary, in the case of ADSs, or by you, in the case of equity shares, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under United States federal income tax principles). Any such dividends will not be eligible for the dividends received deduction allowed to corporations in respect of dividends received from other United States corporations. To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under United States federal income tax principles), such excess amount will be treated first as a tax-free return of your tax basis in your ADSs or equity shares, and then, to the extent such excess amount exceeds your tax basis in your ADSs or equity shares, as capital gain. However, we currently do not, and we do not intend to calculate our earnings and profits under United States federal income tax principles. Therefore, a US Holder should expect that any distribution will generally be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
With respect to certain non-corporate US Holders, including individual US Holders, for taxable years beginning before January 01, 2013, dividends may be taxed at the lower applicable capital gains rate applicable to qualified dividend income, provided that (1) the ADSs or equity shares, as applicable, are readily tradable on an established securities market in the United States or we are eligible for the benefits of the United States-India income tax treaty, (2) we are neither a PFIC nor treated as such with respect to you (as discussed below) for the taxable year in which the dividend is paid or the preceding taxable year, and (3) the equity shares are held for a holding period of more than 60 days during the 121 day period beginning 60 days before the ex-dividend date. Under US Internal Revenue Service authority, equity shares or ADSs representing such shares, are considered for the purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on the NYSE, as our ADSs currently are. You should consult your tax advisors regarding the availability of the lower capital gains rate applicable to qualified dividend income for any dividends paid with respect to our ADSs or equity shares.
Any dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will in general be limited to the gross amount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, any dividends distributed by us with respect to ADSs or equity shares will generally constitute passive category income but could, in the case of certain US Holders, constitute general category income. A US Holder will not be able to claim a foreign tax credit for any Indian taxes imposed with respect to dividend distribution taxes on ADSs or equity shares (as discussed under - India TaxationTaxation of Dividends). The rules relating to the determination of the foreign tax credit are complex and US Holders should consult their tax advisors to determine whether and to what extent a credit would be available in their particular circumstances, including the effects of any applicable income tax treaties.
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Taxation of a Disposition of ADSs or Equity Shares
Subject to the PFIC rules discussed below, upon a sale or other disposition of ADSs or equity shares, a US Holder will generally recognize a capital gain or loss for United States federal income tax purposes in an amount equal to the difference between the amount realized for the ADS or equity share and such US Holders tax basis in such ADSs and equity shares. Any such gain or loss will be treated as long-term capital gain or loss if the US Holders holding period in the ADSs and equity shares at the time of the disposition exceeds one year. Long-term capital gain of individual US Holders generally will be subject to United States federal income tax at reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize generally will be treated as United States source income or loss for foreign tax credit limitation purposes.
Because capital gains generally will be treated as United States source gain, as a result of the United States foreign tax credit limitation, any Indian income tax imposed upon capital gains in respect of ADSs or equity shares (as discussed under India TaxationTaxation of Income from ADSs, India TaxationTaxation of Sale of the Equity Shares, India TaxationSale of the Equity Shares on a Recognized Stock Exchange, India TaxationSale of the Equity Shares otherwise than on a Recognized Stock Exchange and India TaxationBuy-Back of Securities) may not be currently creditable unless a US Holder has other foreign source income for the year in the appropriate United States foreign tax credit limitation basket. US Holders should consult their tax advisors regarding the application of Indian taxes to a disposition of an ADS or equity share and their ability to credit an Indian tax against their United States federal income tax liability.
Passive Foreign Investment Company
Based on the market prices of our equity shares and ADSs and the composition of our income and assets, including goodwill, we do not believe we were a PFIC for United States federal income tax purposes for our taxable year ended March 31, 2011. However, the application of the PFIC rules is subject to uncertainty in several respects and, therefore, the US Internal Revenue Service may assert that, contrary to our belief, we were a PFIC for such taxable year. In addition, we must make a separate determination each taxable year as to whether we are a PFIC (after the close of each taxable year). A decrease in the market value of our equity shares and ADSs and/or an increase in cash or other passive assets would increase the relative percentage of our passive assets. Accordingly, we cannot assure you we will not be a PFIC for the taxable year ending on March 31, 2012 or any future taxable year.
A non-United States corporation will be a PFIC for United States federal income tax purposes for any taxable year if, applying certain look-through rules either:
| at least 75% of its gross income is passive income, or |
| at least 50% of the total value of its assets (based on an average of the quarterly values of the assets during such year) is attributable to assets, including cash, that produce passive income or are held for the production of passive income. |
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For this purpose, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% (by value) of the stock. A separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the PFIC test will generally be determined by reference to the market price of our equity shares and ADSs, fluctuations in the market price of our equity shares and ADSs may cause us to become a PFIC. In addition, changes in the composition of our income or assets may cause us to become a PFIC.
If we are a PFIC for any taxable year during which you hold ADSs or equity shares, we generally will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold our equity shares or ADSs, unless we cease to be a PFIC and you make a deemed sale election with respect to the equity shares or ADSs. If such election is timely made, you will be deemed to have sold the ADSs and equity shares you hold at their fair market value on the last day of the last taxable year in which we qualified as a PFIC and any gain from such deemed sale would be subject to the consequences described in the following two paragraphs. In addition, a new holding period would be deemed to begin for the equity shares and ADSs for purposes of the PFIC rules. After the deemed sale election, your equity shares or ADSs with respect to which the deemed sale election was made will not be treated as shares in a PFIC unless we subsequently become a PFIC.
For each taxable year that we are treated as a PFIC with respect to you, you will be subject to special tax rules with respect to any excess distribution that you receive and any gain you recognize from a sale or other disposition (including a pledge) of the ADSs or equity shares, unless you make a mark-to-market election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ADSs or equity shares will be treated as an excess distribution. Under these special tax rules:
| the excess distribution or gain will be allocated ratably over your holding period for the ADSs or equity shares; |
| the amount allocated to the current taxable year, and any taxable years in your holding period prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and |
| the amount allocated to each other year will be subject to the highest tax rate in effect for individuals or corporations, as applicable, for each such year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
In addition, non-corporate US Holders will not be eligible for reduced rates of taxation on any dividends received from us (as described above under Taxation of Dividends and Other Distributions on the ADSs or Equity Shares) if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.
The tax liability for amounts allocated to taxable years prior to the year of disposition or excess distribution cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale or other disposition of the ADSs or equity shares cannot be treated as capital, even if you hold the ADSs or equity shares as capital assets.
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If we are treated as a PFIC with respect to you for any taxable year, to the extent any of our subsidiaries are also PFICs or we make direct or indirect equity investments in other entities that are PFICs, you may be deemed to own shares in such lower-tier PFICs that are directly or indirectly owned by us in that proportion which the value of the ADSs and equity shares you own bears to the value of all of the ADSs and equity shares, and you may be subject to the adverse tax consequences described in the preceding two paragraphs with respect to the shares of such lower-tier PFICs that you would be deemed to own. You should consult your tax advisor regarding the applicable of the PFIC rules to any of our PFIC subsidiaries.
A US Holder of marketable stock (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the PFIC rules described above regarding excess distributions and recognized gains. If you make a valid mark-to-market election for the ADSs or equity shares, you will include in income for each year that we are a PFIC an amount equal to the excess, if any, of the fair market value of the ADSs or equity shares as of the close of your taxable year over your adjusted basis in such ADSs or equity shares. You will be allowed a deduction for the excess, if any, of the adjusted basis of the ADSs or equity shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the ADSs or equity shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs or equity shares, will be treated as ordinary income. Ordinary loss treatment will also apply to the deductible portion of any mark-to-market loss on the ADSs or equity shares, as well as to any loss realized on the actual sale or other disposition of the ADSs or equity shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ADSs or equity shares. Your basis in the ADSs or equity shares will be adjusted to reflect any such income or loss amounts. If you make a mark-to-market election, any distributions that we make would generally be subject to the tax rules discussed above under Taxation of Dividends and Other Distributions on the ADSs or Equity Shares, except that the lower rate applicable to qualified dividend income (discussed above) would not apply.
The mark-to-market election is available only for marketable stock, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (regularly traded) on a qualified exchange or other market, as defined in the applicable United States Treasury regulations. The NYSE is a qualified exchange. Our ADSs are listed on the NYSE and, consequently, if you are a holder of ADSs and the ADSs are regularly traded, the mark-to-market election would be available to you if we become a PFIC. Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs we own, a US Holder may continue to be subject to the PFIC rules with respect to its indirect interest in any investments held by us that are treated as an equity interest in a PFIC for United States federal income tax purposes. You should consult your tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs.
Alternatively, if a non-United States corporation is a PFIC, a holder of shares in that corporation may avoid taxation under the PFIC rules described above regarding excess distributions and recognized gains by making a qualified electing fund election to include in income its share of the corporations income on a current basis. However, you may make a qualified electing fund election with respect to our ADSs or equity shares only if we agree to furnish you annually with certain tax information, and we currently do not intend to prepare or provide such information.
Unless otherwise provided by the United States Treasury, each US Holder of a PFIC is required to file an annual report containing such information as the United States Treasury may require. If we are or become a PFIC, you should consult your tax advisor regarding any reporting requirements that may apply to you.
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You should consult your tax advisor regarding the application of the PFIC rules to your investment in ADSs or equity shares.
Information Reporting and Backup Withholding
Any dividend payments with respect to ADSs or equity shares and proceeds from the sale, exchange, redemption or other disposition of ADSs or equity shares may be subject to information reporting to the US Internal Revenue Service and possible United States backup withholding. Backup withholding will not apply, however, to a US Holder who furnishes a correct taxpayer identification number and makes any other required certification or who is otherwise exempt from backup withholding. US Holders who are required to establish their exempt status generally must provide such certification on Internal Revenue Service Form W-9. US Holders should consult their tax advisors regarding the application of the United States information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your United States federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the US Internal Revenue Service and furnishing any required information.
Additional Reporting Requirements
Certain US Holders who are individuals are required to report information relating to an interest in our ADSs or equity shares, subject to certain exceptions (including an exception for ADSs and equity shares held in accounts maintained by certain financial institutions). US Holders should consult their tax advisors regarding the effect, if any, of these rules on the ownership and disposition of our ADSs or equity shares.
F. Dividends and Paying Agents
Not applicable
G. Statements by Experts
Not applicable
H. Documents on Display
Publicly filed documents concerning our company which are referred to in this annual report may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of these materials can also be obtained from the Public Reference Room at the SECs principal office, 100 F Street, N.E., Washington D.C. 20549, after payment of fees at prescribed rates.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that make electronic filings through its Electronic Data Gathering, Analysis, and Retrieval, or EDGAR, system. We have made all our filings with the SEC using the EDGAR system.
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I. Subsidiary Information
Not applicable
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Quantitative and Qualitative Analysis
See Note 25 Financial Instruments in Item 8. Financial Information for more details.
Currency Risk
The results of our operations may be affected by fluctuations in the exchange rates between the Indian Rupee, Namibia Dollar, South African Rand and Australian Dollar against the US Dollar. This table illustrates the effect of a 10% movement in exchange rates between these currencies on our operating profit for fiscal 2011.
10% movement in currency |
For Rs./ $ | For AUD/ $ | For NAD / $ | For ZAR/ $ | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Copper |
545.5 | 12.2 | 569.2 | 12.8 | | | | | ||||||||||||||||||||||||
Zinc India |
6,003.4 | 134.8 | | | | | | | ||||||||||||||||||||||||
Zinc International |
190.8 | 4.3 | | | 428.5 | 9.6 | 41.1 | 0.9 | ||||||||||||||||||||||||
Aluminum |
2,367.0 | 53.1 | | | | | | | ||||||||||||||||||||||||
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Total |
9,106.7 | 204.4 | 569.2 | 12.8 | 428.5 | 9.6 | 41.1 | 0.9 | ||||||||||||||||||||||||
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We use hedging instruments to manage the currency risk associated with the fluctuations in the Indian Rupee and Australian dollar against the US dollar in line with our risk management policy. Typically, all exposures for maturity of less than two years are managed using simple instruments such as forward contracts. As long-term exposures draw nearer, we hedge them progressively to insulate these from the fluctuations in the currency markets. In our Australian operations, apart from funds to meet local expenses which are denominated in Australian dollars, we strive to retain our surplus funds in US dollar terms. These exposures are reviewed by appropriate levels of management on a monthly basis.
Hedging activities in India are governed by the RBI with whose policies we must comply. The policies under which the RBI regulates these hedging activities can change from time to time and these policies affect the effectiveness with which we manage currency risk.
We have in the past held or issued instruments such as options, swaps and other derivative instruments for purposes of mitigating our exposure to currency risk. We do not enter into hedging instruments for speculative purposes.
Interest Rate Risk
Our short-term borrowing is principally denominated in Indian Rupees with fixed rates of interest. Typically, our foreign currency debt has floating rates of interest linked to US Dollar LIBOR. The costs of floating rate borrowings may be affected by the fluctuations in the interest rates. We have selectively used interest rate swaps, options and other derivative instruments to manage our exposure to interest rate movements. These exposures are reviewed by appropriate levels of management on a monthly basis.
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Borrowing and interest rate hedging activities in India are governed by the RBI and we have to comply with its regulations. The policies under which the RBI regulates these borrowing and interest rate hedging activities can change from time to time and can impact the effectiveness with which we manage our interest rate risk.
We have in the past held or issued instruments such as swaps, options and other derivative instruments for purposes of mitigating our exposure to interest rate risk. We do not enter into hedging instruments for speculative purposes. This table illustrates the impact of a 0.5% to 2.0% movement in interest rates on interest payable on loans and borrowings for fiscal 2011.
Movement in interest rates |
Interest Rates | |||||||
(in millions) | ||||||||
0.5% |
Rs. 152 | $ | 3.4 | |||||
1.0% |
304 | 6.8 | ||||||
2.0% |
608 | 13.6 |
Commodity Price Risk
We use commodity hedging instruments such as forwards, swaps, options and other derivative instruments to manage our commodity price risk in our copper and zinc businesses. Currently, we use commodity forward contracts to partially hedge against changes in the LME prices of copper and zinc. We enter into these hedging instruments for the purpose of reducing the variability of our cash flows on account of volatility in commodity prices. These hedging instruments are typically of a maturity of less than one year and almost always less than two years.
Hedging activities in India are governed by the RBI and we have to comply with its regulations. The policies under which the RBI regulates these hedging activities can change from time to time and can impact on the effectiveness with which we manage commodity price risk.
We have in the past held or issued derivative instruments such forwards, options and other derivative instruments for purposes of mitigating our exposure to commodity price risk. We do not enter into hedging instruments for speculative purposes.
This table illustrates the impact of a $100 movement in LME prices based on fiscal 2011 volumes, costs and exchange rates and provides the estimated impact on operating profit assuming all other variables remain constant.
$100 movement in LME price |
Change in Operating Income |
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(in millions) | ||||||||
Copper |
Rs. 115 | $ | 2.6 | |||||
Zinc India |
3,256 | 73.1 | ||||||
Zinc International |
297 | 6.7 | ||||||
Aluminum |
1,128 | 25.3 | ||||||
Total |
Rs. 4,796 | $ | 107.7 | |||||
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The fair value of our open derivative positions (excluding normal purchase and sale contracts), recorded within other current assets and current financial liabilities is as follows:
March 31, | ||||||||||||||||||||||||
2010 | 2011 | 2011 | ||||||||||||||||||||||
Asset | Liability | Asset | Liability | Asset | Liability | |||||||||||||||||||
(Rs in millions) | (Rs in millions) | (US dollar in millions) | ||||||||||||||||||||||
Cash flow hedges: |
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Commodity contracts |
1 | | | 2 | | | ||||||||||||||||||
Forward foreign currency contracts |
| 64 | | | | | ||||||||||||||||||
Fair value hedges: |
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Commodity contracts |
| 27 | 24 | 4 | 0.5 | 0.1 | ||||||||||||||||||
Forward foreign currency contracts |
2 | 369 | 21 | 144 | 0.5 | 3.2 | ||||||||||||||||||
Non-qualifying hedges: |
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Commodity contracts |
110 | 49 | 136 | 246 | 3.1 | 5.5 | ||||||||||||||||||
Forward foreign currency contracts |
2 | 160 | 907 | 14 | 20.3 | 0.4 | ||||||||||||||||||
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Fair value |
115 | 669 | 1,088 | 410 | 24.4 | 9.2 | ||||||||||||||||||
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ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
D. American Depositary Shares
Our ADR facility is maintained with Citibank, N.A., or the Depositary, pursuant to a Deposit Agreement, dated as of July 18, 2007, among us, our Depositary and the holders and beneficial owners of ADSs. We use the term holder in this discussion to refer to the person in whose name an ADR is registered on the books of the Depositary.
In accordance with the Deposit Agreement, the Depositary may charge fees up to the amounts described below:
Type of Service |
Fees |
By whom paid | ||||
1. |
Issuance of ADSs upon the deposit of ordinary shares (excluding issuances as a result of distributions described in paragraph 4 below) | Up to $5.00 per 100 ADSs (or any portion thereof) issued | Person depositing shares or person receiving ADSs | |||
2. |
Surrender of ADSs for cancellation and withdrawal of ordinary shares underlying such ADSs | Up to $5.00 per 100 ADSs (or any portion thereof) surrendered | Person surrendering ADSs for purpose of withdrawal of deposited securities or person to whom deposited securities are delivered | |||
3. |
Distribution of cash dividends or other cash distributions (i.e. sale of rights and other entitlements) | Up to $2.00 per 100 ADSs (or any portion thereof) held | Person to whom distribution is made | |||
4. |
Distribution of ADSs pursuant to (i) stock dividends or other free | Up to $5.00 per 100 ADSs (or any portion thereof) issued | Person to whom distribution is made |
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stock distributions, or (ii) exercise of rights to purchase additional ADSs | ||||||
5. |
Distribution of securities other than ADSs or rights to purchase additional ADSs (i.e. spin-off shares) | Up to $5.00 per 100 ADSs (or any portion thereof) issued | Person to whom distribution is made | |||
6. |
Depositary services | Up to $2.00 per 100 ADSs (or any portion thereof) held | Person holding ADSs on applicable record date(s) established by the Depositary | |||
7. |
Transfer of ADRs | $1.50 per certificate presented for transfer | Person presenting certificate for transfer |
In addition, holders or beneficial owners of our ADS, persons depositing ordinary shares for deposit and persons surrendering ADSs for cancellation and withdrawal of deposited securities will be required to pay the following charges:
| taxes (including applicable interest and penalties) and other governmental charges; |
| registration fees for the registration of ordinary shares or other deposited securities on the share register and applicable to transfers of ordinary shares or other deposited securities to or from the name of the custodian, the Depositary or any nominees upon the making of deposits and withdrawals; |
| certain cable, telex, facsimile and electronic transmission and delivery expenses; |
| expenses and charges incurred by the Depositary in the conversion of foreign currency; |
| fees and expenses incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to ordinary shares, deposited securities, ADSs and ADRs; |
| fees and expenses incurred by the Depositary in connection with the delivery of deposited securities; and |
| the fees and expenses incurred by the Depositary, the custodian, or any nominee in connection with the servicing or delivery of deposited securities. |
In the case of cash distributions, the applicable fees, charges, expenses and taxes will be deducted from the cash being distributed. In the case of distributions other than cash, such as share dividends, the distribution generally will be subject to appropriate adjustments for the deduction of the applicable fees, charges, expenses and taxes.
In certain circumstances, the Depositary may dispose of all or a portion of such distribution and distribute the net proceeds of such sale to the holders of ADS, after deduction of applicable fees, charges, expenses and taxes.
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If the Depositary determines that any distribution in property is subject to any tax or other governmental charge which the Depositary is obligated to withhold, the Depositary may withhold the amount required to be withheld and may dispose of all or a portion of such property in such amounts and in such manner as the Depositary deems necessary and appropriate to pay such taxes or charges and the Depositary will distribute the net proceeds of any such sale after deduction of such taxes or charges to the holders of ADSs entitled to the distribution.
During fiscal 2011, the Depository has reimbursed to us an amount of $10,281,696.9in respect of investor relation expenses. In addition, as part of its service to us, the Depositary has waived an amount of $7,869.50 that it has paid on our behalf to third-party service providers in respect of proxy related expenses and other administrative costs.
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
ADS offering in 2009
On July 16, 2009, we completed the ADS offering on the NYSE. We sold an aggregate of 131,906,011 ADSs representing 131,906,011 equity shares. The price per ADS was $12.15. The joint bookrunners of the ADS offering were J.P. Morgan Securities Inc. and Morgan Stanley & Co. International plc. The joint bookrunners exercised their over-allotment option to acquire an additional 8,449,221 ADSs at $12.15 per ADS. The aggregate price of the offering amount, including the over-allotment option, registered and sold was $1,602.7 million.
The registration statement on Form F-3 (File No. 333-160580) filed by us in connection with the ADS offering was automatically effective on July 15, 2009.
The net proceeds from the offering to us, after deducting underwriting discounts and commissions and offering expenses ($13.8 million), amounted to $1,588.9 million. As of March 31, 2011, we have used the entire proceeds for the purpose mentioned in the offer document.
Convertible Notes offering in 2009
On October 29, 2009, we completed a offering of $500 million aggregate principal amount of convertible senior notes (Convertible Notes). The Convertible Notes are convertible into ADSs at an initial conversion price of approximately $23.33 per ADS, subject to adjustment in certain events. The Convertible Notes have a maturity date of October 30, 2014 and bears interest at the rate of 4.0% per annum. The joint bookrunners of the Convertible Notes offering were Deutsche Bank Securities Inc. and Morgan Stanley & Co. Incorporated.
The post-effective amendment to the registration statement on Form F-3 (File No. 333-160580) filed by us in connection with the Convertible Note offering was automatically effective on October 15, 2009.
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The net proceeds from the offering to us, after deducting underwriting discounts and commissions and offering expenses ($5 million), amounted to $495.0 million. As of March 31, 2011, we have used approximately $102.8 million towards capital expenditures and the unutilized proceeds have been invested temporarily in fixed deposits. We may use the remaining net proceeds towards the expansion of our copper business with another power plant, acquisition of complementary business outside of India and any other permissible purpose under, and in compliance with, applicable laws and regulations of India, including the external commercial borrowing regulations specified by the Reserve Bank of India.
ITEM 15. | CONTROLS AND PROCEDURES |
(a) Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, management, including our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding our required disclosure.
Based on the foregoing, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of March 31, 2011, our disclosure controls and procedures were effective.
(b) Managements Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act.
Internal controls over financial reporting refers to a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles in the United States.
Our internal control over financial reporting includes those policies and procedures that, (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on financial statements.
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Our management assessed the effectiveness of internal control over financial reporting as of March 31, 2011 based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of March 31, 2011, our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The scope of our managements assessment of the effectiveness of internal control over financial reporting includes all of our companys consolidated operations.
Our management recognizes that there are inherent limitations in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and the circumvention or override of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation, and may not prevent or detect all misstatements and can only provide reasonable assurance with respect to the preparation and presentation of our financial statements.
Our management excluded from its assessment the internal control over financial reporting at THL Zinc Namibia Holdings (Proprietary) Limited (formerly known as Anglobase Namibia Holdings (Pty) Ltd), Black Mountain Mining (Proprietary) Limited and Vedanta Lisheen Finance Limited (formerly known as Anglo American Lisheen Finance Limited) and their subsidiaries, which were acquired on December 3, 2010, February 4, 2011 and February 15, 2011, respectively, and whose financial statements constitute Rs. 68,241 million ($1,532.1 million) and Rs.91,218 million ($2,048 million) of net assets and total assets, respectively, Rs. 9,961 million ($223.6 million) of revenues and Rs.1,657 million ($37.2 million) of profit of the consolidated financial statements as of and for the year ended March 31, 2011. Such exclusion was in accordance with SEC guidance that an assessment of a recently acquired business may be omitted in managements report on internal controls over financial reporting or ICFR in the year of acquisition.
Changes to certain processes, information technology systems, and other components of internal control resulting from the acquisition of THL Zinc Namibia Holdings (Proprietary) Limited, BMM and Lisheen and their subsidiaries may occur and will be evaluated by management as such integration activities are implemented.
The effectiveness of our internal control over financial reporting as of March 31, 2011 has been audited by Deloitte Haskins & Sells, or Deloitte, our independent registered public accounting firm, as stated in their report which is reproduced in its entirety in Item 15(c) below:
(c) Attestation Report of the Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Sterlite Industries (India) Limited
Mumbai, Maharashtra, India
We have audited the internal control over financial reporting of Sterlite Industries (India) Limited and subsidiaries (the Company) as of March 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Item 15(b) Managements Annual Report on Internal Control over Financial
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Reporting, management excluded from its assessment the internal control over financial reporting at THL Zinc Namibia Holdings (Proprietary) Limited (formerly known as Anglobase Namibia Holdings (Pty) Ltd), Black Mountain Mining (Proprietary) Limited and Vedanta Lisheen Finance Limited (formerly known as Anglo American Lisheen Finance Limited) and their subsidiaries, which were acquired on December 3, 2010, February 4, 2011 and February 15, 2011 respectively and whose financial statements constitute Rs. 68, 241 million ($1,532.1 million) and Rs. 91,218 million ($2,048 million) of net assets and total assets respectively, Rs. 9,961 million ($223.6 million) of revenues and Rs. 1,657 million ($37.2 million) of profit of the consolidated financial statements as of and for the year ended March 31, 2011. Accordingly, our audit did not include the internal control over financial reporting at THL Zinc Namibia Holdings (Proprietary) Limited, Balck Mountain Mining (Proprietary) Limited and Vedanta Lisheen Finance Limited and their subsidiaries.
The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Item 15(b) Managements Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness of the internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2011, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended March 31, 2011 of the Company and our report dated September 26, 2011 expressed an unqualified opinion on those financial statements.
/s/ Deloitte Haskins & Sells
Deloitte Haskins & Sells
Mumbai, Maharashtra, India
September 26, 2011
(d) Changes in Internal Control over Financial Reporting
Management has evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, whether any changes in our internal control over financial reporting that occurred during our last fiscal year have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, management has concluded that no such changes have occurred.
ITEM 16. |
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
Our audit committee members are Mr. A.R. Narayanaswamy (Chairman), Mr. Gautam Bhailal Doshi, Mr. Berjis Minoo Desai and Mr. Sandeep H. Junnarkar. Each of Messrs. Desai, Doshi, Junnarkar and Narayanaswamy satisfies the independence requirements pursuant to the rules of the SEC and Rule 10A-3 of the Exchange Act. See Item 6. Directors, Senior Management and EmployeesC. Board Practices for the experience and qualifications of the members of the audit committee.
Our board of directors determined that Mr. A.R. Narayanaswamy qualifies as an audit committee financial expert on July 25, 2011 within the requirements of the rules promulgated by the SEC relating to listed-company audit committees.
We have adopted a written Code of Business Conduct and Ethics that is applicable to all of our directors, executive officers and employees. We have posted the code on our website at www.sterlite-industries.com. Information contained in our website does not constitute a part of this annual report. We will also make available a copy of the Code of Business Conduct and Ethics to any person, without charge, if a written request is made to us at our registered office at SIPCOT Industrial Complex, Madurai Bypass Road, T.V. Puram P.O., Tuticorin, State of Tamil Nadu 628 002, India.
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ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Our financial statements prepared in accordance with IFRS are audited by Deloitte Haskins & Sells, a firm registered with the Public Company Accounting Oversight Board in the United States and an Indian firm of Chartered Accountants registered with the Institute of Chartered Accountants of India.
Deloitte Haskins & Sells has served as our independent registered public accountant for each of the years ended March 31, 2010 and March 31, 2011 for which audited statements appear in this annual report.
The following table shows the aggregate fees for professional services and other services rendered by Deloitte Haskins & Sells and the various member firms of Deloitte to us, including some of our subsidiaries, in fiscal 2010 and 2011.
Fiscal | ||||||||
2010 | 2011 | |||||||
(in thousands) | ||||||||
Audit fees (audit and review of financial statements) |
$ | 778.6 | $ | 1631.2 | ||||
Audit-related fees (including fees related to the ADS offering and other miscellaneous audit related certifications) |
743.5 | 126.6 | ||||||
Tax fees (tax audit, other certifications and tax advisory services) |
46.6 | 80.1 | ||||||
All other fees (certification on corporate governance and advisory services) |
374.6 | 157.5 | ||||||
|
|
|
|
|||||
Total |
$ | 1,943.3 | $ | 1,995.4 | ||||
|
|
|
|
Audit Committee Pre-approval Process
Our audit committee reviews and pre-approves the scope and the cost of audit services related to us and permissible non-audit services performed by the independent auditors, other than those for de minimus services which are approved by the audit committee prior to the completion of the audit. All of the services related to our company provided by Deloitte Haskins & Sells during the last fiscal year have been approved by the audit committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following table shows all repurchases of the equity shares of SIIL made by SIIL and any affiliated purchaser (as defined in Rule 10b-18(a)(3) of the Exchange Act), and the average price paid per share, in fiscal 2011:
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Period: | Total Number of Shares Purchased |
Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs High |
Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased under the | ||||||
Rs. |
$ |
|||||||||
1-Apr-10 |
400,000 | 856 | 19.22 | | Not applicable | |||||
5-Apr-10 |
325,000 | 868 | 19.48 | | Not applicable | |||||
6-Apr-10 |
334,689 | 873 | 19.60 | | Not applicable | |||||
7-Apr-10 |
270,000 | 873 | 19.60 | | Not applicable | |||||
8-Apr-10 |
800,000 | 866 | 19.45 | | Not applicable | |||||
9-Apr-10 |
700,000 | 886 | 19.90 | | Not applicable | |||||
28-Apr-10 |
500,000 | 814 | 18.28 | | Not applicable | |||||
29-Apr-10 |
300,000 | 831 | 18.66 | | Not applicable | |||||
30-Apr-10 |
270,000 | 830 | 18.65 | | Not applicable | |||||
3-May-10 |
150,000 | 810 | 18.18 | | Not applicable | |||||
4-May-10 |
375,000 | 786 | 17.65 | | Not applicable | |||||
5-May-10 |
575,000 | 744 | 16.70 | | Not applicable | |||||
14-May-10 |
345,013 | 707 | 15.87 | | Not applicable | |||||
|
|
|
|
|||||||
Total |
5,344,702 | 826.55 | 18.56 | | Not applicable | |||||
|
|
|
|
Notes:
(1) | During the year 2011, Twinstar Holdings Limited acquired 5,344,702 of equity shares of SIIL and shareholding changed from 54.0% to 54.64%. |
(2) | The company in its annual general meeting held on June 11, 2010 approved a sub-division of equity shares of Rs. 2 into equity share of Re. 1 each fully paid up and allotted bonus shares in the ratio of 1:1 post the sub-division consequently resulted in an increase in the number of shares held by Twinstar Holdings Limited and MALCO by 1,377,474,582 and 76,840,200 respectively. |
ITEM 16F. | CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT |
Not applicable
ITEM 16G. | CORPORATE GOVERNANCE |
As our ADSs are listed on the NYSE, we are subject to the NYSE listing standards. The NYSE listing standards applicable to us, as a foreign private issuer, are considerably different from those applicable to US companies. Under the NYSE rules, we need only (i) establish an independent audit committee; (ii) provide prompt certification by our chief executive officer of any material non-compliance with any corporate governance rules of the NYSE; (iii) provide periodic (annual and interim) written affirmations to the NYSE with respect to our corporate governance practices; and (iv) provide a brief description of significant differences between our corporate governance practices and those followed by US companies. Our audit committee consists of four directors: Mr. A. R. Narayanaswamy (Chairman), Mr. Gautam Bhailal Doshi,
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Mr. Berjis Minoo Desai and Mr. Sandeep H. Junnarkar. Each of Messrs. Desai, Doshi, Junnarkar and Narayanaswamy satisfies the independence requirements of Rule 10A-3 of the Exchange Act. A brief description of significant differences between our corporate governance practices and those followed by US companies can be found in Item 10. Additional InformationB. Memorandum and Articles of AssociationComparison of Corporate Governance Standards.
As a foreign private issuer, we are exempt from the NYSE rules applicable to a US company requiring (i) a board of directors consisting of a majority of independent directors, (ii) a compensation committee and a nominating/corporate governance committee, (iii) shareholder approval of equity-compensation plans, (iv) the adoption and disclosure of corporate governance guidelines, and (v) the adoption and disclosure of a code of business conduct and ethics for directors, officer and employees, and the prompt disclosure of any waivers thereof for directors or executive officers.
In addition, we are deemed to be a controlled company under the NYSE rules. As a result, we are exempt from the NYSE rules applicable to a US company that is not a controlled company requiring (i) a board of directors consisting of a majority of independent directors and (ii) a compensation committee and a nominating/corporate governance committee.
ITEM 17. | FINANCIAL STATEMENTS |
See Item 18 for a list of the financial statements filed as part of this annual report.
ITEM 18. | FINANCIAL STATEMENTS |
The following financial statements are filed as part of this annual report, together with the report of the independent registered public accounting firms:
| Report of Independent Registered Public Accounting Firm. |
| Consolidated Statements of Income for the year ended March 31, 2009, 2010 and 2011. |
| Consolidated Statements of Comprehensive Income for the year ended March 31, 2009, 2010 and 2011. |
| Consolidated Statements of Cash Flow for the year ended March 31, 2009, 2010 and 2011. |
| Consolidated Statements of Financial Position as of March 31, 2010 and 2011. |
| Consolidated Statement of Changes in Equity for the year ended March 31, 2009, 2010 and 2011. |
| Notes to the Consolidated Financial Statements. |
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ITEM 19. | EXHIBITS |
The following exhibits are filed as part of this annual report:
1.1 | Certificate of Incorporation of Sterlite Industries (India) Limited, as amended - incorporated by reference to Exhibit 3.1 of Amendment No. 5 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on June 4, 2007. |
1.2 | Memorandum of Association of Sterlite Industries (India) Limited, as amended - incorporated by reference to Exhibit 1.2 of the annual report on Form-20F for fiscal 2008 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on June 30, 2008. |
1.3 | Article of Association of Sterlite Industries (India) Limited, as amended - incorporated by reference to Exhibit 3.3 of Amendment No. 2 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on February 8, 2007. |
2.1 | Form of Deposit Agreement among Sterlite Industries (India) Limited, Citibank, N.A., as Depositary, and owners and holders from time to time of American Depositary Shares evidenced by American Depositary Receipts issued thereunder amended (including the Form of ADR) - incorporated by reference to Exhibit (a) of Amendment No. 2 to the Registration Statement on Form F-6 (File No. 333-139102), as filed with the SEC on June 15, 2007 as amended by Form of ADR incorporated by reference to Form 424B3 (File No. 333-139102), as filed with the SEC on June 28, 2010. |
2.2 | Specimen share certificate (effective as of November 30, 2006) - incorporated by reference to Exhibit 4.3 to the Registration Statement on Form 8-A (File No. 001-33175) as filed with the SEC on November 30, 2006. |
4.1 | Vedanta Resources Plc Long-Term Incentive Plan - incorporated by reference to Exhibit 10.1 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.2 | Relationship Agreement dated December 5, 2003 among Vedanta Resources Plc, Volcan Investments Limited, Dwarka Prasad Agarwal, Agnivesh Agarwal and Anil Agarwal - incorporated by reference to Exhibit 10.2 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.3 | Deed of Adherence dated December 11, 2007 among Vedanta Resources Plc, Volcan Investments Limited, Onclave PTC Limited and Anil Agarwal - incorporated by reference to Exhibit 4.3 of the annual report on Form-20F for fiscal 2008 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on June 30, 2008. |
4.4 | Shared Services Agreement dated December 5, 2003 among Vedanta Resources Plc, Sterlite Optical Technologies Limited, Sterlite Gold Limited and Sterlite Industries (India) Limited, including the letter agreement dated April 13, 2006 amending the Shared Services Agreement - incorporated by reference to Exhibit 10.3 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.5 | Consultancy Agreement dated March 29, 2005 between Vedanta Resources Plc and Sterlite Industries (India) Limited - incorporated by reference to Exhibit 10.4 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
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4.6 | Representative Office Agreement dated March 29, 2005 between Vedanta Resources Plc and Sterlite Industries (India) Limited - incorporated by reference to Exhibit 10.5 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.7 | Shareholders Agreement between the President of India and Sterlite Opportunities and Ventures Limited dated April 4, 2002 - incorporated by reference to Exhibit 10.6 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.8 | Shareholders Agreement between Sterlite Industries (India) Limited, Government of India and Bharat Aluminium Company Limited dated March 2, 2001 - incorporated by reference to Exhibit 10.7 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.9 | Guarantee Agreement between the President of India, Sterlite Industries (India) Limited, Sterlite Optical Technologies Limited and Sterlite Opportunities and Ventures Limited dated April 4, 2002 - incorporated by reference to Exhibit 10.8 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.10 | Agreement between Vedanta Aluminium Limited and Orissa Mining Corporation Limited dated October 5, 2004 - incorporated by reference to Exhibit 10.9 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.11 | Mining lease between the Government of Rajasthan and Hindustan Zinc Limited dated March 13, 1980 renewed on September 15, 2000 pursuant to an order of the Government of Rajasthan dated May 1, 2000 and an indenture dated September 15, 2000 - incorporated by reference to Exhibit 10.10 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.12 | $92.6 million Term Facility Agreement between Sterlite Industries (India) Limited as borrower and CALYON, Standard Chartered Bank and ICICI Bank Limited as lenders dated March 22, 2006 - incorporated by reference to Exhibit 10.11 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.13 | Japanese Yen 3,570 million and $19.65 million Term Loan Facilities Agreement between Sterlite Industries (India) Limited as borrower and ICICI Bank Limited, Sumitomo Mitsui Banking Corporation and DBS Bank Limited as lenders dated September 19, 2005 - incorporated by reference to Exhibit 10.12 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.14 | $125 million Term Facility Agreement between Hindustan Zinc Limited as borrower and ABN AMRO Bank N.V., CALYON, Standard Chartered Bank, DBS Bank Limited, Mizuho Corporate Bank Limited., Sumitomo Mitsui Banking Corporation, The Sumitomo Trust and Banking Co., Limited., Cathay United Bank, Hua Nan Commercial Bank, National Bank of Kuwait S.A.K., Bank of Taiwan, The Export-Import Bank of the Republic of China, Chang Hwa Commercial Bank Limited., Chiao Tung Bank Co., Limited., The International Commercial Bank of China, Co. Limited., Mascareignes International Bank Limited., Syndicate Bank, Canara Bank and The Shanghai Commercial and Savings Bank, Limited. as lenders dated July 29, 2005 - incorporated by reference to Exhibit 10.13 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
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4.15 | Rs. 7,000 million Rupee Term Facility Agreement between Bharat Aluminium Company Limited as the borrower and Union Bank of India, Export Import Bank of India, Uco Bank, State Bank of Travancore, State Bank of Saurashtra, State Bank of Hyderabad, State Bank of Patiala and State Bank of Indore as lenders dated August 18, 2004 - incorporated by reference to Exhibit 10.14 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.16 | $50 million Facility Agreement between Bharat Aluminium Company Limited as borrower and ICICI Bank Limited, Singapore Branch, ICICI Bank Limited, Bahrain Branch and ICICI Bank Limited, Offshore Banking Unit as lenders dated November 8, 2004 - incorporated by reference to Exhibit 10.15 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.17 | $50 million Facility Agreement between Bharat Aluminium Company Limited as borrower and ICICI Bank Limited, ICICI Bank Limited, Bahrain Branch and ICICI Bank Limited, Offshore Banking Unit as lenders dated November 10, 2004 - incorporated by reference to Exhibit 10.16 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.18 | Rs. 10,000 million Facility Agreement between Bharat Aluminium Company Limited as borrower and Oriental Bank of Commerce, Syndicate Bank, The Jammu & Kashmir Bank Limited, Corporation Bank, Housing Development Finance Corporation Limited, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Saurashtra, The Federal Bank Limited, The Karnataka Bank Limited, The Karur Vysya Bank Limited, UCO Bank, Vijaya Bank, ABN AMRO Bank N.V., The Laxmi Vilas Bank Limited as lenders dated September 16, 2003 - incorporated by reference to Exhibit 10.17 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.19 | Subscription Agreement between Sterlite Industries (India) Limited and the Life Insurance Corporation of India dated April 9, 2003 - incorporated by reference to Exhibit 10.18 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.20. | Option Agreement between Sterlite Industries (India) Limited, India Foils Limited and ICICI Bank Limited dated February 18, 2005 - incorporated by reference to Exhibit 10.19 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.21 | Corporate Guarantee by Sterlite Industries (India) Limited to ICICI Bank Limited on behalf of India Foils Limited dated February 8, 2005 - incorporated by reference to Exhibit 10.20 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.22 | Corporate Guarantee by Sterlite Industries (India) Limited to ICICI Bank Limited on behalf of Vedanta Aluminium Limited dated December 4, 2004 - incorporated by reference to Exhibit 10.21 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
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4.23 | Frame Contract between Sterlite Industries (India) Limited and the Copper Mines of Tasmania Proprietary Limited dated July 1, 2004, as amended on July 1, 2004 - incorporated by reference to Exhibit 10.22 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.24 | Copper Concentrate Purchase Contract between Sterlite Industries (India) Limited and the Copper Mines of Tasmania Proprietary Limited dated July 1, 2005 - incorporated by reference to Exhibit 10.23 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.25 | Agreement for Sale and Purchase of the Power Transmission Line Division between Sterlite Industries (India) Limited and Sterlite Optical Technologies Limited dated August 30, 2006 - incorporated by reference to Exhibit 10.24 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.26 | Agreement between Sterlite Industries (India) Limited and Navin Agarwal dated October 8, 2003 - incorporated by reference to Exhibit 10.25 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.27 | Agreement between Sterlite Industries (India) Limited and Kuldip Kumar Kaura dated September 12, 2006 - incorporated by reference to Exhibit 10.26 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 15, 2006. |
4.28 | Letter issued by Sterlite Industries (India) Limited to Kuldip Kumar Kaura dated March 27, 2008 - incorporated by reference to Exhibit 4.28 of the annual report on Form-20F for fiscal 2008 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on June 30, 2008. |
4.29 | Share Purchase Agreement between Sterlite Industries (India) Limited and Anil Agarwal dated October 3, 2006 relating to the sale of Sterlite Energy Limited - incorporated by reference to Exhibit 10.29 of Amendment No. 1 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 22, 2006. |
4.30 | Share Purchase Agreement between Sterlite Industries (India) Limited and Dwarka Prasad Agarwal dated October 3, 2006 relating to the sale of Sterlite Energy Limited - incorporated by reference to Exhibit 10.30 of Amendment No. 1 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 22, 2006. |
4.31 | Share Purchase Agreement between Sterlite Industries (India) Limited and Twin Star Infrastructure Limited dated October 3, 2006 relating to the sale of Sterlite Energy Limited - incorporated by reference to Exhibit 10.31 of Amendment No. 1 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on November 22, 2006. |
4.32 | Specialty Deed between Copper Mines of Tasmania Proprietary Limited, Mt Lyell Mining Company Limited, Citibank Limited and Citibank, N.A. dated April 1, 1999 - incorporated by reference to Exhibit 10.36 of Amendment No. 2 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on February 8, 2007. |
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4.33 | Subordination Deed Poll between Monte Cello Corporation N.V., Citibank Limited and Citibank, N.A. dated April 1, 1999 - incorporated by reference to Exhibit 10.37 of Amendment No. 2 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on February 8, 2007. |
4.34 | Deed of Assignment of Debt between Monte Cello Corporation N.V. and Mt Lyell Mining Company Limited dated April 1, 1999 - incorporated by reference to Exhibit 10.38 of Amendment No. 2 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on February 8, 2007. |
4.35 | Deed of Assignment of Debt between Monte Cello Corporation N.V., Citibank Limited and Citibank, N.A. dated April 1, 1999 - incorporated by reference to Exhibit 10.39 of Amendment No. 2 to the Registration Statement on Form F-1 (File No. 333-138739), as filed with the SEC on February 8, 2007. |
4.36 | Memorandum of Understanding between Sterlite Industries (India) Limited and Vedanta Aluminium Limited dated August 29, 2007 relating to the subscription of the Zero Percent Optionally Fully Convertible Debentures - incorporated by reference to Exhibit 4.38 of the annual report on Form-20F for fiscal 2008 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on June 30, 2008. |
4.37 | Addendum dated March 17, 2008 to the Memorandum of Understanding between Sterlite Industries (India) Limited and Vedanta Aluminium Limited dated August 29, 2007 relating to the subscription of the Zero Percent Optionally Fully Convertible Debentures - incorporated by reference to Exhibit 4.39 of the annual report on Form-20F for fiscal 2008 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on June 30, 2008. |
4.38 | Memorandum of Understanding between Sterlite Industries (India) Limited and Vedanta Aluminium Limited dated December 23, 2007 relating to the subscription of the Zero Percent Optionally Fully Convertible Debentures - incorporated by reference to Exhibit 4.40 of the annual report on Form-20F for fiscal 2008 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on June 30, 2008. |
4.39 | Addendum dated March 17, 2008 to the Memorandum of Understanding between Sterlite Industries (India) Limited and Vedanta Aluminium Limited dated December 23, 2007 relating to the subscription of the Zero Percent Optionally Fully Convertible Debentures - incorporated by reference to Exhibit 4.41 of the annual report on Form-20F for fiscal 2008 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on June 30, 2008. |
4.40 | Purchase and Sale Agreement dated May 30, 2008 among Asarco LLC, AR Silver Bell, Inc., Copper Basin Railway, Inc., Asarco Santa Cruz, Inc., Sterlite (USA), Inc. and Sterlite Industries (India) Limited - incorporated by reference to Exhibit 4.42 of the annual report on Form-20F for fiscal 2008 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on June 30, 2008. |
4.41 | Rs.10,000 million Loan Agreement between Sterlite Industries (India) Limited and Vedanta Aluminium Limited dated February 4, 2008 - incorporated by reference to Exhibit 4.43 of the annual report on Form-20F for fiscal 2008 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on June 30, 2008. |
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4.42 | Amendment No. 1 dated April 15, 2009 to the Settlement and Sale and Purchase Agreement dated March 6, 2009 among Asarco LLC, AR Silver Bell, Inc., Copper Basin Railway, Inc., Asarco Santa Cruz, Inc., Sterlite (USA), Inc., and Sterlite Industries (India) Limited - incorporated by reference to Exhibit 4.43 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009. |
4.43 | Amendment No. 2 effective as of April 22, 2009 to the Settlement and Sale and Purchase Agreement dated March 6, 2009, as amended on April 15, 2009, among Asarco LLC, AR Silver Bell, Inc., Copper Basin Railway, Inc., Asarco Santa Cruz, Inc., Sterlite (USA), Inc., and Sterlite Industries (India) Limited - incorporated by reference to Exhibit 4.44 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009. |
4.44 | Amendment No. 3 effective as of June 12, 2009 to the Settlement and Sale and Purchase Agreement dated March 6, 2009, as amended on April 15, 2009 and April 22, 2009, among Asarco LLC, AR Silver Bell, Inc., Copper Basin Railway, Inc., Asarco Santa Cruz, Inc., Sterlite (USA), Inc., and Sterlite Industries (India) Limited - incorporated by reference to Exhibit 4.45 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009. |
4.45 | Sterlite Plan Agreement in Principle Term Sheet dated June 12, 2009 among Asarco LLC, the subsidiary debtors, Sterlite (USA), Inc., Robert C. Pate, in his capacity as the Future Claims Representative, and the Official Committee of Asbestos Claimants - incorporated by reference to Exhibit 4.46 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009. |
4.46 | Credit Agreement Letter dated February 7, 2005 between India Foils Limited and ICICI Bank Limited - incorporated by reference to Exhibit 4.47 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009. |
4.47 | Novation Agreement dated November 15, 2008 among Sterlite Industries (India) Limited, India Foils Limited and ICICI Bank Limited in respect of Rs. 772.5 million term loan facility - incorporated by reference to Exhibit 4.48 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009. |
4.48 | Credit Agreement Letter dated August 4, 2005 between India Foils Limited and ICICI Bank Limited - incorporated by reference to Exhibit 4.49 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009. |
4.49 | Novation Agreement dated November 15, 2008 among Sterlite Industries (India) Limited, India Foils Limited and ICICI Bank Limited in respect of the Rs. 250 million term loan facility - incorporated by reference to Exhibit 4.50 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009. |
4.50 | Rs. 55,690 million Common Rupee Loan Agreement dated June 29, 2009 among Sterlite Energy Limited, the State Bank of India as facility agent and issuing bank, IDBI Trusteeship Services Limited as security trustee and the lenders named therein - incorporated by reference to Exhibit 4.51 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009 . |
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4.51 | $140 million Term Loan Facility Agreement dated June 29, 2009 among Sterlite Energy Limited, India Infrastructure Finance (UK) Company Limited as lender, and the State Bank of India as facility agent - incorporated by reference to Exhibit 4.52 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009. |
4.52 | Sponsor Support Agreement dated June 29, 2009 among Sterlite Industries (India) Limited, Sterlite Energy Limited, and the State Bank of India as facility agent - incorporated by reference to Exhibit 4.53 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009. |
4.53 | Term Sheet dated May 22, 2009 between Sterlite Industries (India) Limited and Vedanta Aluminium Limited relating to the subscription of 9.75% Non-Convertible Debentures - incorporated by reference to Exhibit 4.54 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009 . |
4.54 | Agreement dated February 18, 2009 between the Orissa Mining Corporation Limited and Sterlite Industries (India) Limited - incorporated by reference to Exhibit 4.55 of the annual report on Form-20F for fiscal 2009 (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on July 10, 2009. |
4.55 | Indenture and Supplemental Indenture, both dated October 29, 2009, between Sterlite Industries (India) Limited and Wilmington Trust Company as trustee and Citibank, N.A., as securities administrator - incorporated by reference to Exhibits 4.1 and 4.2 to the Form-6K (File No. 001-33175) of Sterlite Industries (India) Limited, as filed with the SEC on November 3, 2009. |
4.56** | Amendment dated March 29, 2009 to the Consultancy and Representative Office Agreement between Vedanta Resources Plc and Sterlite Industries (India) Limited both dated March 29, 2005. |
4.57** | Outsourcing Services Agreement dated April 1, 2010 between Vedanta Resources Plc and Sterlite Industries (India) Limited. |
4.58** | Share Purchase Agreement dated May 9, 2010 between Anglo Operations Limited, Taurus International S.A., Anglo South Africa Capital (Pty) Limited, Anglo American Services (UK) Limited, Welter Trading Limited and Vedanta Resources Plc. |
4.59** | Buyers Credit Import Advance facility dated December 8, 2009 and Demand Promissory Note accepted on May 18, 2010 obtained by Bharat Aluminium Company Limited from DBS Bank Limited for $50 million. |
4.60** | Letter of Credit Facility Agreement dated August 30, 2010 obtained by Talwandi Sabo Power Limited from ICICI Bank for Rs. 10,000 million. |
4.61** | Share Purchase and Shareholders Agreement dated September 17, 2010 between Sterlite Industries (India) Limited, Leighton Contractors (India) Private Limited and Vizag General Cargo Berth Private Limited. |
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4.62** | Corporate Guarantee dated December 8, 2010 given by Sterlite Industries (India) Limited to IL&FS Trust Company Limited on behalf of Talwandi Sabo Power Limited. |
4.63** | Second Deed of Amendment dated December 16, 2010 between Anglo Operations Limited, Taurus International S.A., Anglo South Africa Capital (Pty) Limited, Anglo American Services (UK) Limited, Welter Trading Limited, THL Zinc Limited, Labaume B.V., Pecvest 17 (Proprietary) Limited and Vedanta Resources Plc as an amendment to the Share Purchase Agreement dated May 9, 2010. |
4.64** | Letter of Credit Facility Agreement dated December 18, 2010 obtained by Bharat Aluminium Company Limited from ICICI Bank for Rs. 2.50 billion. |
4.65** | Service Contract dated January 25, 2011 between Sterlite Industries (India) Limited and Mr. Din Dayal Jalan. |
8.1** | List of subsidiaries of Sterlite Industries (India) Limited. |
12.1** | Certification by the Chief Executive Officer pursuant to 17 CFR 240. 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
12.2** | Certification by the Chief Financial Officer pursuant to 17 CFR 240. 15D-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
13.1** | Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
13.2** | Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
15.1** | Consent of Independent Registered Public Accounting Firm |
** | Filed herewith |
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The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: September 26, 2011
STERLITE INDUSTRIES (INDIA) LIMITED | ||
By: | /s/ D.D Jalan | |
Name: | D.D Jalan | |
Title: | Chief Financial Officer |
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Index to Consolidated Financial Statements
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Sterlite Industries (India) Limited
Mumbai, Maharashtra, India
We have audited the accompanying consolidated statements of financial position of Sterlite Industries (India) Limited and subsidiaries (the Company) as of March 31, 2011, and 2010, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended March 31, 2011 all expressed in Indian Rupees. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Sterlite Industries (India) Limited and subsidiaries as of March 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2011, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of March 31, 2011, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 26, 2011 expressed an unqualified opinion on the Companys internal control over financial reporting.
Our audit for the year ended and as of March 31, 2011, also comprehended the translation of Indian Rupees amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2. The translation of the consolidated financial statement amounts into United States dollars have been made solely for the convenience of the readers.
/s/ Deloitte Haskins & Sells |
Deloitte Haskins & Sells |
Mumbai, Maharashtra, India |
September 26, 2011 |
F-2
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Indian Rupees in millions except share or per share amounts unless otherwise stated)
For the year ended March 31, | Notes | 2009 | 2010 | 2011 | 2011 | |||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) (Note 2) |
|||||||||||||||
Revenue |
5 | 212,192 | 244,903 | 302,472 | 6,791.0 | |||||||||||||
Cost of sales |
(165,097 | ) | (181,928 | ) | (226,134 | ) | (5,077.1 | ) | ||||||||||
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|
|
|
|
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Gross profit |
47,095 | 62,975 | 76,338 | 1,713.9 | ||||||||||||||
Other operating income |
3,750 | 1,907 | 2,366 | 53.1 | ||||||||||||||
Distribution expenses |
(3,388 | ) | (3,022 | ) | (3,516 | ) | (78.9 | ) | ||||||||||
Administration expenses |
(4,367 | ) | (8,026 | ) | (7,614 | ) | (171.0 | ) | ||||||||||
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Operating profit |
43,090 | 53,834 | 67,574 | 1,517.1 | ||||||||||||||
Investment and other income |
6 | 18,772 | 13,811 | 21,933 | 492.4 | |||||||||||||
Finance and other costs |
7 | (6,244 | ) | 214 | 1,096 | 24.6 | ||||||||||||
Share in consolidated (loss)/profit of associate |
10 | (3,160 | ) | 2,051 | (3,082 | ) | (69.2 | ) | ||||||||||
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Profit before tax |
52,458 | 69,910 | 87,521 | 1,964.9 | ||||||||||||||
Income tax expense |
8 | (7,782 | ) | (13,247 | ) | (18,810 | ) | (422.3 | ) | |||||||||
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Profit for the year |
44,676 | 56,663 | 68,711 | 1,542.6 | ||||||||||||||
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Profit attributable to: |
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Equity holders of the parent |
32,228 | 39,263 | 48,898 | 1,097.8 | ||||||||||||||
Non-controlling interest |
12,448 | 17,400 | 19,813 | 444.8 | ||||||||||||||
Earnings per share |
29 | |||||||||||||||||
Basic |
11.37 | 12.27 | 14.55 | 0.3 | ||||||||||||||
Diluted |
11.37 | 12.03 | 13.87 | 0.3 | ||||||||||||||
Weighted average number of equity shares used in computing earnings per share |
||||||||||||||||||
Basic |
2,833,583,490 | 3,199,826,061 | 3,361,207,534 | 3,361,207,534 | ||||||||||||||
Diluted |
2,833,583,490 | 3,236,000,281 | 3,446,945,134 | 3,446,945,134 |
The accompanying notes are an integral part of these consolidated financial statements.
The Companys consolidated statements of income are presented disclosing expenses by function. The consolidated statements of income disclosing expenses are presented by nature in Note 34 (c).
F-3
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Indian Rupees in millions except share or per share amounts unless otherwise stated)
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) (Note 2) |
|||||||||||||
Profit for the year |
44,676 | 56,663 | 68,711 | 1,542.6 | ||||||||||||
Other comprehensive (loss)/ income, net of tax: |
||||||||||||||||
Exchange differences on translation of foreign operations |
(327 | ) | 1,295 | 807 | 18.1 | |||||||||||
(Loss)/gain on available-for-sale financial investments |
(79 | ) | 318 | (129 | ) | (2.9 | ) | |||||||||
Cash flow hedges*# |
398 | 121 | (97 | ) | (2.1 | ) | ||||||||||
Share in consolidated other comprehensive (loss)/income of associate * |
(582 | ) | 799 | 340 | 7.6 | |||||||||||
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Total other comprehensive (loss)/income for the year, net of tax |
(590 | ) | 2,533 | 921 | 20.7 | |||||||||||
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Total comprehensive income |
44,086 | 59,196 | 69,632 | 1,563.3 | ||||||||||||
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Total comprehensive income attributable to: |
||||||||||||||||
Equity holders of the parent |
31,708 | 41,724 | 49,727 | 1,116.4 | ||||||||||||
Non-controlling interest |
12,378 | 17,472 | 19,905 | 446.9 | ||||||||||||
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44,086 | 59,196 | 69,632 | 1563.3 | |||||||||||||
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* | Refer to Note 8 for tax related to each component of other comprehensive (loss)/ income |
# | Refer to Note 34(a) for amounts reclassified into profit for the year out of other comprehensive (loss)/ income |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Indian Rupees in millions except share or per share amounts unless otherwise stated)
As at March 31, | ||||||||||||||
2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) (Note 2) |
||||||||||||
ASSETS |
||||||||||||||
Non-current assets |
||||||||||||||
Property, plant and equipment |
9(a) | 226,629 | 326,944 | 7,340.4 | ||||||||||
Intangible assets |
9(b) | | 10,305 | 231.4 | ||||||||||
Leasehold land prepayments |
1,220 | 1,217 | 27.3 | |||||||||||
Investment in associate |
10 | 4,621 | 1,879 | 42.2 | ||||||||||
Financial asset investments |
11 | 1,362 | 1,233 | 27.7 | ||||||||||
Other non-current assets |
12 | 10,227 | 14,699 | 330.0 | ||||||||||
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Total non-current assets |
244,059 | 356,277 | 7,999.0 | |||||||||||
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Current assets |
||||||||||||||
Inventories |
13 | 29,822 | 52,358 | 1,175.5 | ||||||||||
Current tax asset |
660 | 827 | 18.6 | |||||||||||
Trade and other receivables |
14 | 118,907 | 111,906 | 2,512.5 | ||||||||||
Short-term investments |
15 | 211,022 | 203,111 | 4,560.2 | ||||||||||
Derivative financial assets |
25 | 115 | 1,088 | 24.4 | ||||||||||
Restricted cash and cash equivalents |
16 | 60 | 39 | 0.9 | ||||||||||
Cash and cash equivalents |
17 | 2,021 | 21,487 | 482.4 | ||||||||||
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Total current assets |
362,607 | 390,816 | 8,774.5 | |||||||||||
Assets held for sale |
18 | 188 | 11 | 0.3 | ||||||||||
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Total assets |
606,854 | 747,104 | 16,773.8 | |||||||||||
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LIABILITIES |
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Current liabilities |
||||||||||||||
Short-term borrowings |
19 | 19,121 | 37,948 | 852.0 | ||||||||||
Acceptances |
20 | 29,901 | 25,786 | 578.9 | ||||||||||
Trade and other payables |
21 | 35,095 | 66,592 | 1,495.1 | ||||||||||
Derivative financial liabilities |
25 | 669 | 410 | 9.2 | ||||||||||
Provisions |
22 | 748 | 1,352 | 30.4 | ||||||||||
Current tax liabilities |
863 | 2,356 | 53.0 | |||||||||||
|
|
|
|
|
|
|||||||||
Total current liabilities |
86,397 | 134,444 | 3,018.6 | |||||||||||
|
|
|
|
|
|
|||||||||
Net current assets |
276,210 | 256,372 | 5,755.9 | |||||||||||
|
|
|
|
|
|
|||||||||
Non-current liabilities |
||||||||||||||
Long-term borrowings |
19 | 43,578 | 53,559 | 1,202.5 | ||||||||||
Deferred tax liabilities |
8 | 17,955 | 28,226 | 633.7 | ||||||||||
Retirement benefits |
24 | 865 | 1,948 | 43.7 | ||||||||||
Provisions |
22 | 382 | 6,182 | 138.8 | ||||||||||
Other non-current liabilities |
23 | 5,689 | 2,719 | 61.0 | ||||||||||
|
|
|
|
|
|
|||||||||
Total non-current liabilities |
68,469 | 92,634 | 2,079.7 | |||||||||||
|
|
|
|
|
|
|||||||||
Total liabilities |
154,866 | 227,078 | 5098.3 | |||||||||||
|
|
|
|
|
|
|||||||||
Net assets |
451,988 | 520,026 | 11,675.5 | |||||||||||
|
|
|
|
|
|
|||||||||
EQUITY |
||||||||||||||
Share capital |
27 | 1,681 | 3,361 | 75.5 | ||||||||||
Securities premium |
182,797 | 181,117 | 4,066.4 | |||||||||||
Other components of equity |
2,723 | 2,497 | 56.0 | |||||||||||
Retained earnings |
177,971 | 223,195 | 5,011.1 | |||||||||||
|
|
|
|
|
|
|||||||||
Equity attributable to equity holders of the parent |
365,172 | 410,170 | 9,209.0 | |||||||||||
Non-controlling interest |
86,816 | 109,856 | 2,466.5 | |||||||||||
|
|
|
|
|
|
|||||||||
Total Equity |
451,988 | 520,026 | 11,675.5 | |||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Indian Rupees in millions except share or per share amounts unless otherwise stated)
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) (Note 2) |
|||||||||||||
Cash flows from operating activities |
||||||||||||||||
Profit before tax |
52,458 | 69,910 | 87,521 | 1,964.9 | ||||||||||||
Adjustments to reconcile profit before tax to net cash provided by operating activities: |
||||||||||||||||
Depreciation and amortisation |
8,024 | 8,061 | 12,422 | 278.9 | ||||||||||||
Provision for doubtful debts/advances |
12 | 46 | 26 | 0.6 | ||||||||||||
Fair value gain on financial assets held for trading |
(2,254 | ) | (2,741 | ) | (4,185 | ) | (94.0 | ) | ||||||||
Profit on sale of fixed asset, net |
(10 | ) | (104 | ) | (257 | ) | (5.8 | ) | ||||||||
Share in consolidated (profit) / loss of associate |
3,160 | (2,051 | ) | 3,082 | 69.2 | |||||||||||
Impairment of guarantees |
137 | | | | ||||||||||||
Exchange loss/(gains), net |
2,159 | (6,074 | ) | (2,232 | ) | (50.1 | ) | |||||||||
Gain on fair valuation of conversion option |
| (587 | ) | (3,206 | ) | (72.0 | ) | |||||||||
Interest and dividend income |
(13,779 | ) | (13,076 | ) | (16,917 | ) | (379.8 | ) | ||||||||
Interest expense |
4,688 | 3,910 | 2,693 | 60.5 | ||||||||||||
Changes in assets and liabilities: |
||||||||||||||||
Decrease/(increase) in trade and other receivables |
12,843 | 3,008 | (8,528 | ) | (191.5 | ) | ||||||||||
Decrease /(increase) in inventories |
8,767 | (5,167 | ) | (17,584 | ) | (394.7 | ) | |||||||||
(Increase)/decrease in other current and non-current assets |
(6,629 | ) | 1,313 | (1,244 | ) | (27.9 | ) | |||||||||
(Decrease)/increase in trade and other payable |
(8,520 | ) | 3,410 | 31,977 | 717.9 | |||||||||||
Increase/(decrease) in other current and non-current liabilities |
1,759 | (1,482 | ) | (5,519 | ) | (123.9 | ) | |||||||||
Proceeds from short-term investments |
984,841 | 1,231,265 | 1,263,809 | 28,374.7 | ||||||||||||
Purchases of short-term investments |
(976,457 | ) | (1,270,518 | ) | (1,206,419 | ) | (27,086.2 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash generation from operation |
71,199 | 19,123 | 135,439 | 3,040.8 | ||||||||||||
Interest paid |
(3,897 | ) | (5,597 | ) | (4,375 | ) | (98.2 | ) | ||||||||
Interest received |
4,420 | 6,460 | 9,769 | 219.3 | ||||||||||||
Dividend received |
9,030 | 5,966 | 4,320 | 97.0 | ||||||||||||
Income tax paid |
(8,649 | ) | (11,703 | ) | (17,624 | ) | (395.7 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash from operating activities |
72,103 | 14,249 | 127,529 | 2,863.2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from investing activities |
||||||||||||||||
Purchases of property, plant and equipment |
(40,623 | ) | (61,875 | ) | (50,016 | ) | (1,122.9 | ) | ||||||||
Proceeds from sale of property, plant and equipment |
66 | 323 | 554 | 12.3 | ||||||||||||
Redemption of investments in associate |
| 13,342 | | |
F-6
Loans repaid by related parties |
| 6,850 | 79,556 | 1,786.2 | ||||||||||||
Loans to related parties |
(15,381 | ) | (96,848 | ) | (56,581 | ) | (1,270.3 | ) | ||||||||
Proceeds from short-term deposits |
13,354 | 55,811 | 58,307 | 1,309.0 | ||||||||||||
Purchases of short-term deposits |
(50,277 | ) | (37,136 | ) | (106,877 | ) | (2,399.5 | ) | ||||||||
Acquisition of zinc international business (net of cash acquired) * |
| | (53,526 | ) | (1,201.7 | ) | ||||||||||
Net changes in restricted cash and cash equivalents |
(1,952 | ) | 1,951 | 21 | 0.5 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
(94,813 | ) | (117,582 | ) | (128,562 | ) | (2,886.4 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from financing activities |
||||||||||||||||
Proceeds from issuance of equity shares ,net |
| 76,529 | | | ||||||||||||
Proceeds from Convertible notes |
| 23,133 | | | ||||||||||||
Proceeds from/(repayment of) working capital loan, net |
(3,588 | ) | (1,194 | ) | 1,692 | 38.0 | ||||||||||
Proceeds from/(repayment of) acceptances, net |
5,454 | (1,386 | ) | | | |||||||||||
Proceeds from acceptances |
| | 35,043 | 786.8 | ||||||||||||
Repayment of acceptances |
| | (39,719 | ) | (891.8 | ) | ||||||||||
Proceeds from other short-term borrowings |
4,500 | 5,626 | 30,171 | 677.4 | ||||||||||||
Repayment of other short-term borrowings |
| (4,500 | ) | (15,000 | ) | (336.8 | ) | |||||||||
Proceeds from long-term borrowings |
14,790 | 13,380 | 17,129 | 384.5 | ||||||||||||
Repayment of long-term borrowings |
(3,902 | ) | (5,103 | ) | (8,823 | ) | (198.0 | ) | ||||||||
Loan from related party |
| | 15,738 | 353.3 | ||||||||||||
Loan repaid to related party |
| | (10,838 | ) | (243.3 | ) | ||||||||||
Payment of dividends to equity holders of the parent, including dividend tax |
(3,315 | ) | (3,437 | ) | (3,674 | ) | (82.5 | ) | ||||||||
Payment of dividends to non-controlling, including dividend tax |
(497 | ) | (726 | ) | (1,069 | ) | (24.0 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by financing activities |
13,442 | 102,322 | 20,650 | 463.6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Effect of exchange rate changes on cash and cash equivalents |
(394 | ) | 331 | (151 | ) | (3.4 | ) | |||||||||
Net (decrease)/increase in cash and cash equivalents |
(9,662 | ) | (680 | ) | 19,466 | 437.0 | ||||||||||
Cash and cash equivalents at the beginning of the year |
12,363 | 2,701 | 2,021 | 45.4 | ||||||||||||
Cash and cash equivalents at the end of the year # |
2,701 | 2,021 | 21,487 | 482.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Supplementary disclosure of non-cash investing activities: |
||||||||||||||||
Payables for purchase of property, plant and equipment |
14,383 | 18,363 | 21,660 | 486.3 | ||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
* | Payments for acquisition of zinc international business includes an amount of Rs 3,972 million paid towards settlement of shareholders loan acquired as a part of BMM acquisition. Also refer Note 4. |
# | for composition, refer Note 17. |
F-7
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Indian Rupees in millions except share or per share amounts unless otherwise stated)
Attributable to equity holders of the parent | ||||||||||||||||||||||||||||||||||||
Share capital |
Securities premium |
Translation of foreign operations |
Available- for-sale financial investments |
Cash flow hedges |
Retained earnings |
Total | Non- controlling interest |
Total | ||||||||||||||||||||||||||||
Balance as at April 1, 2008 |
1,417 | 106,532 | (72 | ) | 87 | (392 | ) | 113,232 | 220,804 | 58,189 | 278,993 | |||||||||||||||||||||||||
Profit for the year |
| | | | | 32,228 | 32,228 | 12,448 | 44,676 | |||||||||||||||||||||||||||
Exchange differences on translation of foreign operations |
| | (327 | ) | | | | (327 | ) | | (327 | ) | ||||||||||||||||||||||||
Movement in available-for-sale financial investments |
| | | (79 | ) | | | (79 | ) | | (79 | ) | ||||||||||||||||||||||||
Net movement in fair value of cash flow hedges, net of tax *# |
| | | | 468 | | 468 | (70 | ) | 398 | ||||||||||||||||||||||||||
Share in consolidated other comprehensive income of associate, net of tax* |
| | | | (582 | ) | | (582 | ) | | (582 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total comprehensive income during the year |
| | (327 | ) | (79 | ) | (114 | ) | 32,228 | 31,708 | 12,378 | 44,086 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Adjustment for amount transferred to initial carrying amount of property, plant and equipment, net of tax |
| | | | 1,336 | | 1,336 | | 1,336 | |||||||||||||||||||||||||||
Dividend paid including tax on dividend |
| | | | | (3,315 | ) | (3,315 | ) | (497 | ) | (3,812 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance as at March 31, 2009 |
1,417 | 106,532 | (399 | ) | 8 | 830 | 142,145 | 250,533 | 70,070 | 320,603 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance as at April 1, 2009 |
1,417 | 106,532 | (399 | ) | 8 | 830 | 142,145 | 250,533 | 70,070 | 320,603 | ||||||||||||||||||||||||||
Profit for the year |
| | | | | 39,263 | 39,263 | 17,400 | 56,663 |
F-8
Exchange differences on translation of foreign operations |
| | 1,295 | | | | 1,295 | | 1,295 | |||||||||||||||||||||||||||
Movement in available-for-sale financial investments |
| | | 318 | | | 318 | | 318 | |||||||||||||||||||||||||||
Net movement in fair value of cash flow hedges, net of tax *# |
| | | | 49 | | 49 | 72 | 121 | |||||||||||||||||||||||||||
Share of other comprehensive income of associate, net of tax* |
| | | | 799 | | 799 | | 799 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total comprehensive income during the year |
| | 1,295 | 318 | 848 | 39,263 | 41,724 | 17,472 | 59,196 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Shares issued |
264 | 76,265 | | | | | 76,529 | | 76,529 | |||||||||||||||||||||||||||
Share in associate towards adjustment for amount transferred to initial carrying amount of property, plant and equipment |
| | | | (177 | ) | | (177 | ) | | (177 | ) | ||||||||||||||||||||||||
Dividend paid including tax on dividend |
(3,437 | ) | (3,437 | ) | (726 | ) | (4,163 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance as at March 31, 2010 |
1,681 | 182,797 | 896 | 326 | 1,501 | 177,971 | 365,172 | 86,816 | 451,988 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance as at April 1, 2010 |
1,681 | 182,797 | 896 | 326 | 1,501 | 177,971 | 365,172 | 86,816 | 451,988 | |||||||||||||||||||||||||||
Profit for the year |
| | | | | 48,898 | 48,898 | 19,813 | 68,711 | |||||||||||||||||||||||||||
Exchange differences on translation of foreign operations |
| | 714 | | | | 714 | 93 | 807 | |||||||||||||||||||||||||||
Movement in available-for-sale financial investments |
| | | (129 | ) | | | (129 | ) | | (129 | ) | ||||||||||||||||||||||||
Net movement in fair value of cash flow hedges, net of tax *# |
| | | | (96 | ) | | (96 | ) | (1 | ) | (97 | ) |
F-9
Share in consolidated other comprehensive income of associate, net of tax* |
| | | | 340 | | 340 | | 340 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total comprehensive income for the year |
| | 714 | (129 | ) | 244 | 48,898 | 49,727 | 19,905 | 69,632 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Bonus shares issued |
1,680 | (1,680 | ) | | | | | | | | ||||||||||||||||||||||||||
Non-controlling interest on acquisition @ |
| | | | | | | 4,204 | 4,204 | |||||||||||||||||||||||||||
Adjustment for amount transferred to initial carrying amount of property, plant and equipment, net of tax |
| | | | (1,055 | ) | | (1,055 | ) | | (1,055 | ) | ||||||||||||||||||||||||
Dividend paid including tax on dividend |
| | | | | (3,674 | ) | (3,674 | ) | (1,069 | ) | (4,743 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance as at March 31, 2011 |
3,361 | 181,117 | 1,610 | 197 | 690 | 223,195 | 410,170 | 109,856 | 520,026 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance as at March 31, 2011 (in US dollars millions) |
75.5 | 4,066.4 | 36.1 | 4.4 | 15.5 | 5,011.1 | 9,209.0 | 2,466.5 | 11,675.5 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* | Refer to Note 8 for taxes related to each component of the other comprehensive income |
# | Refer to Note 34(a) for amount reclassified to the statement of income from other comprehensive income |
@ | Refer to Note 4(b) for non-controlling interest on acquisition |
The accompanying notes are an integral part of these consolidated financial statements.
F-10
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Company overview
Sterlite Industries (India) Limited (SIIL) and its consolidated subsidiaries (collectively, the Company or Sterlite) are engaged in non-ferrous metals and mining in India, Australia, Namibia, South Africa and Ireland. SIIL was incorporated on September 8, 1975 under the laws of the Republic of India and has its registered office at Tuticorin, Tamilnadu. SIILs shares are listed on National Stock Exchange and Bombay Stock Exchange in India. In June 2007, SIIL completed its initial public offering of American Depositary Shares, or ADS, each representing four equity shares, and listed its ADSs on the New York Stock Exchange. In July 2009, SIIL completed its follow-on offering of an additional 131,906,011 ADSs, each currently representing four equity shares, which are listed on the New York Stock Exchange.
These consolidated annual financial statements were authorised for issue by the Companys board of directors on September 26, 2011.
SIIL is a majority-owned subsidiary of Twin Star Holdings Limited (Twin Star) which is in turn a wholly-owned subsidiary of Vedanta Resources plc (Vedanta), a public limited company incorporated in the United Kingdom and listed on the London Stock Exchange plc. Twin Star held 54.64% of SIILs equity as at March 31, 2011.
The Companys copper business is principally one of custom smelting and includes a copper smelter, a refinery, a phosphoric acid plant, a sulphuric acid plant, a copper rod plant and two captive power plants at Tuticorin in Southern India, and a refinery and two copper rod plants at Silvassa in Western India. In addition, the Company owns and operates the Mt. Lyell copper mine in Tasmania, Australia through its subsidiary, Copper Mines of Tasmania Pty Ltd (CMT), which provides a small percentage of the copper concentrate requirements, and a precious metal refinery in Fujairah in the UAE.
The Companys zinc India business is owned and operated by Hindustan Zinc Limited (HZL) in which it has a 64.9% interest as at March 31, 2011. HZLs operations include four lead-zinc mines, four zinc smelters, one lead smelter, one lead-zinc smelter, five sulphuric acid plants, a silver refinery and five captive power plants in the State of Rajasthan in Northwest India, one zinc smelter and a sulphuric acid plant in the State of Andhra Pradesh in Southeast India and a zinc ingot melting and casting plant in the State of Uttarakhand in North India.
The Companys zinc international business comprises Skorpion mine and refinery in Namibia, Lisheen mine in Ireland and a 74% stake in Black Mountain Mining (BMM), whose assets include the Black Mountain mine and the Gamsberg mine project which is in exploration stage, located in South Africa. The Company completed the acquisition of Skorpion on December 3, 2010, of 74% of BMM on February 4, 2011 and of Lisheen on February 15, 2011.
The Companys aluminum business is owned and operated by Bharat Aluminium Company Limited (BALCO) in which it has a 51.0% interest as at March 31, 2011. BALCOs operations include two bauxite mines, two power plants (of which one is used to produce power for captive consumption), and refining, smelting and fabrication facilities in Central India.
The Companys power business comprises Sterlite Energy Limited (SEL) and Talwandi Sabo Power Limited (TSPL) engaged in the power generation business in India. SEL commenced construction of its 2,400 MW thermal coal-based commercial power facility in the State of Orissa in Eastern India and the first unit of 600 MW was capitalised on March 1, 2011. TSPL had signed a MoU with the Government of Punjab for the establishment of 2,640 MW and is in development stage enterprise in the process of constructing the power plant.
The Companys other activities include Paradip Multi Cargo Berth Private Limited (PMCBPL) and Vizag General Cargo Berth Private Limited (VGCB), in which the Company owns a 74% interest in each. Paradip port operation includes building, owning and operating a new berth at Paradip port, situated in the Jagatsinghpur District of Orissa, on the east coast of India. Vizag port operation includes mechanisation of coal handling facilities and up gradation of general cargo berth for handling coal at the outer harbour of Vishakhapatnam port on the east coast of India
The Company owns a 29.5% non-controlling interest in Vedanta Aluminium Limited (Vedanta Aluminium), a 70.5% owned subsidiary of Vedanta.
F-11
2. Basis of preparation of financial statements
Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by International Accounting Standards Board (IASB).
These consolidated financial statements have been prepared in accordance with the accounting policies, set out below and were consistently applied to all periods presented unless otherwise stated.
Basis of measurement
The consolidated financial statements have been prepared on the historical cost convention and on an accrual cost basis, except for derivative financial instruments, short-term investments and available-for-sale financial investments.
Going concern
The consolidated financial statements have been prepared in accordance with the going concern basis of accounting.
Convenience translation
The consolidated financial statements are presented in Indian Rupee, the functional and presentational currency of the Company. Solely for the convenience of readers, the consolidated financial statements as at and for the year ended March 31, 2011 have been translated into US dollars ($) at the noon buying rate of $1.00 = Rs. 44.54 in the City of New York for cable transfers of Indian Rupee as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2011. No representation is made that the Indian Rupee amounts represent US dollar amounts or have been, could have been or could be converted into US dollars at such a rate or any other rate.
3. Significant accounting policies
A. Basis of consolidation
The consolidated financial statements incorporate the results of SIIL and all its subsidiaries, being the entities that it controls. This control is normally evidenced when SIIL is able to govern an entitys financial and operating policies so as to benefit from its activities or where SIIL owns, either directly or indirectly, the majority of an entitys equity voting rights, unless it can be demonstrated that ownership does not constitute control.
The results of subsidiaries acquired or sold during the year are consolidated for the periods from, or to, the date on which control is transferred. The financial statements of subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies.
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, have been eliminated in preparing the consolidated financial statements. Unrealized losses are eliminated unless costs cannot be recovered.
Adoption of new standards
In the current financial period the Company has adopted with effect from April 01, 2010, on a prospective basis, IFRS 3 (2008) Business Combinations, and consequential amendments to IAS 27 (2008) Consolidated and Separate Financial Statements.
IAS 27 (2008) requires the effect of all transactions with non-controlling interests to be recognised in equity where there is no change in control.
The Company adopted an amendment to IAS 27 Consolidated and Separate Financial Statements on April 01, 2010. This requires that when a transaction occurs with non-controlling interests in company entities that do not result in a change in control, the difference between the consideration paid or received and the recorded non-controlling interest should be recognised in equity.
F-12
The adoption of the revised standard has resulted in reference to minority interest being amended to non-controlling interest. There has been no additional impact on the Company apart from the items described above.
Other amendments to accounting standards or new interpretations issued by the IASB, which were applicable from April 01, 2010, do not have an impact on the Company.
B. Investments in associates
Investments in associates are accounted for using the equity method. An associate is an entity over which the Company is in a position to exercise significant influence over operating and financial policies and generally owns between 20% and 50% of the voting equity but is neither a subsidiary nor a joint venture. Goodwill arising on the acquisition of associates is included in the carrying value of investments in associate.
Investment in associates is initially recorded at the cost to the Company and then, in subsequent periods, the carrying value is adjusted to reflect the Companys share of the associates consolidated profits or losses, other changes to the associates net assets and is further adjusted for impairment losses, if any. The consolidated statements of income and comprehensive income include the Companys share of associates results, except where the associate is generating losses, the Companys investments in the associate has been written down to zero and the Company has no legal or constructive obligation to make any payments on behalf of the associate.
Unrealized gains arising from transactions with associates are eliminated against the investment to the extent of the Companys interest in the associate. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment of the asset transferred.
C. Revenue recognition
Revenues are measured at the fair value of the consideration received or receivable, net of discounts, volume rebates, outgoing sales taxes, excise duty and other indirect taxes. Revenues are recognised when all significant risks and rewards of ownership of the commodity sold are transferred to the customer and the commodity has been delivered to the shipping agent. Revenues from sale of by-products are included in revenue.
Certain of the Companys sales contracts provide for provisional pricing based on the price on The London Metal Exchange (LME), as specified in the contract, when shipped. Final settlement of the price is based on the applicable price for a specified future period. The Companys provisionally priced sales are marked to market using the relevant forward prices for the future period specified in the contract and same is adjusted in revenue.
Revenue from sale of power is recognized when delivered and measured based on contractual agreement and tariff rates approved by electricity regulatory authorities.
Dividend income is recognised when the right to receive payment is established. Interest income is recognised using the effective interest rate method.
D. Business combinations
Acquisitions are accounted for under the purchase method. The acquirers identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3, are recognised at their fair value at the acquisition date.
Excess of purchase consideration and the acquisition date non-controlling interest over the acquisition date fair value of identifiable assets acquired and liabilities assumed is recognised as goodwill. Goodwill arising on acquisitions is reviewed for impairment annually. Where the fair values of the identifiable assets and liabilities exceed the cost of acquisition, the surplus is credited to the income statement in the period of acquisition. Where it is not possible to complete the determination of fair values by the date on which the first post-acquisition financial statements are approved, a provisional assessment of fair value is made and any adjustments required to those provisional fair values are finalised within 12 months of the acquisition date.
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Any non-controlling interest in an acquiree is measured at fair value or as the non-controlling interests proportionate share of the acquirees net identifiable assets. This accounting choice is made on a transaction by transaction basis.
Acquisition expenses are charged to income statement in line with IFRS 3.
E (a) Property, plant and equipment
(i). Mining properties
The costs of mining properties, which include the costs of acquiring and developing mining properties and mineral rights, are capitalised as property, plant and equipment under the heading Mining properties in the year in which they are incurred.
When a decision is taken that a mining property is viable for commercial production, all further pre-production primary development expenditure other than land, buildings, plant and equipment, etc is capitalised as part of the cost of the mining property until the mining property is capable of commercial production. From that point, capitalised mining properties are amortised on a unit-of-production basis over the total estimated remaining commercial reserves of each property or group of properties and are subject to impairment review.
Stripping costs/secondary development expenditure incurred during the production stage of operations of an ore body is charged to the statement of income immediately.
In circumstances where a property is abandoned, the cumulative capitalised costs relating to the property are written off in the same period.
Commercial reserves are proved and probable reserves. Changes in the commercial reserves affecting unit of production calculations are dealt with prospectively over the revised remaining reserves.
(ii). Other property, plant and equipment
The initial cost of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes, and any directly attributable costs of bringing an asset to working condition and location for its intended use. It also includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance, are normally charged to the statement of income in the period in which the costs are incurred. Major inspection and overhaul expenditure is capitalised.
(iii). Assets in the course of construction
Assets in the course of construction are capitalised in the assets under construction account. At the point when an asset is capable of operating in the manner intended by management, the cost of construction is transferred to the appropriate category of property, plant and equipment. Costs associated with the commissioning of an asset are capitalised until the period of commissioning has been completed and the asset is ready for its intended use.
(iv). Depreciation
Mining properties and other assets in the course of development or construction, freehold land and goodwill are not depreciated. Capitalised mining properties costs are amortised once commercial production commences, as described in Property, plant and equipment mining properties.
Other buildings, plant and equipment, office equipment and fixtures, and motor vehicles are stated at cost less accumulated depreciation and any provision for impairment. Depreciation commences when the assets are ready for their intended use.
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Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over its expected useful life, as follows:
Buildings: |
||
Operations |
30 years | |
Administration |
50 years | |
Plant and equipment |
10-20 years | |
Office equipment and fixtures |
3-20 years | |
Motor vehicles |
9-11 years |
Major inspection and overhaul costs are depreciated over the estimated life of the economic benefit derived from such costs. The carrying amount of the remaining previous overhaul cost is charged to the statement of income if the next overhaul is undertaken earlier than the previously estimated life of the economic benefit.
The Company reviews the residual value and useful life of an asset at least at each financial year-end and, if expectations differ from previous estimates, the change(s) is accounted for as a change in accounting estimate.
(b) Intangible assets
Exploration and evaluation expenditure incurred after obtaining the mining right or the legal right to explore are capitalised as intangible asset and stated at cost less impairment. Exploration and evaluation assets are transferred to property, plant and equipment when the technical feasibility and commercial viability has been determined. Exploration and evaluation expenditure incurred prior to obtaining the mining right or the legal right are expensed as incurred.
F. Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets and disposal groups classified as held for sale are not depreciated and are measured at the lower of carrying amount and fair value less costs to sell. Such assets and disposal groups are presented separately on the face of the statement of financial position.
G. Financial instruments
(i). Non-derivative financial assets
The Company initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.
The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
The Company has the following non-derivative financial assets: financial asset investments, short-term investments, cash and cash equivalents, loans and receivables.
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(a). Financial asset investments
Financial asset investments are classified as available-for-sale and are initially recorded at cost and then remeasured at subsequent reporting dates to fair value. Unrealized gains and losses on financial asset investments are recognised directly in other comprehensive income. Upon disposal or impairment of the investments, the gains and losses in other comprehensive income are recycled into the statement of income.
Investments in unquoted equity instruments that do not have a market price and whose fair value cannot be reliably measured are measured at cost. Equity investments are recorded in non-current assets unless they are expected to be sold within one year.
(b). Short-term investments
Short-term investments represent short-term marketable securities and other bank deposits with an original maturity between three to twelve months.
Short-term marketable securities are categorized as held for trading and are initially recognised at fair value with any gains or losses arising on remeasurement recognised in the statement of income.
(c). Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand, and short-term deposits which have a maturity of three months or less from the date of acquisition.
(d). Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Trade receivables are stated at their transaction value as reduced by appropriate allowances for estimated irrecoverable amounts. The allowance accounts in respect of loans and receivables are used to record impairment losses unless the Company is satisfied that no recovery of the amount owing is possible; at that point the amounts are considered irrecoverable and are written off against the loans and receivables directly.
Loans and other receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the interest would be immaterial.
(ii). Non-derivative financial liabilities
The Company initially recognises debt securities issued on the date that they are originated. All other financial liabilities are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
The Company has the following non-derivative financial liabilities: Borrowings, Foreign currency convertible notes, trade and other payables.
(a). Borrowings
Interest bearing loans and borrowings are initially recorded at the proceeds received. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method.
Amortised cost is calculated by taking into account the finance charges, including premiums payable on settlement or redemption and direct issue costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the statement of income. The unamortised portion is classified with the carrying amount of debt.
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(b). Foreign currency convertible notes
Convertible notes issued in foreign currency are convertible at the option of the holder into ordinary shares of the Company according to the terms of the issue. The conversion option which is not settled by exchanging a fixed amount of cash for a fixed number of shares is accounted for separately from the liability component as derivative and initially accounted for at fair value. The liability component is recognized initially at the difference between the fair value of the note and the fair value of the conversion option. Directly attributable notes issue costs are allocated to the liability component and the conversion option (expensed off immediately) in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component is measured at amortised cost using the effective interest method. The conversion option is subsequently measured at fair value at each reporting date, with changes in fair value recognized in consolidated statement of income. The conversion option is presented together with the related liability.
(c). Trade and other payables
Trade and other payables are recognised at their transaction cost, which is its fair value, and subsequently measured at amortised cost.
(iii). Derivative financial instruments
In order to hedge its exposure to foreign exchange, interest rate and commodity price risks, the Company enters into forward, option, swap contracts and other derivative financial instruments. The Company does not hold derivative financial instruments for speculative purposes.
Derivative financial instruments are initially recorded at their fair value on the date of the derivative transaction and are re-measured at their fair value at subsequent financial position dates.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Hedge accounting is discontinued when the Company revokes the hedge relationship, the hedging instrument expires or is sold, terminated, or exercised or no longer meets the criteria for hedge accounting,
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the statement of income. The cumulative gain or loss previously recognized in other comprehensive income remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred to the carrying amount of the asset when it is recognized. In other cases the amount recognized in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss. However, when a hedge of a forecast transaction subsequently results in recognition of a non financial asset, the associated cumulative gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of that asset. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in the other comprehensive income is transferred to statement of income.
Derivative financial instruments that do not qualify for hedge accounting are marked to market at the financial position date and gains or losses are recognized in the statement of income immediately.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value with unrealised gains or losses reported in the statement of income.
H. Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.
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I. Borrowing costs
Borrowing costs directly relating to the acquisition, construction or production of a qualifying capital project under construction are capitalised and added to the project cost during construction until such time that the assets are substantially ready for their intended use i.e. when they are capable of commercial production. Where funds are borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs incurred. Where surplus funds are available out of money borrowed specifically to finance a project, the income generated from such short-term investments is also capitalised and deducted from the total capitalised borrowing cost. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings of the Company during the year.
All other borrowing costs are recognized in the statement of income in the year in which they are incurred.
J. Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value.
Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognized in the statement of income. Any cumulative loss in respect of an available-for-sale financial asset recognized previously in other comprehensive income is transferred to the statement of income on recognition of impairment. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognized in the statement of income. For available-for-sale financial assets that are equity securities, the change in fair value is recognized directly in other comprehensive income.
The allowance accounts in respect of trade and other receivables are used to record impairment losses unless the Company is satisfied that no recovery of the amount owing is possible; at that point the amounts are considered irrecoverable and are written off against the financial asset directly.
Non-financial assets
The carrying amounts of the Companys non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit).
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount.
Impairment losses are recognized in the statement of income. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognized.
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K. Government grants
Government grants are not recognised until there is a reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received. Government grants relating to tangible fixed assets are treated as deferred income and released to the statement of income over the expected useful lives of the assets concerned. Other grants are credited to the statement of income as and when the related expenditure is incurred.
L. Inventories
Inventories including work-in-progress are stated at the lower of cost and net realisable value, less any provision for obsolescence. Cost is determined on the following bases:
| purchased copper concentrate is recorded at cost on a first-in, first-out (FIFO) basis; all other materials including stores and spares are valued on a weighted average basis; |
| finished products are valued at raw material cost plus costs of conversion, comprising labor costs and an attributable proportion of manufacturing overheads based on normal levels of activity and are moved out of inventory on a FIFO basis; and |
| by-products and scrap are valued at net realisable value. |
Net realisable value is determined based on estimated selling price, less further costs expected to be incurred to completion and disposal.
M. Taxation
Tax expense represents the sum of current tax and deferred tax.
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the reporting date and includes any adjustment to tax payable in respect of previous years.
Subject to exceptions below, deferred tax is provided, using the balance sheet method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes:
| tax payable on the future remittance of the past earnings of subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; |
| deferred income tax is not recognised on goodwill which is not deductible for tax purposes or on the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and |
| deferred tax assets are recognised only to the extent that it is more likely than not that they will be recovered. |
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Tax relating to items recognized directly in other comprehensive income is recognised in other comprehensive income and not in the statement of income.
The carrying amount of deferred tax assets is reviewed at each reporting date and is adjusted to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the relevant entity intends to settle its current tax assets and liabilities on a net basis.
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N. Retirement benefit schemes
The Company operates or participates in a number of defined benefit and defined contribution pension schemes, the assets of which are (where funded) held in separately administered funds. For defined benefit pension schemes, the cost of providing benefits under the plans is determined separately each year for each plan using the projected unit credit method by independent qualified actuaries.
Actuarial gains and losses arising in the year are recognised in full in the statement of income for the year. For defined contribution schemes, the amount charged to the statement of income in respect of pension costs and other post-retirement benefits is the contributions payable in the year.
O. Share based payments
SIIL does not have any outstanding share based payments. Vedanta offers certain share based incentives under the Long-Term Incentive Plan (LTIP) to employees and directors of SIIL and its subsidiaries. Vedanta recovers the proportionate cost (calculated based on the grant date fair value of the options granted) from the respective group companies, which is charged to the statement of income.
P. Provisions for liabilities and charges
Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present obligation (legal or constructive), as a result of past events, and it is probable that an outflow of resources, that can be reliably estimated, will be required to settle such an obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows to net present value using an appropriate pre-tax discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Unwinding of the discount is recognized in the statement of income as a finance cost. Provisions are reviewed at each reporting date and are adjusted to reflect the current best estimate.
Q. Restoration, rehabilitation and environmental costs
An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mine. Such costs, discounted to net present value, are provided for and a corresponding amount is capitalised at the start of each project, as soon as the obligation to incur such costs arises. These costs are charged to the statement of income over the life of the operation through the depreciation of the asset and the unwinding of the discount on the provision. The cost estimates are reviewed periodically and are adjusted to reflect known developments which may have an impact on the cost estimates or life of operations. The cost of the related asset is adjusted for changes in the provision due to factors such as updated cost estimates, changes to lives of operations, new disturbance and revisions to discount rates. The adjusted cost of the asset is depreciated prospectively over the lives of the assets to which they relate. The unwinding of the discount is shown as a finance and other cost in the statement of income.
Costs for the restoration of subsequent site damage, which is caused on an ongoing basis during production, are charged to the statement of income as extraction progresses. Where the costs of site restoration are not anticipated to be material, they are expensed as incurred.
R. Foreign currency translation
The functional currency for each entity in the Company is determined as the currency of the primary economic environment in which it operates. For all principal operating subsidiaries, the functional currency is the local currency of the country in which it operates.
In the financial statements of individual group companies, transactions in currencies other than the functional currency are translated into the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in other currencies are translated into the functional currency at exchange rates prevailing on the reporting date. Non-monetary assets and liabilities denominated in other currencies and measured at historical cost or fair value are translated at the exchange rates prevailing on the dates on which such values were determined. All exchange differences are included in the consolidated statement of income except any exchange differences on monetary items designated as an effective hedging instrument of the currency risk of designated forecasted sales, which are recognized in other comprehensive income.
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For the purposes of the consolidated financial statements, items in the statement of income of those entities for which the Indian Rupees (functional currency of SIIL) is not the functional currency are translated into Indian Rupees at the average rates of exchange during the year. The related statements of financial position are translated at the rates as at the reporting date. Exchange differences arising on translation are recognised in other comprehensive income. On disposal of such entities the deferred cumulative exchange differences recognised in equity relating to that particular foreign operation are recognised in the statement of income.
S. Earnings per share
The Company presents basic and diluted earnings per share (EPS) data for its equity shares. Basic EPS is calculated by dividing the profit or loss attributable to equity shareholders of SIIL by the weighted average number of equity shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to equity shareholders and the weighted average number of equity shares outstanding for the effects of all dilutive potential equity shares.
T. Critical accounting judgments and estimation uncertainty
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions, that affect the application of accounting policies and the reported amounts of assets, liabilities, income, expenses and disclosures of contingent assets and liabilities at the date of these consolidated financial statements and the reported amounts of revenues and expenses for the years presented. Actual results may differ from these estimates under different assumptions and conditions
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are included in the following accounting policies and/or notes:
i. | Note 9(a) and 9(b), the accounting policy on property, plant and equipment- Mining reserve estimates and useful life of property, plant and equipment and policy on intangible assets, respectively. |
ii. | Note 18 and the accounting policy on impairment of assets: |
In assessing property, plant and equipment for impairment, factors leading to significant reduction in profits such as changes in commodity prices, the Companys business plans and significant downward revision in the estimated mining reserves are taken into consideration. The carrying value of the assets of a cash generating unit (CGU) and associated mining reserves is compared with the recoverable amount of those assets, that is, the higher of fair value less costs to sell and value in use. Value in use is usually determined on the basis of discounted estimated future cash flows. This involves management estimates on commodity prices, market demand and supply, increase in cost, discount rate, economic and regulatory climates, long term mine plan and other factors. Any subsequent changes to cash flow due to changes in the abovementioned factors could have an impact on the carrying value of the assets.
iii. | Note 22 and the accounting policy on restoration, rehabilitation and environmental costs: |
Provision is made for costs associated with restoration and rehabilitation of mining sites as soon as the obligation to incur such costs arises. Such restoration and closure costs are typical of extractive industries and they are normally incurred at the end of the life of the mine. The costs are estimated on the basis of mine closure plans and the estimated discounted costs of dismantling and removing these facilities and the costs of restoration are capitalised when incurred reflecting the Companys obligations at that time. A corresponding provision is created on the liability side. The capitalised asset is charged to the income statement over the life of the asset through depreciation over the life of the operation and the provision is increased each period via unwinding the discount on the provision. Management estimates are based on local legislation and/or other agreements. The actual costs and cash outflows may differ from estimates because of changes in laws and regulations, changes in prices, analysis of site conditions and changes in restoration technology.
iv. | Note 24 and the accounting policy on retirement benefit schemes |
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v. | Note 31 and 35 on contingencies: |
The Company has significant capital commitments in relation to various capital projects which are not recognized on the statement of financial positions. In the normal course of business, contingent liabilities may arise from litigation and other claims against the Company. Guarantees are also provided in the normal course of business. There are certain obligations which management has concluded, based on all available facts and circumstances, are not probable of payment or are very difficult to quantify reliably, and such obligations are treated as contingent liabilities and disclosed in the notes but are not reflected as liabilities in the consolidated financial statements. Although there can be no assurance regarding the final outcome of the legal proceedings in which the Company is involved, it is not expected that such contingencies will have a material effect on its financial position or profitability.
vi. | Note 8 and accounting policy on taxation: |
In preparing consolidated financial statements, the Company recognises income taxes in each of the jurisdictions in which it operate. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.
vii. | Note 10 on investments in associate: |
Consequent to ongoing delay in approval for the Niyamgiri mines and expansion of alumina refinery, the Company has reviewed the carrying value of its investments in Vedanta Aluminium for impairment, and has concluded that no impairment is currently considered necessary based on the possible alternate source of obtaining bauxite and expectation of obtaining the necessary approvals for alumina refinery expansion in due course.
U. Recently issued accounting pronouncements
At the date of authorization of these consolidated financial statements, the following standards interpretations and amendments, which have not been applied in these financial statements, were in issue but were not yet effective:
IFRS 7 was amended in May 2010 and October 2010, as part of Improvements to IFRSs 2010. The effect of the amendments were to provide (a) qualitative disclosures in the context of quantitative disclosures to enable users to link related disclosures to form an overall picture of the nature and extent of risks arising from financial instruments and (b) help users of financial statements to evaluate the risk exposures relating to transfers of financial assets and the effect of those risks on an entitys financial position. The amendments issued in May 2010 are effective for annual periods beginning on or after January 1, 2011 and those issued in October 2010 are effective for annual periods beginning on or after July 1, 2011. Early application is permitted. The Company is currently evaluating the impact, if any; the adoption of the amendments will have on the Companys consolidated financial statements.
IAS 19 Employee benefits the amendments make important improvements by eliminating the option to defer the recognition of gains and losses, known as the corridor method, streamlining the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income (OCI), enhancing the disclosure requirements for defined benefit plans. IAS 19 is applicable prospectively from the financial year beginning on or after January 1, 2013. Earlier application is permitted. The Company is currently evaluating the impact, if any, the adoption of the amendment will have on the Companys consolidated financial statements.
The following new IFRSs were issued during the year and are applicable to annual reporting periods beginning on or after January 01, 2013.
IFRS 9 Financial Instruments was issued by IASB in October 2010 as part of its project for revision of the accounting guidance for financial instruments. The new standard provides guidance with respect to classification and measurement of financial assets and financial liabilities. The standard will be effective for annual periods beginning on or after January 1, 2013, with early application permitted. The Company is currently evaluating the impact, if any, the adoption of the standard will have on the Companys consolidated financial statements.
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IFRS 10 Consolidated Financial Statements establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 supersedes the requirements relating to consolidated financial statement in IAS 27 - Consolidated and Separate Financial Statement (amended 2008) and also supersedes SIC 12, Consolidation Special Purpose Entities. Earlier application is permitted. The Company is currently evaluating the impact, if any, the adoption of the standard will have on the Companys consolidated financial statements.
IFRS 11 Joint Arrangements classifies joint arrangements as either joint operations (combining the existing concepts of jointly controlled assets and jointly controlled operations) or joint ventures (equivalent to the existing concept of a jointly controlled entity). Joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations for the liabilities. Joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. IFRS 11 requires the use of the equity method of accounting for interests in joint ventures thereby eliminating the proportionate consolidation method. IFRS 11 supersedes IAS 31 Interest in Joint Ventures (amended 2008) and SIC 13 Jointly Controlled Entities Non Monetary Contribution by Ventures. The Company is currently evaluating the impact, if any; the adoption of the standard will have on the Companys consolidated financial statements.
IFRS 12 Disclosure of Interests in Other Entities applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. The IFRS requires an entity to disclose information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities; and the effects of those interests on its financial position, financial performance and cash flows. IFRS 12 replaces disclosure requirements in IAS 27 Consolidated and Separate Financial Statements (amended 2008), IAS 28 Investment in Associates and IAS 31 Interest in Joint Ventures (amended 2008). The Company is currently evaluating the impact, if any, the adoption of the standard will have on the Companys consolidated financial statements.
IFRS 13 Fair value measurement defines fair value and sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. It seeks to increase consistency and comparability in fair value measurements and related disclosures through a fair value hierarchy. IFRS 13 is to be applied for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The Company is currently evaluating the impact, if any; the adoption of the standard will have on the Companys consolidated financial statements.
In May 2010, the IASB issued Improvements to IFRS a collection of amendments to certain IFRSs as part of its programme of annual improvements to its standards, which is intended to make necessary, but non-urgent, amendments to standards that will not be included as part of another major project.
The amendments resulting from these improvements mainly have effective dates for annual periods beginning on or after January 1, 2011, although entities are permitted to adopt them earlier.
Improvements to IFRSs issued in May 2010 approved amendments to:
IFRS 3 Business Combinations
IFRS 7 Financial Instruments: Disclosures
IAS 1 Presentation of Financial Statements
IAS 27 (revised 2008) Consolidated and Separate Financial Statements
IAS 34 Interim Financial Reporting
The Company is currently evaluating the impact, if any, the adoption of these improvements will have on the Companys consolidated financial statements.
F-23
4. Business Combinations
a) | On December 03, 2010, the Company acquired 100% of the equity of THL Zinc Namibia Holdings (Proprietary) Limited (Skorpion, formerly known as Anglobase Namibia Holdings (Proprietary) Limited) for a total consideration of US dollars 706.7 million (Rs. 32,098 million). The financial results of Skorpion from the date of acquisition to March 31, 2011 have been included in the consolidated financial statements of the Company. Skorpion is involved in mining and smelting of zinc. The primary reason for acquisition is to expand the Companys zinc business. |
The fair values and business combination accounting set out in this financial statement are provisional, in so far as it relates to property, plant and equipment, for the 12 month period from the date of acquisition.
The fair value of the identifiable assets and liabilities of Skorpion as at the date of the acquisition were provisionally estimated as follows:
Fair value (Rs. in millions) |
||||
Assets |
||||
Non-current assets |
||||
Property, plant and equipment Other non-currents assets |
|
27,713 137 |
| |
|
|
|||
27,850 | ||||
|
|
|||
Current assets |
||||
Inventories |
2,435 | |||
Trade and other receivables |
179 | |||
Cash and cash equivalents |
5,466 | |||
|
|
|||
8,080 | ||||
|
|
|||
Liabilities |
||||
Current liabilities |
||||
Trade and other payables |
991 | |||
Current tax liabilities |
16 | |||
|
|
|||
1,007 | ||||
|
|
|||
Non-current liabilities |
||||
Deferred tax liabilities |
600 | |||
Provisions |
2,225 | |||
|
|
|||
2,825 | ||||
|
|
|||
Net assets |
32,098 | |||
|
|
|||
Satisfied by: |
||||
Cash consideration paid |
32,098 |
Since the date of acquisition, Skorpion has contributed Rs. 5,077 million to the revenue and Rs. 766 million to the profit of the Company for the year ended March 31, 2011. If Skorpion had been acquired at the beginning of the year, the revenue of the Company would have been Rs. 15,168 million higher and the profit for the year of the Company would have been Rs. 1,877 million higher.
Acquisition costs of Rs. 88 million related to Skorpion have been charged to consolidated statement of income under administration expenses.
F-24
b) | On February 04, 2011 the Company acquired 74% of the equity of Black Mountain Mining (Proprietary) Limited (BMM) for a total consideration of US dollars 260.2 million (Rs. 11,965 million). Shareholders loan from Anglo to BMM was taken over by the Company of amount ZAR 622.5 million (Rs. 3,972 million). The financial results of BMM from the date of acquisition to March 31, 2011 have been included in the consolidated financial statements of the Company. BMM holds two key assets, which includes Black Mountain mine and the Gamsberg mine project which is in exploration stage. BMM is mainly involved in mining and production of zinc concentrate. The primary reason for acquisition is to expand the Companys zinc business. |
The fair values and business combination accounting set out in this financial statement are provisional, in so far as it relates to property, plant and equipment and intangible assets, for the 12 month period from the date of acquisition.
The fair value of the identifiable assets and liabilities of BMM as at the date of the acquisition were provisionally estimated as follows:
Fair value (Rs. in millions) |
||||
Assets |
||||
Non-current assets |
||||
Property, plant and equipment |
16,021 | |||
Intangible assets |
10,080 | |||
Other non-currents assets |
495 | |||
|
|
|||
26,596 | ||||
|
|
|||
Current assets |
||||
Inventories |
1,601 | |||
Trade and other receivables |
1,370 | |||
Cash and cash equivalents |
1,449 | |||
|
|
|||
4,420 | ||||
|
|
|||
Liabilities |
||||
Current liabilities |
||||
Borrowings |
5,367 | |||
Trade and other payables |
566 | |||
Provisions |
569 | |||
Current tax liabilities |
415 | |||
|
|
|||
6,917 | ||||
|
|
|||
Non-current liabilities |
||||
Retirement benefits |
318 | |||
Deferred tax liabilities |
7,129 | |||
Provisions |
483 | |||
|
|
|||
7,930 | ||||
|
|
|||
Net assets |
16,169 | |||
|
|
|||
Less: Non-controlling interest on acquisition |
4,204 | |||
|
|
|||
11,965 | ||||
|
|
|||
Satisfied by: |
||||
Cash consideration paid |
11,965 |
Since the date of acquisition, BMM has contributed Rs. 2,532 million to the revenue and Rs. 380 million to the profit of the Company for the year ended March 31, 2011. If BMM had been acquired at the beginning of the year, the revenue of the Company would have been Rs. 10,532 million higher and the profit for the year of the Company would have been Rs. 1,193 million higher.
F-25
Non-controlling interest has been measured at the non-controlling interests proportionate share of BMMs identifiable net assets.
Acquisition costs of Rs. 39 million related to BMM have been charged to consolidated statement of income under administration expenses.
c) | On February 15, 2011, the Company acquired 100% of the equity of Vedanta Lisheen Finance Limited (Lisheen, formerly known as Anglo American Lisheen Finance Limited), Ireland for a total consideration of US dollars 546.2 million (Rs. 25,020 million). The financial results of Lisheen from the date of acquisition to March 31, 2011 have been included in the consolidated financial statements of the Company. Lisheen is mainly involved in mining and production of zinc concentrate. The primary reason for acquisition is to expand the Companys zinc business. |
The fair values and business combination accounting set out in this financial statement are provisional, in so far as it relates to property, plant and equipment, for the 12 month period from the date of acquisition.
The fair value of the identifiable assets and liabilities of Lisheen as at the date of the acquisition were provisionally estimated as follows:
Fair value (Rs. in millions) |
||||
Assets |
||||
Non-current assets |
||||
Property, plant and equipment |
12,975 | |||
Other non-current assets |
3,995 | |||
|
|
|||
16,970 | ||||
|
|
|||
Current assets |
||||
Inventories |
835 | |||
Trade and other receivables |
676 | |||
Cash and cash equivalents |
12,614 | |||
|
|
|||
14,125 | ||||
|
|
|||
Liabilities |
||||
Current liabilities |
||||
Trade and other payables |
1,047 | |||
Current tax liabilities |
137 | |||
|
|
|||
1,184 | ||||
|
|
|||
Non-current liabilities |
||||
Deferred tax liabilities |
2,053 | |||
Provisions |
2,838 | |||
|
|
|||
4,891 | ||||
|
|
|||
Net assets |
25,020 | |||
|
|
|||
Satisfied by: |
||||
Cash consideration paid |
25,020 |
F-26
Since the date of acquisition, Lisheen has contributed Rs. 2,352 million to the revenue and Rs. 511 million to the profit of the Company for the year ended March 31, 2011. If Lisheen had been acquired at the beginning of the year, the revenue of the Company would have been Rs. 13,311 million higher and the profit for the year of the Company would have been Rs. 4,625 million higher.
Acquisition costs of Rs. 261 million related to Lisheen have been charged to consolidated statement of income under administration expenses.
5. Revenue
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Revenue, gross of excise duty |
228,487 | 256,943 | 320,946 | 7,205.8 | ||||||||||||
Less: excise duty |
(16,295 | ) | (12,040 | ) | (18,474 | ) | (414.8 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Revenue, net of excise duty |
212,192 | 244,903 | 302,472 | 6,791.0 | ||||||||||||
|
|
|
|
|
|
|
|
6. Investment and other income
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Dividend income on financial assets held for trading |
9,030 | 5,966 | 4,320 | 97.0 | ||||||||||||
Fair value gain on financial assets held for trading |
2,254 | 2,741 | 4,185 | 94.0 | ||||||||||||
Interest income on bank deposits |
2,518 | 2,389 | 4,962 | 111.4 | ||||||||||||
Interest income on loans and receivables |
2,179 | 4,925 | 7,760 | 174.2 | ||||||||||||
Foreign exchange gain /(loss) |
2,881 | (1,997 | ) | 788 | 17.6 | |||||||||||
Capitalisation of interest income (1) |
(90 | ) | (213 | ) | (82 | ) | (1.8 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
18,772 | 13,811 | 21,933 | 492.4 | |||||||||||||
|
|
|
|
|
|
|
|
Notes:
(1) | Capitalisation of interest income relates to the income from temporary surplus funds, specifically borrowed to acquire/ construct qualifying assets. |
F-27
7. Finance and other costs
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Interest on borrowings other than convertible notes (2) |
3,703 | 4,037 | 2,783 | 62.5 | ||||||||||||
Interest on convertible notes (2) |
| 890 | 2,124 | 47.7 | ||||||||||||
Bank charges |
778 | 620 | 628 | 14.1 | ||||||||||||
Unwinding of discount on provisions |
17 | 11 | 52 | 1.2 | ||||||||||||
Gain on fair valuation of conversion option |
| (587 | ) | (3,206 | ) | (72.0 | ) | |||||||||
Foreign exchange loss/(gain) on foreign currency borrowings |
2,785 | (3,395 | ) | (746 | ) | (16.7 | ) | |||||||||
Other |
249 | 52 | 374 | 8.3 | ||||||||||||
Capitalisation of borrowing costs (1) |
(1,288 | ) | (1,842 | ) | (3,105 | ) | (69.7 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
6,244 | (214 | ) | (1,096 | ) | (24.6 | ) | ||||||||||
|
|
|
|
|
|
|
|
Notes:
(1) | Capitalisation of borrowing costs relates to funds borrowed both specifically and generally to acquire/ construct qualifying assets. The rate for capitalisation of interest relating to general borrowings was approximately Nil, 12.68% and 12.71% for the year ended March 31, 2009, 2010 and 2011 respectively. |
(2) | Finance costs include Rs. 3,703 million, Rs. 4,927 million and Rs.4,907 million ($110.2 million) in respect of financial liabilities which are carried at amortised cost using the effective interest rate method for the year ended March 31, 2009, 2010 and 2011 respectively. |
8. Income tax expense
Overview of the Indian direct tax regime
Indian companies are subject to Indian income tax on a standalone basis. Each entity is assessed for tax on taxable profits determined for each fiscal year beginning on April 1 and ending on March 31. For each fiscal year, a companys profit or loss is subject to the higher of the regular income tax payable or the minimum alternative tax (MAT).
Statutory income taxes are assessed based on book profits prepared under generally accepted accounting principles in India (Indian GAAP) adjusted in accordance with the provisions of the Indian Income Tax Act, 1961. Such adjustments generally relate to depreciation of fixed assets, disallowances of certain provisions and accruals, the use of tax losses carried forward and retirement benefit costs. Statutory income tax is charged at 30% plus a surcharge and education cess. The combined Indian statutory tax rate for the fiscal years 2011 and 2012 is 33.22% and 32.45% respectively, the change in rate arising from a reduction in the surcharge.
MAT is assessed on book profits adjusted for certain limited items as compared to the adjustments allowed for assessing statutory income tax. MAT for the financial year 2010-11 is assessed at 18% plus a surcharge and education cess. The combined Indian statutory tax rate of MAT for the fiscal year 2011 is 19.93% and fiscal year 2012 is 20.01%. MAT paid during a year can be set off against regular income taxes within a period of ten years succeeding the assessment year in which MAT credit arises.
Income tax returns submitted by companies are regularly subjected to a comprehensive review and challenges by the tax authorities. There are appellate procedures available to both the tax authorities and taxpayers and it is not uncommon for significant or complex matters in dispute to remain outstanding for several years before they are finally resolved in the High Court or the Supreme Court.
There are various tax exemptions or tax holidays available to companies in India. The most important to the Company are:
| The industrial undertakings exemption Profits of newly constructed industrial undertakings located in designated areas of India can benefit from a tax holiday. A typical tax holiday would exempt 100% of the profits from the undertaking for five years, and 30% for five years thereafter. |
F-28
| The power plants exemption Profits on newly constructed power plants can benefit from a tax holiday. A typical holiday would exempt 100% of profits for ten consecutive years within the first 15 years of the power plants operation. The start of the exemption period is at the discretion of a company. This exemption is available only for units set up until 31 March 2012. |
| Wind power plants exemption Profits are exempt from income tax for any continuous block of 10 years in the first 15 years of operations. Accelerated depreciation of 80% is available in the first year of operations. |
| Export Oriented Units exemption Profits from units designated as an Export Oriented Unit, from where goods are exported out of India, are exempt from tax up to fiscal year 2011. |
The effect of such tax holidays were Rs. 5,942 million (impact on basic EPS Rs. 2.1), Rs. 7,943 million (impact on basic EPS- Rs. 2.5), and Rs. 10,942 million ($ 245.7 million) (impact on basic EPS Rs. 3.3) ($ 0.1) for the years ended March 31, 2009, 2010 and 2011 respectively.
Business losses in India can be carried forward for a maximum period of eight assessment years immediately succeeding the assessment year to which the loss pertains. Unabsorbed depreciation can be carried forward for an indefinite period.
The major components of income tax expense for the year ended March 31, 2009, 2010 and 2011 are indicated below:
(a) Consolidated statements of income
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Current tax: |
||||||||||||||||
Current tax on profit for the year |
8,954 | 11,492 | 18,325 | 411.4 | ||||||||||||
Charge/ (credits) in respect of current tax for earlier years |
(913 | ) | (129 | ) | 60 | 1.3 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current tax |
8,041 | 11,363 | 18,385 | 412.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Deferred tax: |
||||||||||||||||
Origination and reversal of temporary differences |
(259 | ) | 2,287 | 890 | 20.0 | |||||||||||
Reduction in tax rate |
| (403 | ) | (465 | ) | (10.4 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total deferred tax |
(259 | ) | 1,884 | 425 | 9.6 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Tax expense for the year |
7,782 | 13,247 | 18,810 | 422.3 | ||||||||||||
Effective income tax rate (%) |
14.8 | % | 18.9 | % | 21.5 | % | 21.5 | % |
(b) Consolidated statements of other comprehensive (loss)/ income
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Deferred tax (credit)/charge on: |
||||||||||||||||
-cash flow hedges |
(381 | ) | 174 | 110 | 2.5 | |||||||||||
- reclassification adjustments on cash flow hedges |
2 | 381 | (174 | ) | (3.9 | ) | ||||||||||
-share in consolidated other comprehensive (loss)/income of associate |
(300 | ) | 246 | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
(679 | ) | 801 | (64 | ) | (1.4 | ) | ||||||||||
|
|
|
|
|
|
|
|
F-29
A reconciliation of income tax expense applicable to accounting profit before tax at the statutory income tax rate to recognised income tax expense for the year indicated are as follows:
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Accounting profit before tax |
52,458 | 69,910 | 87,521 | 1,964.9 | ||||||||||||
Statutory income tax rate |
33.99 | % | 33.99 | % | 33.22 | % | 33.22 | % | ||||||||
Tax at Indian statutory income tax rate |
17,831 | 23,762 | 29,074 | 652.8 | ||||||||||||
Disallowable expenses |
13 | 323 | 477 | 10.7 | ||||||||||||
Non-taxable income |
(3,344 | ) | (2,932 | ) | (2,012 | ) | (45.2 | ) | ||||||||
Tax holidays and similar exemptions |
(5,942 | ) | (7,943 | ) | (10,942 | ) | (245.7 | ) | ||||||||
Change in deferred tax balances due to the change in Indian income tax rates from 33.99% to 33.22% for 2010 and from 33.22% to 32.45% for 2011 |
| (403 | ) | (465 | ) | (10.4 | ) | |||||||||
Effect of tax rates differences of subsidiaries operating in other jurisdictions |
(176 | ) | (48 | ) | (104 | ) | (2.3 | ) | ||||||||
Dividend distribution tax |
126 | 191 | 728 | 16.3 | ||||||||||||
Unrecognised MAT credit |
520 | 404 | 1,145 | 25.7 | ||||||||||||
Charge/(Credit) in respect of previous years |
(913 | ) | (129 | ) | 60 | 1.3 | ||||||||||
Utilisation of tax losses |
(333 | ) | (355 | ) | (131 | ) | (2.9 | ) | ||||||||
Tax effect on share of loss of associate |
| 377 | 1,024 | 23.0 | ||||||||||||
Others |
| | (44 | ) | (1.0 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
7,782 | 13,247 | 18,810 | 422.3 | |||||||||||||
|
|
|
|
|
|
|
|
There are certain income-tax related legal proceedings which are pending against the Company. Potential liabilities, if any, have been adequately provided for, and the Company does not currently estimate any material incremental tax liability in respect of these matters.
Deferred tax assets/liabilities
The Company has recognised significant amounts of deferred tax. The majority of the deferred tax liabilities represent accelerated tax relief for the depreciation of capital expenditure and the depreciation on mining reserves.
Significant components of deferred tax assets/liabilities recognized in the statement of financial position are as follows:
For the year ended March 31, 2009:
(Rs. in millions) | ||||||||||||||||||||
Significant components of deferred tax liabilities/(assets) |
Opening balance as at April 1, 2008 |
Charged/ (credited) to Statement of income |
Charged/ (credited) to equity |
Exchange difference transferred to translation of foreign operation |
Total as at March 31, 2009 |
|||||||||||||||
Share in profit or loss of associate |
39 | (1,074 | ) | (300 | ) | | (1,335 | ) | ||||||||||||
Property, plant and equipment |
16,207 | 243 | | (3 | ) | 16,447 | ||||||||||||||
Voluntary retirement scheme |
(32 | ) | 19 | | | (13 | ) | |||||||||||||
Employee benefits |
(220 | ) | (22 | ) | 2 | | (240 | ) | ||||||||||||
Fair value of derivative assets/ liabilities |
(76 | ) | 76 | (381 | ) | | (381 | ) | ||||||||||||
Fair valuation of other assets/liabilities |
427 | (85 | ) | | (2 | ) | 340 | |||||||||||||
Other temporary differences |
(204 | ) | 584 | | (26 | ) | 354 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
16,141 | (259 | ) | (679 | ) | (31 | ) | 15,172 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
F-30
For the year ended March 31, 2010:
(Rs. in millions) | ||||||||||||||||||||
Significant components of deferred tax liabilities/(assets) |
Opening balance as at April 1, 2009 |
Charged/ (credited) to Statement of income |
Charged/ (credited) to equity |
Exchange difference transferred to translation of foreign operation |
Total as at March 31, 2010 |
|||||||||||||||
Share in profit or loss of associate |
(1,335 | ) | 1,089 | 246 | | | ||||||||||||||
Property, plant and equipment |
16,447 | 1,498 | | 3 | 17,948 | |||||||||||||||
Voluntary retirement scheme |
(13 | ) | 6 | | | (7 | ) | |||||||||||||
Employee benefits |
(240 | ) | (67 | ) | | (1 | ) | (308 | ) | |||||||||||
Fair value of derivative assets/ liabilities |
(381 | ) | (1 | ) | 555 | | 173 | |||||||||||||
Fair valuation of other assets/liabilities |
340 | (44 | ) | | (2 | ) | 294 | |||||||||||||
MAT credits entitlement |
| (93 | ) | | | (93 | ) | |||||||||||||
Other temporary differences |
354 | (504 | ) | | 98 | (52 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
15,172 | 1,884 | 801 | 98 | 17,955 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
For the year ended March 31, 2011: | ||||||||||||||||||||||||||||
Significant components of deferred tax liabilities/ |
Opening balance as at April 1, 2010 |
Acquisition through business combination |
Charged/ (credited) to Statement of income |
Charged/ (credited) to equity |
Exchange difference transferred to translation of foreign operation |
Total as at March 31, 2011 |
Total as at March 31, 2011 |
|||||||||||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollar in millions) |
||||||||||||||||||||||
Intangible assets |
| 2,822 | | | 62 | 2,884 | 64.8 | |||||||||||||||||||||
Property, plant and equipment |
17,948 | 7,067 | 911 | | 78 | 26,004 | 583.8 | |||||||||||||||||||||
Voluntary retirement scheme |
(7 | ) | | (62 | ) | | | (69 | ) | (1.5 | ) | |||||||||||||||||
Employee benefits |
(308 | ) | | (68 | ) | | (2 | ) | (378 | ) | (8.5 | ) | ||||||||||||||||
Fair value of derivative assets/ liabilities |
173 | | 1,442 | (64 | ) | | 1,551 | 34.8 | ||||||||||||||||||||
Fair valuation of other assets/liabilities |
294 | | 770 | | (12 | ) | 1,052 | 23.6 | ||||||||||||||||||||
MAT credits entitlement |
(93 | ) | | (3,134 | ) | | | (3,227 | ) | (72.5 | ) | |||||||||||||||||
Other temporary differences |
(52 | ) | (107 | ) | 566 | | 2 | 409 | 9.2 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
17,955 | 9,782 | 425 | (64 | ) | 128 | 28,226 | 633.7 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities have been offset where they arise in the same legal entity and taxing jurisdiction but not otherwise.
F-31
Unused tax losses for which no deferred tax asset is recognized amount to Rs. 409 million and Rs 4,142 million ($93.0 million) as at March 31, 2010 and March 31, 2011 respectively .These relate primarily to tax losses at SEL, SIL and Skorpion. Such deferred tax asset has not been recognized on the basis that its recovery is not sufficiently certain in the foreseeable future. Unused tax losses related to business amounting to Rs. 67 million would expire, if not utilised, between financial year 2011-12 and 2018-19 based on the year of origination, long term capital losses amounting to Rs. 336 million would expire, if not utilised, by financial year 2017-18 and for others amounting to Rs. 3,739 million there is no expiry.
The Company had unused MAT credit amounting to Rs. 2,296 million and Rs. 3,441 million ($77.3 million) as at March 31, 2010 and 2011 respectively. Such tax credit has not been recognised on the basis that its recovery is not sufficiently certain in the foreseeable future. Unrecognised MAT credit expires, if unutilized, based on the year of origination as follows:
(Rs. in | (US dollar | |||||||
Financial year ended March 31, |
Millions) | in millions) | ||||||
2015-16 |
198 | 4.4 | ||||||
2016-17 |
1,036 | 23.3 | ||||||
2017-18 |
137 | 3.1 | ||||||
2018-19 |
520 | 11.7 | ||||||
2019-20 |
517 | 11.6 | ||||||
2020-21 |
1,033 | 23.2 |
The Company had not recognised deferred tax asset on the share of loss in associate company amounting to Rs. 3,751 million ($ 84.2 million) as at March 31, 2011. Deferred tax asset is not recognised on the basis that its recovery is not sufficiently certain in the foreseeable future.
As at March 31, 2010 and 2011, the Company has not recognised any deferred tax liabilities for taxes that would be payable on the unremitted earnings of certain of the Companys subsidiaries because the Company controls whether the liability will be incurred and it is probable that the liability will not be incurred in the foreseeable future. The amount of unremitted earnings were Rs. 232,056 million and Rs. 288,981 million ($6,488.1 million) respectively as at March 31, 2010 and 2011.
F-32
9 (a) Property, plant and equipment
Mining property |
Land and building |
Plant and equipment |
Motor vehicles |
Office equipment and fixtures |
Total | Total | ||||||||||||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollar in millions) |
||||||||||||||||||||||
Cost |
||||||||||||||||||||||||||||
April 1, 2009 |
16,627 | 11,997 | 123,066 | 271 | 2,118 | 154,079 | ||||||||||||||||||||||
Additions |
170 | 2,677 | 21,874 | 123 | 554 | 25,398 | ||||||||||||||||||||||
Disposals/adjustments* |
| (326 | ) | (2,127 | ) | (24 | ) | (25 | ) | (2,502 | ) | |||||||||||||||||
Foreign exchange |
638 | 2 | 314 | 2 | 37 | 993 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
March 31, 2010 |
17,435 | 14,350 | 143,127 | 372 | 2,684 | 177,968 | 3,995.8 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Acquisition through business combination |
33,948 | 3,419 | 17,081 | 489 | 19 | 54,956 | 1,233.8 | |||||||||||||||||||||
Additions |
521 | 8,702 | 37,427 | 152 | 350 | 47,152 | 1,058.6 | |||||||||||||||||||||
Disposals |
| (34 | ) | (1,000 | ) | (23 | ) | (15 | ) | (1,072 | ) | (24.1 | ) | |||||||||||||||
Foreign exchange |
665 | 10 | 441 | (11 | ) | 8 | 1,113 | 24.9 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
March 31, 2011 |
52,569 | 26,447 | 197,076 | 979 | 3,046 | 280,117 | 6,289.0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Accumulated depreciation and impairment |
||||||||||||||||||||||||||||
April 1, 2009 |
8,757 | 3,308 | 42,737 | 114 | 1,165 | 56,081 | ||||||||||||||||||||||
Charge for the year |
793 | 344 | 6,697 | 28 | 188 | 8,050 | ||||||||||||||||||||||
Disposals/adjustments* |
| (292 | ) | (1,550 | ) | (9 | ) | (23 | ) | (1,874 | ) | |||||||||||||||||
Foreign exchange |
636 | 1 | 291 | | 26 | 954 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
March 31, 2010 |
10,186 | 3,361 | 48,175 | 133 | 1,356 | 63,211 | 1,419.0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Charge for the year |
2,695 | 640 | 8,883 | 51 | 153 | 12,422 | 278.9 | |||||||||||||||||||||
Disposals |
| | (916 | ) | (13 | ) | (13 | ) | (942 | ) | (21.1 | ) | ||||||||||||||||
Foreign exchange |
522 | 3 | 265 | 1 | 7 | 798 | 18.0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
March 31, 2011 |
13,403 | 4,004 | 56,407 | 172 | 1,503 | 75,489 | 1,694.8 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining property |
Land and building |
Plant and equipment |
Motor vehicles |
Office equipment and fixtures |
Total | Total | ||||||||||||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in Millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollar in millions) |
||||||||||||||||||||||
Property, plant and equipment as at: |
||||||||||||||||||||||||||||
March 31, 2010 |
7,249 | 10,989 | 94,952 | 239 | 1,328 | 114,757 | ||||||||||||||||||||||
Assets under construction |
111,872 | |||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Total |
226,629 | |||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
March 31, 2011 |
39,166 | 22,443 | 140,669 | 807 | 1,543 | 204,628 | 4,594.2 | |||||||||||||||||||||
Assets under construction |
122,316 | 2,746.2 | ||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
Total |
326,944 | 7,340.4 | ||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
March 31, 2011 (US dollar in million) |
879.3 | 503.9 | 3,158.3 | 18.1 | 34.6 |
* | Adjustments refer to classification of certain property, plant and equipment as assets held for sale, refer Note 18. |
F-33
Plant and equipment includes refineries, smelters, power plants and related facilities, data processing equipment and electrical fittings.
Certain property, plant and equipment are pledged as collateral against borrowings, the details related to which have been described in Note 19 on Borrowings. Interest (net) capitalised as part of property, plant and equipment was Rs. 1,629 million and Rs. 3,023 million ($ 67.9 million) for the years ended March 31, 2010 and 2011, respectively.
(b) Intangible assets
The intangible assets relate to the Gamsberg mine project which is in exploration stage, and was acquired during the year (refer Note 4).
Movement in Intangible assets during the year is as below:
(Rs. in Millions) |
(US dollar in millions) |
|||||||
Acquisition through business combination |
10,080 | 226.3 | ||||||
Foreign exchange |
225 | 5.1 | ||||||
|
|
|
|
|||||
Balance as at March 31, 2011 |
10,305 | 231.4 | ||||||
|
|
|
|
10. Investment in associate
Vedanta Aluminium is a non public entity engaged in the production of metallurgical grade alumina and other aluminium products. Vedanta Aluminium caters to a wide spectrum of industries and has its presence in Jharsuguda and Lanjigarh, in the state of Orissa. The Company owns a 29.5% interest in Vedanta Aluminium. Vedanta owns the remaining 70.5% interest.
The Companys investment in Vedanta Aluminium consists of the following:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Equity investment |
4,621 | 1,879 | 42.2 | |||||||||
|
|
|
|
|
|
|||||||
Total |
4,621 | 1,879 | 42.2 | |||||||||
|
|
|
|
|
|
F-34
Summarized consolidated financial information in respect of Vedanta Aluminium is as follows:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Current assets |
22,681 | 27,203 | 610.8 | |||||||||
Non-current assets |
244,867 | 273,868 | 6,148.8 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
267,548 | 301,071 | 6,759.6 | |||||||||
|
|
|
|
|
|
|||||||
Current liabilities |
149,486 | 202,159 | 4,538.8 | |||||||||
Non-current liabilities |
102,398 | 92,543 | 2,077.8 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
251,884 | 294,702 | 6,616.6 | |||||||||
|
|
|
|
|
|
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Total revenue |
2,069 | 14,852 | 46,212 | 1,037.5 | ||||||||||||
Operating (loss)/profit |
(1,011 | ) | 738 | 133 | 3.0 | |||||||||||
(Loss)/profit for the year |
(10,712 | ) | 6,952 | (10,446 | ) | (234.5 | ) | |||||||||
Share in consolidated (loss)/profit of associate |
(3,160 | ) | 2,051 | (3,082 | ) | (69.2 | ) | |||||||||
Share in consolidated other comprehensive (loss)/income of associate, net of tax |
(582 | ) | 799 | 340 | 7.6 | |||||||||||
Share in associate towards adjustment in amount transferred to initial carrying amount of property, plant and equipment |
| (177 | ) | | |
11. Financial asset investments
Financial asset investments represent investments classified and accounted for as available-for-sale investments
Movements for the year ended March 31, | 2010 | 2011 | 2011 | |||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Beginning of the year, |
1,044 | 1,362 | 30.6 | |||||||||
Changes in fair value |
318 | (129 | ) | (2.9 | ) | |||||||
|
|
|
|
|
|
|||||||
As at March 31, |
1,362 | 1,233 | 27.7 | |||||||||
|
|
|
|
|
|
F-35
Available-for-sale financial assets consists of the following:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Quoted |
378 | 249 | 5.6 | |||||||||
Unquoted |
984 | 984 | 22.1 | |||||||||
|
|
|
|
|
|
|||||||
1,362 | 1,233 | 27.7 | ||||||||||
|
|
|
|
|
|
Quoted investments represent investments in equity securities that present the Company with opportunities for return through dividend income and gains in value. The fair values of such securities are determined by reference to published price quotations in active markets.
Unquoted investments are held at cost and principally represent an investment in the equity share capital of the Andhra Pradesh Gas Power Corporation Limited. The fair value of unquoted equity investments of Andhra Pradesh Gas Power Corporation Limited cannot be reliably measured as the variability in the range of fair value estimates is significant and the probabilities of the various estimates cannot be reasonably assessed.
12. Other non-current assets
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Loans to associate |
8,890 | 7,890 | 177.1 | |||||||||
Other non-current assets |
1,337 | 6,809 | 152.9 | |||||||||
|
|
|
|
|
|
|||||||
10,227 | 14,699 | 330.0 | ||||||||||
|
|
|
|
|
|
Other non-current assets include Rs. 4,102 million ($92.1 million) held as collateral in respect of closure cost and future redundancy payments payable to employees of Lisheen on termination of their employment on or before the mine closure.
13. Inventories
Inventories consist of the following:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Raw materials and consumables |
15,908 | 30,841 | 692.4 | |||||||||
Work-in-progress |
12,847 | 18,160 | 407.7 | |||||||||
Finished goods |
1,067 | 3,357 | 75.4 | |||||||||
|
|
|
|
|
|
|||||||
29,822 | 52,358 | 1,175.5 | ||||||||||
|
|
|
|
|
|
Inventories with a carrying amount of Rs 4,419 million and Rs. 40,578 million ($911.0 million) have been pledged as security against certain bank borrowings of the Company as at March 31, 2010 and 2011, respectively.
F-36
14. Trade and other receivables
Trade and other receivables (net of allowances) consist of the following for the year indicated:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Trade receivables |
4,963 | 15,281 | 343.1 | |||||||||
Trade receivables from associate |
634 | 837 | 18.8 | |||||||||
Trade receivables from other related parties |
423 | 458 | 10.3 | |||||||||
Loans to associate |
95,709 | 72,314 | 1,623.6 | |||||||||
Loans to other related parties |
6,805 | 7,501 | 168.4 | |||||||||
Balance with Government authorities |
2,589 | 8,707 | 195.5 | |||||||||
Prepayments |
624 | 1,137 | 25.5 | |||||||||
Claims/refunds receivable |
3,365 | 2,024 | 45.4 | |||||||||
Advances for supplies |
1,525 | 2,260 | 50.7 | |||||||||
Other receivables |
2,270 | 1,387 | 31.2 | |||||||||
|
|
|
|
|
|
|||||||
118,907 | 111,906 | 2,512.5 | ||||||||||
|
|
|
|
|
|
The credit period given to customers ranges from zero to 90 days. Other receivables primarily include deposits and interest receivable. For terms and conditions for receivables from associate and other related parties, refer Note 33 on related party disclosure.
Trade receivables with a carrying value of Rs. 1,430 million and Rs. 9,008 million ($202.2 million) have been given as collaterals towards borrowings as at March 31, 2010 and 2011 respectively.
Allowances for impairment of trade and other receivables
The change in the allowance for impairment of trade and other receivables is as follows:
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Balance at the beginning of the year |
184 | 230 | 5.2 | |||||||||
Allowance made during the year |
57 | 33 | 0.7 | |||||||||
Written off |
(11 | ) | (7 | ) | (0.1 | ) | ||||||
|
|
|
|
|
|
|||||||
Closing balance as at March 31, |
230 | 256 | 5.8 | |||||||||
|
|
|
|
|
|
15. Short-term investments
Short-term investments consist of the following:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Bank deposits |
31,296 | 76,666 | 1,721.3 | |||||||||
Other investments |
179,726 | 126,445 | 2,838.9 | |||||||||
|
|
|
|
|
|
|||||||
211,022 | 203,111 | 4,560.2 | ||||||||||
|
|
|
|
|
|
Other investments include mutual fund investments and certificate of deposits and are fair valued through the statement of income. Bank deposits are made for periods of between three months and one year depending on the cash requirements of the Company and earn interest at the respective deposit rates.
F-37
The Company has pledged short-term investments of Rs. 64 million and Rs.65 million ($1.5 million) as at March 31, 2010 and 2011 respectively, to secure certain banking facilities.
16. Restricted cash and cash equivalents
Restricted cash and cash equivalents consist of the following:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Cash at banks |
60 | 39 | 0.9 | |||||||||
|
|
|
|
|
|
|||||||
60 | 39 | 0.9 | ||||||||||
|
|
|
|
|
|
Cash at banks is restricted in use as it relates to unclaimed deposits & debentures, dividends and interest on debentures.
17. Cash and cash equivalents
Cash and cash equivalents consist of the following:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Cash at banks and in hand |
1,789 | 7,717 | 173.2 | |||||||||
Short-term deposits |
232 | 13,770 | 309.2 | |||||||||
|
|
|
|
|
|
|||||||
2,021 | 21,487 | 482.4 | ||||||||||
|
|
|
|
|
|
Short-term deposits are made for periods of between one day and three months, depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates.
18. Assets held for sale
The Company recognized assets amounting to Rs. 188 million and Rs. 11 million as assets held for sale during the year ended March 31, 2010 and March 31, 2011 respectively. Such assets related to the Companys aluminum segment.
A description of the assets held for sale is as follows:
As at March 31, 2010 | ||||||||||||
Gross value |
Accumulated depreciation and impairment |
Carrying value |
||||||||||
(Rs. in millions) | ||||||||||||
Building |
192 | 179 | 13 | |||||||||
Plant and machinery |
1,254 | 1,079 | 175 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,446 | 1,258 | 188 | |||||||||
|
|
|
|
|
|
F-38
As at 31st March 2011 | ||||||||||||
Gross Value |
Accumulated depreciation and impairment |
Carrying Value |
||||||||||
(Rs. in millions) | ||||||||||||
Building |
31 | 29 | 2 | |||||||||
Plant and machinery |
174 | 165 | 9 | |||||||||
|
|
|
|
|
|
|||||||
Total |
205 | 194 | 11 | |||||||||
|
|
|
|
|
|
|||||||
US dollars in million |
4.6 | 4.3 | 0.3 |
The relatively high cost of operation of BALCOs Plant I 100,000 tpa smelter which used the Vertical Stud Soderberg (VSS) technology at Korba and the steep decline in LME prices made the existing operations at the smelter unviable. Consequently, operations at the smelter were phased out of production commencing in February 2009 and operations at the smelter ceased on June 5, 2009.
Consequently, the Company transferred Plant 1 smelter assets at Korba, the main receiving station and distribution system used in the above mentioned smelter, Fume treatment plant (FTP), Profile tube shop and Bidhan Bagh Unit to Assets held for sale. The Company obtained approval for dismantling and disposing of these assets from the appropriate level of management. Part of the assets recognised as held for sale with a carrying value of Rs. 122 million and Rs. 177 million have been disposed off during its year ended March 31, 2010 and March 31, 2011 respectively. The balance disposal is expected to be completed by December 2011.
The estimated fair value less costs to sell of the assets held for sale is higher than the carrying value of the assets. Since the estimated fair value less costs to sell of these assets is higher than the carrying value, no impairment was recognized. The carrying value of the assets has been shown separately in the statements of financial position.
19. Borrowings
Short-term borrowings represent borrowings with an original maturity of less than one year and current portion of long term borrowings. Long-term borrowings represent borrowings with an original maturity of greater than one year. Maturity distribution is based on contractual maturities. Interest rates on floating-rate debt are linked to benchmark rates.
Short-term borrowings consist of:
As at March 31, | 2010 | 2011 | 2011 | |||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Banks and financial institutions |
6,942 | 23,860 | 535.7 | |||||||||
Other |
| 1,426 | 32.0 | |||||||||
Loans from related party |
| 4,845 | 108.8 | |||||||||
Current portion of long-term borrowings |
12,179 | 7,817 | 175.5 | |||||||||
|
|
|
|
|
|
|||||||
Short-term and current portion of long term borrowings |
19,121 | 37,948 | 852.0 | |||||||||
Weighted average interest rate on short-term borrowings |
4.1 | % | 4.8 | % | 4.8 | % | ||||||
Unused line of credit on short-term borrowings |
121,507 | 66,852 | 1,500.9 |
F-39
Long-term borrowings consist of:
As at March 31, | 2010 | 2011 | 2011 | |||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Banks and financial institutions |
26,840 | 20,107 | 451.4 | |||||||||
Non-convertible debentures |
6,000 | 20,563 | 461.7 | |||||||||
Convertible notes |
22,226 | 19,922 | 447.3 | |||||||||
Other |
691 | 784 | 17.6 | |||||||||
|
|
|
|
|
|
|||||||
Long-term borrowings |
55,757 | 61,376 | 1,378.0 | |||||||||
Less: Current portion of long-term borrowings |
(12,179 | ) | (7,817 | ) | (175.5 | ) | ||||||
|
|
|
|
|
|
|||||||
Long-term borrowings, net of current portion |
43,578 | 53,559 | 1,202.5 | |||||||||
|
|
|
|
|
|
The scheduled maturity of long term borrowings is summarised below:
As at March 31, | 2010 | 2011 | 2011 | |||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Borrowings repayable |
||||||||||||
Within one year (included in short-term borrowing) |
12,179 | 7,817 | 175.5 | |||||||||
In the second year |
5,956 | 9,221 | 207.0 | |||||||||
In two to five years |
32,522 | 28,534 | 640.7 | |||||||||
After five years |
5,100 | 15,804 | 354.8 | |||||||||
|
|
|
|
|
|
|||||||
55,757 | 61,376 | 1,378.0 | ||||||||||
|
|
|
|
|
|
Major borrowings are as follows:
Working capital loans
The Company has credit facilities from various banks for meeting working capital requirements, generally in the form of credit lines for establishing letters of credit, packing credit in foreign currency, cash credit, bank guarantees and bills discounting. Amounts due under working capital loans as at March 31, 2010 and March 31, 2011 were Rs. 1,337 million and Rs. 3,029 million ($68.0 million) respectively. The working capital loan of Rs. 3,029 million ($68.0 million) outstanding as at March 31, 2011 consist of Rs. 1069 million ($24.0 million) and Rs. 1,050 million ($23.6 million) under a US dollar denominated loan at SIIL and Fujairah, respectively, Rs. 401 million ($9.0 million) at SEL and Rs. 509 million ($ 11.4 million) at BALCO under a cash credit facility. Interest on the working capital loan facility under US dollar denominated is based on the London Inter-Bank Offer Rate, or LIBOR, plus 85 basis points and 180 basis points for SIIL and Fujairah, respectively. Weighted average interest on cash credit facility is 10.89%. The working capital loans at BALCO and SEL are secured against the current assets and movable and immovable properties of the respective entities. US dollar denominated loan facility at Fujairah is secured against the inventories and receivables of Fujairah, also secured against corporate guarantees by Vedanta Resources Plc. The SIIL US dollar denominated loan facility is unsecured.
F-40
Foreign currency loans
In November 2008, BALCO obtained a US dollar denominated unsecured loan facility of $25.0 million from DBS Bank Ltd, arranged by DBS Bank Ltd, Mumbai Branch, to meet its capital expenditure requirement on projects. The rate of interest payable on this facility is LIBOR plus 345 basis points. The loan is repayable in three equal yearly installments beginning November 2013. The amount outstanding under this facility as at March 31, 2010 and 2011 was $25.0 million (Rs. 1,089 million).
In June 29, 2009, SEL entered into US dollar denominated secured term loan facility of $140.0 million with India Infrastructure Finance (UK) Company Limited as lender and SBI as facility agent to finance the costs of purchasing machinery and equipment from overseas, supplied in connection with the building of its 2,400 MW thermal coal-based power facility in Jharsuguda in the State of Orissa. The rate of interest payable under this facility is six-month LIBOR plus 480 basis points from August 2009. 60% of the loan is repayable in 48 quarterly installments beginning on a date falling six months after the date of commercial operation of the last unit of the power facility, 36% of the loan amount is repayable at the end of 12 years from June 29, 2009 in a single installment and the balance of 4% of the outstanding loan is repayable in eight quarterly installments commencing from December 2022. The facility is secured by, among other things, a first charge over the movable and immovable properties and tangible or intangible assets of SEL as well as charges over certain of its bank accounts. As at March 31, 2011, SEL has not drawn down on the loan.
In February 2011, on account of the acquisition of BMM, short-term borrowing from Exxaro Base Metals (Proprietary) Limited (Exxaro) amounting to ZAR 218.7 million was also acquired. Exxaro owns 26% non-controlling equity interest in BMM. This loan is interest free and has no fixed repayment terms. The loan is subordinated to other debt until such time that BMMs total current and non-current assets fair value exceed its total current and non-current liabilities. As at March 31, 2011, the balance due under this loan was Rs. 1,426 million ($32.0 million).
In February 2011, THLZL took a short-term borrowing from Vedanta Resources Holding Limited (VRHL) for the acquisition of BMM amounting to $ 348.5 million. The borrowing is bearing interest at LIBOR plus 200 basis points and is repayable within one year. As at March 31, 2011, the balance due under this loan was Rs. 4,845 million ($108.8 million). This loan is unsecured.
Term loans
As at March 31, 2011, the Company had three term loans which consist of two term loans from ICICI Bank Limited, or ICICI Bank and one term loan from Jammu and Kashmir Bank, or J&K Bank.
Pursuant to the approval of the Board for Industrial and Financial Reconstruction, or BIFR, for the rehabilitation scheme of India Foils Limited or IFL in November 2008, SIIL assumed two loans aggregating to Rs. 1,023 million granted by ICICI Bank, on the same terms and conditions by way of two novation agreements entered into among SIIL, IFL and ICICI Bank. The interest rates for these facilities were linked to ICICI bank benchmark advance rate or I-BAR. The first loan of Rs. 1,020 million, of which Rs. 773 million was transferred to SIIL pursuant to the novation agreement, has an effective interest rate of 10.5% from December 2009, and is repayable in 12 quarterly installments beginning from November 2008, of which Rs. 619 million was paid by March 31, 2011. The second loan of Rs. 250 million has an effective interest rate of 11.0% per annum is repayable in 16 quarterly installments beginning from November 2008, of which Rs. 156 million was repaid by March 31, 2011. As at March 31, 2011, SIIL had repaid Rs. 775 million of these loans, out of the total loan amount of Rs. 1,023 million. As at March 31, 2010, and 2011 the balances due under the two loans were Rs. 558 million and Rs. 248 million ($5.6 million), respectively. These loans are unsecured.
In June 2009, SEL obtained an Indian Rupee term loan facility of Rs. 1,000 million from J&K Bank, of which Rs. 200 million had been drawn down. The interest rate of the loan is 25 basis points below SBAR. The purpose of the loan is to meet capital expenditure requirements on projects. As at March 31, 2010 and 2011 the balance due under the loan was Rs.200 million ($4.5 million). This is an unsecured loan.
In June 29, 2009, SEL entered into an Indian Rupee term loan facility from a syndicate of banks, with SBI acting as facility agent, of Rs. 55,690 million ($1,250.3 million), to finance the cost of building a 2,400 MW thermal coal-based power facility at Jharsuguda in the State of Orissa. The interest rate is 25 basis points below SBAR. The facility is secured by, among other things, a first charge over the movable and immovable properties and tangible or intangible assets of SEL as well as charges over certain of its bank accounts. The loan is repayable in 48 quarterly installments beginning on a date falling six months after the date of commercial operation of the last unit of the power facility. As at March 31, 2011, SEL has not drawn down on this facility. All amounts drawn down by SEL under the loan facilities granted by IDBI, SBI, PNB and J&K Bank will be deemed to be a draw down under this loan facility from the initial draw down date of this facility.
F-41
Buyers credit
SEL had utilised extended credit terms relating to purchases of property, plant and equipment for its projects. As at March 31, 2010, and March 31, 2011, the balance due under this facility was Rs.13,717 million and Rs.10,191 million ($228.8 million), respectively. The loans outstanding as of March 31, 2011 bear interest at LIBOR plus 148 basis points. These are unsecured debts.
In January 2009, BALCO availed buyers credit facility from DBS Bank Limited, Singapore for meeting project expenditure requirements. As of March 31, 2010 and March 31, 2011, the balances due under this facility were Rs. 1,126 million and Rs. 1,112 million ($25.0 million), respectively. These loans bear interest at LIBOR plus 70 basis points. These are unsecured debts.
In April 2009, BALCO obtained a one time capex letter of credit limit of $100 million from SBI, which is secured by first pari passu charges on the movable and immovable fixed assets of BALCO. As at March 31, 2010 and 2011, the balance outstanding under this facility was Rs. 4,337 million and Rs. 4,317 million ($96.9 million), respectively. The interest rate on this facility is LIBOR plus 200 basis points. The balance due under the said facility is repayable from November 2011 to April 2012. The facility was funded by SBI Hongkong and the Bank of Baroda London.
In June 2009, BALCO obtained a non-fund based limit of Rs. 6,250 million from AXIS Bank for the purchase of capital goods for projects, which is secured by a subservient charge on the current assets and movable fixed assets of BALCO. As at March 31, 2010 and March 31, 2011, the balance outstanding under this facility was Rs. 4,145 million and Rs. 4,093 million ($91.9 million), respectively. The interest rate on this facility is LIBOR plus 200 basis points. The said outstanding amount is repayable from December 2011 to November 2012. The facility was funded by SBI Hong Kong, SBI Singapore, the Bank of Baroda, London and DBS Bank, Singapore.
In January 2010, BALCO obtained a non-fund based limit of Rs. 6,000 million from ICICI Bank for the purpose of import of capital goods, which is secured by exclusive charge on assets to be imported under the facility. As at March 31, 2010 and 2011, the balance outstanding under this facility was Rs. 930 million and Rs. 4,931 million ($110.7 million), respectively. The interest rate on this facility is LIBOR plus 200 basis points. The said outstanding amount is repayable from March 2012 to December 2012. The facility was funded by SBI Tokyo, HSBC Mauritius, Bank of Baroda London, Bank of Baroda New York, SBI Bahrain and SBI Canada.
In May 2010, BALCO obtained uncommitted buyers credit facility of USD 50 million from DBS Bank Limited, Singapore for import of capital goods for projects. The facility is secured by first pari passu charge on capital goods imported under the facility and the creation of charge is pending on March 31, 2011. The interest rate on this facility is LIBOR plus 175 basis points. Although the said outstanding amount is repayable from April 2012 to June 2013, the bank may at its absolute discretion demand immediate repayment of amounts outstanding under this uncommitted buyers credit facility. The balance outstanding under the facility as on March 31, 2011 is Rs. 1,226 million ($27.5 million).
In December 2010, BALCO obtained a non-fund based limit of Rs. 2,500 million from ICICI Bank for the purpose of import of capital goods, which is secured by exclusive charge on assets to be imported under the facility. As at March 31, 2011, the balance outstanding under this facility was Rs. 871 million ($19.6 million). The interest rate on this facility is LIBOR plus 198 basis points. The said outstanding amount is repayable from June 2013 to February 2014. The facility was funded by Bank of Baroda London, Bank of Baroda New York and SBI Bahrain.
In August 2010, Talwandi Sabo obtained a non-fund based limit of Rs.10,000 million from ICICI Bank for the purpose of import of capital goods, which is secured by unconditional and irrevocable corporate guarantee from SIIL and first charge on pari passu basis on all the movable assets of Talwandi Sabo. As of March 2011, the balance outstanding under this facility was Rs. 911 million ($20.5 million) .The interest rate on this facility is LIBOR plus 200 basis points. The said outstanding amount is repayable from July 2013 to February 2014.
F-42
Non-convertible debentures
In April 2003, SIIL issued Rs. 1,000 million Indian Rupee denominated non-convertible debentures to Life Insurance Corporation of India, or LIC. The debentures were issued in two tranches. Tranche A, in the amount of Rs. 400 million, due in April 2010 and Tranche B, in the amount of Rs. 600 million, due in April 2013. Interest payable on these debentures is linked to annualized Government of India securities rates plus 190 basis points. These debentures are secured by certain of the Companys immovable properties. As at March 31, 2010, and 2011 the balances outstanding was Rs. 1,000 million and Rs. 600 million ($13.5 million) respectively.
In November 2008, BALCO issued Rs. 5,000 million ($112.3 million) in Indian Rupee denominated non-convertible debentures to LIC. The debentures are repayable in three equal yearly installments beginning in November 2013. The applicable interest rate is 12.25% per annum. The debentures are secured and have a pari passu charge on BALCOs movable and immovable properties tangible or intangible assets, other than BALCOs current assets to the extent of 1.33 times the issued amount of the debentures.
Talwandi Sabo has issued Non Convertible Debentures (NCD) of Rs. 15,000 million to ICICI Bank at a rate of 9.8% per annum. First tranche of Rs. 7,500 million was issued in December 2010 and second tranche for the balance amount was issued in January 2011. The Debentures are secured by first pari passu charge on the assets of TSPL both present and future, with a minimum asset cover of 1.25 times during the lifetime of the NCDs (including the debt service reserve account) and unconditional and irrevocable corporate guarantee by SIIL. Debentures have a tenure of 13 years from the respective date of allotment, repayable in twelve equal quarterly installments after 10 years of allotment. As at March 31, 2011 amount outstanding was Rs. 14,963 million ($335.9 million).
Commercial papers
In March 2011, SIIL issued Rs. 12,000 million Indian Rupee denominated commercial papers to various mutual fund companies at a coupon rate of 9.73% per annum. The effective discount rate was 9.67% per annum. The commercial papers were issued for short periods and the maturity periods for all the commercial papers is June 21, 2011. As at March 31, 2011, the commercial papers outstanding balance is Rs. 11,745 million ($263.7 million).
Convertible notes
Convertible Senior Notes or Convertible Notes, due 2014
On October 29, 2009, SIIL raised US$500 million by issue of 4.00% Convertible Notes of $1,000 each. Subject to certain exceptions, the note holders have an option to convert these Convertible Notes into ADSs (each ADS represents four equity shares)* at any time prior to business day immediately preceding the maturity date at a conversion rate of 42.8688 ADSs per $1,000 principal amount of notes which is equal to a conversion price of approximately $23.33 per ADS . The conversion price could be subject to adjustments should certain events occur. Further, at any time after November 4, 2012, SIIL has a right to redeem in whole or parts of the Convertible Notes, subject to meeting certain conditions. The amount which SIIL is required to pay contractually on October 30, 2014 is US$500 million, unless previously converted, redeemed or purchased and cancelled.
At inception, the difference between the proceeds received on issuance of the Convertible Notes and the fair value of the conversion option (which is an embedded derivative) has been allocated to the Convertible Notes to establish its initial carrying cost. Subsequently, the conversion option has been measured at fair value through profit and loss with changes in fair value recognised in the statement of income, and the Convertible Notes have been carried at amortised cost using an effective interest rate method.
The conversion option amounting to Rs. 5,963 million and Rs. 2,757 million ($61.9 million) and un-amortised borrowing costs amounting to Rs. 242 million and Rs.131 million ($2.9 million) as at March 31, 2010 and March 31, 2011, respectively, are included along with the notes in statement of financial position. Change in the fair value of conversion option has been presented under Note 7 on Finance and other costs.
* | Prior to the bonus issue and share split of the equity share of the Company on June 25, 2010, each ADS represented one equity share. |
F-43
20. Acceptances
Acceptances consist of:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
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Payable under trade financing arrangements |
29,901 | 25,786 | 578.9 | |||||||||
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29,901 | 25,786 | 578.9 | ||||||||||
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Acceptances comprise of credit availed from financial institutions for payment to suppliers for raw materials purchased by the Company. The arrangements are interest-bearing and are payable within one year. The fair value of acceptances is not materially different from the carrying values presented.
21. Trade and other payables
Trade and other payables consist of:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Trade payables |
19,736 | 40,048 | 899.1 | |||||||||
Advances from customers |
1,838 | 1,629 | 36.6 | |||||||||
Amount due to associate |
263 | 1,202 | 27.0 | |||||||||
Amount due to other related parties |
953 | 782 | 17.6 | |||||||||
Security deposit and retentions |
9,971 | 16,415 | 368.5 | |||||||||
Other payables |
2,334 | 6,516 | 146.3 | |||||||||
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35,095 | 66,592 | 1,495.1 | ||||||||||
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Trade payables are non-interest bearing and are normally settled within 90 day terms. The fair value of trade and other payables is not materially different from the carrying values presented. Other payables include statutory dues and other.
22. Provisions
Restoration, rehabilitation and environmental (a) |
Other (b) |
Total | Total | |||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
As at April 1, 2009 |
348 | 737 | 1,085 | |||||||||||||
Additions |
20 | | 20 | |||||||||||||
Disposal |
(26 | ) | | (26 | ) | |||||||||||
Adjustments on account of change in discount rate |
(4 | ) | | (4 | ) | |||||||||||
Credited to statement of income |
(15 | ) | (15 | ) | ||||||||||||
Unwinding of discount |
11 | | 11 | |||||||||||||
Exchange differences |
59 | | 59 | |||||||||||||
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As at March 31, 2010 |
408 | 722 | 1,130 | 25.4 | ||||||||||||
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Acquisition through business combination |
4,016 | 2,099 | 6,115 | 137.3 | ||||||||||||
Additions |
46 | 185 | 231 | 5.2 | ||||||||||||
Disposal |
(18 | ) | (18 | ) | (0.4 | ) | ||||||||||
Adjustments on account of change in discount rate |
| | ||||||||||||||
Credited to statement of income |
(16 | ) | (110 | ) | (126 | ) | (2.8 | ) | ||||||||
Unwinding of discount |
52 | | 52 | 1.2 | ||||||||||||
Exchange differences |
110 | 40 | 150 | 3.3 | ||||||||||||
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As at March 31, 2011 |
4,616 | 2,918 | 7,534 | 169.2 | ||||||||||||
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Classification as at March 31, 2010 |
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Current |
26 | 722 | 748 | |||||||||||||
Non-current |
382 | | 382 | |||||||||||||
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408 | 722 | 1,130 | ||||||||||||||
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Classification as at March 31, 2011 |
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Current |
9 | 1,343 | 1,352 | 30.4 | ||||||||||||
Non-current |
4,607 | 1,575 | 6,182 | 138.8 | ||||||||||||
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4,616 | 2,918 | 7,534 | 169.2 | |||||||||||||
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F-44
(a) Restoration, rehabilitation and environmental
The provision for restoration, rehabilitation, decommissioning and environmental represents the Companys best estimate of the costs which will be incurred in the future to meet the obligations under the laws of the land, the terms referred to in the Companys mining and other licenses and contractual arrangements. These amounts become payable upon closure of the mines and are expected to be incurred over a period of 3 to 20 years.
(b) Other
Other provisions comprise the Companys best estimate of the costs based on the possibility of occurrence in the future to settle certain legal, tax and other claims outstanding against the Company, which exist primarily in India. The timing of cash flows in respect of such provisions cannot be reasonably determined.
This also includes one onerous contract related to supply of concentrate at BMM and redundancy cost at Lisheen. Provision for redundancy cost become payable to employees on their termination of employment on or before the mine closure.
23. Other non-current liabilities
Non-current liabilities consist of:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
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Security deposits and retentions |
5,689 | 2,719 | 61.0 | |||||||||
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5,689 | 2,719 | 61.0 | ||||||||||
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24. Employee benefits
The Company participates in defined contribution and benefit schemes, the assets of which are held (where funded) in separately administered funds.
For defined contribution schemes the amount charged to the consolidated statement of income is the total of contributions payable in the year.
For the defined benefit scheme, the cost of providing benefits is determined separately for each plan every year using the projected unit credit method. Actuarial gains and losses arising in the year are recognized in full in the consolidated statement of income of that year.
F-45
Defined contribution plans
The Company contributed a total of Rs. 334 million, Rs. 394 million and Rs 510 million ($11.4 million) for the years ended March 31, 2009, 2010 and 2011, respectively, to the following defined contribution plans:
Central provident fund
In accordance with the Indian Provident Fund Act, employees are entitled to receive benefits under the Provident Fund. Both the employee and the employer make monthly contributions to the plan at a predetermined rate (12.0% for 2011) of an employees basic salary. These contributions are made to the fund administered and managed by the Government of India or to independently managed and approved funds. The Company has no further obligations under the plan beyond its monthly contributions which are charged to the consolidated statement of income in the period they are incurred. The benefits are paid to employees on their retirement or resignation from the Company.
Superannuation
Superannuation, another pension scheme applicable in India, is applicable only to senior executives. SIIL and each relevant subsidiary holds a policy with Life Insurance Corporation of India (LIC), to which each of these entities contributes a fixed amount relating to superannuation and the pension annuity is met by LIC as required, taking into consideration the contributions made. The Company has no further obligations under the scheme beyond its monthly contributions which are charged to the consolidated statement of income in the period they are incurred.
Australian pension scheme
The Company also participates in defined contribution pension schemes in Australia. The contribution of a proportion of an employees salary in a superannuation fund is a legal requirement in Australia. The employer contributes, into the employees fund of choice, 9.0% of an employees gross remuneration where the employee is covered by an industrial agreement and 12.0% of the basic remuneration for all other employees. All employees have the option to make additional voluntary contributions. The Company has no further obligations under the scheme beyond its monthly contributions which are charged to the consolidated statement of income in the period they are incurred.
Skorpion Provident Fund
The Skorpion Zinc Provident Fund is a defined contribution fund and is compulsory to all full time employees under the age of 60. Company contribution to the fund is a fixed percentage of 8% per month of pensionable salary, whilst the employee contribute 7% with the option of making additional contributions, up to a maximum of 12%.
The Fund provides disability cover which is equal to the members fund credit and a death cover of 2 times annual salary in the event of death before retirement.
Black Mountain (Pty) Limited, South Africa Pension & Provident Funds
BMM has two retirement funds, both administered by Alexander Forbes, a registered financial service provider. Both funds form part of the Alexander Forbes umbrella fund and are defined contribution funds. The purpose of the funds is to provide retirement and death benefits to all eligible employees. Both the fund plans are defined contribution schemes for its employees and amount of contribution paid or payable during the year charged to profit or loss. Company contributes at a fixed percentage of 10.5% for up to supervisor grade and 15% for others.
Lisheen Mine, Ireland Pension Funds
Lisheen participates in a defined contribution pension scheme for all employees. The plan requires Lisheen to contribute 5% of annual basic salary of the employee and the employee is required to also contribute 5% of their annual basic salary. Under the terms of the executive scheme a contribution of 15% each is made by Lisheen and by the individual. Employees may also make additional voluntary contributions (AVCs) subject to certain limits. The Lisheens contribution will continue until an employee terminates employment or reaches the retirement age of 65, whichever happens first.
F-46
Defined benefit plans
Gratuity plan
In accordance with the Payment of Gratuity Act of 1972, SIIL and its Indian subsidiaries contribute to a defined benefit plan (the Gratuity Plan) covering certain categories of employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, disability or termination of employment respectively, an amount based on the respective employees last drawn salary and the number of years of employment with the Company.
Based on an actuarial valuations, a provision is recognised in full for the benefit obligation over and above the funds held in the Gratuity plan. In the case where there is no fund held by the scheme, full provision is recognised in the consolidated statement of financial position.
Post Retirement Medical Benefits:
The Company has a scheme of post retirement benefits for employees at BMM. Based on an actuarial valuation, a provision is recognised in full for the benefit obligation over and above the funds held in the scheme. In the case where there is no funding held by the scheme, full provision is recognised in the statement of financial position. The obligation relating to post retirement medical benefits at BMM as at March 31, 2011 is Rs. 332 million ($7.4 million). The obligation under this plan is unfunded. The Company considers these amounts as not material and accordingly has not provided further disclosures as required by IAS 19 Employee benefits.
Principal actuarial assumptions used to calculate the defined benefit plans liabilities are:
SIIL | HZL | BALCO | ||||||||||||||||||||||||||||
2009 | 2010 | 2011 | 2009 | 2010 | 2011 | 2009 |
2010 |
2011 | ||||||||||||||||||||||
Discount rate |
7.50 | % | 7.50 | % | 8.00 | % | 7.50 | % | 7.50 | % | 8.00 | % | 7.50% | 7.50% | 8.00% | |||||||||||||||
Expected rate of increase in compensation level of covered employees |
5.00 | % | 5.00 | % | 5.50 | % | 5.00 | % | 5.00 | % | 5.50 | % | 5.00% for Executives 3.00% Non Executives |
5.00% for Executives 3.00% Non Executives |
5.00% for Executives 3.00% Non Executives | |||||||||||||||
Expected return on assets |
7.50 | % | 7.50 | % | 7.50 | % | 9.50 | % | 9.00 | % | 9.50 | % | NA | NA | 9.40% |
The expected return on plan assets is based on expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations.
The following table sets out the components of net benefit expense recognized in the financial statements for the Gratuity Plan:
Year ended March 31 | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in Millions) |
(Rs. in Millions) |
(Rs. in millions) |
(US dollars in millions) |
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Current service cost |
(82 | ) | (97 | ) | (119 | ) | (2.7 | ) | ||||||||
Actuarial losses |
(62 | ) | (236 | ) | (274 | ) | (6.2 | ) | ||||||||
Expected return on plan assets |
77 | 87 | 105 | 2.4 | ||||||||||||
Past service costs |
| | (865 | ) | (19.4 | ) | ||||||||||
Interest cost |
(114 | ) | (123 | ) | (146 | ) | (3.3 | ) | ||||||||
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Total charge |
(181 | ) | (369 | ) | (1,299 | ) | (29.2 | ) | ||||||||
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F-47
The Companys obligations in respect of its defined benefit plan are as follows:
As at March, 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in Millions) |
(Rs. in Millions) |
(Rs. in Millions) |
(US dollars in millions) |
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Fair value of plan assets (a) |
981 | 1,121 | 1,333 | 29.9 | ||||||||||||
Present value of defined benefit obligation (b) |
(1,692 | ) | (1,986 | ) | (2,949 | ) | (66.2 | ) | ||||||||
Deficit in defined benefit obligations (a-b) |
(711 | ) | (865 | ) | (1,616 | ) | (36.3 | ) | ||||||||
Comprising of: |
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Funded obligations |
(1,084 | ) | (1,384 | ) | (2,870 | ) | (64.4 | ) | ||||||||
Unfunded obligations |
(608 | ) | (602 | ) | (79 | ) | (1.8 | ) |
The movement during the year ended March 31, 2010 and 2011 of the change in present value of the defined benefit obligation was as follows:
As at March, 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
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Balance at the beginning of the year |
(1,517 | ) | (1,692 | ) | (1,986 | ) | (44.6 | ) | ||||||||
Current service costs |
(82 | ) | (97 | ) | (119 | ) | (2.7 | ) | ||||||||
Past service costs |
| (865 | ) | (19.4 | ) | |||||||||||
Benefits paid |
89 | 168 | 459 | 10.3 | ||||||||||||
Interest cost |
(114 | ) | (123 | ) | (146 | ) | (3.3 | ) | ||||||||
Actuarial losses |
(68 | ) | (242 | ) | (292 | ) | (6.5 | ) | ||||||||
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As at March 31, |
(1,692 | ) | (1,986 | ) | (2,949 | ) | (66.2 | ) | ||||||||
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|
Movements in the fair value of the plan assets are as follows:
As at March, 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Balance at the beginning of the year |
870 | 981 | 1,121 | 25.2 | ||||||||||||
Contributions received |
117 | 215 | 403 | 9.0 | ||||||||||||
Benefits paid |
(89 | ) | (168 | ) | (314 | ) | (7.0 | ) | ||||||||
Actuarial gain/(loss) |
6 | 6 | 18 | 0.3 | ||||||||||||
Expected return on plan assets |
77 | 87 | 105 | 2.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
As at March 31, |
981 | 1,121 | 1,333 | 29.9 | ||||||||||||
|
|
|
|
|
|
|
|
F-48
The Company maintains its gratuity fund with Life Insurance Corporation of India (LIC). The percentage allocation fund value to various categories of financial assets maintained with LIC as at March 31, 2010 and 2011 are as follows:
% allocation of plan assets As at March 31 |
||||||||
Assets by category |
2010 | 2011 | ||||||
Government securities |
53.0 | 53.0 | ||||||
Debentures/bonds |
42.8 | 43.0 | ||||||
Equity instruments |
4.0 | 3.8 | ||||||
Money market instruments |
0.2 | 0.2 | ||||||
|
|
|
|
|||||
100.0 | 100.0 | |||||||
|
|
|
|
Historical information related to experience adjustments:
As at March 31 | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Experience losses arising on plan liabilities |
(68 | ) | (242 | ) | (292 | ) | (6.5 | ) | ||||||||
Experience gains arising on plan assets |
6 | 6 | 18 | 0.3 |
The Company expects to contribute Rs. 376 million to the funded defined benefit plans in fiscal 2012.
25. Financial instruments
This section gives an overview of the significance of financial instruments for the Company and provides additional information on the statement of financial position. Details of significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 2.
Financial assets and liabilities:
The following tables present the carrying value and fair value of each category of financial assets and liabilities as at March 31, 2010 and 2011.
As at March 31, 2010 | (Rs. in millions) | |||||||||||||||||||||||||||
Financial assets |
Cash | Held for Trading |
Loans and receivables |
Available-for- sale financial assets |
Derivatives used for hedging |
Total carrying value |
Total fair value |
|||||||||||||||||||||
Financial assets investments |
||||||||||||||||||||||||||||
at fair value |
| | | 378 | | 378 | 378 | |||||||||||||||||||||
at cost |
| | | 984 | | 984 | * | |||||||||||||||||||||
Other noncurrent assets |
| | 10,227 | | | 10,227 | 9,913 | |||||||||||||||||||||
Trade and other receivables |
| | 114,169 | | | 114,169 | 114,169 | |||||||||||||||||||||
Short-term investments |
||||||||||||||||||||||||||||
Bank deposits |
| | 31,296 | | | 31,296 | 31,296 | |||||||||||||||||||||
Other investments |
| 179,726 | | | | 179,726 | 179,726 | |||||||||||||||||||||
Derivative financial assets |
| | | | 115 | 115 | 115 | |||||||||||||||||||||
Cash and cash equivalents including restricted cash |
2,081 | | | | | 2,081 | 2,081 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
2,081 | 179,726 | 155,692 | 1,362 | 115 | 338,976 | 337,678 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the statement of financial position and in Note 14 Trade and other receivables includes balances with governments authorities of Rs.2,589 million, prepayments of Rs. 624 million and advance for supplies of Rs. 1,525 million which are not financial assets and hence have been excluded from above table.
F-49
As at March 31, 2010 | (Rs. in millions) | |||||||||||||||||||
Financial liabilities |
Derivatives not used for hedging |
Derivatives used for hedging |
Amortised Cost |
Total carrying value |
Total fair value |
|||||||||||||||
Borrowings |
||||||||||||||||||||
Short-term |
| | 19,121 | 19,121 | 19,121 | |||||||||||||||
Long term (other than convertible notes) |
| | 21,352 | 21,352 | 21,240 | |||||||||||||||
Convertible notes |
5,963 | | 16,263 | 22,226 | 24,273 | |||||||||||||||
Acceptances |
| | 29,901 | 29,901 | 29,901 | |||||||||||||||
Trade and other payables |
| | 33,257 | 33,257 | 33,257 | |||||||||||||||
Derivative financial liabilities |
| 669 | | 669 | 669 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
5,963 | 669 | 119,894 | 126,526 | 128,461 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
In the statement of financial position and in Note 21 Trade and other payables includes advances from customers of Rs. 1,838 million which are not financial liabilities and hence have been excluded from above table.
As at March 31, 2011 | ||||||||||||||||||||||||||||||||||||
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||||||||||||||||||||||||
Financial assets |
Cash | Held for trading |
Loans and receivables |
Available- -for sale financial assets |
Derivatives used for hedging |
Total carrying value |
Total fair value |
Total carrying value |
Total fair value |
|||||||||||||||||||||||||||
Financial assets investments |
||||||||||||||||||||||||||||||||||||
at fair value |
| | | 249 | | 249 | 249 | 5.6 | 5.6 | |||||||||||||||||||||||||||
at cost |
| | | 984 | | 984 | * | 22.1 | * | |||||||||||||||||||||||||||
Other noncurrent assets |
| | 14,699 | | | 14,699 | 14,302 | 330.0 | 321.1 | |||||||||||||||||||||||||||
Trade and other receivables |
| | 99,802 | | | 99,802 | 99,802 | 2,240.8 | 2,240.8 | |||||||||||||||||||||||||||
Short-term investments |
| |||||||||||||||||||||||||||||||||||
Bank deposits |
| | 76,666 | | | 76,666 | 76,666 | 1,721.3 | 1,721.3 | |||||||||||||||||||||||||||
Other investments |
| 126,445 | | | | 126,445 | 126,445 | 2,838.9 | 2,838.9 | |||||||||||||||||||||||||||
Derivative financial assets |
| | | | 1,088 | 1,088 | 1,088 | 24.4 | 24.4 | |||||||||||||||||||||||||||
Cash and cash equivalents including restricted cash |
21,526 | | | | | 21,526 | 21,526 | 483.3 | 483.3 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
21,526 | 126,445 | 191,167 | 1,233 | 1,088 | 341,459 | 340,078 | 7,666.4 | 7,635.4 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-50
In the statement of financial position and in Note 14 Trade and other receivables includes balances with governments authorities of Rs. 8,707 million ($195.5 million), prepayments of Rs. 1,137 million ($25.5 million) and advance for supplies of Rs. 2,260 million ($50.7 million) which are not financial assets and hence have been excluded from above table.
As at March 31, 2011 | ||||||||||||||||||||||||||||
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||||||||||||||||
Financial liabilities |
Derivatives not used for hedging |
Derivatives used for hedging |
Amortised cost |
Total carrying value |
Total fair value |
Total carrying value |
Total fair value |
|||||||||||||||||||||
Borrowings |
||||||||||||||||||||||||||||
Short-term |
| | 37,948 | 37,948 | 37,948 | 852.0 | 852.0 | |||||||||||||||||||||
Long term (other than convertible notes) |
| | 33,637 | 33,637 | 35,344 | 755.2 | 793.5 | |||||||||||||||||||||
Convertible notes |
2,757 | | 17,165 | 19,922 | 22,050 | 447.3 | 495.1 | |||||||||||||||||||||
Acceptances |
| | 25,786 | 25,786 | 25,786 | 578.9 | 578.9 | |||||||||||||||||||||
Trade and other payables |
| | 61,860 | 61,860 | 61,860 | 1,388.9 | 1,388.9 | |||||||||||||||||||||
Derivative financial liabilities |
| 410 | | 410 | 410 | 9.2 | 9.2 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
2,757 | 410 | 176,396 | 179,563 | 183,398 | 4,031.5 | 4,117.6 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the statement of financial position and in Note 21 Trade and other payables includes advances from customers of Rs. 1,629 million ($36.6 million), balances due to government authorities Rs. 1,738 million ($39.0 million) and other employees benefits Rs. 1,365 million ($30.6 million) which are not financial liabilities and hence have been excluded from above table (Balances due to government authorities and other employees benefits are included under other payables in Note 21).
* | The fair value of unquoted financial assets investments cannot be reliably measured. Refer assumptions below. |
Fair value hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
F-51
The below tables summarise the categories of financial assets and liabilities as at March 31, 2010 and 2011 measured at fair value:
As at March 31, 2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||
(Rs. in millions) | ||||||||||||
Financial assets |
||||||||||||
At fair value through profit or loss |
||||||||||||
Held for trading |
179,726 | | | |||||||||
Derivative financial assets |
||||||||||||
Commodity contracts |
111 | | | |||||||||
Forward foreign currency contracts |
| 4 | | |||||||||
Available-for-sale investments |
||||||||||||
Financial asset investments held at fair value |
378 | | | |||||||||
|
|
|
|
|
|
|||||||
180,215 | 4 | | ||||||||||
|
|
|
|
|
|
|||||||
Financial liabilities |
||||||||||||
At fair value through profit or loss |
||||||||||||
Derivative financial liabilities |
||||||||||||
Commodity contracts |
76 | | | |||||||||
Forward foreign currency contracts |
| 593 | | |||||||||
Embedded derivative on convertible notes |
| | 5,963 | |||||||||
|
|
|
|
|
|
|||||||
76 | 593 | 5,963 | ||||||||||
As at March 31, 2011 | (Level 1) | (Level 2) | (Level 3) | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||||||||||||
Financial assets |
||||||||||||||||||||||||
At fair value through profit or loss |
||||||||||||||||||||||||
Held for trading |
126,445 | | | 2,838.9 | | | ||||||||||||||||||
Derivative financial assets |
||||||||||||||||||||||||
Commodity contracts |
160 | | | 3.6 | | | ||||||||||||||||||
Forward foreign currency contracts |
| 928 | | | 20.8 | | ||||||||||||||||||
Available-for- sale investments |
||||||||||||||||||||||||
Financial asset investments held at fair value |
249 | | | 5.6 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
126,854 | 928 | | 2,848.1 | 20.8 | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financial liabilities |
||||||||||||||||||||||||
At fair value through profit or loss |
||||||||||||||||||||||||
Derivative financial liabilities |
||||||||||||||||||||||||
Commodity contracts |
251 | | | 5.6 | | | ||||||||||||||||||
Forward foreign currency contracts |
| 159 | | | 3.6 | | ||||||||||||||||||
Embedded derivative on convertible notes |
| | 2,757 | | | 61.9 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
251 | 159 | 2,757 | 5.6 | 3.6 | 61.9 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Movement in the fair value of embedded derivative on convertible notes (Level 3 item):
(Rs. in millions) |
(US dollars in millions) |
|||||||
As at April 01, 2010 |
5,963 | 133.9 | ||||||
Credited to the income statement |
(3,206 | ) | (72.0 | ) | ||||
As at March 31, 2011 |
2,757 | 61.9 |
The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged or settled in a current transaction between willing parties.
F-52
The following methods and assumptions were used to estimate the fair values:
| Short-term marketable securities traded in active markets are determined with reference to quotes from the financial institutions; for example: Net asset value (NAV) for investments in mutual funds declared by mutual fund house. |
| Trade and other receivables (excluding deposits with governments and other prepayments), trade and other payables and short-term borrowings: Approximate their carrying amounts largely due to the short-term maturities of these instruments. |
| Non current financial assets and financial liabilities : Either the carrying value approximates the fair value or fair value have been estimated by discounting the expected future cash flows using a discount rate equivalent to the risk free rate of return adjusted for the appropriate credit spread. |
| Long-term fixed-rate and variable-rate borrowings: Fair value has been determined by the Company based on parameters such as interest rates, specific country risk factors, and the risk characteristics of the financed project. Accordingly the fair value of convertible notes as at March 31, 2010 and 2011 is Rs. 24,273 million and Rs. 22,050 million ($495.1 million). For all other long-term fixed-rate and variable-rate borrowings, either the carrying amount approximates the fair value, or fair value have been estimated by discounting the expected future cash flows using a discount rate equivalent to the risk free rate of return adjusted for the appropriate credit spread. The fair value of the embedded derivative liability of convertible notes has been calculated using Auxiliary Reversed Binomial Tree method and using the following significant assumptions as at March 31, 2010 and 2011, respectively: |
| the implied volatility as 38.3% and 38.5%; and |
| the share price as US$ 18.6 and US$ 15.4. |
| Quoted available-for-sale financial assets investments : Fair value is derived from quoted market prices in active markets. Fair value in respect of unquoted equity instruments cannot be reliably measured and are stated at cost. |
| Derivative contracts: The Company enters into derivative contracts with various counterparties, principally financial institutions with investment grade credit ratings. Forward foreign currency contracts are valued using valuation techniques with market observable inputs. The most frequently applied valuation techniques for such derivatives include forward pricing using present value calculations foreign exchange spot and forward premium rates. Commodity contracts are valued using the forward LME rates of commodities actively traded on the listed metal exchange i.e. London Metal Exchange, United Kingdom (U.K.). |
The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and the value of other financial instruments recognised at fair value.
The estimated fair value amounts as at March 31, 2011 have been measured as at the respective dates. As such, the fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.
There were no transfers between Level 1 and Level 2 during the year.
Risk management
The Companys businesses are subject to several risks and uncertainties including financial risks.
The Companys documented risk management polices act as an effective tool in mitigating the various financial risks to which the business is exposed to in the course of their daily operations. The risk management policies cover areas such as liquidity risk, commodity price risk, foreign exchange risk, interest rate risk, counterparty and concentration of credit risk and capital management. Risks are identified through a formal risk management programme with active involvement of senior management personnel and business managers at both the corporate and individual subsidiary level. Each operating subsidiary in the Company has in place risk management processes which are in line with the Companys policy. Each significant risk has a designated owner within Company at an appropriate senior level. The potential financial impact of the risk and its likelihood of a negative outcome are regularly updated. The risk management process is coordinated by the Management Assurance function and is regularly reviewed by the Companys Audit Committee. Key business decisions are discussed at the monthly meetings of the Executive Committee, an advisory committee empowered by the Companys board of directors (the Board) which performs advisory function for board for decision making. The overall internal control environment and risk management programme including financial risk management is reviewed by the Audit Committee on behalf of the Board.
F-53
The risk management framework aims to:
| improve financial risk awareness and risk transparency |
| identify, control and monitor key risks |
| identify risk accumulations |
| provide management with reliable information on the Companys risk situation |
| improve financial returns |
Treasury management
The Companys treasury function provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk.
Treasury management focuses on capital protection, liquidity maintenance and yield maximization. The treasury policies are approved by the Board and adherence to these policies is strictly monitored at the Executive Committee meetings. Day-to-day treasury operations of the subsidiary companies are managed by their respective finance teams within the framework of the overall Companys treasury policies. Long-term fund raising including strategic treasury initiatives are handled by a central team while short-term funding for routine working capital requirements is delegated to subsidiary companies. A monthly reporting system exists to inform senior management of investments, debt, currency, commodity and interest rate derivatives. The Company has a strong system of internal control which enables effective monitoring of adherence to Companys policies. The internal control measures are effectively supplemented by regular internal audits.
Commodity price risk
The Company has historically limited the use of derivatives for commodity hedging. As much as possible, the Company tries to mitigate price risk through favorable contractual terms. Moreover, hedging is used purely as a risk management tool and, in some cases, strategically to secure future cash flows in cases of high volatility by entering into forward contracts or similar instruments. These contracts are expected to reduce the volatility of cash flows in respect of highly probable forecast purchases or firm commitments attributable to the fluctuation in commodity price in accordance with the risk management approved by the Board.
Financial instruments with commodity price risk are entered into in relation to following activities:
| economic hedging of prices realised on commodity contracts |
| purchases and sales of physical contracts |
| cash flow hedging of revenues |
Aluminum
The raw material is mined in India with sales prices linked to the LME prices. Currently, the Company does not undertake any hedging activities for its aluminum business.
F-54
Copper
The Companys custom smelting copper operations at Tuticorin benefits from a natural hedge except to the extent of a possible mismatch in quotational periods between the purchase of concentrate and the sale of finished copper. The Companys policy on custom smelting is to generate margins from Treatment charges/Refining charges or TCRCs, minimising conversion cost, generating a premium over LME on sale of finished copper, sale of by-products and from achieving import parity on domestic sales. Hence, mismatches in quotational periods are actively managed to ensure that the gains or losses are minimised. The Company hedges this variability of LME prices and tries to make the LME price an indifference cost between purchases of copper concentrate and sales of finished products, both of which are linked to the LME price. The Company also benefits from the difference between the amounts paid for quantities of copper content received and copper recovered in the manufacturing process, also known as free copper.
The Companys copper mines in Tasmania, Australia, supplies approximately 7% to 8% of the requirement of the custom copper smelter at Tuticorin. Hence, TCRCs are a major source of income for the Indian copper smelting operations. Fluctuations in TCRCs are influenced by factors including demand and supply conditions prevailing in the market for mine output. The Companys copper business has a strategy of securing a majority of its concentrate feed requirement under long-term contracts with mines.
Zinc India
Raw material for zinc and lead is mined in India with sales prices linked to the LME prices. Currently a part of exports out of India is hedged through forward contracts or other instruments.
Zinc International
Raw material for zinc and lead is mined in Namibia, South Africa and Ireland with sales prices linked to the LME prices.
This table illustrates the impact of a $100 movement in LME prices based on volumes, costs and exchange rates for fiscal 2010 and 2011 and provides the estimated impact on operating profit assuming all other variables remain constant.
$100 movement in LME price | Change in operating income | |||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Copper |
130 | 115 | 2.6 | |||||||||
Zinc India |
3,074 | 3,256 | 73.1 | |||||||||
Zinc International |
| 297 | 6.7 | |||||||||
Aluminum |
1,329 | 1,128 | 25.3 | |||||||||
|
|
|
|
|
|
|||||||
Total |
4,533 | 4,796 | 107.7 | |||||||||
|
|
|
|
|
|
Further, the impact of change in copper LME for provisionally priced copper concentrate purchase at SIILs custom smelting operations is pass through in nature and as such will not have any impact on the profitability.
Financial risk
The Companys Board approved financial risk policies comprise liquidity, currency, interest rate and counterparty risk. In principle, the Company does not engage in speculative treasury activity but seeks to manage risk and optimize interest and commodity pricing through proven financial instruments.
F-55
(a) Liquidity
The Company requires funds both for short-term operational needs as well as for long-term investment programmes mainly in growth projects. The Company generates sufficient cash flows from the current operations which together with the available cash and cash equivalents and short-term investments provide liquidity both in the short-term as well as in the long-term.
The Companys current ratings from CRISIL is AA+/stable for long term and P1+ for short-term programmes. These ratings support the necessary financial leverage and access to debt or equity markets at competitive terms. The Company generally maintains a healthy net debt-equity ratio and retains flexibility in the financing structure to alter the ratio when the need arises.
The maturity profile of the Companys financial liabilities based on the remaining period from the date of financial position to the contractual maturity date is given in the table below. The figures reflect the contractual undiscounted cash obligation of the Company.
As at March 31, 2010 Payment due by year |
<1 year | 1-2 years | 2-5 years | >5 years | Total | |||||||||||||||
(Rs. in millions) |
||||||||||||||||||||
Acceptances |
29,901 | | | | 29,901 | |||||||||||||||
Trade and other payables |
33,257 | | | | 33,257 | |||||||||||||||
Borrowings (other than convertible notes) |
19,121 | 5,956 | 10,296 | 5,100 | 40,473 | |||||||||||||||
Convertible notes |
| | 22,226 | | 22,226 | |||||||||||||||
Derivative liabilities |
669 | | | | 669 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
82,948 | 5,956 | 32,522 | 5,100 | 126,526 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
As at March 31, 2011 Payment due by year |
<1 year | 1-2 years | 2-5 years | >5 years | Total | |||||||||||||||
Rs. in millions |
||||||||||||||||||||
Acceptances |
25,786 | | | | 25,786 | |||||||||||||||
Trade and other payables |
61,860 | | | | 61,860 | |||||||||||||||
Borrowings (other than convertible notes) |
37,948 | 9,221 | 8,612 | 15,804 | 71,585 | |||||||||||||||
Convertible notes |
| | 19,922 | | 19,922 | |||||||||||||||
Derivative liabilities |
410 | | | | 410 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
126,004 | 9,221 | 28,534 | 15,804 | 179,563 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
US dollars in million |
2,829.0 | 207.0 | 640.7 | 354.8 | 4,031.5 |
As at March 31, 2010, the Company had access to funding facilities of Rs. 161,980 million of which Rs. 121,507 million was not yet drawn, as set out below.
Funding facility | Total facility | Drawn | Un drawn | |||||||||
(Rs. in millions) |
||||||||||||
Less than 1 year |
82,989 | 19,121 | 63,868 | |||||||||
1-2 years |
5,956 | 5,956 | | |||||||||
2-5 years and above |
73,035 | 15,396 | 57,639 | |||||||||
|
|
|
|
|
|
|||||||
Total |
161,980 | 40,473 | 121,507 | |||||||||
|
|
|
|
|
|
As at March 31, 2011, the Company had access to funding facilities of Rs. 244,743 million ($5,494.9 million) of which Rs. 133,920 million ($3,006.7 million) was not yet drawn, as set out below.
F-56
Funding facility | Total facility | Drawn | Un drawn | |||||||||
(Rs. in Millions) |
(Rs. in millions) |
(Rs. in millions) |
||||||||||
Less than 1 year |
148,832 | 81,980 | 66,852 | |||||||||
1-2 years |
73,441 | 9,942 | 63,499 | |||||||||
2-5 years and above |
22,470 | 18,901 | 3,569 | |||||||||
|
|
|
|
|
|
|||||||
Total |
244,743 | 110,823 | 133,920 | |||||||||
|
|
|
|
|
|
|||||||
US dollars in million |
5,494.9 | 2,488.2 | 3,006.7 |
Collateral
The Company has pledged a part of its trade and other receivables, short-term investments and cash and cash equivalents in order to fulfill the collateral requirements for the financial facilities in place. The counterparties have an obligation to return the securities to the Company. There are no other significant terms and conditions associated with the use of collateral.
The details related to fair value of collaterals have been stated in Note 14, 15 and 16.
(b) Foreign exchange risk
Fluctuations in foreign currency exchange rates may have potential impact on the statement of operations, equity, where any transaction references more than one currency or where assets/liabilities are denominated in a currency other than the functional currency of the respective consolidated entities.
Considering the countries and economic environment in which the Company operates, its operations are subject to risks arising from the fluctuations primarily in the US dollar, Australian dollar, Namibian dollar, ZAR and Euro against the functional currencies of SIIL and its subsidiaries.
The Company uses forward exchange contracts, currency swaps and other derivatives to hedge the effects of movements in exchange rates on foreign currency denominated assets and liabilities. The sources of foreign exchange risk are outstanding amounts payable for imported raw materials, capital goods and other supplies as well as financing transactions and loans denominated in foreign currencies. The Company is also exposed to foreign exchange risk on its exports. Most of these transactions are denominated in US dollars. The policy of the Company is to determine on a regular basis what portion of the foreign exchange risk on financing transactions and loans are to be hedged through forward exchange contracts and other instruments. Short-term net exposures are hedged progressively based on their maturity. A more conservative approach has been adopted for project expenditures to avoid budget overruns. Longer term exposures are unhedged. Stop losses and take profit triggers are implemented to protect entities from adverse market movements at the same time enabling them to encash in favourable market opportunities. The hedge mechanisms are reviewed periodically to ensure that the risk from fluctuating currency exchange rates is appropriately managed.
The following analysis is based on the gross exposure as at the reporting date which could affect the statement of income. The exposure summarised below is mitigated by some of the derivative contracts entered into by the Company as disclosed under the section on Derivative financial instruments
F-57
As at March 31, 2010 | As at March 31, 2011 | As at March 31, 2011 | ||||||||||||||||||||||
Financial assets |
Financial liabilities |
Financial assets |
Financial liabilities |
Financial assets |
Financial liabilities |
|||||||||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
(US dollars in millions) |
|||||||||||||||||||
US dollar |
9,223 | 91,113 | 25,763 | 123,624 | 578.4 | 2,775.6 | ||||||||||||||||||
Australian dollar |
745 | 585 | 251 | 665 | 5.6 | 14.9 | ||||||||||||||||||
Euro |
| 273 | 4,634 | 1,375 | 104.0 | 30.9 | ||||||||||||||||||
Namibian dollar |
| | 5,378 | | 120.7 | 0.0 | ||||||||||||||||||
ZAR |
| | 2,708 | 2,026 | 60.8 | 45.5 | ||||||||||||||||||
Other |
38 | 54 | 73 | 104 | 1.6 | 2.3 |
The Companys exposure to foreign currency arises where a group entity holds monetary assets and liabilities denominated in a currency different to the functional currency of that entity with US dollar being the major non-functional currency of the Companys main operating subsidiaries. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rate, liquidity and other market changes. Future specific market movements cannot be normally predicted with reasonable accuracy.
The results of Companys operations may be affected largely by fluctuations in the exchange rates between the Indian Rupee, Australian dollar, Namibia dollar and ZAR against the US dollar. The foreign exchange rate sensitivity is calculated by aggregation of the net foreign exchange rate exposure and a simultaneous parallel foreign exchange rates shift in the currencies by 10% against the functional currency of the Company.
A 10% appreciation/depreciation of the respective foreign currencies with respect to the functional currency of the Company and its subsidiaries would result in decrease/increase in the Companys profit before tax for the fiscal year 2010 and 2011 by Rs. 4,407 million and Rs. 5,230 million ($117.4 million) respectively.
(c) Interest rate risk
The Company is exposed to interest rate risk on short-term and long-term floating rate instruments. The Companys policy is to maintain a balance of fixed and floating interest rate borrowings and the proportion of fixed and floating rate debt is determined by current market interest rates.
The borrowings of the Company are principally denominated in Indian Rupees and US dollars with mix of fixed and floating rates of interest. The US dollar debt is split between fixed and floating rates (linked to US dollar LIBOR) and the Indian Rupee debt is principally at fixed interest rates. The Company has a policy of selectively using interest rate swaps, option contracts and other derivative instruments to manage its exposure to interest rate movements. These exposures are reviewed by appropriate levels of management on a monthly basis.
The Company also aims to minimise its average interest rates on borrowings by opting for a higher proportion of long-term debt to fund growth projects. The Company invests cash and liquid investments in short-term deposits and debt mutual funds, some of which generate a tax-free return, to achieve the Companys goal of maintaining liquidity, carrying manageable risk and achieving satisfactory returns.
Floating rate financial assets are largely mutual fund investments which have debt securities as underlying assets. The returns from these financial assets are linked to market interest rate movements; however the counterparty invests in the agreed securities with known maturity tenure and return and hence has manageable risk.
F-58
The exposure of the Companys financial assets as at March 31, 2010 to interest rate risk is as follows:
Floating
rate financial assets |
Fixed rate financial Assets |
Non-interest
bearing financial assets |
Total
financial Assets |
|||||||||||||
(Rs. in millions) | ||||||||||||||||
Financial assets |
176,333 | 148,189 | 14,339 | 338,861 | ||||||||||||
Derivative financial assets |
| | 115 | 115 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
176,333 | 148,189 | 14,454 | 338,976 | |||||||||||||
|
|
|
|
|
|
|
|
The weighted average interest rate on the fixed rate financial assets is 7.7% and the weighted average period for which the rate is fixed is 0.9 years.
The exposure of the Companys financial liabilities as at March 31, 2010 to interest rate risk is as follows:
Floating
rate financial liabilities |
Fixed rate financial liabilities |
Non-interest
bearing financial liabilities |
Total
financial liabilities |
|||||||||||||
(Rs. in millions) | ||||||||||||||||
Financial liabilities |
60,665 | 30,888 | 34,304 | 125,857 | ||||||||||||
Derivative financial liabilities |
| | 669 | 669 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
60,665 | 30,888 | 34,973 | 126,526 | |||||||||||||
|
|
|
|
|
|
|
|
The weighted average interest rate on the fixed rate financial liabilities is 5.9% and the weighted average period for which the rate is fixed is 4.6 years.
The exposure of the Companys financial assets as at March 31, 2011 to interest rate risk is as follows:
Floating rate financial assets |
Fixed rate financial Assets |
Non-interest bearing financial assets |
Total financial assets |
|||||||||||||
(Rs. in Millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
|||||||||||||
Financial assets |
145,665 | 174,997 | 19,708 | 340,371 | ||||||||||||
Derivative financial assets |
| | 1,088 | 1,088 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
145,665 | 174,997 | 20,796 | 341,459 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
US dollars in million |
3,270.4 | 3,929.0 | 467.0 | 7,666.4 |
The weighted average interest rate on the fixed rate financial assets is 8.2% and the weighted average period for which the rate is fixed is 1.2 years.
The exposure of the Companys financial liabilities as at March 31, 2011 to interest rate risk is as follows:
Floating
rate financial liabilities |
Fixed
rate financial liabilities |
Non-interest bearing financial liabilities |
Total financial liabilities |
|||||||||||||
(Rs. In Millions) |
(Rs. in Millions) |
(Rs. in Millions) |
(Rs. in Millions) |
|||||||||||||
Financial liabilities |
55,777 | 59,302 | 64,074 | 179,153 | ||||||||||||
Derivative financial liabilities |
| | 410 | 410 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
55,777 | 59,302 | 64,484 | 179,563 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
US dollars in million |
1,252.3 | 1,331.4 | 1,447.8 | 4,031.5 |
The weighted average interest rate on the fixed rate financial liabilities is 10.2% and the weighted average period for which the rate is fixed is 4.9 years.
F-59
The table below illustrates the impact of a 0.5% to 2.0% movement in interest rates on interest expense on loans and borrowings for fiscal 2011. The risk estimate provided assumes that the changes occur at the reporting date and has been calculated based on risk exposure outstanding as on date. The year end balances are not necessarily representative of the average debt outstanding during the year. This analysis also assumes that all other variables, in particular foreign currency rates, remain constant.
Movement in interest rates | US dollar Interest rates | |||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
0.50% |
132 | 152 | 3.4 | |||||||||
1.00% |
263 | 304 | 6.8 | |||||||||
2.00% |
527 | 608 | 13.6 |
(d) Counterparty and concentration of credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.
The Company is exposed to credit risk for receivables, short-term investments, financial guarantees and derivative financial instruments.
The large majority of receivables due from third parties are secured. Credit risk on receivables is limited as almost all credit sales are against letters of credit and guarantees of banks of national standing. Moreover, given the diverse nature of the Companys businesses trade receivables are spread over a number of customers with no significant concentration of credit risk. No single customer accounted for 10% or more of the Companys net sales or for any of the Companys primary businesses during the year ended March 31, 2011 and in the previous year. The history of trade receivables shows a negligible provision for bad and doubtful debts. Therefore, the Company does not expect any material risk on account of non-performance by any of the Companys counterparties. .
For short-term investments, counterparty limits are in place to limit the amount of credit exposure to any one counterparty. For derivative and financial instruments, the credit risk is limited as the Company only deals with reputable banks and financial institutions having high credit-ratings assigned by international credit-rating agencies. These exposures are further reduced by having standard International Swaps and Derivatives Association (ISDA) master agreements including set-off provisions with each counterparty.
The carrying value of the financial assets other than cash represents the maximum credit exposure. The Companys maximum exposure to credit risk at March 31, 2010 and March 31, 2011 is Rs. 336,895 million and Rs. 319,933 million ($7,183.1 million).
The maximum credit exposure on financial guarantees given by the Company for various financial facilities are described in Note 31 on Commitments, contingencies, and guarantees
None of the Companys cash equivalents, including time deposits with banks, are past due or impaired. Regarding trade and other receivables, and other non-current assets, there were no indications as at March 31, 2011, that defaults in payment obligations will occur except as described in Note 14 on allowance for impairment of trade and other receivables.
F-60
Of the year end trade and other receivable balance the following were past due but not impaired:
As at March 31 | 2010 | 2011 | 2011 | |||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Less than 1 month |
8,812 | 251 | 5.6 | |||||||||
Between 1 - 3 months |
3,075 | 1,136 | 25.5 | |||||||||
Between 3 - 12 months |
1,268 | 693 | 15.6 | |||||||||
Greater than 12 months |
24 | 27 | 0.6 | |||||||||
|
|
|
|
|
|
|||||||
13,179 | 2,107 | 47.3 | ||||||||||
|
|
|
|
|
|
Receivables are deemed to be past due or impaired with reference to the Companys normal terms and conditions of business. These terms and conditions are determined on a case to case basis with reference to the customers credit quality and prevailing market conditions. Receivables that are classified as past due in the above tables are those that have not been settled within the terms and conditions that have been agreed with that customer.
The credit quality of the Companys customers is monitored on an ongoing basis and assessed for impairment where indicators of such impairment exist. The solvency of the debtor and their ability to repay the receivable is considered in assessing receivables for impairment. In certain circumstances the Company seeks collateral as security for the receivable. Where receivables have been impaired, the Company actively seeks to recover the amounts in question and enforce compliance with credit terms.
Derivative financial instruments
The Company uses derivative instruments as part of its management of exposure to fluctuations in foreign currency exchange rates and commodity prices. The Company does not acquire or issue derivative financial instruments for trading or speculative purposes. The Company does not enter into complex derivative transactions to manage the treasury and commodity risks. Both treasury and commodities derivative transactions are normally in the form of forward contracts and these are subject to the Company guidelines and policies.
All derivative financial instruments are recognized as assets or liabilities on the consolidated statement of financial position and measured at fair value, generally based on quotations obtained from financial institutions or brokers. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and the resulting designation.
The fair values of all derivatives are separately recorded on the consolidated statement of financial position within other current and non-current assets and liabilities. Derivatives that are designated as hedges are classified as current or non-current depending on the maturity of the derivative.
The Company uses derivative instruments as part of its management of exposures to fluctuations in foreign currency exchange rates, interest rates and commodity prices. The use of derivatives can give rise to credit and market risk. The Company controls credit risk by only entering into contracts with reputable banks and financial institutions. The use of derivative instruments is subject to limits, authorities and regular monitoring by appropriate levels of management. The limits, authorities and monitoring systems are periodically reviewed by management and the Board. The market risk on derivatives is mitigated by changes in the valuation of the underlying assets, liabilities or transactions, as derivatives are used only for risk management purposes.
Embedded derivatives
The Company enters into long-term sale contracts with its customers. The selling prices in these contracts are linked to LME. These contracts require physical delivery and are held for the purpose of the delivery of the commodity in accordance with the buyers expected sale requirements.
Derivatives embedded in other financial instruments or other contracts are treated as separate derivative contracts and marked-to-market when their risks and characteristics are not clearly and closely related to those of their host contracts and the host contracts are not fair valued.
F-61
In respect of embedded derivative conversion option, a 10% increase/decrease in Companys ADR price would have resulted in an approximate loss of Rs. 1,395 million and Rs. 786 million ($17.6 million) and an approximate gain of Rs. 1,284 million and Rs. 688 million ($15.4 million) for the fiscal 2010 and 2011 respectively. A 10% increase/decrease in implied volatility would have resulted in an approximate loss of Rs. 842 million and Rs. 605 million ($13.6 million) and an approximate gain of Rs. 943 million and Rs. 737 million ($16.5 million) for fiscal 2010 and 2011 respectively.
Cash flow hedges
The Company, in its copper business, on a selected basis hedged its revenue from variable margins and free copper by entering into future contracts. The main purpose of hedging is to fix the prices at a desired level. These are highly probable forecast transactions and accordingly have been accounted for as cash flow hedges and recognised at fair value. The Company has also hedged part of its future sales in its zinc business. The change in fair value on these derivative contracts is recorded in the statement of comprehensive income. These hedges have been effective for the year ended March 31, 2011.
The Company uses foreign exchange contracts from time to time to optimize currency risk exposure on its foreign currency transactions. The Company hedged part of its foreign currency exposure on capital commitments during fiscal 2011. Fair value changes on such forward contracts are recognized in statement of comprehensive income.
The majority of cash flow hedges taken out by the Company during the year comprise forward foreign currency contracts for firm future commitments.
The cash flows related to above are expected to occur during the year ended March 31, 2012 and consequently may impact the statement of income for that year depending upon the change in the commodity prices and foreign exchange rates movements. For cash flow hedges regarded as basis adjustments to initial carrying value of the property, plant and equipment, the depreciation on the basis adjustments made is expected to affect the statement of income between fiscal year 2012 to 2032.
Fair value hedge
The fair value hedges relate to forward covers taken to hedge currency exposure and commodity price risks.
Companys sales are on a quotational period basis, generally one month to three months after the date of delivery at a customers facility. The Company enters into forward contracts for the respective quotational period to hedge its commodity price risk based on average LME prices. Gains and losses on these hedge transactions were substantially offset by the amount of gains or losses on the underlying sales.
The Company uses foreign exchange contracts from time to time to optimize currency risk exposure on its foreign currency transactions. Fair value changes on such forward contracts not designated as cash flow hedge are recognized in statement of income.
Non-qualifying/economic hedge
The Company enters into derivative contracts which are not designated as hedges for accounting purposes, but provide an economic hedge of a particular transaction risk or a risk component of a transaction. Hedging instruments include copper and zinc future contracts on the LME and certain other derivative instruments. The Company has accounted for fair value adjustments on such derivative contracts as assets/liabilities in its consolidated statement of financial position.
F-62
The fair value of the Companys derivative positions recorded under derivative financial assets and derivative financial liabilities are as follows:
As at March 31, 2010 | As at March 31, 2011 | |||||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||
(Rs. in millions) | (US dollars in millions) | |||||||||||||||||||||||
Current |
||||||||||||||||||||||||
Cash flow hedges* |
||||||||||||||||||||||||
Commodity contracts |
1 | | | 2 | | | ||||||||||||||||||
Forward foreign currency contracts |
| 64 | | | | | ||||||||||||||||||
Fair value hedges** |
||||||||||||||||||||||||
Commodity contracts |
| 27 | 24 | 4 | 0.5 | 0.1 | ||||||||||||||||||
Forward foreign currency contracts |
2 | 369 | 21 | 144 | 0.5 | 3.2 | ||||||||||||||||||
Non-qualifying hedges |
||||||||||||||||||||||||
Commodity contracts |
110 | 49 | 136 | 246 | 3.1 | 5.5 | ||||||||||||||||||
Forward foreign currency contracts |
2 | 160 | 907 | 14 | 20.3 | 0.4 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
115 | 669 | 1,088 | 410 | 24.4 | 9.2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
* | Refer statement of income and statement of change in equity for the change in the fair value of cash flow hedges. |
** | The change in fair value hedge of Rs. 17 million and Rs. 47 million ($1.1 million) in commodity contracts and Rs. 690 million and Rs.244 million on forward foreign currency contracts ($5.5 million) for the fiscal 2010 and 2011 respectively, has been recognised in the statement of income and offset with the similar gains on the underlying sales. |
26. Capital management
The Companys objectives when managing capital is to safeguard continuity, maintain a strong credit rating and healthy capital ratios in order to support its business and provide adequate return to shareholders through continuing growth.
The Company sets the amount of capital required on the basis of annual business and long-term operating plans which include capital and other strategic investments.
The funding requirements are met through a mixture of equity, internal accruals, convertible debt securities, and other long term borrowings. The Companys policy is to use short-term and long-term borrowings to meet anticipated funding requirements.
The Company monitors capital on the basis of the net cash to equity ratio.
Net cash includes cash and cash equivalents and short-term investments as reduced by all long and short-term debts. Equity comprises all components excluding other components of equity (which comprises the Cash flow hedges, Translation of foreign operations and Available-for-sale financial investments).
F-63
The following table summarizes the capital of the Company:
As at March 31, | 2010 | 2011 | 2011 | |||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Equity |
449,265 | 517,436 | 11,617.3 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents (Note 16 and 17) |
2,081 | 21,526 | 483.3 | |||||||||
Short-term investments (Note 15) |
211,022 | 203,111 | 4,560.2 | |||||||||
|
|
|
|
|
|
|||||||
Total cash (a) |
213,103 | 224,637 | 5,043.5 | |||||||||
Short-term borrowings |
19,121 | 37,948 | 852.0 | |||||||||
Long-term borrowings |
43,578 | 53,559 | 1,202.5 | |||||||||
|
|
|
|
|
|
|||||||
Total debt (b) (Note 19) |
62,699 | 91,507 | 2,054.5 | |||||||||
Net cash (a-b) |
150,404 | 133,130 | 2,989.0 | |||||||||
|
|
|
|
|
|
|||||||
Total capital (equity net cash) |
298,861 | 384,306 | 8,628.3 | |||||||||
|
|
|
|
|
|
|||||||
Net cash to equity ratio |
0.3 | 0.3 | 0.3 |
27. Shareholders equity
As at March 31, 2010 and 2011 the authorised share capital of SIIL comprised of 925,000,000 and 5,000,000,000 equity shares with a par value of Rs 2 and Re 1 each respectively.
SIILs issued equity share capital was Rs. 1,681 million and Rs. 3,361 million ($75.5 million) as at March 31, 2010 and 2011, consisting of 840,400,422 and 3,361,207,534 equity shares respectively.
In July 2009, SIIL issued an additional 131,906,011 equity shares in the form of ADSs, resulting in an increase in issued equity share capital from 708,494,411 equity shares to 840,400,422 equity shares.
The shareholders of SIIL, in its annual general meeting held on June 11, 2010, approved the stock split of the equity share from the face value of Rs 2 per share to Re 1 per share each fully paid up, and bonus issue in the ratio of 1:1 post stock split. This has resulted an increase of 2,520,807,112 equity shares consisting of 840,400,422 equity shares on account of equity split and 1,680,406,690 equity shares due to bonus issue.
Retained earnings includes amongst others, general reserve, debenture redemption reserve and preference share redemption reserve.
General reserves
Under the Companies Act, a general reserve is created through an annual transfer of net income at a specified percentage in accordance with applicable regulations. The purpose of these transfers is to ensure that if a dividend distribution in a given year is more than 10.0% of the paid-up capital of the Company for that year, then the total dividend distribution is less than the total distributable results for that year. The balances in the standalone financial statements of SIILs general reserves, as determined in accordance with applicable regulations, were Rs. 10,642 million and Rs. 15,642 million ($351.2 million) as at March 31, 2010 and 2011, respectively.
Debenture redemption reserve
The Companies Act requires companies that issue debentures to create a debenture redemption reserve from annual profits until such debentures are redeemed. Companies are required to maintain a minimum proportion of outstanding redeemable debentures as a reserve. The amounts credited to the debenture redemption reserve may not be utilised except to redeem debentures. Retained earnings of the standalone financial statements of SIIL as at March 31, 2010 and 2011 include Rs. 205 million and Rs. 120 million ($2.7 million) of debenture redemption reserve, respectively.
F-64
Preference share redemption reserve
The Companies Act provides that companies that issue preference shares may redeem those shares from profits of the Company which otherwise would be available for dividends, or from proceeds of a new issue of shares made for the purpose of redemption of the preference shares. If there is a premium payable on redemption, the premium must be provided for, either by reducing the additional paid in capital (securities premium account) or net income, before the shares are redeemed.
If profits are used to redeem preference shares, the value of the nominal amount of shares redeemed should be transferred from profits (retained earnings) to the capital redemption reserve account. This amount should then be utilised for the purpose of redemption of redeemable preference shares. This reserve can be used to issue fully paid-up bonus shares to the shareholders of SIIL. Retained earnings of the standalone financial statements of SIIL include Rs. 769 million ($17.3 million) of preference share redemption reserve as at March 31, 2010 and 2011.
Dividends
Each equity share holder is entitled to dividends as and when SIIL declares and pays dividends after obtaining shareholder approval. Dividends are paid in Indian Rupees. Remittance of dividends outside India is governed by Indian law on foreign exchange and is subject to applicable taxes.
Equity dividends paid was Rs. 2,834 million in the year ended March 31, 2009. Dividend distribution taxes on the equity dividends were Rs. 481 million in the year ended March 31, 2009.
On April 28, 2009, the board of directors of SIIL recommended a dividend of Rs. 3.50 per equity share for the year ended March 31, 2009, which was approved by shareholders at the general meeting, held on September 19, 2009 resulting in a payment of Rs. 2,942 million. Dividend distribution taxes on the equity dividends were Rs. 495 million for the year ended March 31, 2009.
On April 26, 2010 the board of directors of SIIL recommended a dividend of Rs. 3.75 ($0.08) per equity share for the year ended March 31, 2010, which was approved by the shareholders at the annual general meeting, held on June 11 2010. The dividend and dividend distribution tax amounting to Rs. 3,151 million ($70.7 million) and Rs. 523 million ($11.7 million) respectively has since been paid during the year ended March 31, 2011.
On April 25, 2011 the board of directors of SIIL recommended a dividend of Rs. 1.10 ($0.02) per equity share for the year ended March 31, 2011, which was approved by the shareholders at the annual general meeting, held on July 23, 2011. The dividend and dividend distribution tax amounting to Rs. 3,697 million ($83.0 million) and Rs. 600 million ($13.5 million) respectively has since been paid.
Dividends are payable from the profits determined under Indian GAAP.
Under Indian law, a company is allowed to pay dividends in excess of 10.0% of its paid-up capital in any year from profits for that year only if it transfers a specified percentage of the profits of that year to reserves. The Company makes such transfers to general reserves.
If profits for a year are insufficient to declare dividends, dividends for that year may be declared and paid out from accumulated profits on the following conditions:
| the rate of dividend to be declared shall not exceed the average of the rates at which dividends were declared in the five years immediately preceding that year or 10.0% of the companys paid-up share capital, whichever is less; |
| the total amount to be drawn from the accumulated profits earned in previous years and transferred to reserves shall not exceed an amount equal to one-tenth of the sum of the companys paid-up share capital and net reserves, and the amount so drawn shall first be utilised to set off the losses incurred in the financial year before any dividend in respect of preference or equity share is declared; and |
| the balance of reserves after such withdrawal shall not fall below 15.0% of the companys paid-up share capital. |
28. Share-Based Compensation Plans
The Company offers equity-based award plans to its employees, officers and directors through its parent, Vedanta.
F-65
The Vedanta Resources Long-Term Incentive Plan (the LTIP)
The LTIP is the primary arrangement under which share-based incentives are provided to the defined management group. The maximum value of shares that can be awarded to members of the defined management group is calculated by reference to the balance of basic salary and share-based remuneration consistent with local market practice. The performance condition attaching to outstanding awards under the LTIP is that of Vedantas performance, measured in terms of Total Shareholder Return (TSR) compared over a three year period with the performance of the companies as defined in the scheme from the date of grant. Under this scheme, initial awards under the LTIP were granted in February 2004 with further awards being made in June 2004, November 2004, February 2006 and November 2007, February 2009, August 2009, January 2010, July 2010, October 2010 and January 2011. The awards are indexed to and settled by Vedanta shares. The awards provide for a fixed exercise price denominated in Vedantas functional currency at 10 US cents per share, the performance period of each award is three years and the same is exercisable within a period of six months from the date of vesting beyond which the option lapse. Under the scheme, Vedanta is obligated to issue the shares. Further, in accordance with the terms of agreement between Vedanta and SIIL, the grant date fair value of the awards is recovered by Vedanta from SIIL.
The amount recovered by Vedanta and recognised by the Company in the consolidated statement of income for the financial year ended March 31, 2009, 2010 and 2011 was Rs. 516 million, Rs. 288 million and Rs. 353 million ($7.9 million) respectively. The Company considers these amounts as not material and accordingly has not provided further disclosures as required by IFRS 2 Share-based payment.
29. Earnings per share (EPS)
The shareholders of SIIL, in the annual general meeting held on June 11, 2010, approved the stock split of its equity share from the face value of Rs. 2 per share to Re 1 per share each fully paid up, and bonus issue in the ratio of 1:1 post stock split. The computation of basic and diluted EPS have been adjusted retroactively for the year ended March 31, 2009 and 2010 to reflect the changes in capital structure. Reference for the year ended March 31, 2009 and 2010 in these consolidated financial statements to number of shares and per share amounts have been retroactively restated to reflect bonus and stock split made.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Computation of weighted average number of shares
For the year ended March 31, | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
Weighted average number of ordinary shares for basic earnings per share |
2,833,583,490 | 3,199,826,061 | 3,361,207,534 | |||||||||
Effect of dilution: |
||||||||||||
Convertible notes |
| 36,174,220 | 85,737,600 | |||||||||
|
|
|
|
|
|
|||||||
Adjusted weighted average number of ordinary shares for diluted earnings per share |
2,833,583,490 | 3,236,000,281 | 3,446,945,134 | |||||||||
|
|
|
|
|
|
F-66
Computation of basic and diluted earnings per share
Basic earnings per share:
For the year ended March 31, | ||||||||||||||||
2009 | 2010 | 2011 | 2011 | |||||||||||||
Rs. in millions (except EPS data) | US dollars in millions (except EPS data) |
|||||||||||||||
Profit for the year attributable to equity holders of the parent |
32,228 | 39,263 | 48,898 | 1097.8 | ||||||||||||
Weighted average number of ordinary shares for basic earnings per share |
2,833,583,490 | 3,199,826,061 | 3,361,207,534 | 3,361,207,534 | ||||||||||||
Earnings per share |
11.37 | 12.27 | 14.55 | 0.3 |
Diluted earnings per share:
For the year ended March 31, | ||||||||||||||||
2009 | 2010 | 2011 | 2011 | |||||||||||||
Rs. in millions (except EPS data) | US dollars in millions (except EPS data) |
|||||||||||||||
Profit for the year attributable to equity holders of the parent |
32,228 | 39,263 | 48,898 | 1,097.8 | ||||||||||||
Adjustment in respect of convertible notes |
| (345 | ) | (1,079 | ) | (24.2 | ) | |||||||||
Profit for the year after dilutive adjustment |
32,228 | 38,918 | 47,819 | 1,073.6 | ||||||||||||
Weighted average number of ordinary shares for diluted earnings per share |
2,833,583,490 | 3,236,000,281 | 3,446,945,134 | 3,446,945,134 | ||||||||||||
Earnings per share |
11.37 | 12.03 | 13.87 | 0.3 |
Profit for the year would be increased if holders of the convertible notes in SIIL exercised their right to convert their bond holdings into SIIL equity. The impact on profit for the year of this conversion would be the reduction in effective interest cost, exchange difference on reinstatement of debt portion of convertible note and mark to market of conversion option on the convertible notes.
30. Options to acquire subsidiarys shares
a. Call option HZL
SIILs wholly-owned subsidiary, Sterlite Opportunities and Ventures Limited (SOVL), had two call options to purchase all of the Government of Indias shares in HZL at fair market value. SOVL exercised the first call option on August 29, 2003 and acquired an additional 18.9% of HZLs issued share capital, increasing its shareholding to 64.9%. As at March 31, 2010 and 2011, the Government of Indias holding in HZL was 29.5%. The second call option provides SOVL the right to acquire the Government of Indias remaining 29.5% share in HZL. This call option is subject to the right of the Government of India to sell 3.5% of HZL shares to HZL employees. This call option is also subject to the Government of Indias right, prior to the exercise of this call option, to sell its shares in HZL through a public offer. From April 11, 2007, SOVL has the right to exercise the second call option. The option has no expiry date. The Company exercised the second call option via its letter dated July 21, 2009. The Government has stated that they are maintaining the same stand as in BALCO on the validity of the call option, and has refused to act upon the second call option. The Company has invoked the Arbitration clause for referring the matter to arbitration, and appointed an arbitrator, and requested the Government to nominate its arbitrator nominee so that Arbitral Tribunal is constituted. As the Government of India has not appointed its arbitrator, the Company filed an Arbitration application u/s 11(6) of the Arbitration and Conciliation Act 1996 in the Delhi High Court for constitution of arbitral tribunal. The Delhi High Court has, via its order dated May 18, 2010, directed the parties to appoint mediators for mediation of the dispute, and if mediation fails, arbitration will commence. The Government of India has intimated the appointment of Mr. Sanjiv Mishra (former retired government officer) as their mediator and SOVL had appointed Mr. Nimesh Kampani, chairman and managing director of JM financials Ltd., as its mediator. The mediation was not successful and the arbitral tribunal is being constituted.
F-67
b. Call option BALCO
SIIL purchased a 51.0% holding in BALCO from the Government of India on March 2, 2001. Under the terms of the shareholders agreement (SHA) for BALCO, SIIL has a call option that allows it to purchase the Government of Indias remaining ownership interest in BALCO at any point from March 2, 2004. SIIL exercised this option on March 19, 2004. However, the Government of India has contested the purchase price and validity of the option. SIIL sought an interim order from the High Court of Delhi to restrain the Government of India from transferring or disposing of its shareholding pending resolution of the dispute. The High Court on August 7, 2006 directed that the parties should attempt to settle the dispute by way of a mediation process as provided for in the SHA. However, as the dispute could not be settled through mediation, it was referred to arbitration as provided for in the SHA. Arbitration proceedings commenced on February 16, 2009. The Company has filed its claim statement with the Arbitration Tribunal. After the filing of the reply by the Government of India, the arbitration hearings concluded on August 29, 2010. The parties were directed to file their written submissions within three weeks. SIIL filed its written submission on September 20, 2010. However, in view of the subsequent judgement of the Bombay High Court, which supported the contentions made by SIIL, the arbitration tribunal has, at the request of Government of India, given an opportunity to both the parties to make oral submission on the judgement and the hearing for the same had been fixed on October 9, 2010. The Arbitration Tribunal in its majority award dated 25th January 2011 has rejected the claims of Sterlite on the ground that clauses on call option, right of first refusal, tag along right, restriction on transfer of shares are violative of section 111A(2) of the Companies Act, 1956. Sterlite has on 23rd April 2011, filed an application under section 34 of the Arbitration and Conciliation Act, 1996 in the High Court of Delhi for setting aside the award dated 25th January, 2011 to the extent to which it holds that clause 5.8, 5.3, 5.4 and 5.1(a) of the SHA is void, ineffective and inoperative by virtue of being violative of sub-section (2) of 111A of the Companies Act, 1956. The Government also challenged the majority award upholding the first valuation report and also SIILs right to buy at 75% of the valuation in the event of default by the Government, by way of an application under section 34 of the Arbitration and Conciliation Act, 1996 in the High Court of Delhi. The matter is now listed for hearing on November 9, 2011.
31. Commitments, contingencies, and guarantees
In the normal course of business, the Company enters into certain capital commitments and also gives certain financial guarantees. The aggregate amount of indemnities and other guarantees on which the Company does not expect any material losses, was Rs. 75,594 million and Rs. 80,705 million ($ 1,812.0 million) as at March 31, 2010 and 2011 respectively.
a. Commitments and contingencies
i. Commitments
Capital commitments
The Company had significant capital commitments as at March 31, 2010 and 2011 amounting to Rs. 123,305 million and Rs. 137,629 million ($3090.0 million) respectively, related primarily to capacity expansion projects, including commitments amounting to Rs. 86,634 million ($ 1945.1 million) (Previous year Rs. 83,079 million) for its commercial power generation business and Rs. 23,066 million ($517.9 million) (Previous year Rs. 23,681 million) for capacity expansion at BALCO.
Export obligations
The Company had export obligations of Rs. 86,229 million and Rs. 117,988 million ($2,649.0 million) as at March 31, 2010 and 2011 respectively on account of concessional rates of import duties paid on capital goods under the Export Promotion Capital Goods Scheme enacted by the Government of India which is to be fulfilled over the next eight years. If the Company is unable to meet these obligations, its liability would be Rs. 16,001 million ($359.3 million) (Previous year Rs. 11,997 million) reduced in proportion to actual exports. Due to the remote likelihood of the Company being unable to meet its export obligations, the Company does not anticipate a loss with respect to these obligations and hence has not made any provision in its consolidated financial statements.
F-68
ii. Contingencies
Certain of the Companys operating subsidiaries have been named as parties to legal actions by third party claimants, and by the Indian sales tax, excise and related tax authorities for additional sales tax, electricity cess, excise and indirect duties. These claims primarily relate either to the assessable values of sales and purchases or to incomplete documentation supporting the Companys tax returns. As at March 31, 2010 and 2011, the total claim related to these liabilities is Rs. 5,158 million and Rs. 6,372 million ($143.1 million) respectively. The Company has evaluated these contingencies and estimated that some of these claims are probable of resulting in loss contingencies and hence has recorded Rs. 101 million and Rs. 145 million ($3.3 million) as current liabilities as at March 31, 2010 and 2011 respectively.
The claims by third party claimants amounted to Rs. 4,897 million and Rs. 4,972 million ($111.6 million) as at March 31, 2010 and 2011 respectively. No liability has been recorded against these claims, based on the Companys expectation that none of these claims will become its obligations. Although the results of legal actions cannot be predicted with certainty, it is the opinion of the Companys management, after taking appropriate legal advice, that the likelihood of these claims becoming its obligations is remote and, as a result, the resolution of these claims will not have a material effect, if any, on the Companys business, financial condition or results of operations. Therefore, the Company has not recorded any additional liability beyond what is stated above in relation to litigation matters in the consolidated financial statements.
Vedanta Aluminium has certain disputes which are in appeal. Disputed liabilities in appeal primarily relates to entry tax on the import of goods and other amounting to Rs. 765 million and Rs. 2,095 million ($47.0 million), being the proportionate share of the Company in the referred contingencies as at March 31, 2010 and 2011 respectively. Therefore, the Company has evaluated these contingencies and estimated that the likelihood of these disputes becoming an obligation is remote and as a result, will not have any material effect on Companys financial conditions or results of operations.
b. Guarantees
The Company has given guarantees in the normal course of business as stated below:
| Guarantees including corporate guarantees on the issuance of customs and excise duty bonds amounting to Rs. 11,292 million and Rs. 12,022 million ($269.9 million) for the import of goods, including capital equipment at concessional rates of duty as at March 31, 2010 and 2011 respectively. The Company does not anticipate any liability on these guarantees. |
| Corporate guarantee of Rs. 34,000 million and Rs. 32,000 million ($ 718.5 million) on behalf of Vedanta Aluminium for obtaining credit facilities as at March 31, 2010 and 2011 respectively. The Company, has issued corporate guarantees of Rs. 14,386 million and Rs. 14,384 million ($ 322.9 million) on behalf of Vedanta Aluminium, for importing capital equipment at concessional rates of duty under the Export Promotion Capital Goods Scheme enacted by the Government of India for the referred periods. Vedanta Aluminium is obligated to export goods worth eight times the value of concessions enjoyed in a period of eight years following the date of import, failing which the Company will be liable to pay the dues to the Government of India. As at March 31, 2010 and 2011, the Company determined that it has no liability on these corporate guarantees. |
| Bank guarantee amounting to AUD 5.0 million (Rs. 231 million or $ 5.2 million) as at March 31, 2011 (Previous year AUD 5.0 million or Rs. 207 million), in favour of the Ministry for Economic Development, Energy and Resources, as a security against rehabilitation liabilities on behalf of CMT. The same guarantee is backed up by the issuance of a corporate guarantee of Rs. 320 million ($7.2 million). These liabilities have been fully recognized in the Companys consolidated financial statements. The Company does not anticipate any additional liability on these guarantees. |
| Bank indemnity guarantees amounting to AUD 2.9 million (Rs. 134 million or $3.0 million) as at March 31, 2011 (Previous year AUD 2.9 million or Rs. 119 million), in favor of the State Government of Queensland, Australia, as a security against rehabilitation liabilities that are expected to occur at the closure of the mine. The same guarantee is backed up by the issuance of a corporate guarantee of Rs. 132 million ($3.0 million). The environmental liability has been fully recognized in the Companys consolidated financial statements. The Company does not anticipate any additional liability on these guarantees. |
| Performance bank guarantees amounting to Rs. 2,201 million and Rs. 3,678 million ($ 82.6 million) as at March 31, 2010 and 2011 respectively. These guarantees are issued in the normal course of business while bidding for supply contracts or in lieu of advances received from customers. The guarantees have varying maturity dates normally ranging up to three years. These are contractual guarantees and are enforceable if the terms and conditions of the contracts are not met and the maximum liability on these contracts is the amount mentioned above. The Company does not anticipate any liability on these guarantees. |
F-69
| Bank guarantees for securing supplies of materials and services in the normal course of business. The value of these guarantees as at March 31, 2010 and 2011 was Rs. 1,203 million and Rs. 2,438 million ($ 54.7 million) respectively. The Company has also issued bank guarantees in the normal course of business for an aggregate value of Rs. 515 million and Rs. 182 million ($ 4.1 million) for litigation, against provisional valuation and for other liabilities as at March 31, 2010 and 2011 respectively. The Company does not anticipate any liability on these guarantees. |
The Companys outstanding guarantees cover obligations aggregating Rs.63,597 million and Rs. 64,704 million ($1,452.7 million) as at March 31,2010 and 2011 respectively, the liabilities for which have not been recorded in its consolidated financial statements.
c. Other matters
i) | During the previous year the plan proposed by ASARCO and sponsored by SIILs wholly owned subsidiary, Sterlite (USA) Inc was rejected by the US District Court. SIIL preferred to file an appeal against the order of US District Court. Subsequently, the Bankruptcy Court also approved the motion of ASARCO to terminate the settlement and Purchase and Sale Agreement (PSA) and allowed it to draw on the USD 50 million Letter of Credit. SIIL has contested the same and has filed an application before the Bankruptcy Court for refund of USD 50 million drawn down by ASARCO and payment of compensation for legal expenses. SIIL has provided Rs. 2,735 million (being the USD 50 million referred to above and other expenses related thereto) during the year ended March 31,2010. On March 17, 2010, ASARCO filed a complaint in the US Bankruptcy Court for the Southern District of Texas, Corpus Christi Division, against Sterlite and Sterlite USA alleging that SIIL and Sterlite USA had breached the May 30, 2008 agreement by, among other things, refusing to pay the $2.6 billion purchase price as allegedly required by an agreement dated May 30, 2008 (the May 2008 agreement) and refusing to assume the liabilities and contractual obligations as allegedly required by the May 2008 agreement. ASARCO is seeking to recover from SIIL and Sterlite USA its alleged damages suffered as a result of the alleged breach and certain other amounts, including costs associated with ASARCOs efforts to complete their reorganization and costs, disbursements and attorneys fees in connection with the proceedings. ASARCO has claimed these damages to be in the range of US$ 533 million to US$ 1,509 million and has also claimed applicable pre-judgment interest. |
The trial on SIILs application and ASARCOs complaint completed on Aug 17, 2011 in US Bankruptcy Court and decision is awaited. SIIL believes that ASARCOs claim has no merit. ASARCO didnt suffer any damages, as it got substantially higher consideration under Parent Plan than possible consideration under May 2008 agreement between SIIL and ASARCO.
ii) | The Central Excise Department had, in June 2010, issued an ex-parte notice for reversal of Cenvat Credit of Rs 3,150 million along with interest of Rs. 88 million for non compliance of Rules 4(5a) and 4(6) of the Cenvat Credit Rules, in respect of non-return of job work challans for the period March to September 2009 within stipulated time. In addition, the Department has also alleged violation of Advance license conditions for the period 2005-2009. No show cause notice in this regard has been served on SIIL. SIIL filed writ petition in Madurai Bench of Madras High Court. The Madras High court has remanded back the case to the central excise department and directed the commissioner of the central excise to assign a different assistant commissioner to hear the case afresh who issued a show cause notice to the Company on grounds similar to the ex-parte notice. SIIL has been legally advised that the alleged charges are not legally sustainable and there is no financial liability on SIIL. |
iii) | During the year ended 31 March 2011, the Company was ordered to close the Tuticorin smelter pursuant to an order from the Madras High Court. The Company has been successful in obtaining stay orders to allow the continued operation of the smelter while an appeal is heard in the Supreme Court of India. On the Special Leave Petition (SLP) filed by the Company, Honble Supreme Court of India vide order dated October 01, 2010 has stayed the operation of the Madras High Court order directing closure of Copper Smelter at Tuticorin. As directed by the Supreme Court, National Environmental Engineering Research Institute (NEERI) inspected the Tuticorin smelter and submitted its report. The Supreme Court directed the Tamil Nadu Pollution Control Board to suggest control measures to be undertaken by the Company. The order has been reserved by the Supreme Court for interim directions. The management is confident that they have complied with the environmental regulations. |
32. Segment information
The Company is primarily in the business of non-ferrous mining and metals in India, Namibia, South Africa, Ireland and Australia. The Company has six reportable segments: copper, zinc India, zinc international, aluminum, power and other. The management of the Company is organized by its main products: copper, zinc, aluminum and power. Each of the reportable segments derives its revenues from these main products and hence these have been identified as reportable segments by the Companys chief operating decision maker (CODM). Segment profit amounts are evaluated regularly by the Board who has been identified as the CODM in deciding how to allocate resources and in assessing performance.
F-70
Copper
The copper business is principally one of custom smelting and includes a copper smelter, a refinery, a phosphoric acid plant, a sulphuric acid plant, a copper rod plant, a dore anode plant (temporarily suspended from August 2010) and two captive power plants at Tuticorin in Southern India and a refinery and two copper rod plants at Silvassa in Western India. The Company obtains a small quantity of copper concentrate from its Mt. Lyell copper mine in Tasmania, Australia, owned by CMT. The segment also includes a precious metal refinery at Fujairah in the United Arab Emirates.
Zinc India
The Companys zinc business is owned and operated by HZL. HZLs operations include four lead-zinc mines, four hydrometallurgical zinc smelters, one lead smelter, one lead-zinc smelter, five sulphuric acid plants, a silver refinery and five captive power plants in the State of Rajasthan in Northwest India, one hydrometallurgical zinc smelter and a sulphuric acid plant in the State of Andhra Pradesh in Southeast India, and a zinc ingot melting and casting plant at Haridwar in the State of Uttarakhand in North India.
Zinc International
The Companys zinc International business comprises 100 per cent of Skorpion, which owns the Skorpion mine and refinery in Namibia, 100 per cent of Lisheen, which owns the Lisheen mine in Ireland and a 74 per cent stake in Black Mountain, whose assets include the Black Mountain mine and the Gamsberg mine project in South Africa. On 3 December 2010, the Company announced the completion of the acquisition of Skorpion by Sterlite Infra Limited, a wholly-owned subsidiary of the Company. On 4 February 2011, the Company announced the completion of the acquisition of the 74 per cent stake in Black Mountain. The acquisition of Lisheen was completed on 15 February 2011.
Aluminum
The aluminum business is owned and operated by BALCO. BALCOs operations include two bauxite mines, one alumina refinery, one aluminum smelter and two captive power plants, of which the 270 MW power plant is now used for commercial purposes, since the shutdown of the 100,000 tpa smelter, in the State of Chhattisgarh in Central India.
Power
The commercial power generation business includes the 170.9 MW of wind power plants commissioned by HZL, one 270 MW power plant at BALCOs Korba facility which was previously for captive use before the shutdown of the 100,000 tpa aluminum smelter at Korba on June 5, 2009 and one 600 MW power plant at SEL. SELs (remaining three units of 600 MW each) and TSPLs power business are still under development.
Other
The operating segment other includes Paper, infrastructure, investments in associate and other activities.
The accounting policies of the reportable segments are the same as the Companys accounting policies described in Note 3. The operating segments reported are the segments of the Company for which separate financial information is available. Segment profit (Earnings before interest, depreciation and tax) amounts are evaluated regularly by the board that has been identified as its CODM in deciding how to allocate resources and in assessing performance. The Companys financing (including finance costs and finance income) and income taxes are reviewed on an overall basis and are not allocated to operating segments. Transfer prices between operating segments are on an arms length basis in a manner similar to transactions with third parties except from power segment which is at cost.
The following table presents revenue and profit information and certain assets information regarding the Companys business segments for the year ended March 31, 2009, 2010 and 2011.
F-71
a. For the year ended March 31, 2009
Copper | Zinc India |
Aluminum | Power | Other | Elimination | Total | ||||||||||||||||||||||
(Rs. in millions) | ||||||||||||||||||||||||||||
Revenue |
||||||||||||||||||||||||||||
Sales to external customers |
116,525 | 55,724 | 39,170 | 773 | | | 212,192 | |||||||||||||||||||||
Inter-segment sales |
145 | | 166 | | | (311 | ) | | ||||||||||||||||||||
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|
|
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|
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Segment revenue |
116,670 | 55,724 | 39,336 | 773 | | (311 | ) | 212,192 | ||||||||||||||||||||
|
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|
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Results: |
||||||||||||||||||||||||||||
Segment profit |
13,312 | 27,773 | 9,103 | 931 | (5 | ) | | 51,114 | ||||||||||||||||||||
Depreciation and amortisation |
(2,191 | ) | (2,615 | ) | (2,609 | ) | (608 | ) | (1 | ) | | (8,024 | ) | |||||||||||||||
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|
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Operating profit |
11,121 | 25,158 | 6,494 | 323 | (6 | ) | | 43,090 | ||||||||||||||||||||
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|
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Finance and other costs |
(6,244 | ) | ||||||||||||||||||||||||||
Investment and other income |
18,772 | |||||||||||||||||||||||||||
Share in consolidated loss of associate |
(3,160 | ) | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Profit before tax |
52,458 | |||||||||||||||||||||||||||
Income Tax expense |
(7,782 | ) | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Profit for the year |
44,676 | |||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Assets and liabilities |
||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||
Segment assets |
43,417 | 61,991 | 60,185 | 48,968 | 338 | | 214,899 | |||||||||||||||||||||
Investment in associate |
| | | | 15,043 | | 15,043 | |||||||||||||||||||||
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43,417 | 61,991 | 60,185 | 48,968 | 15,381 | | 229,942 | ||||||||||||||||||||||
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|
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Financial assets investments |
1,044 | |||||||||||||||||||||||||||
Short-term investments |
188,067 | |||||||||||||||||||||||||||
Cash and cash equivalent |
4,712 | |||||||||||||||||||||||||||
Loan to related parties |
20,704 | |||||||||||||||||||||||||||
Current tax asset |
109 | |||||||||||||||||||||||||||
|
|
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Total assets |
444,578 | |||||||||||||||||||||||||||
|
|
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Liabilities |
||||||||||||||||||||||||||||
Segment liabilities |
47,451 | 8,072 | 11,709 | 6,308 | 1 | | 73,541 | |||||||||||||||||||||
Short-term borrowings |
20,202 | |||||||||||||||||||||||||||
Current tax liabilities |
676 | |||||||||||||||||||||||||||
Long term borrowings |
14,384 | |||||||||||||||||||||||||||
Deferred tax liabilities |
15,172 | |||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Total liabilities |
123,975 | |||||||||||||||||||||||||||
|
|
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Additions to property, plant and equipments |
1,946 | 12,945 | 10,696 | 27,550 | | | 53,137 |
F-72
b. For the year ended March 31, 2010
Copper | Zinc India |
Aluminum | Power | Others | Elimination | Total | ||||||||||||||||||||||
(Rs. in millions) |
||||||||||||||||||||||||||||
Revenue |
||||||||||||||||||||||||||||
Sales to external customers |
130,608 | 79,434 | 28,289 | 6,572 | | | 244,903 | |||||||||||||||||||||
Inter-segment sales |
| | 78 | 1,472 | | (1,550 | ) | | ||||||||||||||||||||
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Segment revenue |
130,608 | 79,434 | 28,367 | 8,044 | (1,550 | ) | 244,903 | |||||||||||||||||||||
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Results |
||||||||||||||||||||||||||||
Segment profit |
5,120 | 47,124 | 5,499 | 4,160 | (8 | ) | | 61,895 | ||||||||||||||||||||
Depreciation and amortisation |
(1,982 | ) | (3,053 | ) | (2,310 | ) | (715 | ) | (1 | ) | (8,061 | ) | ||||||||||||||||
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Operating profit |
3,138 | 44,071 | 3,189 | 3,445 | (9 | ) | 53,834 | |||||||||||||||||||||
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Finance and other costs |
214 | |||||||||||||||||||||||||||
Investment and other income |
13,811 | |||||||||||||||||||||||||||
Share in consolidated profit of associate |
2,051 | |||||||||||||||||||||||||||
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|
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Profit before tax |
69,910 | |||||||||||||||||||||||||||
Income Tax expense |
(13,247 | ) | ||||||||||||||||||||||||||
|
|
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Profit for the year |
56,663 | |||||||||||||||||||||||||||
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|
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Assets and liabilities |
||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||
Segment assets |
47,256 | 82,859 | 68,119 | 77,134 | 335 | 275,703 | ||||||||||||||||||||||
Investment in associate |
4,621 | 4,621 | ||||||||||||||||||||||||||
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|
|
|||||||||||||||
47,256 | 82,859 | 68,119 | 77,134 | 4,956 | 280,324 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Financial assets investments |
1,362 | |||||||||||||||||||||||||||
Short-term investments |
211,022 | |||||||||||||||||||||||||||
Cash and cash equivalent |
2,082 | |||||||||||||||||||||||||||
Loan to related parties |
111,404 | |||||||||||||||||||||||||||
Current tax asset |
660 | |||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Total assets |
606,854 | |||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Liabilities |
||||||||||||||||||||||||||||
Segment liability |
41,526 | 10,324 | 9,485 | 12,013 | 1 | 73,349 | ||||||||||||||||||||||
Short-term borrowings |
19,121 | |||||||||||||||||||||||||||
Current tax liabilities |
863 | |||||||||||||||||||||||||||
Long term borrowings |
21,352 | |||||||||||||||||||||||||||
Convertible notes |
22,226 | |||||||||||||||||||||||||||
Deferred tax liabilities |
17,955 | |||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Total liabilities |
154,866 | |||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Additions to property, plant and equipment |
3,759 | 23,949 | 15,969 | 25,074 | | 68,751 |
F-73
c. For the year ended March 31, 2011
Copper | Zinc India |
Zinc International |
Aluminum | Power | Other | Elimination | Total | Total | ||||||||||||||||||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||||||||||||||||||||
Revenue |
||||||||||||||||||||||||||||||||||||
Sales to external customers |
156,610 | 98,444 | 9,961 | 30,175 | 7,282 | | | 302,472 | 6,791.0 | |||||||||||||||||||||||||||
Inter-segment sales |
| | | 70 | 486 | | (556 | ) | | | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Segment revenue |
156,610 | 98,444 | 9,961 | 30,245 | 7,768 | | (556 | ) | 302,472 | 6,791.0 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Results |
||||||||||||||||||||||||||||||||||||
Segment profit |
11,247 | 55,343 | 4,247 | 5,866 | 3,354 | (61 | ) | | 79,996 | 1,796.0 | ||||||||||||||||||||||||||
Depreciation and amortisation |
(2,049 | ) | (4,429 | ) | (2,655 | ) | (2,371 | ) | (917 | ) | (1 | ) | | (12,422 | ) | (278.9 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Operating profit |
9,198 | 50,914 | 1,592 | 3,495 | 2,437 | (62 | ) | | 67,574 | 1,517.1 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Finance and other costs |
1,096 | 24.6 | ||||||||||||||||||||||||||||||||||
Investment and other income |
21,933 | 492.4 | ||||||||||||||||||||||||||||||||||
Share in consolidated loss of associate |
(3,082 | ) | (69.2 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Profit before tax |
87,521 | 1,964.9 | ||||||||||||||||||||||||||||||||||
Income Tax expense |
(18,810 | ) | (422.3 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Profit for the year |
68,711 | 1,542.6 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Assets and liabilities |
||||||||||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||||||
Segment assets |
74,923 | 91,541 | 77,827 | 86,026 | 98,582 | 1,924 | | 430,823 | 9,672.7 | |||||||||||||||||||||||||||
Investment in associate |
1,879 | 1,879 | 42.2 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
74,923 | 91,541 | 77,827 | 86,026 | 98,582 | 3,803 | | 432,702 | 9,714.9 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Financial assets investments |
1,233 | 27.7 | ||||||||||||||||||||||||||||||||||
Short-term investments |
203,111 | 4,560.2 | ||||||||||||||||||||||||||||||||||
Cash and cash equivalent including restricted cash |
21,526 | 483.3 | ||||||||||||||||||||||||||||||||||
Loan to related parties |
87,705 | 1,969.1 | ||||||||||||||||||||||||||||||||||
Current tax asset |
827 | 18.6 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Total assets |
747,104 | 16,773.8 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Liabilities |
||||||||||||||||||||||||||||||||||||
Segment liability |
57,177 | 9,310 | 10,780 | 12,652 | 15,049 | 21 | | 104,989 | 2,357.1 | |||||||||||||||||||||||||||
Short-term borrowings |
37,948 | 852.0 | ||||||||||||||||||||||||||||||||||
Current tax liabilities |
2,356 | 53.0 | ||||||||||||||||||||||||||||||||||
Long term borrowings |
33,637 | 755.2 | ||||||||||||||||||||||||||||||||||
Convertible notes |
19,922 | 447.3 | ||||||||||||||||||||||||||||||||||
Deferred tax liabilities |
28,226 | 633.7 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Total liabilities |
227,078 | 5,098.3 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||||
Additions to property, plant and equipment |
6,028 | 13,315 | 309 | 19,472 | 16,720 | | | 55,844 | 1,253.8 |
F-74
Geographical Segment Analysis
The Companys operations are primarily located in India. The following table provides an analysis of the Companys sales by geographical market irrespective of the origin of the goods:
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
India |
140,330 | 155,218 | 187,454 | 4,208.7 | ||||||||||||
Other |
71,862 | 89,685 | 115,018 | 2,582.3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
212,192 | 244,903 | 302,472 | 6,791.0 | |||||||||||||
|
|
|
|
|
|
|
|
The following is an analysis of the carrying amount of non-current assets, being property, plant and equipment, intangible assets and leasehold prepayments analysed by the geographical area in which the assets are located:
As at March 31 | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
Carrying amount |
Carrying amount |
Carrying amount |
||||||||||
(Rs. in millions) |
(US dollars in millions) |
|||||||||||
India |
226,435 | 272,070 | 6,108.4 | |||||||||
Australia |
660 | 681 | 15.3 | |||||||||
South Africa |
26,480 | 594.5 | ||||||||||
Namibia |
26,164 | 587.4 | ||||||||||
Ireland |
12,287 | 275.9 | ||||||||||
UAE |
754 | 784 | 17.6 | |||||||||
|
|
|
|
|
|
|||||||
227,849 | 338,466 | 7,599.1 | ||||||||||
|
|
|
|
|
|
F-75
33. Related party transactions
The Companys subsidiaries as at March 31, 2011 are as follows:
Subsidiaries |
Principal activities |
The Companys percentage holding (in % as at March 31, 2011) |
Immediate holding |
Immediate percentage holding (in % as at March 31, 2011) | ||||
BALCO | Aluminium mining and smelting | 51 | Sterlite | 51 | ||||
CMT | Copper mining | 100 | Monte Cello | 100 | ||||
Fujairah Gold FZE | Precious metal processing | 100 | CMT | 100 | ||||
HZL | Zinc mining and smelting | 64.9 | SOVL | 64.9 | ||||
Monte Cello | Holding Company | 100 | SIIL | 100 | ||||
Sterlite Energy | Energy generation | 100 | SIIL | 100 | ||||
SOVL | Special purpose vehicle for acquiring HZL | 100 | SIIL | 100 | ||||
SIL | Infrastructure projects and Holding company | 100 | SIIL | 100 | ||||
TCM | Copper mining | 100 | Monte Cello | 100 | ||||
Sterlite (USA) | Financing company | 100 | SIIL | 100 | ||||
TSPL | Energy generation | 100 | Sterlite Energy | 100 | ||||
THL Zinc Ventures Limited # | Investment company | 100 | SIL | 100 | ||||
THL Zinc Limited # | Investment company | 100 | THLZVL | 100 | ||||
THL Zinc Holding BV (w.e.f. 15th February 2011) | Investment company | 100 | SIL | 100 | ||||
Skorpion ## | Mining and exploration | 100 | THLZL | 100 | ||||
Skorpion Zinc (Pty) Ltd ## | Investment company | 100 | Skorpion | 100 | ||||
Skorpion Mining Company (Pty) Ltd ## | Zinc mining | 100 | Skorpion Zinc (Pty) Ltd | 100 | ||||
Namzinc (Pty) Ltd ## | Zinc refinery | 100 | Skorpion Zinc (Pty) Ltd | 100 | ||||
Amica Guesthouse (Pty) Ltd ## | Accommodation and catering services | 100 | Skorpion Zinc (Pty) Ltd | 100 | ||||
Rosh Pinah Health Care (Pty) Ltd ## | Leasing out of medical equipment and building and conducting services related thereto | 69 | Skorpion Zinc (Pty) Ltd | 69 | ||||
BMM (w.e.f. 4th February 2011) | Zinc mining and milling | 74 | THLZL | 74 | ||||
Lisheen ### | Investment company | 100 | THLZBV | 100 | ||||
Vedanta Base Metals (Ireland) Limited ### | No operations | 100 | Lisheen | 100 | ||||
Vedanta Lisheen Mining Limited ### | Zinc mining and milling | 100 | Lisheen | 100 | ||||
Killoran Lisheen Mining Limited ### | Zinc mining and milling | 100 | Lisheen | 100 | ||||
Killoran Lisheen Finance Limited ### | Investment company | 100 | Lisheen | 100 | ||||
Lisheen Milling Limited ### | Manufacturing of zinc & lead | 100 | Lisheen | 100 | ||||
Killoran Concentrates Limited ### | No operations | 100 | Lisheen | 100 | ||||
Killoran Lisheen Limited ### | No operations | 100 | Lisheen | 100 | ||||
Azela Limited ### | No operations | 100 | Killoran Lisheen Limited | 100 |
F-76
Killoran Lisheen Holdings Limited ### | No operations | 100 | Killoran Lisheen Limited | 100 | ||||
Malco Power Company Limited (w.e.f. 19th February 2011, fellow subsidiary from 16th April 2010 to 18th February 2011) | Investment company | 100 | SIIL | 100 | ||||
Malco Industries Limited (w.e.f. 4th March 2011, fellow subsidiary from 22nd April 2010 to 3rd March 2011) | Investment company | 100 | SIIL | 100 | ||||
VGCB (w.e.f. 20th April 2010) | Infrastructure | 74 | SIIL | 74 | ||||
PMCBPL (w.e.f. 8th February 2011) | Infrastructure | 74 | SIIL | 74 | ||||
Pecvest 17 Proprietary Limited (w.e.f. 26th November 2010) | Investment company | 100 | THLZL | 100 | ||||
Lisheen Mine Partnership (w.e.f. 15th February 2011) ** | Mining partnership firm | 100 | Vedanta Base Metals (Ireland) Limited and Vedanta Lisheen Mining Limited | 100 | ||||
THL Zinc Holding Cooperatief U.A. (w.e.f. 1st December 2010) ** | Financing company | 100 | THLZL | 100 |
# | (w.e.f. 19th November 2010) |
## | (w.e.f. 3rd December 2010) |
### | (w.e.f. 15th February 2011) |
** | Entities registered as other than Corporate entity. |
The Company owns directly or indirectly through subsidiaries, more than half of the voting power of all of its subsidiaries as mentioned in the list above, and the Company is able to govern its subsidiaries financial and operating policies so as to benefit from their activities.
Ultimate controlling party
As at March 31, 2011, the immediate parent of the Company is Twin Star Holding Limited and the ultimate controlling party of the Company is Volcan Investments Limited (Volcan), which is controlled by persons related to the Non executive chairman, Mr. Anil Agarwal. Volcan, which is incorporated in the Bahamas, does not produce Group financial statement.
Enterprises where the principal shareholders have control or significant influence
| Vedanta Resources plc (Vedanta) |
| Twin Star Holdings Limited (Twin Star) |
F-77
| The Madras Aluminium Company Limited (MALCO) |
| Vedanta Resources Holding Limited (VRHL) |
| Vedanta Jersey Investments Limited (VJIL) |
| Welter Trading Limited (WTL) |
| Sterlite Iron and Steel Company Limited (SISCL) |
| Sterlite Technologies Limited (STL) |
| Konkola Copper Mines plc (KCM) |
| Monte Cello Corporation NV (MCNV) |
| Sterlite Foundation |
| Anil Agarwal Foundation |
| Vedanta Medical Research Foundation (VMRF) |
| Political and Public Awareness Trust (PPAT) |
| Volcan Investments Limited (Volcan) |
| Vedanta Resource Cyprus Limited |
| Sesa Goa Limited (Sesa Goa) |
| Sesa Industries Limited (Sesa Industries) |
| Twinstar Infrastructure Limited |
| Sesa Resources Limited (formerly V S Dempo and Company Private Limited) |
| Sesa Mining Corporation Private Limited ( formerly Dempo Mining Corporation Private Limited ) |
Fellow subsidiary cum associate
Vedanta Aluminium Limited (Vedanta Aluminium)
Key managerial personnel
| Mr. Anil Agarwal, Non executive chairman |
| Mr. Navin Agarwal, Executive vice-chairman |
| Mr. Tarun Jain, Director of finance |
| Mr. D. D. Jalan, Chief Financial Officer (w.e.f. 31 March 2011) and Whole time director |
| Mr. M. S. Mehta, Chief Executive Officer (w.e.f. 31 March 2011) |
F-78
The Company enters into transactions in the normal course of business with its related parties, including its parent Vedanta, and its subsidiaries and companies over which it has significant influence. A summary of significant related party transactions for the year ended March 31, 2009, 2010 and 2011 is noted below.
The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year. The significant transactions relate to the normal sale and purchase of goods and loans and investments. All inter-company transactions and balances are eliminated on consolidation.
For the year ended March 31, | ||||||||||||||||
2009 | 2010 | 2011 | 2011 | |||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Sales |
||||||||||||||||
STL |
4,467 | 1,579 | 1,495 | 33.6 | ||||||||||||
MALCO |
3 | 1 | 2 | 0.0 | ||||||||||||
IFL |
549 | | | | ||||||||||||
Vedanta Aluminium |
1,613 | 1,249 | 461 | 10.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
6,632 | 2,829 | 1,958 | 44.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Purchases of goods/services |
||||||||||||||||
STL |
4 | 1 | 238 | 5.3 | ||||||||||||
Sesa Industries |
30 | 39 | 68 | 1.5 | ||||||||||||
Sesa Goa |
2 | 11 | 8 | 0.2 | ||||||||||||
Vedanta Aluminium |
4,354 | 3,029 | 4,396 | 98.7 | ||||||||||||
KCM |
111 | 710 | 3,839 | 86.2 | ||||||||||||
MALCO |
31 | 184 | 401 | 9.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
4,532 | 3,974 | 8,950 | 200.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Rent income |
||||||||||||||||
Vedanta Aluminium |
12 | 21 | 35 | 0.8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
12 | 21 | 35 | 0.8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest income / (Finance costs) |
||||||||||||||||
Vedanta |
(10 | ) | (21 | ) | (32 | ) | (0.7 | ) | ||||||||
Vedanta Aluminium |
528 | 3,676 | 6,757 | 151.7 | ||||||||||||
KCM |
156 | 211 | 45 | 1.0 | ||||||||||||
MCNV |
(653 | ) | ||||||||||||||
VRHL |
| | (41 | ) | (0.9 | ) | ||||||||||
VJIL |
| | 111 | 2.5 | ||||||||||||
WTL |
| | 42 | 0.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
21 | 3,866 | 6,882 | 154.5 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Dividend paid |
||||||||||||||||
MALCO |
(102 | ) | (90 | ) | (96 | ) | (2.1 | ) | ||||||||
Twin star |
(1,615 | ) | (1,440 | ) | (1,722 | ) | (38.7 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
(1,717 | ) | (1,530 | ) | (1,818 | ) | (40.8 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Management fees expenses |
||||||||||||||||
Vedanta |
(230 | ) | (237 | ) | (228 | ) | (5.1 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
(230 | ) | (237 | ) | (228 | ) | (5.1 | ) | ||||||||
|
|
|
|
|
|
|
|
F-79
Loans given/(repaid) during the year |
||||||||||||||||
Vedanta Aluminium |
11,450 | 94,550 | 45,000 | 1,010.3 | ||||||||||||
Vedanta Aluminium |
| (6,850 | ) | (68,650 | ) | (1,541.3 | ) | |||||||||
KCM |
3,931 | 2,298 | (6,983 | ) | (156.8 | ) | ||||||||||
VJIL |
| | 7,023 | 157.7 | ||||||||||||
VJIL WTL |
|
|
|
|
|
|
|
(3,923 4,558 |
)
|
|
(88.1 102.3 |
)
| ||||
|
|
|
|
|
|
|
|
|||||||||
Total |
15,381 | 89,998 | (22,975 | ) | (515.9 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loan taken/(repaid) during the year |
||||||||||||||||
MCNV |
(3,037 | ) | (570 | ) | | | ||||||||||
VRHL |
| | 15,738 | 353.3 | ||||||||||||
VRHL |
| | (10,838 | ) | (243.3 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
(3,037 | ) | (570 | ) | 4,900 | 110.0 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Guarantees outstanding given / (taken)** |
||||||||||||||||
Vedanta Aluminium |
35,838 | 48,386 | 46,384 | 1,041.4 | ||||||||||||
Vedanta |
(8,662 | ) | (7,674 | ) | (6,407 | ) | (143.8 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
27,176 | 40,712 | 39,977 | 897.6 | ||||||||||||
Donations |
||||||||||||||||
Sterlite Foundation |
| 33 | 44 | 1.0 | ||||||||||||
VMRF |
| | 435 | 9.8 | ||||||||||||
PPAT |
| | 1 | 0.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
| 33 | 480 | 10.8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Purchase of property, plant and equipment |
||||||||||||||||
Vedanta Aluminium |
(81 | ) | (78 | ) | (40 | ) | (0.9 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
(81 | ) | (78 | ) | (40 | ) | (0.9 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Investment (purchased)/redeemed during the year |
||||||||||||||||
Vedanta Aluminium*** |
(2,658 | ) | 13,342 | | |
** | Maximum guarantee amount and does not represent actual liability. |
*** | Also refer Note 10. |
F-80
The significant receivables from and payables to related parties as at March 31, 2010 and March 31, 2011 are set out below:
As at March 31, | ||||||||||||
2010 | 2011 | 2011 | ||||||||||
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
||||||||||
Receivable from: |
||||||||||||
STL |
196 | 344 | 7.8 | |||||||||
Vedanta Aluminium |
634 | 837 | 18.8 | |||||||||
VJIL |
| 23 | 0.5 | |||||||||
WTL |
| 42 | 0.9 | |||||||||
MALCO |
7 | 10 | 0.2 | |||||||||
KCM |
| 11 | 0.2 | |||||||||
Sesa Goa |
10 | 11 | 0.2 | |||||||||
Twin Star |
| | | |||||||||
Anil Agarwal Foundation |
2 | 1 | | |||||||||
Sesa Resources |
2 | 2 | 0.1 | |||||||||
Sesa Mining Corporation |
1 | 2 | 0.1 | |||||||||
VMRF |
205 | | | |||||||||
SISCL |
| 12 | 0.3 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,057.0 | 1,295 | 29.1 | |||||||||
|
|
|
|
|
|
|||||||
Loans to: |
||||||||||||
Vedanta Aluminium* |
104,599 | 80,204 | 1,800.7 | |||||||||
KCM |
6,805 | | | |||||||||
WTL |
| 4,465 | 100.2 | |||||||||
VJIL |
| 3,036 | 68.2 | |||||||||
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Total |
111,404 | 87,705 | 1,969.1 | |||||||||
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Payable to: |
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STL |
7 | 65 | 1.5 | |||||||||
Vedanta Aluminium |
263 | 1,202 | 27.0 | |||||||||
Vedanta |
875 | 655 | 14.7 | |||||||||
MALCO |
22 | 11 | 0.3 | |||||||||
VRHL |
| 41 | 0.9 | |||||||||
KCM |
49 | 10 | 0.2 | |||||||||
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Total |
1,216 | 1,984 | 44.6 | |||||||||
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Borrowings from: |
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VRHL |
| 4,845 | 108.8 | |||||||||
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Total |
| 4,845 | 108.8 | |||||||||
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* | Includes interest accrued and due of Rs 596 million and Rs 814 million ($ 18.3 million) as at March 31, 2010 and 2011 respectively. |
Terms and conditions of transactions with related parties
The sales to and purchases from related parties are made in ordinary course of business There have been no guarantees provided or received for any related party receivables or payables. For the year ended March 31 2011, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (2010 and 2011: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
Loan to associates
The loan granted to Vedanta Aluminium is intended to finance its planned capital expenditures. The loan is unsecured. The loan balance as at March 31, 2011 amounting to Rs. 79,390 and interest is charged at bank rate (as declared by Reserve Bank of India RBI) plus 2% on a loan of Rs. 8,890 million (with a tenure of 10 years) and at 8% on Rs. 45,000 million and 10% on Rs. 25,500 million (repayable within a period of one year).
Loan to fellow subsidiary
The Company has granted a loan to VJIL to finance general corporate purpose. The loan balance as at March 31, 2011 of Rs 3,036 million ($68.2 million) carries an interest rate of 2.25% per annum and is unsecured. This loan is repayable in March 2012.
F-81
The Company has granted a loan to WTL to finance general corporate purpose. The loan balance as at March 31, 2011 of Rs 4,465 million ($100.2 million) carries an interest rate of 2.25% per annum and is unsecured. This loan is repayable in November 2011.
Loan from fellow subsidiary
THLZL has taken short-term borrowing from VRHL to fund the acquisition of BMM amounting to $348.5 million. The loan bears interest of LIBOR plus 200 basis points and repayable within one year. As at March 31, 2011, the balance due under this loan was Rs. 4,845 million ($108.8 million). This loan is unsecured.
Remuneration of key management personnel
The remuneration of the key management personnel of the Company are set out below in aggregate for each of the categories specified in IAS 24 Related party disclosures.
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Short-term employee benefits |
140 | 111 | 133 | 3.0 | ||||||||||||
Post employment benefits |
11 | 11 | 16 | 0.4 | ||||||||||||
Share based payments |
19 | 30 | 33 | 0.7 | ||||||||||||
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170 | 152 | 182 | 4.1 | |||||||||||||
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34. Other notes
(a) Components of other comprehensive income
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Net gain/(loss) arising during the year |
220 | (619 | ) | 251 | 5.6 | |||||||||||
Reclassification adjustments for net gain/(loss) included in the statement of income |
178 | 740 | (348 | ) | (7.7 | ) | ||||||||||
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Net gain/(loss) on cash flow hedges recognised in other comprehensive income, net of tax |
398 | 121 | (97 | ) | (2.1 | ) | ||||||||||
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(b) Exchange (loss)/gain recognised in statement of income:
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||
Other operating income |
141 | 51 | 32 | 0.7 | ||||||||||||
Cost of sales |
(783 | ) | (368 | ) | 420 | 9.4 | ||||||||||
Investment and other income |
2,881 | (1,997 | ) | 788 | 17.6 | |||||||||||
Finance and other costs |
(2,785 | ) | 3,395 | 746 | 16.7 | |||||||||||
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Total |
(546 | ) | 1,081 | 1,986 | 44.4 | |||||||||||
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F-82
(c). The Company presents the consolidated statement of income by disclosing expenses by function. The statement of income disclosing expenses by nature is presented below:
CONSOLIDATED STATEMENTS OF INCOME
(Indian Rupees in millions except share or per share amounts unless otherwise stated)
For the year ended March 31, | Notes | 2009 | 2010 | 2011 | 2011 | |||||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions) |
|||||||||||||||||
Revenue |
5 | 212,192 | 244,903 | 302,472 | 6,791.0 | |||||||||||||||
Other operating income |
3,750 | 1,907 | 2,366 | 53.1 | ||||||||||||||||
Investment and other income |
6 | 18,772 | 13,811 | 21,933 | 492.4 | |||||||||||||||
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|||||||||||||
Total Income |
234,714 | 260,621 | 326,771 | 7,336.5 | ||||||||||||||||
(Decrease)/increase in inventories of finished goods and work-in-progress |
(2,983 | ) | 1,994 | 4,947 | 111.1 | |||||||||||||||
Raw materials and other consumables used |
(147,876 | ) | (168,635 | ) | (209,334 | ) | (4,699.9 | ) | ||||||||||||
Employee costs |
(7,706 | ) | (8,903 | ) | (11,896 | ) | (267.1 | ) | ||||||||||||
Costs associated with ASARCO [refer note 31] |
| (2,735 | ) | | | |||||||||||||||
Other costs |
(6,263 | ) | (6,636 | ) | (8,559 | ) | (192.2 | ) | ||||||||||||
Depreciation and amortisation |
(8,024 | ) | (8,061 | ) | (12,422 | ) | (278.9 | ) | ||||||||||||
Finance and other costs |
7 | (6,244 | ) | 214 | 1,096 | 24.6 | ||||||||||||||
Share in consolidated (loss)/profit of associate |
10 | (3,160 | ) | 2,051 | (3,082 | ) | (69.2 | ) | ||||||||||||
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Profit before tax |
52,458 | 69,910 | 87,521 | 1,964.9 | ||||||||||||||||
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Income tax expense |
8 | (7,782 | ) | (13,247 | ) | (18,810 | ) | (422.3 | ) | |||||||||||
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Profit for the year |
44,676 | 56,663 | 68,711 | 1,542.6 | ||||||||||||||||
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(d). Employee costs
For the year ended March 31, | 2009 | 2010 | 2011 | 2011 | ||||||||||||
(Rs. in millions) |
(Rs. in millions) |
(Rs. in millions) |
(US dollars in millions |
|||||||||||||
Salaries, wages and bonus |
7,206 | 7,935 | 9,540 | 214.2 | ||||||||||||
Defined contribution pension scheme costs |
334 | 395 | 510 | 11.4 | ||||||||||||
Defined benefit pension scheme costs |
166 | 339 | 1,278 | 28.7 | ||||||||||||
Voluntary retirement expenses |
0 | 234 | 568 | 12.8 | ||||||||||||
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|||||||||
7,706 | 8,903 | 11,896 | 267.1 | |||||||||||||
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F-83
35. Subsequent Events
There have been no material events other than disclosed in this financial statement after reporting date which would require disclosure or adjustments to the financial statements for the year ended March 31, 2011.
F-84
Exhibit 4.56
29th March 2009,
Vedanta Resources Plc
Hill House, 1 Little New Street,
London
Re: Consent for extension of Management Consultancy and Representative office fees agreement dated 29th March 2005.
Dear Sirs,
We would like to draw your attention to the Management Consultancy Agreement for US$ 3 Million and Representative Office Fees for US$ 2 Million between Sterlite Industries India Limited and Vedanta Resources Plc dated 29th March 2005 originally valid till 31st March 2009
The matter is deliberated with SIIL Management and is proposed to extend the contracts for Management Consultancy and Representative Office for a further period of three years.
We convey our acceptance for extension of existing contracts on the same terms and conditions.
We request you to please confirm the same.
For Sterlite Industries India Limited
Vinod Bhandawat
Chief Financial Officer
We convey our acceptance on the existing terms to above extension for a period of three years i.e. from 1st April 2009 to 31st March 2012.
For Vedanta Resources Plc
/s/ D D Jalan
D D Jalan
Chief Financial Officer
Exhibit 4.57
Dated 01 April 2010
(1) Vedanta Resources plc
(2) Sterlite Industries (India) Ltd
OUTSOURCING SERVICES AGREEMENT
Speechly Bircham LLP
6 New Street Square
London
EC4A 3LX
Tel: +44 (0)20 7427 6400
Fax: +44 (0)20 7427 6600
Ref MAB
Doc 8537306v1
Contents
Page | ||||||
1. | Interpretation |
1 | ||||
2. | Services |
2 | ||||
3. | Use of Premises, Equipment and Third Party Products |
2 | ||||
4. | Customers assistance |
3 | ||||
5. | Service charges and payments |
3 | ||||
6. | Assignments and subcontracting |
4 | ||||
7. | Intellectual property rights |
4 | ||||
8. | Confidentiality |
5 | ||||
9. | Customer data |
5 | ||||
10. | Term of this agreement |
6 | ||||
11. | Force majeure |
6 | ||||
12. | Termination for cause |
6 | ||||
13. | Termination without cause |
7 | ||||
14. | Consequences of termination |
7 | ||||
15. | Waiver |
7 | ||||
16. | Severability |
7 | ||||
17. | Partnership or agency |
7 | ||||
18. | Third party rights |
8 | ||||
19. | Notices |
8 | ||||
20. | Entire agreement |
8 | ||||
21. | Governing law and jurisdiction |
8 |
AGREEMENT dated 01 April 2010
PARTIES
(1) | Vedanta Resources plc (Reg No. 04740415) whose registered office is at 2nd Floor, Vintners Place, 68 Upper Thames Street, London EC4V 3BJ (the Customer) |
(2) | Sterlite Industries (India) Ltd whose registered office is at SIPCOT Industrial Complex, T.V Puram Post, Madurai By Pass Road, Tuticorin-628002, Tamilnadu |
RECITALS
The Customer wishes to receive from the Service Provider complete accounting function services and the Service Provider hereby agrees to provide such services on the terms of this agreement.
OPERATIVE PART
1. | INTERPRETATION |
1.1 | In this agreement (which expression includes the recitals, the schedules and any attachments hereto) the following words and phrases shall, unless the context otherwise requires, have the following meanings: |
Commencement Date: 1st April 2010
Equipment: equipment provided by the Customer for the provision of the Services by the Service Provider from time to time;
Intellectual Property: property in which intellectual property rights of whatever nature (including but not limited to patents, trade marks, database rights and present and future copyright) subsist and, where the context so admits, includes such intellectual property rights;
Services: such accounting, treasury and related services as the Customer may request the Service Provider to provide from time to time to the customer and to its subsidiary companies as the customer may direct.
Service Charges: has the meaning given in clause 5.1;
VAT: value added tax.
1.2 | The headings in this agreement do not affect its interpretation. Save where the context otherwise requires, references to sub-clauses, clauses and schedules are to sub-clauses, clauses and schedules of this agreement. |
1.3 | Unless the context otherwise requires: |
1.3.1 | references to the Customer and the Service Provider include their permitted successors and assigns; |
1
1.3.2 | references to statutory provisions include those statutory provisions as amended or re-enacted; and |
1.3.3 | references to any gender include all genders and use of the singular includes the plural and vice versa. |
1.4 | In the case of conflict or ambiguity between any provision contained in the body of this agreement and any provision contained in any schedule, the provision in the body of this agreement shall take precedence. |
2. | SERVICES |
2.1 | The Service Provider will provide the Services to the Customer with effect from the Commencement Date and for the duration of this agreement in accordance with the provisions of this agreement. |
2.2 | The Service Provider will provide the Services: |
2.2.1 | with reasonable skill and care using personnel who possess a degree of skill and experience which is appropriate to the tasks to which they are allotted; |
2.2.2 | at the times requested by the Customer; |
2.2.3 | in compliance with such standards, law and regulations as may apply to the Customer or be notified to the Service Provider from time to time; and |
2.2.4 | in accordance with such service levels as the parties may agree from time to time. |
2.3 | The Service Provider will comply (and will procure that its employees, agents and sub-contractors comply) with all of the Customers policies that apply to the Services, including any security and health and safety policies, in each case as the same are in force from time to time and are notified to the Service Provider. |
3. | USE OF PREMISES, EQUIPMENT AND THIRD PARTY PRODUCTS |
3.1 | Premises |
3.2 | Service provider will use its on premises or any of its subsidiary to provide the said services to the customer. |
3.3 | Equipment |
3.3.1 | The Customer will allow to persons duly authorised by the Service Provider such use of the Equipment as is reasonably required for the purpose of providing the Services. Authorisation procedures will be agreed between the Customer and the Service Provider from time to time. The Service Provider shall use the Equipment for the purpose of providing the Services only. |
2
3.3.2 | The Service Provider shall use the Equipment with all reasonable skill and care and hereby indemnifies the Customer against all and any damage to the Equipment caused by persons using the same with the Service Providers authorisation. |
3.4 | Licences |
3.4.1 | The Customer hereby grants to the Service Provider, with effect from the Commencement Date for the duration of this agreement, a non-exclusive royalty-free licence to use, operate, copy and modify the Customers Intellectual Property for the purpose only of fulfilling the Service Providers obligations under this agreement. |
3.4.2 | The parties shall co-operate to obtain the consents of third parties to the use by the Service Provider of any third party software, documentation and other materials (Third Party Products) (including, without limitation, software and know-how) which: |
(a) the Customer is permitted to use; and
(b) is required by the Service Provider for the provision of the Services.
The service provider will seek to obtain necessary consent from customer to purchase necessary software to use to provide services. The Service Provider shall assume all liability to third parties in respect of its use of any Third Party Products in accordance with clause 3.3.2 as from the Commencement Date and shall indemnify the Customer against all costs, claims, damages or expenses arising from the Service Providers failure to adhere to the terms and conditions of agreements between the Customer and such third parties in respect of such Third Party Products.
4. | CUSTOMERS ASSISTANCE |
The Customer shall at its own expense execute all documents and do all acts and things reasonably required by the Service Provider to give effect to the terms of this agreement and shall provide access to all information and documentation which is within its possession which is reasonably required by the Service Provider to enable the Service Provider to fulfil its obligations.
5. | SERVICE CHARGES AND PAYMENTS |
5.1 | In consideration of the provision of the Services by the Service Provider, the Customer shall pay to the Service Provider the charges rendered for the Services (the Service Charges). The Services shall be provided by the Service Provider to the Customer at cost plus 25% margin, accordingly total charges for FY 2010-11 which will be $200,000 p.a. and same will be revised every year mutually. |
5.2 | On or after the tenth day of each quarter calendar month during the term of this agreement the Service Provider shall submit to the Customer an invoice correctly |
3
rendered, together with all necessary substantiating documentation which is reasonably required by the Customer, setting out the sum (if any) owing by the Customer to the Service Provider in respect of the Services provided in the previous calendar month.
5.3 | The Customer shall pay such invoice within [30] days of the date of receipt by the Customer of (i) the said invoice or (ii) (if later) documentation substantiating the said invoice in such form as is reasonably required by the Customer. The customer can also authorise service provider to adjust the intercompany balances as and when required. |
5.4 | The Service Provider reserves the right to increase the Service Charges, provided that such charges cannot be increased more than once in any 12 month period. The service charges can be increased with mutual consent. |
6. | ASSIGNMENTS AND SUBCONTRACTING |
Except as expressly set out in this agreement, neither party shall be entitled to give, bargain, sell, assign, let or otherwise dispose of any or all of its rights and obligations under this agreement without the prior written consent of the other party, neither may the Service Provider subcontract the whole or any part of its obligations under this agreement except with the express prior written consent of the Customer, such consent not to be unreasonably withheld.
7. | INTELLECTUAL PROPERTY RIGHTS |
7.1 | In the absence of prior written agreement by the Customer to the contrary, all Intellectual Property created by the Service Provider or any employee, agent or subcontractor of the Service Provider: |
7.1.1 | in the course of performing the Services; or |
7.1.2 | exclusively for the purpose of performing the Services, |
shall vest in the Customer upon creation
7.2 | The Service Provider assigns to the Customer, with full title guarantee and free from all third party rights, all Intellectual Property arising from the performance of the Services and shall obtain waivers of all moral rights in respect of such Intellectual Property to which any individual is now or may be at any future time entitled under Chapter IV of Part I of the Copyright, Designs and Patents Act 1988 or any similar provisions of law in any jurisdiction. |
7.3 | The Service Provider shall, promptly at the Customers request, do (or procure to be done) all such further acts and things and the execution of all such other documents as the Customer may from time to time require for the purpose of securing for the Customer the full benefit of this agreement, including all right, title and interest in and to the Intellectual Property assigned to the Customer in accordance with this clause 7. |
4
8. | CONFIDENTIALITY |
Except as required by law both parties shall procure that all confidential information disclosed by one party to the other in accordance with this agreement or which may at any time until termination of this agreement come into the other partys knowledge, possession or control shall not be used for any purposes other than those required or permitted by this agreement and shall remain confidential and shall not be disclosed to any third party except insofar as this may be required for the proper operation of this agreement and then only under appropriate confidentiality provisions approved by the other party. For the purposes of this agreement information relating to the business of the Customer, its business systems, business processes and client and supplier lists are hereby deemed to be confidential information. These obligations of confidentiality shall cease to apply to any particular item of confidential information once it becomes public knowledge other than by any act or default of either party.
9. | CUSTOMER DATA |
9.1 | The Service Provider shall take all necessary steps to ensure that data or information belonging to the Customer which comes into its possession or control in the course of providing the Services is protected in accordance with the Vedanta group IT security policy and in particular the Service Provider shall not: |
9.1.1 | use the data or information nor reproduce the data or information in whole or in part in any form except as may be required by this agreement; or |
9.1.2 | disclose the data or information to any third party or persons not authorised by the Customer to receive it, except with the prior written consent of the Customer; or |
9.1.3 | alter, delete, add to or otherwise interfere with the data or information (save where expressly required to do so by the terms of this agreement). |
9.2 | To the extent that any data or information belonging to the Customer is personal data within the meaning of the Data Protection Act 1998: |
9.2.1 | the Service Provider will process such data and information only in accordance with the Customers instructions; |
9.2.2 | the Service Provider will not transmit such data and information to a country or territory outside the European Economic Area without the Customers express consent; and |
9.2.3 | the Service Provider will take such technical and organisational measures against unauthorised or unlawful processing of such data and information and against accidental loss or destruction of, or damage to, such data and information as are appropriate to the Customer as data controller. |
5
10. | TERM OF THIS AGREEMENT |
This agreement shall continue in full force and effect for a period commencing on the date hereof and ending on the day immediately preceding the first anniversary of the Commencement Date (both dates inclusive) unless either (1) previously terminated by either party in accordance with the termination provisions set out below or (2) both parties agree to extend the terms of the agreement.
11. | FORCE MAJEURE |
11.1 | Subject to due compliance with clause 11.2 and clause 11.3, neither party shall be liable to the other for any delay or non-performance of its obligations under this agreement arising from any cause or causes beyond its reasonable control including, without limitation, any of the following: act of God, governmental act, war, fire, flood, explosion or civil commotion. |
11.2 | In the event of either party being so delayed or prevented from performing its obligations such party shall: |
11.2.1 | give notice in writing of such delay or prevention to the other party as soon as reasonably possible stating the commencement date and extent of such delay or prevention, the cause thereof and its estimated duration; |
11.2.2 | use all reasonable endeavours to mitigate the effects of such delay or prevention upon the performance of its obligations under this agreement; and |
11.2.3 | resume performance of its obligations as soon as reasonably possible after the removal of the cause of the delay or prevention. |
11.3 | If the Service Provider is prevented from performing its obligations by an event of force majeure for more than eight weeks, the Customer may terminate this agreement immediately by notice to the Service Provider. |
12. | TERMINATION FOR CAUSE |
12.1 | This agreement may be terminated for cause in whole by either party in the following circumstances: |
12.1.1 | by either party with immediate effect from service on the other of written notice if the other party is in breach of any material obligation under this agreement and, if the breach is capable of remedy, that party fails to remedy such breach within 28 days of receipt of notice so to do; |
12.1.2 | by either party with immediate effect from the date of service on the other of written notice if a resolution is passed or an order is made for the winding up of the other (otherwise than for the purpose of solvent amalgamation or reconstruction) or the other becomes subject to an administration order or a receiver or administrative receiver is appointed over or an encumbrancer takes possession of any of the others property or Equipment; |
6
12.1.3 | by either party with immediate effect from the date of service on the other party of written notice if the other party ceases or threatens to cease to carry on business; or |
12.1.4 | an event occurs or proceeding is taken with respect to the other party in any jurisdiction to which it is subject that has an effect equivalent or similar to any of the events mentioned in clauses 12.1.2 and 12.1.3. |
12.2 | If this agreement is terminated by the Customer for cause such termination shall be at no loss or cost to the Customer and the Service Provider hereby indemnifies the Customer against any such losses or costs which the Customer may suffer as a result of any such termination for cause. |
13. | TERMINATION WITHOUT CAUSE |
The Customer may terminate this agreement at any time by giving three months written notice to the Service Provider.
14. | CONSEQUENCES OF TERMINATION |
14.1 | If this agreement is terminated in whole or in part for any reason the Service Provider shall co-operate fully with the Customer to ensure an orderly migration of the Services to the Customer or, at the Customers request, a new service provider. |
14.2 | On termination of this agreement the Service Provider shall procure that all data and other material belonging to the Customer (and all media of any nature containing information and data belonging to the Customer) shall be delivered to the Customer forthwith. |
15. | WAIVER |
No forbearance or delay by either party in enforcing its respective rights will prejudice or restrict the rights of that party, and no waiver of any such rights or of any breach of any contractual terms will be deemed to be a waiver of any other right or of any later breach. In particular, but without limitation to the generality of the foregoing, any prior acceptance or approval communicated by the Customer to the Service Provider in respect of the Services or any omission on the part of the Customer to communicate such prior acceptance or approval shall not relieve the Service Provider of its obligations to deliver the Services in accordance with the provisions of this agreement.
16. | SEVERABILITY |
If any of the provisions of this agreement is judged to be illegal or unenforceable, the continuation in full force and effect of the remainder of them will not be prejudiced.
17. | PARTNERSHIP OR AGENCY |
Nothing in this agreement shall be construed as constituting a partnership between the parties or as constituting either party as the agent of the other for any purpose whatsoever except as specified by the terms of this agreement.
7
18. | THIRD PARTY RIGHTS |
No term of this agreement is intended to confer a benefit on, or to be enforceable by, any person who is not a party to this agreement.
19. | NOTICES |
Notices shall be in writing, and shall be sent to the other party at the address set out for such party in this agreement. Notices may be delivered personally or sent by first-class mail or facsimile transmission provided that facsimile transmissions are confirmed within 24 hours by first-class mailed confirmation of a copy. Notices delivered personally shall be deemed to have been delivered immediately when left at the correct address. Correctly addressed sent by first-class mail shall be deemed to have been delivered 72 hours after posting and correctly directed facsimile transmissions shall be deemed to have been received instantaneously on transmission provided that they are confirmed as set out above.
20. | ENTIRE AGREEMENT |
This agreement, the schedules and the documents annexed to it or otherwise referred to in it contain the whole agreement between the parties relating to the Services and supersede all prior agreements, arrangements and understandings between the parties relating to that subject matter.
21. | GOVERNING LAW AND JURISDICTION |
This agreement and any disputes or claims arising out of or in connection with it, its subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed in accordance with Indian law and submitted to the non-exclusive jurisdiction of the Courts at India.
EXECUTED under hand in two originals the day and year first before written
Signed by Mr M S Mehta | /s/ M S Mehta | |||
for and on behalf of Vedanta Resources plc | Director | |||
Signed by Mr D D Jalan | /s/ D D Jalan | |||
for and on behalf of Sterlite Industries (India) Ltd | Director |
8
Exhibit 4.58
Dated 9 May 2010
ANGLO OPERATIONS LIMITED
and
TAURUS INTERNATIONAL S.A.
and
ANGLO SOUTH AFRICA CAPITAL (PTY) LTD
and
ANGLO AMERICAN SERVICES (UK) LIMITED
and
WELTER TRADING LIMITED
and
VEDANTA RESOURCES PLC
SHARE PURCHASE AGREEMENT
relating to the sale of the companies comprising
the Anglo American zinc division
Linklaters
Linklaters LLP
One Silk Street
London EC2Y 8HQ
Telephone (+44) 20 7456 2000
Facsimile (+44) 20 7456 2222
Ref L-172833
Share Purchase Agreement
This Agreement is made on 9 May 2010 between:
(1) | ANGLO OPERATIONS LIMITED, a company incorporated in South Africa with registration number 1921/006730/06, whose registered office is at 44 Main Street, Johannesburg, 2001, South Africa (the BMM Seller); |
(2) | TAURUS INTERNATIONAL S.A., a company incorporated in Luxembourg with registration number B.53603, whose registered office is at 48 Rue de Bragance, L-1255 Luxembourg, Grand Duchy of Luxembourg (the Lisheen Seller); |
(3) | ANGLO SOUTH AFRICA CAPITAL (PTY) LTD, a company incorporated in South Africa with registration number 1999/002391/07, whose registered office is at 44 Main Street, Johannesburg, 2001, South Africa (the Namibia Seller and together with the BMM Seller and the Lisheen Seller, the Sellers and any one a Seller); |
(4) | ANGLO AMERICAN SERVICES (UK) LIMITED, a company incorporated in England whose registered office is at 20 Carlton House Terrace, London SW1Y 5AN (the Sellers Guarantor); |
(5) | WELTER TRADING LIMITED, a company incorporated in Cyprus, whose registered office is at 205, 28th Oktovriou Avenue, Louloupis Court, 1st Floor, P.C. 3035, Limassol, Cyprus (the Purchaser); and |
(6) | VEDANTA RESOURCES PLC, a company incorporated in England, whose registered office is at 16 Berkeley Street, London W1J 8DZ (the Purchasers Guarantor). |
It is agreed as follows:
1 | Interpretation |
In this Agreement, unless the context otherwise requires, the provisions in this Clause 1 apply:
1.1 | Definitions |
Accounts Date means 31 December 2009;
Acquired Companies means the Group Companies which have at the relevant time been subject to a Completion and Acquired Company means any one of them;
Affected Areas means (i) in relation to BMM, those areas shown in Schedule 18 as being attributable to the Black Mountain Mining Licence, the Gamsberg Mining Licence, the Aroams 57 Portion 1 Prospecting Licence and the Rozynbosch 41 Portion 2 Prospecting Licence and (ii) in relation to the Namibia Sale Group all those areas shown in Schedule 18;
Agreed Rate means 8 per cent per annum;
Agreed Terms means, in relation to a document, such document in the terms agreed between the Sellers and the Purchaser and signed for identification by the Purchaser and the Sellers with such alterations as may be agreed in writing between the Sellers and the Purchaser from time to time;
Agreement means this Agreement, including its Schedules;
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Anglo means Anglo American plc, a company incorporated in England, whose registered office is at 20 Carlton House Terrace, London SW1Y 5AN;
Anglo Medical Aid Trust means the Anglo Medical Scheme, established as a restricted membership scheme in terms of the Medical Schemes Act, No 131 of 1998 (as amended) of South Africa;
Anglo Pension Trust means the Anglo American Corporation Retirement Fund, a defined contribution fund established in terms of the Pension Funds Act, No. 24 of 1956 (as amended) of South Africa;
Anglo Rehabilitation Trust means the Anglo Coal and Base Metals Environmental Rehabilitation Trust Masters Reference Number It7767;
Anglo Share Schemes means the Anglo Bonus Share Plan and the Anglo Long Term Incentive Plan;
Anglo Shares means ordinary shares in Anglo;
Anglo Trusts means the Anglo Medical Aid Trust, the Anglo Pension Trust and the Anglo Rehabilitation Trust and Anglo Trust means any one of them;
Anti-Trust Conditions means (i) in respect of BMM Completion, the conditions set out in sub-paragraphs 1.8.3, 1.8.4 and 1.8.5 of Schedule 5 (ii) in respect of Lisheen Completion, the conditions set out in sub-paragraph 3.1.2 and 3.1.3 of Schedule 6 and (iii) in respect of Namibia Completion, the conditions set out in sub-paragraphs 2.1.2, 2.1.3 and 2.1.4 of Schedule 7;
Audited Accounts means the audited statutory financial statements (balance sheet, income statement and notes to the accounts and, where required, consolidated balance sheet and income statement) of the Group Companies for the twelve month period ended on the Accounts Date;
Black Mountain Division means the Black Mountain mining division of BMM;
Black Mountain Shareholders Agreement means the agreement between the BMM Seller, Exxaro Base Metals (Pty) Ltd (formerly known as Kumba Base Metals), Exxaro Resources Limited (formerly known as Kumba Resources) and BMM set out in the Shareholders Arrangements Terms and Conditions, forming Appendix D to the Black Mountain Option Agreement dated 11 September 2006 between those aforementioned parties as amended from time to time;
BMM means Black Mountain Mining (Pty) Ltd, a company incorporated in South Africa with registration number 2005/040096/07, whose registered office is at 44 Main Street, Johannesburg, 2001, further details of which are set out in Part I of Schedule 2;
BMM Accrued Transaction Bonus Amount means a Specified Transaction Bonus Amount or a General Transaction Bonus Amount which is paid by or on behalf of a BMM Group Company after the Locked Box Date and prior to Completion;
BMM Articles of Association means the articles of association of BMM, as amended from time to time;
BMM Assets means the assets of the Black Mountain Division of BMM, as set out in paragraph 6.1 of Schedule 5 and BMM Asset means any one of them;
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BMM Business Day means a day which is not a Saturday, a Sunday or a public holiday in South Africa;
BMM Claims means any rights held by the BMM Seller against BMM in respect of its holding of BMM Shares and any rights accruing to the BMM Seller under the Black Mountain Shareholders Agreement but excluding any Intra-Group Payables or Intra-Group Receivables or any BMM Dividend;
BMM Completion means the Completion of the sale of the BMM Shares;
BMM Completion Date means the date on which the BMM Completion takes place;
BMM Completion Statement has the meaning given in paragraph 5 of Schedule 5;
BMM Conditions means the delivery by the BMM Seller to the Purchaser of a Free to Sell Notice pursuant to paragraph 1.4 of Schedule 5 and the conditions set out in paragraph 1.8 of Schedule 5;
BMM Dividend means any dividend or distribution in respect of the BMM Shares paid by BMM to the BMM Seller after the Locked Box Date and prior to the BMM Completion Date or declared in favour of the BMM Seller after the Locked Box Date and prior to the BMM Completion Date and which remains due and payable following the BMM Completion;
BMM Enterprise Value means US$448.2 million;
BMM Indebtedness means the aggregate amount of the BMM Payables minus the aggregate amount of the BMM Receivables;
BMM Interest Amount has the meaning set out in paragraph 3.1 of Schedule 5;
BMM Leakage Adjustment has the meaning set out in paragraph 3.1.5 of Schedule 5;
BMM Long Stop Date means the date falling 12 months after the date of this Agreement or such later date (being no later than 15 months after the date of this Agreement) as the BMM Seller may notify the Purchaser in writing as being the BMM Long Stop Date;
BMM Payables means all outstanding Indebtedness owed by BMM to a member of the Sellers Group as at the BMM Completion Date;
BMM Receivables means all outstanding Indebtedness owed by a member of the Sellers Group to BMM as at the BMM Completion Date;
BMM Share Consideration has the meaning set out in paragraph 3 of Schedule 5;
BMM Share Value has the meaning set out in paragraph 3.1.1 of Schedule 5;
BMM Shares means the shares held by the BMM Seller in BMM, as set out opposite the name of the BMM Seller in Schedule 1;
BMM Shareholder Loan means the BMM Payable representing Indebtedness owed by BMM to the BMM Seller as a shareholder loan which, at the date of this Agreement, amounts to approximately US$93.1 million;
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Books and Records means all books of account, ledgers, general, financial, accounting and personnel records, files, customers and suppliers lists, sales, advertising and promotional literature and customer and supplier correspondence, whether held in paper form or by electronic means, exclusively relating to the Group Companies and portions of all such types of records that primarily relate to the Group Companies but do not exclusively relate to the Group Companies;
Business Day means a day which is not a Saturday, a Sunday or a public holiday in England or Belgium;
Business Plans means the business plans made available in the Data Room;
Companies means the companies, details of which are set out in Schedule 2 and Company means any one of them;
Completion means, in respect of the BMM Shares, Lisheen Shares or Namibia Shares, the completion of the sale and purchase of those Shares pursuant to Clause 6;
Completion Date means the BMM Completion Date, the Lisheen Completion Date or the Namibia Completion Date, as the case may be;
Conditions means the Anti-Trust Conditions, the BMM Conditions, the Lisheen Condition or the Namibia Conditions, as the case may be;
Confidentiality Agreement means the confidentiality agreement dated 28 January 2010 between Anglo American plc and the Purchaser pursuant to which certain confidential information relating to the Group was made available to the Purchaser;
Consultancy Agreement means an agreement, other than a contract of employment with a Group Company, pursuant to which a Consultant provides services;
Consultant means an individual providing services to a Group Company pursuant to a Consultancy Agreement on an annual fee (on the basis of a full time consultancy) in excess of ZAR 987,500, 100,000 and N$610,000 in the case of BMM, the Lisheen Group Entities and the Namibia Group Companies respectively;
CTA 2010 means the Corporation Tax Act 2010 of the United Kingdom;
Data Room means the data room containing documents and information relating to the Group made available by the Seller online at https://datasite.merrillcorp.com with the project names Zambezi and Zambezi II and provided on CD disk on the date of this Agreement, the contents of which are listed in Schedule 8 to the Disclosure Letters;
Disclosure Letters means the letters dated the same date as this Agreement from the Sellers to the Purchaser disclosing:
(i) | information constituting exceptions to the Sellers Warranties; and |
(ii) | details of other matters referred to in this Agreement; |
Disclosed Namibia Dividend means the dividend in the amount of US$27.2 million paid to the Namibia Seller on or around 24 March 2010;
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Encumbrance means any claim, charge, mortgage, lien, option, equity, power of sale, hypothecation, usufruct, retention of title, right of pre-emption, right of first refusal or other third party right or security interest of any kind or an agreement, arrangement or obligation to create any of the foregoing;
Environment, Environmental Law, Environmental Matters, Environmental Authority and Environmental Permit have the meanings given to them in paragraph 10.1 of Schedule 13;
ERM means Environmental Resources Management Limited;
ERM Reports means the ERM Project Zambezi Social and Sustainability Due Diligence Assessment: Black Mountain Mining (Pty) Ltd and Gamsburg Mine dated 5 March 2010, the ERM Project Zambezi Social and Sustainability Due Diligence Assessment: Lisheen Zinc and Lead Mine dated 5 March 2010 and the ERM Project Zambezi Social and Sustainability Due Diligence Assessment: Skorpion Mining Company (Pty) Ltd and Namzinc (Pty) Ltd together presenting Skorpion Zinc, Rosh Pinah, Namibia dated 5 March 2010;
Escrow Agreement means the escrow agreement to be entered into between Anglo American Lisheen Finance Limited, certain employee representatives and Citibank, N.A., London Branch substantially in the form of the version in Schedule 20 with such changes as agreed between the parties thereto and consented to by the Purchaser, such consent not to be unreasonably withheld or delayed;
Exploration Data means all prospecting, exploration, geophysical, geochemical and geological information and data in whatever form and related matter (including samples, sub-samples, rawdata, statistical analyses, formulae, plans, notes, diagrams, photographs, internal and external reports, models, geological and geophysical maps, survey plans, borehole locality plans and sample locality plans);
Fairly Disclosed means disclosed in sufficient detail to enable a prospective purchaser (acting with that degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from an experienced person acting in good faith) to make a reasonable assessment of the impact on any Group Company of the matter in question;
Free to Sell Notice has the meaning given in paragraph 1.4 of Schedule 5;
Gamsberg Assets means the assets of the Gamsberg Division of BMM, as set out in paragraph 6.1 of Schedule 5 and Gamsberg Asset means any one of them;
General Transaction Bonus Amount has the meaning given to it in paragraph 11 of Schedule 8;
Gergarub Transfer Agreement has the meaning given in paragraph 1.6.1 of Schedule 7;
Good Industry Practice means the exercise of that degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from a skilled and experienced person acting in good faith and carrying out the same type of activity under the same or equivalent circumstances and acting in accordance with all applicable laws but without the benefit of any recourse under this Agreement;
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Governmental Authority means any multinational, national, federal, state, provincial or local governmental or regulatory or supervisory authority or entity or body or any subdivision thereof, including, without limitation, any agency, instrumentality, division, department, court or other body thereof;
Group means the Group Companies, taken as a whole;
Group Companies means the Companies and the Subsidiaries and Group Company means any one of them;
Group Retirement Benefit Arrangements has the meaning given to it in paragraph 7.7.1 of Schedule 13;
Hazardous Substances has the meaning given to it in paragraph 10.1 of Schedule 13;
HFM Management Accounts means the unaudited management accounts relating to each of the Zinc Mining Businesses contained in the Data Room comprising (i) the profit and loss and cash flow for each of the monthly periods ending on: (a) 31 January 2010; (b) 28 February 2010; and (c) the Management Accounts Date and (ii) the balance sheet as at each of such previously referred to dates in each case at document references Anglo Zinc 1.41.10 to 1.41.32 respectively in the Data Room;
IFRS means the body of pronouncements issued by the International Accounting Standards Board, including the International Financial Reporting Standards and interpretations approved by the International Accounting Standards Board and International Accounting Standards and interpretations approved by the Board of the predecessor International Accounting Standards Committee;
Implementation Agreement means the implementation agreement to be entered into between Anglo American Lisheen Finance Limited, certain employee representatives, Anglo American Services (UK) Limited and Deloitte LLP substantially in the form of the version in Schedule 21 with such changes as agreed between the parties thereto and consented to by the Purchaser, such consent not to be unreasonably withheld or delayed;
Indebtedness means, in relation to any person, all loans or other financing liabilities or obligations, including but not limited to overdrafts and any other liabilities of a funding nature together with interest accrued thereon, excluding, for the avoidance of doubt, any debts that have been factored without recourse but including any factoring with recourse in effect as at close of business on the relevant Completion Date and excluding trading debt or liabilities arising in the ordinary course of business and any dividend in respect of any of the Shares which has been declared but which remains due and payable and excluding any amount in respect of Tax;
Information Memorandum means the information memorandum dated February 2010 containing certain information relating to the Group and made available to the Purchaser by certain members of the Sellers Group;
Information Technology means computer systems, communication systems, software and hardware which at or before Completion are used primarily in relation to, and are material for, the business of the Group;
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Intellectual Property means trade marks, service marks, trade names, domain names, logos, get-up, patents, inventions, registered and unregistered design rights, copyrights, semi-conductor topography rights, database rights and all other similar rights in any part of the world (including Know-how) including, where such rights are obtained or enhanced by registration, any registration of such rights and applications and rights to apply for such registrations;
Intra-Group Indebtedness means the aggregate amount of the relevant Intra-Group Payables minus the aggregate amount of the relevant Intra-Group Receivables;
Intra-Group Payables means all outstanding Indebtedness owed by BMM, the Lisheen Group Entities or the Namibia Group Companies (as the case may be) to a member of the Sellers Group as at the relevant Completion Date, including, for the avoidance of doubt, interest accrued in respect thereof in accordance with the terms of such Indebtedness to the extent not already paid;
Intra-Group Payables Assignment Agreement means the debt assignment agreement on terms reasonably satisfactory to the relevant parties thereto to be entered into on the relevant Completion between relevant members of the Sellers Group ,if appropriate, members of the Group and the Purchaser in relation to the assignment of the Intra-Group Payables (other than the Lisheen Group Payables);
Intra-Group Receivables means all outstanding Indebtedness owed by a member of the Sellers Group to BMM, the Lisheen Group Entities or the Namibia Group Companies (as the case may be) as at the relevant Completion Date including, for the avoidance of doubt, interest accrued in respect thereof in accordance with the terms of such Indebtedness to the extent not already received;
Ireland means Ireland (excluding Northern Ireland) and Irish shall be construed accordingly;
Irish GAAP means FRSs, SSAPs, the rulings and abstracts of the Urgent Issues Task Force of the Accounting Standards Board Limited and guidelines, conventions, rules and procedures of accounting practice in Ireland which are regarded as permissible by the Accounting Standards Board Limited;
Know-how means confidential and proprietary industrial and commercial information and techniques in any form including (without limitation) drawings, formulae, test results, reports, project reports and testing procedures, instruction and training manuals, tables of operating conditions, market forecasts, lists and particulars of customers and suppliers;
Leakage means, in relation to the Unsold Group:
(i) | any dividend or distribution of profits or assets declared, paid or made by any Group Company to any of the Sellers or any member of the Sellers Group or to any person for the benefit of any of the Sellers or any member of the Sellers Group (other than, in any such case, to or for the benefit of a member of the same Sale Group as such Group Company); |
(ii) | any payments of any kind made or agreed to be made (including management charges or monitoring fees or bonuses of any nature) or any assets transferred by any Group Company to any of the Sellers or any member of the Sellers Group or to any person for the benefit of any of the |
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Sellers or any member of the Sellers Group (other than, in any such case, to or for the benefit of a member of the same Sale Group as such Group Company); |
(iii) | any liabilities that have been or have agreed to be assumed, indemnified or incurred (including a liability to make any dividend, distribution or payment referred to in sub-paragraph (i) or (ii)) by any Group Company for the benefit of any of the Sellers or any member of the Sellers Group (other than a member of the same Sale Group as such Group Company), other than a liability to the extent it is discharged or terminated on or prior to the relevant Completion Date without any prior payment thereunder having been made or any obligation to make a payment thereunder having arisen prior to such date which obligation is not also discharged or terminated (without payment by any Group Company) on or prior to the relevant Completion Date pursuant to agreements or arrangements entered into prior to the Completion Date; |
(iv) | any payments made or agreed to be made by any Group Company to any of the Sellers or any member of the Sellers Group (other than a member of the same Sale Group as such Group Company) in respect of any share capital or other securities of any Group Company being issued, redeemed, purchased or repaid, or any other return of capital; |
(v) | the waiver or agreement to waive by any Group Company of any amount owed to that Group Company by any of the Sellers or any member of the Sellers Group (other than a member of the same Sale Group as such Group Company); |
(vi) | any assets or rights transferred or agreed to be transferred by any Group Company to any of the Sellers or any member of the Sellers Group (other than a member of the same Sale Group as such Group Company); |
(vii) | any Encumbrance created over any of the assets of any Group Company in favour of or for the benefit of any of the Sellers or any member of the Sellers Group (other than a member of the same Sale Group as such Group Company) other than an Encumbrance which is discharged in full on or prior to the relevant Completion Date without any prior payment thereunder having been made or any obligation to make a payment thereunder having arisen prior to such date; and |
(viii) | any Seller Transaction Costs, |
but does not include any Permitted Leakage;
LIBOR means the British Bankers Association Interest Settlement Rate for three month US dollars displayed on the appropriate page of the Reuters screen (or such other page as the Parties may agree) at 11.00 a.m. (London time) on the first day of the period to which any interest rate relates (the Relevant Date). If such rate does not appear on the Reuters screen page on the Relevant Date, the rate for that Relevant Date will be determined on the basis of the rates at which deposits for three month US dollars are offered by Barclays Bank at 11.00 a.m. (London time) at the Relevant Date to leading banks in the London interbank market for amounts of US$1 million;
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Lisheen Accrued Transaction Bonus Amount means a Specified Transaction Bonus Amount or a General Transaction Bonus Amount which is paid by or on behalf of a Lisheen Group Entity after the Locked Box Date and prior to Completion;
Lisheen Business Day means a day which is not a Saturday, a Sunday or a public holiday in Ireland;
Lisheen Completion means the Completion of the sale of the Lisheen Shares;
Lisheen Completion Date means the date on which the Lisheen Completion takes place;
Lisheen Completion Statement has the meaning given in paragraph 4 of Schedule 6;
Lisheen Condition means the conditions set out in paragraph 3.1 of Schedule 6;
Lisheen Escrow Account means the account established with Citibank, N.A., London Branch as escrow agent for the purposes of administering the Lisheen Escrow Fund;
Lisheen Escrow Amount means approximately US$37.2 million;
Lisheen Escrow Fund means the amount standing to the credit of the Lisheen Escrow Account from time to time;
Lisheen Group Entities means the Group Companies and the partnership set out in Part II of Schedule 2 and Lisheen Group Entity shall mean any one of them;
Lisheen Indebtedness means the aggregate amount of the Lisheen Payables minus the aggregate amount of the Lisheen Receivables;
Lisheen Interest Amount has the meaning set out in paragraph 2.1 of Schedule 6;
Lisheen Leakage Adjustment has the meaning set out in paragraph 2.1.4 of Schedule 6;
Lisheen Long Stop Date means the date falling six months after the date of this Agreement or such later date (being no later than nine months after the date of this Agreement) as the Lisheen Seller may notify the Purchaser in writing as being the Lisheen Long Stop Date;
Lisheen Payables means all outstanding Indebtedness owed by a Lisheen Group Entity to a member of the Sellers Group as at the Lisheen Completion Date;
Lisheen Receivables means all outstanding Indebtedness owed by a member of the Sellers Group to a Lisheen Group Entity as at the Lisheen Completion Date;
Lisheen Sale Group means the Lisheen Group Entities taken as a whole;
Lisheen Share Consideration has the meaning set out in paragraph 2.1 of Schedule 6;
Lisheen Share Value has the meaning set out in paragraph 2.1.1 of Schedule 6;
Lisheen Shares means all the issued share capital of Anglo American Lisheen Finance Limited, as set out opposite the name of the Lisheen Seller in Schedule 1;
Locked Box Date means 31 December 2009;
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Losses means all losses, liabilities, costs (including, without limitation, legal costs and experts and consultants fees), charges, expenses, actions, proceedings, claims and demands;
Management Accounts Date means 31 March 2010;
Management Presentation means the presentation by the management of the Group and certain of the Group Companies relating to the business of the Group given at the Hilton Hotel, Sandton, Johannesburg on 26 March 2010;
Material Intellectual Property means all rights and interests held by the Group Companies in Intellectual Property (whether as owner or licensee), which at or immediately before Completion is used primarily in relation to the business of the Group and which is material to the business of the Group but excluding, for the avoidance of doubt, any Exploration Data;
Namibia Accrued Transaction Bonus Amount means a Specified Transaction Bonus Amount or a General Transaction Bonus Amount which is paid by or on behalf of a Namibia Group Company after the Locked Box Date and prior to Completion;
Namibia Business Day means a day which is not a Saturday, a Sunday or a public holiday in Namibia or South Africa;
Namibia Community Trust means the Anglo Skorpion Trust/Foundation constituted under the terms of a Notarial Deed of Trust dated 10 June 2009;
Namibia Completion means the Completion of the sale of the Namibia Shares;
Namibia Completion Date means the date on which the Namibia Completion takes place;
Namibia Completion Statement has the meaning given in paragraph 3 of Schedule 7;
Namibia Conditions means the conditions set out in paragraph 2 of Schedule 7;
Namibia Dividend means any dividend or distribution paid in respect of the Namibia Shares to the Namibia Seller after the Locked Box Date and prior to the Namibia Completion Date or declared in favour of the Namibia Seller after the Locked Box Date and prior to the Namibia Completion Date but which remains due and payable following the Namibia Completion Date;
Namibia Group Companies means the Group Companies set out in Part III of Schedule 2 and Namibia Group Company shall mean any one of them;
Namibia Indebtedness means the aggregate amount of the Namibia Payables minus the aggregate amount of the Namibia Receivables;
Namibia Ingots means zinc ingots produced by any of the Namibia Group Companies;
Namibia Interest Amount has the meaning set out in paragraph 1.3.2 of Schedule 7;
Namibia Leakage Adjustment has the meaning set out in paragraph 1.3.4 of Schedule 7;
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Namibia Long Stop Date means the date falling six months after the date of this Agreement or such later date (being no later than nine months after the date of this Agreement) as the Namibia Seller may notify the Purchaser in writing as being the Namibia Long Stop Date;
Namibia Payables means all outstanding Indebtedness owed by a Namibia Group Company to a member of the Sellers Group as at the Namibia Completion Date;
Namibia Receivables means all outstanding Indebtedness owed by a member of the Sellers Group to a Namibia Group Company as at the Namibia Completion Date;
Namibia Sale Group means the Namibia Group Companies taken as a whole;
Namibia Share Consideration has the meaning set out in paragraph 1.3 of Schedule 7;
Namibia Share Value has the meaning set out in paragraph 1.3.1 of Schedule 7;
Namibia Shares means all the issued share capital of AngloBase Namibia Holdings (Pty) Ltd, as set out opposite the name of the Namibia Seller in Schedule 1;
Other BMM Shareholders means the shareholders, from time to time, of BMM, other than the BMM Seller;
Permitted Leakage means any matter set out in Schedule 8;
Properties means the properties set out in Schedule 3 and Property means any one of them;
Prospecting Licences means the prospecting licences granted to the BMM Seller in respect of:
(i) | Portion 2 of the farm Rozynbosch No.41, District of Namaqualand, Northern Cape Province, South Africa; and |
(ii) | Portion 1 of the farm Aroams No.57, District of Namaqualand, Northern Cape Province, South Africa; |
Purchasers Group means the Purchaser and its subsidiary undertakings from time to time which, for the avoidance of doubt, shall from the relevant Completion Date include BMM, the Lisheen Group Entities and the Namibia Group Companies (as the case may be);
Purchasers Guaranteed Obligations has the meaning given in Clause 15;
Purchaser Rehabilitation Vehicle has the meaning given in Clause 5.1 of Schedule 11;
Purchasers Medical Aid Scheme has the meaning given in Schedule 11;
Q and A Schedule means the question and answer schedule in Schedule 7 to the Disclosure Letters;
Relevant Accounting Standards means (i) IFRS in respect of BMM and AngloBase Namibia Holdings Pty Limited and (ii) Irish GAAP in respect of Anglo American Lisheen Finance Limited;
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Relevant Companies means, in respect of any Completion, those Group Companies which are the direct or indirect subject of that Completion;
Relevant Consideration means the BMM Share Consideration, the Lisheen Share Consideration or the Namibia Share Consideration, as the case may be;
Relevant Employees means those employees of the Group employed by a Group Company immediately prior to Completion and Relevant Employee means any one of them;
Relevant Individuals means Relevant Pensioners and Relevant Post-Completion Employees;
Relevant Pensioners means those pensioners of BMM outlined in Schedule 5 to the Disclosure Letters;
Relevant Post-Completion Employees means employees who were Relevant Employees immediately prior to the BMM Completion;
Reliefs has the meaning given to it in the Tax Indemnity;
Sale Group means, as the context so requires, BMM, the Lisheen Sale Group or the Namibia Sale Group;
Seller Transaction Costs means any costs and expenses incurred on or after the Locked Box Date by the Group Companies to the extent incurred for the purposes of the sale of the Shares contemplated by this Agreement (including, without limiting the foregoing, legal and other advisers costs or bonuses payable as a result of any Completion) that are paid or become payable by or on behalf of any Group Company to or on behalf of any of the Sellers or any member of the Sellers Group (other than a member of the same Sale Group as such Group Company) but, for the avoidance of doubt, does not include:
(i) | any costs and expenses incurred in connection with the employment of Relevant Employees to the extent they have not been increased by reference to the sale of the Shares contemplated by this Agreement; |
(ii) | any costs and expenses of the Group Companies to the extent they arise or are increased as a direct or indirect consequence of the sale of the Shares contemplated by this Agreement unless such costs and expenses arise under any agreement or arrangement to which a Group Company is a party which is or has been entered into, prior to the relevant Completion, outside of the ordinary course of business of such Group Company and in connection with the sale of the Shares contemplated by this Agreement; |
(iii) | any Tax, stamp duties, notarial fees, registration or transfer taxes or duties or their equivalents in any jurisdiction; |
Sellers Group means Anglo and its subsidiaries from time to time (excluding, if applicable, any Acquired Companies or (for the purposes of the definitions of Intra-Group Payables and Intra-Group Receivables) those Group Companies which at the Completion Date are the subject of a Completion);
Sellers Lawyers means Linklaters LLP of One Silk Street, London EC2Y 8HQ;
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Sellers Warranties means the warranties given by the Sellers pursuant to Clause 11 and Schedule 13 and Sellers Warranty means any one of them excluding, for the avoidance of doubt, the Gergarub Warranty;
Senior Employee means any employee employed or engaged in relation to the Group with the title/level of general manager or a manager (or the organisation equivalent by whatever title) directly reporting to the general manager;
Shares means the BMM Shares, the Lisheen Shares or the Namibia Shares, as the case may be;
Shared Exploration Data means all exploration, geophysical, geological and geochemical information and data whether in electronic or document form derived within the Affected Areas;
Skorpion Trust Amendment Agreement means the amendment agreement to be entered into between Skorpion Mining Company (Proprietary) Limited, Namzinc (Proprietary) Limited and others relating to the rebranding of the Namibia Community Trust;
Sold Group means such part of the Group which, at the relevant time, has been subject to a Completion;
Specified Transaction Bonus Amounts means the sum or sums potentially payable to any of the Specified Transaction Bonus Employees referred to in the Disclosure Letters as well as any Tax withholdings properly paid or payable in respect of such sum or sums;
Specified Transaction Bonus Employees means those Relevant Employees identified as receiving Specified Transaction Bonus Amounts as referred to in the Disclosure Letters and Specified Transaction Bonus Employee shall mean any one of them;
Subsidiaries means the companies and the partnership listed in Schedule 2 and Subsidiary means any one of them but excluding (i) after the Lisheen Long Stop Date, any Lisheen Group Entity in respect of which Lisheen Completion has not taken place; and (ii) after the Namibia Long Stop Date, any Namibia Group Company in respect of which Namibia Completion has not taken place;
Taxation or Tax has the meaning given to it in the Tax Indemnity;
Tax Authority has the meaning given to it in the Tax Indemnity;
Tax Indemnity means the deed of covenant against Taxation in the Agreed Terms to be entered into on the first Completion to occur after the date of this Agreement;
Transaction means the proposed acquisition of the BMM Shares, the Lisheen Shares and the Namibia Shares and related matters provided for in this Agreement;
Transaction Bonus Amount means a Specified Transaction Bonus Amount or a General Transaction Bonus;
Transaction Bonus Employees means those Relevant Employees receiving Transaction Bonus Amounts and Transaction Bonus Employee shall mean any one of them;
Unsold Group means such part of the Group which, at the relevant time, has not been subject to a Completion;
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VAT means within the European Union such Tax as may be levied in accordance with (but subject to derogations from) Directive 2006/112/EC and outside the European Union any Taxation levied by reference to added value or sales;
Zinc Asset Transfer Agreement means the agreement to be entered into between Ambase Prospecting (Namibia) (Proprietary) Limited and Skorpion Mining Company (Proprietary) Limited;
Zinc Mining Businesses means the zinc mining operations of the Lisheen Sale Group, BMM and the Namibia Sale Group; and
Zinc Specific Third Party Contracts has the meaning given to it in paragraph 6.6 of Schedule 13.
1.2 | Rights and Liabilities of the Sellers |
Each Seller shall only have rights and liabilities (including in relation to payment) under or in relation to a breach of this Agreement or the Tax Indemnity:
1.2.1 | to the extent that those rights and liabilities or the relevant breach relate to or affect the Shares (including the relevant underlying Group Companies or their business(es)) agreed to be sold by it under this Agreement or otherwise arise in connection with the sale of those Shares to the Purchaser; and |
1.2.2 | on a several basis. |
1.3 | Modification etc. of Statutes |
References to a statute or statutory provision include:
1.3.1 | that statute or provision as from time to time modified, re-enacted or consolidated whether before or after the date of this Agreement; |
1.3.2 | any past statute or statutory provision (as from time to time modified, re-enacted or consolidated) which that statute or provision has directly or indirectly replaced; and |
1.3.3 | any subordinate legislation made from time to time under that statute or statutory provision which is in force at the date of this Agreement, |
except to the extent that any statute, statutory provision or subordinate legislation made or enacted after the date of this Agreement would create or increase a liability of a Seller or reduce its or their respective rights under this Agreement.
1.4 | Singular, plural, gender |
References to one gender include all genders and references to the singular include the plural and vice versa.
1.5 | References to persons and companies |
References to:
1.5.1 | a person include any company, partnership or unincorporated association (whether or not having separate legal personality); and |
1.5.2 | a company include any company, corporation or any body corporate, wherever incorporated. |
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1.6 | References to subsidiaries and holding companies |
The words holding company, subsidiary and subsidiary undertaking shall have the same meaning in this Agreement as their respective definitions in the Companies Act 2006.
1.7 | Connected Persons |
A person shall be deemed to be connected with another if that person is connected with such other within the meaning of Section 1122 and 1123 of CTA 2010.
1.8 | Accounts |
Any reference to audited statutory financial statements shall include the directors and auditors reports, relevant balance sheets and profit and loss accounts and related notes together with all documents which are or would be required by law to be annexed to the accounts of the company concerned to be laid before that company in general meeting in respect of the accounting reference period in question.
1.9 | Schedules etc. |
References to this Agreement shall include any Recitals and Schedules to it and references to Clauses and Schedules are to Clauses of, and Schedules to, this Agreement. References to paragraphs and Parts are to paragraphs and Parts of the Schedules.
1.10 | Headings |
Headings shall be ignored in interpreting this Agreement.
1.11 | Information |
References to books, records or other information mean books, records or other information in any form including paper, electronically stored data, magnetic media, film and microfilm.
1.12 | Legal Terms |
References to any English legal term shall, in respect of any jurisdiction other than England, be construed as references to the term or concept which most nearly corresponds to it in that jurisdiction.
1.13 | Non-limiting effect of words |
The words including, include, in particular and words of similar effect shall not be deemed to limit the general effect of the words that precede them.
1.14 | References to Completion |
Where this Agreement refers to circumstances or events at Completion or to periods before or after Completion, such references shall be construed as being to each Completion but only in relation to the Group Companies which are the subject of such Completion.
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2 | Agreements in respect of the Sale of the Shares |
2.1 | Sale and Purchase of Shares and BMM Claims |
On and subject to the terms of this Agreement, the Sellers (each as to the Shares set out against its name in Schedule 1) and the Purchaser agree:
2.1.1 | with respect to the sale and purchase of the BMM Shares and the BMM Claims, in the terms set out in Schedule 5; |
2.1.2 | with respect to the sale and purchase of the Lisheen Shares, in the terms set out in Schedule 6; and |
2.1.3 | with respect to the sale and purchase of the Namibia Shares, in the terms set out in Schedule 7. |
3 | Consideration |
3.1 | Amount of Share Consideration |
The purchase price payable by the Purchaser to the Sellers in respect of the sale and purchase of the Shares and the BMM Claims under this Agreement shall be an amount in cash equal to:
3.1.1 | in relation to the BMM Shares and the BMM Claims, the BMM Share Consideration; |
3.1.2 | in relation to the Lisheen Shares, the Lisheen Share Consideration; and |
3.1.3 | in relation to the Namibia Shares, the Namibia Share Consideration. |
3.2 | Amount of Intra-Group Indebtedness |
In respect of the Intra-Group Indebtedness the Parties agree (subject to the terms and conditions of this Agreement) as follows:
3.2.1 | in consideration for the assignment of the BMM Payables to the Purchaser, the Purchaser shall pay to the BMM Seller (for the account of the relevant members of the Sellers Group) an amount in cash equal to the aggregate of the BMM Payables; |
3.2.2 | the Purchaser shall procure the repayment in full by the Lisheen Group Entities of the Lisheen Payables; |
3.2.3 | in consideration for the assignment of the Namibia Payables to the Purchaser, the Purchaser shall pay to the Namibia Seller (for the account of the relevant members of the Sellers Group) an amount in cash equal to the aggregate of the Namibia Payables; |
3.2.4 | BMM Seller shall repay as agent on behalf of the relevant members of the Sellers Group the BMM Receivables (or procure their repayment) to BMM; |
3.2.5 | the Lisheen Seller shall repay as agent on behalf of the relevant members of the Sellers Group the Lisheen Receivables (or procure their repayment) to the relevant Lisheen Group Entity; and |
3.2.6 | the Namibia Seller shall repay as agent on behalf of the relevant members of the Sellers Group the Namibia Receivables (or procure their repayment) to the relevant Namibia Group Company. |
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3.3 | Treatment of Payments by the Sellers |
3.3.1 | If any payment is made by any Seller to the Purchaser in respect of any claim for any breach of this Agreement, or pursuant to an indemnity, reimbursement or compensation provision (including a payment under Clause 5.3) under this Agreement or the Tax Indemnity, the payment shall be treated as an adjustment of the consideration paid by the Purchaser for the particular Shares (including the relevant underlying Group Companies or their businesses) to which the payment and/or claim relates under this Agreement and the consideration shall be deemed to have been reduced by the amount of such payment. |
3.3.2 | If: |
(i) | the payment and/or claim relates to the Shares in more than one Company, it shall be allocated in a manner which reflects the economic impact of the matter to which the payment and/or claim relates on the relevant Shares (including the relevant underlying Group Companies or their businesses), failing which it shall be allocated rateably to the relevant Shares in the Companies concerned; or |
(ii) | the payment and/or claim relates to no particular Shares in any Company, it shall be allocated rateably to all the Shares, |
and in each case the consideration for the relevant Shares shall be deemed to have been reduced by the amount of such payment.
3.4 | Payment of the Consideration and for Intra-Group Payables on Completion |
3.4.1 | On the relevant Completion Date, the Purchaser shall pay an amount in cash to the relevant Seller by wire transfer of immediately available funds in respect of the relevant Shares which is equal to the BMM Share Consideration, Lisheen Share Consideration or Namibia Share Consideration as the case may be. |
3.4.2 | In respect of the Intra-Group Payables, the Sellers and the Purchaser agree: |
(i) | with respect to the BMM Payables, in the terms set out in Schedule 5; |
(ii) | with respect to the Lisheen Payables, in the terms set out in Schedule 6; and |
(iii) | with respect to the Namibia Payables, in the terms set out in Schedule 7. |
4 | Conditions |
4.1 | Anti-trust Conditions |
The provisions of Schedule 5, Schedule 6 and Schedule 7 shall apply in respect of the relevant Anti-trust Conditions applicable to BMM Completion, Lisheen Completion and Namibia Completion, respectively.
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4.2 | Other Conditions to each Completion |
In addition to the Anti-Trust Conditions applicable to a particular Completion, the provisions of Schedule 5, Schedule 6 and Schedule 7 shall apply in respect of the conditions applicable to BMM Completion, Lisheen Completion and Namibia Completion, respectively.
5 | Pre-Completion |
5.1 | The Sellers Obligations in Relation to the Conduct of Business |
Subject to Clause 5.2, each of the Sellers undertakes to use reasonable endeavours to procure that, between the date of this Agreement and the relevant Completion, in relation to the Unsold Group, each Group Company:
5.1.1 | shall carry on its business as a going concern in the ordinary and usual course as carried on prior to the date of this Agreement; |
5.1.2 | shall or shall procure that the relevant members of the Sellers Group shall maintain in force all existing insurance policies (in all material respects on the same terms and similar level of cover prevailing at the date of this Agreement) for the benefit of the Group until their expiration, save that the Sellers Group may amend the insurance policies maintained for the benefit of the Group if such amended policies are substantially the same as those generally applicable to the Sellers Group as a whole. The Sellers Group shall not be obliged to renew any insurance policy for the benefit of the Group, provided that if the Sellers Group purchases policies of insurance for the benefit of the Sellers Group as a whole in respect of any type of risk, then to the extent policies of insurance covering that type of risk are currently maintained for the benefit of the Group, the Sellers Group shall also include the Group as a beneficiary of such policies of insurance. The Sellers will notify the Purchaser in reasonable time if any currently existing policy will no longer be available in order to allow the Purchaser, acting on behalf of the Group Companies, sufficient opportunity either (i) to obtain alternative cover, in which case the Purchaser shall cover the increased cost of such cover, being the difference between the cost of the expiring insurance policy and the alternative cover, or (ii) to agree with the Sellers that they will cover any such increased costs, or (iii) to confirm that the insurance policy should not be renewed and the Purchaser and the Sellers agree to co-operate reasonably in this respect; |
5.1.3 | shall or shall procure that the relevant members of the Sellers Group make all claims under insurance policies existing for the benefit of the Group in relation to claims of Group Companies covered by such policies promptly and in accordance with the requirements of the relevant policy; |
5.1.4 | without prejudice to the generality of Clause 5.1.1, shall not do any of the following, in each case save as detailed, forecast or projected in the Information Memorandum, any documents provided to the Purchaser during or for the purposes of the Management Presentation or any Business Plan: |
(i) | acquire or dispose of, or agree to acquire or dispose of, any material asset or material stock, or enter into or amend any agreement or incur any commitment to do so, in each case involving |
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consideration, expenditure or liabilities in excess of US$ 10 million exclusive of VAT, other than (i) in the ordinary and usual course of business and (ii) where such expenditure or liabilities are, in the reasonable opinion of the relevant Seller, necessary to ensure the continuance of operations and/or production of any Group Company or preserve any asset of any Group Company;
(ii) | acquire or agree to acquire any share, shares or other interest in any company, partnership or other venture, other than an investment of US$ 10 million or less; |
(iii) | create, allot or issue any share capital of any Group Company or any option to subscribe for the same; |
(iv) | amend any Group Companys articles of association or any of its other corporate documents; |
(v) | create any Encumbrances over the Shares; |
(vi) | purchase, redeem or reclassify the Shares or carry out any reduction or increase in the share capital of any Group Company; |
(vii) | commence, cease or settle any litigation which is material in the context of the relevant Sale Group, other than for the ordinary recovery of trading debts or in respect of Tax; |
(viii) | save as required by law and save in the ordinary and usual course of its business as carried on prior to the date of this Agreement: |
(a) | make any material amendment to the terms and conditions of employment (including, without limitation, remuneration, pension entitlements and other benefits) of any Senior Employee; |
(b) | provide or agree to provide any gratuitous payment or benefit to any such person or any of his dependants which is not a Transaction Bonus Amount; |
(c) | dismiss any Senior Employee other than for good cause; or |
(d) | engage or appoint any additional Senior Employee; |
(ix) | discontinue or amend any Group Retirement Benefit Arrangements to any material extent or commence to wind them up or terminate them or cause them to cease to admit new members; |
(x) | communicate to any Relevant Employee any material plan, proposal or intention to discontinue, amend, wind up, terminate or, and save in the ordinary and usual course of its business as carried on prior to the date of this Agreement, exercise any discretion in relation to any Group Retirement Benefit Arrangements; |
(xi) | pay any benefits under any of the Group Retirement Benefit Arrangements otherwise than in accordance with the terms of the documents governing such arrangements (and not under any discretionary power); |
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(xii) | enter into any guarantee, indemnity or other agreement to secure any obligation of or to a third party (not being a member of the same Sale Group as such Group Company) or create any Encumbrance over any of the Properties, other property, rights or assets of the Group Companies or any of the Shares other than; |
(a) | rights and retention of title arrangements arising by operation of law in the ordinary course of business; or |
(b) | Encumbrances over any property, rights or assets of any Group Company (not being a Property) created in the ordinary course of carrying on the business of such Group Company consistent with past practice; |
(xiii) | settle an insurance claim in excess of US $10 million materially below the amount claimed; |
(xiv) | save as required by law, make any change to its accounting practices or policies or amend its constitutional documents; |
(xv) | make any material change to any of its methods, policies, principles or practices of Tax accounting or methods of reporting or claiming income, losses, or deductions for Tax purposes; enter into any agreement with any Tax Authority, or terminate or rescind any agreement with a Tax Authority that is in effect on the date of this Agreement; or amend any Tax Return in any material respect in each case to the extent that any of the foregoing could reasonably be expected to materially increase Tax liabilities of or reduce the availability of Purchaser Reliefs to, the members of the Sale Group (in aggregate) in a material manner following Completion save to the extent that the relevant matter or action (a) is consistent with the Accounts or with past practice of the relevant Group Company; (b) is undertaken in order to comply with any law or the published practice of any Tax Authority; or (c) the Group Company or the relevant Seller notifies the Purchaser in advance of the relevant matter or action, provides the Purchaser with a reasonable opportunity to comment on any relevant documents and takes into account the Purchasers reasonable and timely written comments (if any) in relation thereto. For the avoidance of doubt, nothing in this Clause shall restrict the rights of the Sellers or a Group Company to bring, resist or deal with any appeal, assessment or dispute in such manner as it sees fit; |
(xvi) | dispose of, or agree to dispose of, any material Property, in whole or in part, or dispose of any interest in any Property. |
5.1.5 | shall in order for the Purchaser to prepare for carrying on the business of the Group Companies following Completion and upon the reasonable request of the Purchaser: |
(i) | provide the Purchaser with access to any reasonably required Exploration Data; |
(ii) | provide the Purchaser with access to any reasonably required data from the Books and Records (other than customer lists and sales information); |
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(iii) | allow the Purchaser to meet with the general manager and other members of management of each of the Group Companies; and |
(iv) | allow the Purchaser to observe and familiarise itself with the operations and business of the Group Companies, |
in each case with the consent of the Sellers (such consent not to be unreasonably withheld or delayed) and having regard to minimising the disruption that may be caused to the operations of the business;
5.1.6 | shall not take any action that could result in the repayment of the BMM Shareholder Loan by BMM. |
5.2 | Exceptions |
Clause 5.1 shall not apply in respect of and shall not operate so as to restrict or prevent (i) any act or omission or other matter as may be required to give effect to any provision of this Agreement or otherwise provided for in this Agreement (including, for the avoidance of doubt any Permitted Leakage or any matter provided for in Schedule 11) or the Tax Indemnity or (ii) any matter in respect of which the Purchaser has given its prior written consent (such consent not to be unreasonably withheld or delayed).
5.3 | Leakage |
5.3.1 | Each Seller covenants and undertakes to the Purchaser that in the period from (and excluding) the Locked Box Date up to (and including) the relevant Completion Date: |
(i) | it shall procure, to the extent it is able, that no Leakage from any Group Company shall occur; |
(ii) | it shall procure that no Group Company has amended or will amend the terms of Indebtedness owed by it to the Sellers or any member of the Sellers Group (other than a member of the same Sale Group as such Group Company) to the benefit of the Sellers or any member of the Sellers Group (other than a member of the same Sale Group as such Group Company); |
(iii) | it shall procure that none of the Sellers nor any member of the Sellers Group has agreed or committed to any Leakage, |
except, in any case, as disclosed to the Purchaser prior to the date of this Agreement.
5.3.2 | In the event of any Leakage from, but excluding, the Locked Box Date to, and including, the relevant Completion Date the relevant Seller shall within 5 Business Days of demand for payment thereof by the Purchaser pay to the Purchaser by way of an adjustment to the consideration for the relevant Shares an amount in cash equal to (on a $ for $ basis) the Losses with respect to the Leakage received by or given for the benefit of the Sellers or a member of the Sellers Group or any nominee or agent or any other person receiving any Leakage on behalf of any of the foregoing. Provided that the Purchaser shall not be entitled to demand payment of any Leakage as referred to in this Clause 5.3.2 to the extent that such Leakage has been deducted from (i) the BMM Share Value in arriving at the BMM Share |
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Consideration; (ii) the Lisheen Share Value in arriving at the Lisheen Share Consideration; or (iii) the Namibia Share Value in arriving at the Namibia Share Consideration. |
5.3.3 | No Seller shall be liable under this Agreement in respect of any Leakage unless a notice of such Leakage is given by the Purchaser to such Seller in writing within six months of the relevant Completion Date. |
5.3.4 | The Purchaser will pay to the relevant Seller an amount equal to any Taxation for which the relevant Group Company would otherwise have been accountable or liable which is actually reduced or extinguished as a result of any Leakage in respect of which a payment has been made to the Purchaser under Clause 5.3.2, provided that the Purchaser shall not be liable to make any payment under this Clause 5.3.4 to the extent that a payment has been made under either paragraph 3.4 of Schedule 5, paragraph 2.3 of Schedule 6 or paragraph 2.3 of Schedule 7 in respect of such Leakage. The due date for this payment will be thirty (30) Business Days after the date on which such Taxation is actually reduced or extinguished. |
5.3.5 | For the avoidance of doubt, save as provided in Clauses 5.3.2, and 5.3.3 and Clause 12.4.3, the liability of any of the Sellers under this Clause 5.3 shall not be limited, restricted or excluded in respect of any other provision of this Agreement including the provisions of Clause 12 (other than Clause 12.4.3). |
5.4 | Prospecting Licences |
5.4.1 | The BMM Seller shall use all reasonable endeavours to procure the transfer of the Prospecting Licences to BMM as soon as reasonably practicable after the date of this Agreement (including obtaining any approval required for the transfer from the Minister of Mineral Resources in terms of section 11 of the South African Mineral and Petroleum Resources Development Act, 28 of 2002). |
5.4.2 | The BMM Seller and the Purchaser shall consult in good faith as to preparation and lodgement of any application for approval required under Clause 5.4.1. With respect to an application to the Minister of Mineral Resources, the parties agree that the application shall be made by the BMM Seller and that the Purchaser shall coordinate the preparation and filing of the application and bear the relevant filing fee. The BMM Seller undertakes in favour of the Purchaser to comply with all reasonable requests by the Purchaser to sign all such documents and to do all such things as may be necessary from time to time to facilitate the compilation and lodgement of the application. |
5.4.3 | After BMM Completion the Purchaser shall procure that BMM shall, prior to the cancellation of the guarantees provided by or on behalf of the BMM Seller to the South African Department of Mineral Resources in respect of environmental rehabilitation obligations arising out of the prospecting activities and any ancillary activities conducted under the Prospecting Licences and the relevant environmental management plans in respect of the areas covered by the Prospecting Licences (together with any back-to-back guarantees or indemnities provided in relation thereto), provide |
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replacement guarantees in accordance with the relevant legislation and in form and substance satisfactory to the BMM Seller, acting reasonably. |
5.4.4 | The BMM Seller covenants and agrees with the Purchaser, until such time as the Prospecting Licences are transferred to BMM (notwithstanding the occurrence of BMM Completion): |
(i) | to use all reasonable endeavours to comply with all the material terms and conditions contained in the Prospecting Licences and the South African Mineral and Petroleum Resources Development Act, 28 of 2002, relating to the Prospecting Licences; |
(ii) | to use all reasonable endeavours to maintain the Prospecting Licences in good standing, including meeting all minimum annual expenditure requirements required by the South African Department of Mineral Resources or lodging a valid application for an exemption with South African Department of Mineral Resources together with any prescribed fee and supporting documentation within the period required by the Mineral and Petroleum Resources Development Act, 28 of 2002 and using all of its reasonable endeavours to ensure that any such application is granted; |
(iii) | not to relinquish or abandon the whole or any part of the Prospecting Licences without the Purchasers prior written consent (which may be withheld in its absolute discretion); |
(iv) | not to enter into any discussions, negotiations, agreements (binding or otherwise) with any party other than BMM (or encourage, solicit or procure any party other than BMM to do any of those things) in relation to a sale of, or an option to sell, any Prospecting Licence in whole or part; |
(v) | not to encumber, assign, charge or otherwise dispose of, or grant any rights over the Prospecting Licences other than to the Purchaser or BMM and |
(vi) | to provide to the Purchaser, as soon as reasonably practicable, a copy of any material notice, communication, order or instruction received which relates to any Prospecting Licences and if any claim is made by any third party in connection with the Prospecting Licences to notify, as soon as reasonably practicable, the Purchaser in writing of the nature of the claim, provide all material information in the possession of the Group Companies and/or the Sellers to the Purchaser with respect to the claim and shall consult with the Purchaser as to an appropriate response to such claim and shall not admit, compromise or settle such claim without first obtaining the consent of the Purchaser (such consent not to be unreasonably withheld or delayed). |
5.5 | Registration |
The Sellers shall use all reasonable endeavours to procure that the Lisheen Group Entities ensure that registration of all the Property identified in Schedule 3 as pending registration in the names of the Lisheen Group Entities is completed as soon as reasonably practicable and in any event prior to the Lisheen Completion
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Date and shall provide the Purchaser with confirmation from the relevant Land Registry of any such registration occurring prior to the Lisheen Completion Date.
5.6 | ERM Collateral Warranty |
The Sellers shall procure, as soon as reasonably practicable following the date of this Agreement, that ERM shall issue to the Seller an executed deed of collateral warranty in the name of the Purchaser to be delivered to the Purchaser on or prior to the relevant Completion Date substantially in the form of Schedule 4 to the Environmental Consultancy Agreement dated 18 January 2010 between the Sellers Lawyers and ERM, provided that the Sellers shall use their reasonable endeavours to procure any reasonable amendments to the form of the deed of collateral warranty that are requested by the Purchaser within 14 days of the date of this Agreement.
5.7 | Zinc Specific Third Party Contracts |
5.7.1 | The Namibian Seller will use all reasonable endeavours to procure that Rosh Pinah Zinc Corporation executes the Gergarub Transfer Agreement prior to Completion and will procure that Ambase Prospecting (Namibia) (Proprietary) Limited and Skorpion Mining Company (Proprietary) Limited execute, the Gergarub Transfer Agreement on or prior to the earlier of (i) the third Namibian Business Day following such execution by Rosh Pinah Zinc Corporation or (ii) if previously executed by Rosh Pinah Zinc Corporation, the Namibia Completion Date. |
5.7.2 | The BMM Seller will, prior to the Namibia Completion Date, procure that Tecnicas Reunidas S.A. (TR) grants to Namzinc (Proprietary) Limited (the Licencee) a non-exclusive and non-transferable licence (the Licence and Supply Agreement) to use the Licensed Know-how for the purposes of the commercial practice of the Processes in the Plant, as carried on at the date of this Agreement and on terms that the Licensee shall not use the Processes or the Licensed Know-how for any purpose other than in accordance with such licence and other than for the purposes referred to above and otherwise subject to such other restrictions as are provided for in the existing terms on which TR has granted such a licence (the Existing TR Licence). Terms used (but not defined) in this Clause 5.7.2 and defined for the purposes of the Existing TR Licence shall have the same meaning in this Clause. |
5.7.3 | The Sellers will use all reasonable efforts to assign (or procure that the relevant member of the Sellers Group Company assigns) the Other Zinc Specific Third Party Contracts to the relevant Group Company prior to Completion and to the extent that any such contracts have not been assigned by Completion, will continue to use all reasonable endeavours after Completion to assign (or procure that the relevant member of the Sellers Group assigns) such contracts to the relevant Group Company as soon as practicable following Completion. |
5.7.4 | Pending any such assignment as is referred to in Clause 5.7.3 from and with effect from Completion, the relevant Seller shall: |
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(i) | hold such Other Zinc Specific Third Party Contracts on trust for the benefit of the Purchaser where so permitted by the terms of such contracts, or |
(ii) | with respect to such Other Zinc Specific Third Party Contracts, sub-contract or procure that the relevant member of the Sellers Group sub-contracts to the Purchaser or a member of the Purchasers Group, where so permitted by the terms of such contract, on the same terms mutatis mutandis; or |
(iii) | with respect to such Other Zinc Specific Third Party Contracts, do each such act as the Purchaser may reasonably request to enable the performance of such contract and provide the Purchaser with the benefits of such contract including using reasonable endeavours (at the cost of the Purchaser) to enforce the rights of the Seller or the relevant member of the Sellers Group against another party to such contract. |
5.7.5 | For the purposes of this Clause 5.7 Other Zinc Specific Third Party Contracts means the Zinc Specific Third Party Contracts other than the Gergarub Transfer Agreement and the Licence and Supply Agreement. |
6 | Completion |
6.1 | Date and Place |
Subject to Clause 4.1:
6.1.1 | the BMM Completion shall take place on the tenth BMM Business Day following the fulfilment of the BMM Conditions; |
6.1.2 | the Lisheen Completion shall take place on the later of: (i) 31 December 2010 (or such earlier date as the Lisheen Seller shall notify to the Purchaser); and (ii) the tenth Lisheen Business Day following the fulfilment of the Lisheen Condition; and |
6.1.3 | the Namibia Completion shall take place on the tenth Namibia Business Day following the fulfilment of the Namibia Conditions, |
in each case, at the offices of the Sellers Lawyers at 10.00 am (London time) or at such other location, time or date as may be agreed between the relevant Sellers and the Purchaser.
6.2 | Completion Events |
6.2.1 | On each Completion Date, the parties shall comply with their respective obligations specified in Schedule 9 in relation to the Group Companies which are the subject of such Completion. |
6.2.2 | The relevant Seller may waive some or all of the obligations of the Purchaser as set out in Schedule 9 and the Purchaser may waive some or all of the obligations of the relevant Seller as set out in Schedule 9. |
6.3 | Breach of Completion Obligations |
If any party fails to comply with any material obligation in Schedule 9, the Purchaser, in the case of non-compliance by any relevant Seller, or the relevant Seller, in the
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case of non-compliance by the Purchaser, shall be entitled (in addition to and without prejudice to all other rights or remedies available, including the right to claim damages) by written notice to the Purchaser or the relevant Seller, as applicable, served on the Completion Date:
6.3.1 | to effect the relevant Completion so far as practicable having regard to the defaults which have occurred and without limiting its rights under this Agreement; or |
6.3.2 | to fix a new date for the relevant Completion (being not more than 20 BMM Business Days, 20 Lisheen Business Days or 20 Namibia Business Days (as the case may be) after the agreed date for the BMM Completion, the Lisheen Completion and the Namibia Completion respectively) in which case the provisions of this Clause 6 and Schedule 9 shall apply to that Completion as so deferred but provided such deferral may only occur once. |
7 | Share Schemes |
The provisions of Schedule 10 apply in respect of the Share Schemes.
8 | Covenants in respect of certain Relevant Individuals and other matters |
The provisions of Schedule 11 apply in respect of certain Relevant Individuals.
9 | Transitional Arrangements |
The provisions of Schedule 19 shall apply with respect to transitional services to be provided by members of the Sellers Group to the Group Companies.
10 | Other Post-Completion Obligations |
10.1 | The provisions of Schedule 12 apply in respect of the Purchasers obligations following a relevant Completion. |
10.2 | The provisions of Schedule 16 shall apply in respect of the Purchasers obligations in respect of environmental matters. |
10.3 | Without prejudice to any other rights or remedies which any party may have, the Purchaser acknowledges and agrees that damages would not be an adequate remedy for any breach by it of the provisions set out in Schedule 12 and the Sellers shall be entitled to the remedies of injunction, specific performance and other equitable relief for any threatened or actual breach of any such provision by the Purchaser or any other relevant person. |
11 | Warranties |
11.1 | The Sellers Warranties |
11.1.1 | The Sellers warrant to the Purchaser that the statements set out in Schedule 13 are true and accurate as of the date of this Agreement. |
11.1.2 | Each Seller gives the Sellers Warranties only to the extent that the Sellers Warranties or a breach of the Sellers Warranties relate to or affect the Shares (including the relevant Group Companies or their underlying businesses) it agrees to sell under this Agreement. |
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11.1.3 | The only Sellers Warranties given: |
(i) | in respect of the Properties are those contained in paragraphs 4.1, 6.4, 8, 9, 10.6, 11 and 13 of Schedule 13 and each of the other Sellers Warranties shall be deemed not to be given in respect of the Properties; |
(ii) | in respect of Intellectual Property are those contained in paragraphs 5.1 and 11 of Schedule 13 and each of the other Sellers Warranties shall be deemed not to be given in respect of Intellectual Property; |
(iii) | in respect of Information Technology and data protection are those contained in paragraphs 5.2, 5.3, 6.4 and 11 of Schedule 13 respectively and each of the other Sellers Warranties shall be deemed not to be given in respect of Information Technology or data protection; |
(iv) | in respect of employment or pension matters are those contained in paragraph 7 of Schedule 13 and each of the other Sellers Warranties shall be deemed not to be given in respect of such matters; |
(v) | in respect of the Environment or Environmental Law are those contained in paragraphs 6.4 and 10 of Schedule 13 and each of the other Sellers Warranties shall be deemed not to be given in respect of the Environment or Environmental Law; and |
(vi) | in respect of Tax are those contained in paragraph 13 of Schedule 13 and each of the other Sellers Warranties shall be deemed not to be given in respect of Tax. |
11.1.4 | The Purchaser acknowledges and agrees that none of the Sellers gives or makes any representations and, except as expressly provided under the Sellers Warranties, none of the Sellers gives or makes any warranty as to the accuracy of the forecasts, estimates, projections, statements of intent or statements of opinion provided to the Purchaser or any member of the Purchasers Group or any of its directors, officers, employees, agents or advisers on or prior to the date of this Agreement, including during meetings, site visits, negotiations and in the Information Memorandum, any Management Presentation and the documents provided in the Data Room. |
11.1.5 | Any Sellers Warranty qualified by the expression as far as the Sellers are aware or any similar expression shall, unless otherwise stated, be deemed to refer to the actual knowledge of the persons whose names are set out in Part 1 of Schedule 14 and such persons shall have no obligation to make any further enquiries into the accuracy of the Sellers Warranties. |
11.2 | Sellers Disclosures |
11.2.1 | The Sellers Warranties are subject to and limited by the following matters: |
(i) | any matter which is contained in or referred to in this Agreement; |
(ii) | any matter which is Fairly Disclosed: |
(a) | in the Disclosure Letters; or |
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(b) | in the documents provided in the Data Room; |
(iii) | all matters which would be revealed by making a search two (2) Business Days prior to the date of this Agreement on the public file for the previous three (3) years at: |
(a) | the Companies Registration Office, Judgments Office, High Court Central Office and Sherriffs searches in Ireland; and |
(b) | the Companies and Intellectual Property Registration Office in South Africa; |
(iv) | all matters in respect of the Properties which would be revealed by making enquiries or a search two (2) Business Days prior to the date of this Agreement at: |
(a) | the Land Registry and the Registry of Deeds in Ireland; and |
(b) | the Office of the Registrar of Deeds in South Africa; |
(v) | all matters in respect of the Properties which would be revealed by making enquiries or a search on 12 April 2010 at the Deeds Registry at the Ministry of Lands and Resettlements in Namibia; |
(vi) | all matters Fairly Disclosed in the Information Memorandum and during the Management Presentation, and |
(vii) | all matters Fairly Disclosed in the Q and A Schedule. |
11.2.2 | References in the Disclosure Letters to paragraph numbers shall be to the paragraphs in Schedule 13 to which the disclosure is most likely to relate. Such references are given for convenience only and shall not limit the effect of any of the disclosures, all of which are made against the Sellers Warranties as a whole. |
11.3 | Sellers Warranties at Completion |
Subject to Clause 11.2, the Sellers further warrant to the Purchaser that the Sellers Warranties contained in paragraphs 1.1, 1.3, 15, 16 of Schedule 13 will be true and accurate in all respects at the relevant Completion Date as if they had been repeated at that Completion Date in relation to the Relevant Companies.
11.4 | Purchasers Warranties |
The Purchaser and Purchasers Guarantor hereby warrant to the Sellers that the statements set out in Schedule 15 are true and accurate as at the date of this Agreement.
11.5 | The Sellers Waiver of Rights against the Group |
Save in the case of fraud or wilful concealment, each of the Sellers undertake to the Purchaser and to the Group Companies and their respective directors, officers and agents and to the Relevant Employees to waive any rights, remedies or claims which it may have in respect of any misrepresentation, inaccuracy or omission in or from any information or advice supplied or given by the Group Companies or their respective directors, officers or agents or the Relevant Employees in connection with assisting the Seller in the giving of any Sellers Warranty or the preparation of the Disclosure Letters and the Tax Indemnity.
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12 | Limitation of Sellers Liability |
12.1 | Time Limitation for Claims |
No Seller shall be liable under this Agreement or the Tax Indemnity in respect of any claim unless a notice of the claim is given by the Purchaser to such Seller setting out the matters specified in Clause 13.2 or Clause 6.1 of the Tax Indemnity (as applicable):
12.1.1 | in the case of any claim under paragraph 13 of Schedule 13 (Tax Warranties) or under the Tax Indemnity, within six years following the relevant Completion Date; |
12.1.2 | in the case of any claim under paragraph 10 of Schedule 13 (Environmental Warranties), within 2 years following the Completion Date; |
12.1.3 | in the case of any claim under paragraph 6.7 of Schedule 13, within 3 years following the BMM Completion Date; and |
12.1.4 | in the case of any other claim, within 12 months following the relevant Completion Date, |
except that there shall be no time limitation for giving notice of any claim under paragraphs 1.1.1, 1.1.2, 1.1.3, 1.1.4, 1.1.5, 15.1.1, 15.1.2, 15.1.3 and 15.1.4 of Schedule 13 and except that this Clause 11.1 shall not apply to claims made under Schedule 16.
12.2 | Minimum Claims |
Save with respect to the Sellers Warranties under paragraphs 1.1.1, 1.1.2, 1.1.3, 1.1.4, 1.1.5, 15.1.1, 15.1.2, 15.1.3 and 15.1.4 of Schedule 13, no Seller shall be liable under this Agreement or the Tax Indemnity in respect of any individual claim (or a series of claims arising from substantially identical facts or circumstances) where the liability agreed or determined (disregarding the provisions of this Clause 12.2) in respect of any such claim or series of claims does not exceed US$1.5 million.
12.3 | Aggregate Minimum Claims |
12.3.1 | Save with respect to the Sellers Warranties under paragraphs 1.1.1, 1.1.2, 1.1.3, 1.1.4, 1.1.5, 15.1.1, 15.1.2, 15.1.3 and 15.1.4 of Schedule 13, no Seller shall be liable under this Agreement or the Tax Indemnity in respect of any claim unless the aggregate amount of all claims for which the Sellers would otherwise be liable in respect of any such claims (disregarding the provisions of this Clause 12.3) exceeds US$15 million. |
12.3.2 | Where the liability agreed or determined in respect of all claims referred to in Clause 12.3.1 exceeds US$15 million, the Sellers shall be liable for the aggregate amount of the claim or series of claims as agreed or determined. |
12.4 | Maximum Liability |
12.4.1 | The aggregate liability of the Sellers in respect of a breach of the Sellers Warranty contained in paragraph 6.6.3 of Schedule 13 shall not exceed US$25m. |
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12.4.2 | The aggregate liability of the Sellers in respect of all claims under this Agreement (other than a breach of any Sellers Warranty contained in paragraphs 1.1.1, 1.1.2, 1.1.3, 1.1.4, 1.1.5, 15.1.1, 15.1.2, 15.1.3 and 15.1.4 of Schedule 13 but including claims under Schedule 16), shall not exceed 15 per cent. of the amount received by the Sellers pursuant to Clause 3.1. |
12.4.3 | The aggregate liability of the Sellers in respect of all claims under this Agreement (including for the avoidance of doubt all claims in respect of a breach of any Sellers Warranty, including those contained in paragraph 1.1.1, 1.1.2, 1.1.3, 1.1.4, 1.1.5, 15.1.1, 15.1.2, 15.1.3 and 15.1.4 of Schedule 13 and all claims under Clauses 5.3, Schedule 10 and Schedule 16) and all claims under the Tax Indemnity (including, for the avoidance of doubt, any additional payment due under Clause 17.15.1 or Clause 17.15.2 in respect of such claims) shall not exceed 100 per cent. of the amount received by the Sellers pursuant to Clause 3.1 and the aggregate liability of any individual Seller shall not exceed such percentage of the amount received by the relevant Seller pursuant to Clause 3.1. |
12.5 | Contingent Liabilities |
No Seller shall be liable under this Agreement or the Tax Indemnity in respect of any liability which is contingent unless and until such contingent liability becomes an actual liability and is due and payable but this Clause shall not operate to avoid a claim made in respect of a contingent liability which claim is notified within the time limit therefor specified in Clause 12.1 and specifying the matters in relation to such claim set out in Clause 13.2.
12.6 | Losses |
No Seller shall be liable under this Agreement or the Tax Indemnity in respect of any loss of production, loss of profit, loss of revenue, loss of contract, loss of goodwill, loss of claim or any indirect or consequential losses.
12.7 | Provisions |
No Seller shall be liable under this Agreement in respect of any claim if and to the extent that allowance, provisions or reserve is made in the Audited Accounts for the matter giving rise to the claim. This Clause 12.7 shall not apply to a claim under Schedule 16 unless the allowance, provision or reserve is specifically made in respect of the matter for which such claim is being made.
12.8 | Matters Arising Subsequent to this Agreement |
No Seller shall be liable under this Agreement in respect of any matter, act, omission or circumstance (or any combination thereof), including the aggravation of a matter or circumstance or any Losses arising therefrom, to the extent that it is a result of:
12.8.1 | Agreed matters |
Any matter or thing done or omitted to be done pursuant to and in compliance with this Agreement or the Tax Indemnity or otherwise at the request in writing or with the approval in writing of the Purchaser (including, for the avoidance of doubt, any action not taken by any Seller as a result of the Purchaser not approving any action which any Seller or any Group Company proposes to take under Clause 5.1).
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12.8.2 | Acts of the Purchaser |
Any act, omission or transaction of the Purchaser or any member of the Purchasers Group, the Group Companies or their respective directors, officers, employees or agents or successors in title, after the relevant Completion Date, other than:
(i) | in carrying on the business of the Group in the ordinary and usual course as carried on prior to the date of this Agreement and in accordance with Good Industry Practice; or |
(ii) | as is necessary to implement a legally binding commitment to which the Group is subject on or prior to the Completion Date. |
12.8.3 | Changes in legislation |
(i) | The passing of, or any change in, after the date of this Agreement, any law, rule, regulation or administrative practice of any Governmental Authority including (without prejudice to the generality of the foregoing) any increase in the rates of Taxation or any imposition of Taxation or any withdrawal of relief from Taxation not actually (or prospectively) in effect at the date of this Agreement; or |
(ii) | any change after the date of this Agreement of any judicial interpretation or application of any legislation. |
12.8.4 | Accounting and Taxation Policies |
Any change in accounting or Taxation policy, bases or practice of:
(i) | the Group Companies introduced or having effect after the date of this Agreement and prior to Completion where any such change is necessary in order to implement any change in the law or Relevant Accounting Standards applicable to the relevant Group Company as at the date of this Agreement; or |
(ii) | the Purchaser or the Group Companies introduced or having effect after the Completion Date unless such change is necessary in order to comply with the law or Relevant Accounting Standards applicable to the relevant Group Company as at the date of this Agreement. |
12.9 | Insurance |
No Seller shall be liable under this Agreement in respect of any claim to the extent that the Losses in respect of which such claim is made (i) are covered by a policy of insurance (in the case of a claim arising prior to Completion, subject to the Sellers complying with their obligations under Clause 5.1.3) or (ii) would have been covered if a policy of insurance for the benefit of the Group Companies in force at the relevant Completion Date had been maintained on no less favourable terms.
12.10 | Net Financial Benefit |
No Seller shall be liable under this Agreement in respect of any Losses suffered by the Purchaser or any Group Company to the extent of any corresponding savings by or net quantifiable financial benefit to the Purchaser or any Group Company arising directly from such Losses or the facts giving rise to such Losses (for example, without limitation, where the amount (if any) by which any Taxation for
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which the Purchaser or any Group Company would otherwise have been accountable or liable to be assessed is actually reduced or extinguished as a result of the matter giving rise to such liability) but having regard to any unavoidable delay which may be experienced in enforcing or utilising such saving or net financial benefit.
12.11 | Purchasers Actual Knowledge |
The Sellers shall not be liable in respect of any claim for breach of this Agreement (including without limitation a breach of a Sellers Warranty) to the extent that the Purchaser has actual knowledge of such breach or the facts forming the basis of such breach at the date of this Agreement. For the purposes of this Clause 12.11 references to the Purchasers actual knowledge shall be deemed to refer to the knowledge of the persons named in Part 2 of Schedule 14.
12.12 | Mitigation of Losses |
The Purchaser shall procure that all reasonable steps are taken and all reasonable assistance is given to avoid or mitigate any Losses which in the absence of mitigation might give rise to a liability in respect of any claim under this Agreement.
12.13 | Purchasers Right to Recover |
12.13.1 | Recovery for Actual Liabilities |
No Seller shall be liable under this Agreement unless and until the liability in respect of which the claim is made has become due and payable.
12.13.2 | Prior to Recovery from the Sellers etc. |
If, before any Seller pays an amount in discharge of any claim under this Agreement, the Purchaser or any Group Company recovers or is entitled to recover (whether by payment, discount, credit, relief, insurance or otherwise) from a third party a sum which indemnifies or compensates the Purchaser or any Group Company (in whole or in part) in respect of the loss or liability which is the subject matter of the claim, the Purchaser shall procure that, before steps are taken to enforce a claim against the relevant Seller following notification under Clause 13.2, all reasonable steps are taken to enforce such recovery and any actual recovery (less any reasonable costs incurred in obtaining such recovery) shall reduce or satisfy, as the case may be, such claim to the extent of such recovery.
12.13.3 | Following Recovery from the Sellers etc. |
If any Seller has paid an amount in discharge of any claim under this Agreement and the Purchaser or any Group Company is or becomes entitled to recover (whether by payment, discount, credit, relief, insurance or otherwise) from a third party a sum which indemnifies or compensates the Purchaser or any Group Company (in whole or in part) in respect of the loss or liability which is the subject matter of the claim, the relevant Seller shall be subrogated to all rights that the Purchaser or any Group Company has or would otherwise have in respect of the claim against the third party or, if subrogation is not possible, the Purchaser shall procure that all steps are taken as the relevant Seller may reasonably require to enforce such recovery and shall, or shall procure that, the Purchaser or any Group Company, as the case may be, shall pay to the relevant Seller as soon as
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practicable after receipt an amount equal to (i) any sum recovered from the third party less any costs and expenses incurred in obtaining such recovery or if less (ii) the amount previously paid by the relevant Seller to the Purchaser less any Taxation attributable to it.
12.14 | Double Claims |
The Purchaser shall not be entitled to recover from any Seller under this Agreement or the Tax Indemnity more than once in respect of the same Losses suffered and, without prejudice to the generality of the foregoing, no Seller shall be liable in respect of any claims for Leakage (including whether under the Sellers Warranties or otherwise) where a payment has been validly made to the Purchaser pursuant to Clause 5.3 or:
12.14.1 | any breach of this Agreement if and to the extent that the Losses resulting from or connected with such breach are or have been included in a claim under the Tax Indemnity which has been satisfied; or |
12.14.2 | a claim under the Tax Indemnity if and to the extent that the Losses in respect of which such claim was made are or have been included in a claim for breach of this Agreement which has been satisfied. |
12.15 | Fraud |
None of the limitations contained in this Clause 12 shall apply to any claim which arises or is increased, or to the extent to which it arises or is increased, as the consequence of, or which is delayed as a result of, fraud or wilful concealment by any Seller, any Group Company or any of their respective directors, officers, employees or agents.
12.16 | Tax |
The liability of the Sellers in respect of any claim for breach of a Tax Warranty shall be subject to the limitations set out in the Tax Indemnity and the limitations in Clause 12 shall, in addition, apply to any claim for breach of a Tax Warranty where expressly stated or where such limitation is stated to apply to claims under the Tax Indemnity.
13 | Claims |
13.1 | Notification of Potential Claims |
If the Purchaser becomes aware of any fact, matter or circumstance that may give rise to a claim under this Agreement (excluding claims for breach of a Tax Warranty), the Purchaser shall, no later than 20 days after becoming aware of the same, give a notice in writing to the Sellers setting out such information as is available to the Purchaser so as to enable the Sellers to assess the merits of the claim, to act to preserve evidence and to make such provision as the Sellers may consider necessary. Failure to give notice under this Clause 13.1 within such period shall not, without prejudice to Clause 12.1, affect the rights of the Purchaser under this Agreement except to the extent that a Seller is prejudiced by such failure.
13.2 | Notification of Claims under this Agreement |
Notices of claims under this Agreement (excluding claims for breach of a Tax Warranty) shall be given by the Purchaser to the Sellers within the time limits
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specified in Clause 13.1, specifying full information in relation to the legal and factual basis of the claim and the evidence on which the claiming party relies and, if practicable, an estimate of the amount of Losses or other liabilities or potential liabilities (including in relation to Taxation) which are, or are to be, the subject of the claim (including any Losses or other liabilities or potential liabilities (including in relation to Taxation) which are contingent on the occurrence of any future event).
13.3 | Commencement of Proceedings |
Any claim notified pursuant to Clause 13.2 shall (if it has not been previously satisfied, settled or withdrawn) be deemed to be irrevocably withdrawn six months after the notice is given pursuant to Clause 13.2 or, in the case of any contingent liability, six months after such contingent liability becomes an actual liability and is due and payable unless legal proceedings in respect of it (i) have been commenced by being both issued and served and (ii) are being and continue to be pursued with reasonable diligence.
13.4 | Investigation by the Sellers |
In connection with any matter or circumstance that may give rise to a claim against any Seller under this Agreement (excluding claims for breach of a Tax Warranty):
13.4.1 | the Purchaser shall allow, and shall procure that the Group Companies allow, any Seller and their financial, accounting or legal advisers to investigate the matter or circumstance alleged to give rise to a claim and whether and to what extent any amount is payable in respect of such claim; |
13.4.2 | the Purchaser and the Group Companies shall disclose to the Sellers all material of which the Purchaser or the Group Companies are aware which relates to the claim and shall procure that any other relevant members of the Purchasers Group shall, give, subject to their being paid all reasonable costs and expenses, all such information and assistance, including access to premises and personnel and the right to examine and copy or photograph any assets, accounts, documents and records, as the Sellers or their financial, accounting or legal advisers may reasonably request, subject to the Sellers agreeing in such form as the Purchaser may reasonably require to keep all such information confidential and to use it only for the purpose of investigating and defending the claim in question; and |
13.4.3 | the Purchaser shall allow the Sellers to remedy or rectify the matter or circumstance alleged to give rise to such claim, to the extent possible, within 20 Business Days of receipt of either a potential claim notice given pursuant to Clause 13.1 or a notice of claim given pursuant to Clause 13.2. |
13.5 | Conduct of Third Party Claims |
If the matter or circumstance that may give rise to a claim against any Seller under this Agreement (excluding claims for breach of a Tax Warranty) is a result of or in connection with a claim by or liability to a third party (a Third Party Claim) then without prejudice to any relevant rights of the insurers of the Purchasers Group:
13.5.1 | no admissions in relation to the Third Party Claim shall be made by or on behalf of the Purchaser or any other member of the Purchasers Group and the Third Party Claim shall not be compromised, disposed of or settled without the written consent of the relevant Seller; |
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13.5.2 | the Purchaser shall consult with the relevant Seller in relation to the conduct of the Third Party Claim and take reasonable account of the views of the relevant Seller before taking any action in relation to the Third Party Claim; |
13.5.3 | subject to the Sellers indemnifying the Purchaser or other members of the Purchasers Group concerned against any costs or expenses in respect of taking such action and any Losses incurred by such persons as a result of taking any such action without the prior consent of the Purchaser (such consent not to be unreasonably withheld or delayed), the relevant Seller shall be entitled at its own expense and in its absolute discretion, by notice in writing to the Purchaser, to take such action as it shall deem necessary to avoid, dispute, deny, defend, resist, appeal, compromise or contest the Third Party Claim or liability (including, without limitation, making counterclaims or other claims against third parties) in the name of and on behalf of the Purchaser or other member of the Purchasers Group concerned and to have the conduct of any related proceedings, negotiations or appeals; |
13.5.4 | subject to the Sellers indemnifying the Purchaser or other members of the Purchasers Group concerned against any costs or expenses in respect of taking such action and any Losses incurred by such persons as a result of taking any such action without the prior agreement of the Purchaser (such agreement not to be unreasonably withheld or delayed), the Purchaser shall, or the Purchaser shall procure that any other members of the Purchasers Group shall, take such action as the relevant Seller may reasonably request to avoid, dispute, deny, defend, resist, appeal, compromise or contest the Third Party Claim; |
13.5.5 | the Purchaser shall, and the Purchaser shall procure that any other members of the Purchasers Group shall give, subject to their being paid all reasonable costs and expenses, all such information and assistance including access to premises and personnel and the right to examine and copy or photograph any assets, accounts, documents and records, as the relevant Seller may reasonably request, including instructing such professional or legal advisers as the Seller may nominate to act on behalf of the Purchaser or other member of the Purchasers Group concerned, but in accordance with the relevant Sellers instructions; and |
13.5.6 | the Sellers shall keep the Purchaser reasonably informed of all material matters relating to any Third Party Claim in respect of which it is conducting proceedings as referred to in Clause 13.5.3 and shall promptly forward or procure to be forwarded to the Purchaser copies of all material correspondence and other material written communications relating to any such claim unless, in the opinion of the Sellers (acting reasonably) any privilege existing in any such materials would thereby be lost. |
14 | Release of Guarantees |
14.1 | The Purchaser shall use reasonable endeavours to procure by the Completion Date or, to the extent not done by the Completion Date as soon as reasonably practicable thereafter, the release of the Sellers or any member of the Sellers Group from any securities, guarantees or indemnities specified in paragraph 2.1.7 of Schedule 9 given by or binding upon the Sellers or any member of the Sellers Group or any person connected with any of them in respect of any liability of any Group Company |
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by providing to the beneficiary of the securities, guarantees or indemnities an alternative company or bank guarantee or other security arrangement reasonably acceptable to such beneficiary. Pending such release, the Purchaser shall indemnify the Sellers and any member of the Sellers Group against all amounts paid by any of them pursuant to any such securities, guarantees and indemnities in respect of such liability of any Group Company.
14.2 | The Sellers shall use reasonable endeavours to procure by the Completion Date or, to the extent not done by the Completion Date as soon as reasonably practicable thereafter, the release of each Group Company from any securities, guarantees or indemnities given by or binding upon the Group Companies or any member of the Group in respect of any liabilities of the Sellers or any member of the Sellers Group which do not relate to the business of the Group Companies or any liability which is a liability of a Group Company. Pending such release, the Sellers shall indemnify the Group Companies against all amounts paid by any of them pursuant to any such securities, guarantees and indemnities in respect of such liability of the Sellers. |
15 | Guarantees |
15.1 | The Purchasers Guarantee |
15.1.1 | The Purchasers Guarantor unconditionally and irrevocably guarantees to each Seller (to the extent it is a beneficiary of an obligation of the Purchaser or any Purchasers Assignee) the due and punctual performance and observance by the Purchaser or any Purchasers Assignee of all its obligations, commitments, undertakings, warranties and indemnities under or pursuant to this Agreement and the Tax Indemnity (the Purchasers Guaranteed Obligations). |
15.1.2 | If and whenever the Purchaser or any Purchasers Assignee defaults for any reason whatsoever in the performance of any of the Purchasers Guaranteed Obligations, the Purchasers Guarantor shall forthwith upon demand unconditionally perform (or procure performance of) and satisfy (or procure the satisfaction of) the Purchasers Guaranteed Obligations in regard to which such default has been made in the manner prescribed by this Agreement and the Tax Indemnity and so that the same benefits shall be conferred on each relevant Seller as it would have received if the Purchasers Guaranteed Obligations had been duly performed and satisfied by the Purchaser or any Purchasers Assignee. |
15.1.3 | This guarantee is to be a continuing guarantee and accordingly is to remain in force until all the Purchasers Guaranteed Obligations shall have been performed or satisfied. This guarantee is in addition to and without prejudice to and not in substitution for any rights or security which any Seller may now or hereafter have or hold for the performance and observance of the Purchasers Guaranteed Obligations. |
15.1.4 | As a separate and independent obligation the Purchasers Guarantor agrees that any of the Purchasers Guaranteed Obligations (including any moneys payable) which may not be enforceable against or recoverable from the Purchaser or any Purchasers Assignee by reason of any legal limitation, disability or incapacity on or of the Purchaser or any Purchasers Assignee or any other fact or circumstances (other than any limitation imposed by this |
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Agreement or the Tax Indemnity) shall nevertheless be enforceable against and recoverable from the Purchasers Guarantor as though the same had been incurred by the Purchasers Guarantor and the Purchasers Guarantor were the sole or principal obligor in respect thereof and shall be performed or paid by the Purchasers Guarantor on demand.
15.1.5 | The liability of the Purchasers Guarantor under this Clause 15.1: |
(i) | shall not be released or diminished by any variation of the Purchasers Guaranteed Obligations or any forbearance, neglect or delay in seeking performance of the Purchasers Guaranteed Obligations or any granting of time for such performance; and |
(ii) | shall not be affected or impaired by reason of any other fact or event which in the absence of this provision would or might constitute or afford a legal or equitable discharge or release or a defence to a guarantor. |
15.2 | The Sellers Guarantee |
15.2.1 | The Sellers Guarantor unconditionally and irrevocably guarantees to the Purchaser the due and punctual performance and observance by each of the Sellers of all their respective obligations, commitments, undertakings, warranties and indemnities under or pursuant to this Agreement and the Tax Indemnity (the Sellers Guaranteed Obligations). |
15.2.2 | If and whenever any Seller defaults for any reason whatsoever in the performance of any of the Sellers Guaranteed Obligations, the Sellers Guarantor shall forthwith upon demand unconditionally perform (or procure performance of) and satisfy (or procure the satisfaction of) the Sellers Guaranteed Obligations in regard to which such default has been made in the manner prescribed by this Agreement and the Tax Indemnity and so that the same benefits shall be conferred on the Purchaser as it would have received if the Sellers Guaranteed Obligations had been duly performed and satisfied by the Sellers. |
15.2.3 | This guarantee is to be a continuing guarantee and accordingly is to remain in force until all the Sellers Guaranteed Obligations shall have been performed or satisfied. This guarantee is in addition to and without prejudice to and not in substitution for any rights or security which the Purchaser may now or hereafter have or hold for the performance and observance of the Sellers Guaranteed Obligations. |
15.2.4 | As a separate and independent obligation the Sellers Guarantor agrees that any of the Sellers Guaranteed Obligations (including any moneys payable) which may not be enforceable against or recoverable from the Seller by reason of any legal limitation, disability or incapacity on or of the Seller or any other fact or circumstances (other than any limitation imposed by this Agreement or the Tax Indemnity) shall nevertheless be enforceable against and recoverable from the Sellers Guarantor as though the same had been incurred by the Sellers Guarantor and the Sellers Guarantor were the sole or principal obligor in respect thereof and shall be performed or paid by the Sellers Guarantor on demand. |
15.2.5 | The liability of the Sellers Guarantor under this Clause 15.2: |
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(i) | shall not be released or diminished by any variation of the Sellers Guaranteed Obligations or any forbearance, neglect or delay in seeking performance of the Sellers Guaranteed Obligations or any granting of time for such performance; and |
(ii) | shall not be affected or impaired by reason of any other fact or event which in the absence of this provision would or might constitute or afford a legal or equitable discharge or release or a defence to a guarantor. |
15.3 | Sellers Guarantor |
In the event that: (i) the Sellers Guarantor ceases to be a wholly owned subsidiary of Anglo American Plc; or (ii) the financial condition of the Sellers Guarantor materially deteriorates such that its net assets falls below 50 per cent. of the net assets as set out in its audited accounts for the financial year ended 31 December 2009, the Sellers shall notify the Purchaser in reasonable time prior to the occurrence of either (i) or (ii) and promptly procure another entity within the Sellers Group, such entity to be agreed to by the Purchaser, acting reasonably (the New Sellers Guarantor), to be the Sellers Guarantor for the purposes of this Agreement and the Tax Indemnity. The Sellers shall procure that the New Sellers Guarantor execute a deed of adherence in substantially the form set out in Schedule 17.
16 | Confidentiality |
16.1 | Announcements |
Pending the relevant Completion, in relation to the Unsold Group no announcement or circular in connection with the existence or the subject matter of this Agreement shall be made or issued by or on behalf of any member of the Sellers Group or any member of the Purchasers Group without the prior written approval of the Sellers and the Purchaser. This shall not affect any announcement or circular required by law or any regulatory body or the rules of any recognised stock exchange on which the shares of any Seller or any member of the Sellers Group or the Purchaser or any member of the Purchasers Group are listed but the party with an obligation to make an announcement or issue a circular (or a member of whose group is under such an obligation) shall consult with the other parties insofar as is reasonably practicable before complying with such an obligation.
16.2 | Confidentiality |
16.2.1 | This Clause 16 shall be without prejudice to the Confidentiality Agreement which shall continue notwithstanding this Agreement. |
16.2.2 | Subject to Clauses 16.1 and 16.2.3: |
(i) | each of the parties shall treat as strictly confidential and not disclose (other than to those within the Sellers Group or Purchasers Group) or use any information received or obtained as a result of entering into this Agreement (or any agreement, deed or document entered into pursuant to this Agreement) which relates to: |
(a) | the existence and the provisions of this Agreement and of any agreement entered into pursuant to this Agreement; or |
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(b) | the negotiations relating to this Agreement (and any such other agreements); |
(ii) | neither the Sellers nor the Purchaser shall in any manner use, copy, reproduce or disclose, and shall take reasonable action to secure against theft, loss or unauthorised disclosure, the information received or obtained as a result of entering into this Agreement; |
(iii) | each of the Sellers shall treat as strictly confidential and not disclose or use any information relating to the Group Companies following Completion (save for the purpose of the Sellers or a member of the Sellers Group producing historical accounts) and any other information relating to the business, financial or other affairs (including future plans and targets) of the Purchasers Group; and |
(iv) | the Purchaser shall treat as strictly confidential and not disclose or use any information relating to the business, financial or other affairs (including future plans and targets) of the Sellers Group including, prior to Completion, the Group Companies. |
16.2.3 | This Clause 16.2 shall not prohibit disclosure or use of any information if and to the extent: |
(i) | the disclosure or use is required by law, any regulatory body or any recognised stock exchange on which the shares of any Seller or any member of the Sellers Group or the Purchaser or any member of the Purchasers Group are listed (including where this is required as part of any actual or potential offering, placing and/or sale of securities of any member of the Sellers Group or the Purchasers Group); |
(ii) | the disclosure or use is required to vest the full benefit of this Agreement in any party to this Agreement; |
(iii) | the disclosure or use is required for the purpose of any judicial proceedings arising out of this Agreement or any other agreement entered into under or pursuant to this Agreement; |
(iv) | the disclosure is made to a Tax Authority in connection with the Tax affairs of the disclosing party; |
(v) | the disclosure is made to professional advisers or actual or potential financiers of any member of the Sellers Group or the Purchaser and on terms that such professional advisers or actual or potential financiers undertake to comply with the provisions of Clause 16.2.2 in respect of such information as if they were a party to this Agreement; |
(vi) | the information is or becomes publicly available (other than by breach of the Confidentiality Agreement or of this Agreement); |
(vii) | the disclosure or use is required to allow a party to satisfy the public financial reporting requirements applicable to it as required by the relevant regulatory body; |
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(viii) | the disclosure or use is required (in the opinion of the BMM Seller) for the purposes of complying with the provisions of Schedule 5; |
(ix) | the other party has given prior written approval for the disclosure or use; or |
(x) | the information is independently developed after Completion, |
provided that prior to disclosure or use of any information pursuant to this Clause 16.2.3(i) or (iii) the parties concerned shall, to the extent it is lawful and practical to do so, promptly notify the other parties of such requirement with a view to providing those other parties with the opportunity to contest such disclosure or use or otherwise to agree the timing and content of such disclosure or use.
17 | Other Provisions |
17.1 | Anglo name |
17.1.1 | The Purchaser undertakes that on and with effect from the date which is 90 days after Namibia Completion, the word ANGLO shall not appear on the Namibia Ingots or the related brand on the London Metal Exchange. |
17.1.2 | Without prejudice to Clause 17.1.1, the Purchaser shall procure that, within 90 days after a Completion Date, if any Acquired Company has a company name which consists of or incorporates the name ANGLO or any other trade mark which is owned by any member of the Sellers Group or which, in the reasonable opinion of the Sellers, is confusingly similar thereto, it shall change its company name to one which does not include such name or mark. |
17.1.3 | Without prejudice to Clause 17.1.1 the Purchaser shall procure that, within 60 days after a Completion Date, each Acquired Company shall cease to use, and shall remove from all business materials (including letterheads, invoices, websites, stationery, advertising and marketing materials, uniforms, signs and vehicles), the mark ANGLO or any other trade or service name or mark, business name, logo or domain name registered in the name of, or owned by, any member of the Sellers Group and any mark, name or logo which, in the reasonable opinion of the Sellers, is confusingly similar to any of them. |
17.1.4 | Without prejudice to Clause 17.1.1, the Purchaser shall: |
(i) | during the 60 day period from a Completion Date, use all best endeavours to procure that, whenever any business materials are provided by it or the Acquired Companies to any person, any references to the mark ANGLO or any other trade or service name or mark, business name, logo or domain name registered in the name of or owned by any member of the Sellers Group, shall be concealed and/or a separate note attached which makes it clear that the Acquired Companies have no relationship and are not in any way connected to any member of the Sellers Group or its business; and |
(ii) | not do anything which is detrimental or prejudicial to the mark ANGLO, or to the reputation of the Sellers Group. |
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17.1.5 | If the Purchaser fails to comply with its obligations under Clauses 17.1.1 to 17.1.4, the Purchaser shall indemnify the Sellers (each on its own behalf and, to the extent relevant, together as trustees for each other member of the Sellers Group) against any and all claims, losses, damages, payments, costs, liabilities and expenses brought against or suffered or incurred by any of them. |
17.2 | Shared Exploration Data |
The Purchaser agrees that, following Completion, the Sellers shall have the right to retain and use copies of the Shared Exploration Data and distribute the Shared Exploration Data within the Sellers Group for such purposes as they may in any circumstance in their absolute discretion, deem appropriate. Where, at any time following Completion, any Shared Exploration Data is held by a member of the Sellers Group and such company leaves the Sellers Group, the relevant Seller undertakes to use reasonable endeavours to procure that, upon leaving the Sellers Group, the relevant company returns the Shared Exploration Data to the relevant Seller.
17.3 | Transaction Bonuses |
17.3.1 | On and subject to the terms and conditions of this Clause 17.3, the relevant Seller shall indemnify the Purchaser against all Losses arising from the payment by the relevant Group Company of any or all of the Transaction Bonus Amounts. |
17.3.2 | If any Specified Transaction Bonus Amount becomes payable at the discretion of the Sellers, or any Transaction Bonus Amount payable by a Group Company has not been paid prior to the Completion applicable to that Group Company, the Sellers shall notify the Purchaser in writing of the relevant Transaction Bonus Amount payable by the relevant Group Company as soon as practicable, and in any event not later than ten (10) Business Days before such amount falls due for payment. |
17.3.3 | The relevant Seller shall pay to the Purchaser an amount equal to the cost to the relevant Group Company of paying the relevant Transaction Bonus Amount (in the amount required to satisfy the payment obligations notified to the Purchaser) before the relevant Group Company makes any such payments either to the Transaction Bonus Employee or to the Tax Authorities. Within five (5) Business Days of making any payment, the Purchaser will provide to the Sellers sufficient written evidence of all payments made by the relevant Group Companies regarding the relevant Transaction Bonus Amount. |
17.3.4 | The Purchaser shall not be entitled to recover from a relevant Seller any amount under Clauses 17.3.1 or 17.3.3 to the extent that such amount represents a BMM Accrued Transaction Bonus Amount, a Lisheen Accrued Transaction Bonus Amount or a Namibia Accrued Transaction Bonus Amount. |
17.3.5 | In circumstances where the Seller has made payment to the Purchaser of an amount in respect of a Transaction Bonus Amount under Clause 17.3.3, the Purchaser will pay to the relevant Seller an amount equal to any Taxation for which the relevant Group Company would otherwise have been |
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accountable or liable which is actually reduced or extinguished as a result of the payment of that Transaction Bonus Amount either to the Transaction Bonus Employee or to the Tax Authorities. The due date for this payment will be thirty (30) Business Days after the date on which such Taxation is actually reduced or extinguished.
17.3.6 | None of the limitations contained in Clauses 12.1, 12.2 and 12.3 of this Agreement shall apply in respect of the Sellers undertakings in this Clause 17.3. |
17.3.7 | The Purchaser will procure that any withholdings or deductions for or on account of Tax relating to the Transaction Bonus Amounts are paid over to the relevant authorities as required by law. The Transaction Bonus Amounts will not include any fine or penalty incurred by the relevant Group Company as a consequence of its failure to make and/or pay to any relevant authority in a timely manner any such withholdings or deductions. |
17.4 | Further Assurances |
17.4.1 | Each of the parties shall use reasonable endeavours to procure that any necessary third party shall, at the Purchasers expense, from time to time execute such documents and perform such acts and things as any party may reasonably require to transfer the Shares to the Purchaser and to give each of them the full benefit of this Agreement and the Tax Indemnity; provided that any costs and expenses relating to any offer of the BMM Shares, the BMM Claims and the BMM Shareholder Loan to the Other BMM Shareholders shall not be for the account of the Purchaser. |
17.4.2 | The Purchaser shall, and shall procure that the Group Companies shall, retain for a reasonable period from the relevant Completion Date the Books and Records of the Group Companies to the extent they relate to the period prior to the Completion and shall, and shall procure that the Group Companies shall, allow the Sellers reasonable access to such books, records and documents, including the right to take copies, at the Sellers expense. For the avoidance of doubt, this Clause 17.4.2 shall operate without prejudice to the Purchasers obligations under Clause 5 of the Tax Indemnity. |
17.5 | Insurance |
17.5.1 | The Purchaser agrees that, following the relevant Completion Date, the Sellers Group shall not be required to maintain any of the insurance policies maintained prior to that Completion by or on behalf of the Sellers Group in relation to the Relevant Companies. If any Seller decides to maintain any such policies, neither the Purchaser nor any of the Group Companies shall be entitled to benefit from such policies. |
17.5.2 | The Sellers shall use reasonable endeavours before and after the relevant Completion Date (and the Purchaser shall co-operate fully with the Sellers after the relevant Completion Date) to recover in full under any insurance claim which has been made in respect of the Relevant Companies before that Completion Date and shall pay the proceeds of such claim to the Relevant Companies as soon as practicable after receipt by the relevant Seller to the extent that either the Losses in respect of which the claim is |
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made have not been made good prior to that Completion Date or are not the subject of an indemnity by the relevant Seller to the Purchaser under this Agreement or the Tax Indemnity.
17.5.3 | Any insurance claim which is made after the relevant Completion Date, whether or not in respect of circumstances arising prior to that Completion Date, shall be for the account of the Purchaser. |
17.6 | Whole Agreement |
17.6.1 | This Agreement contains the whole agreement between the parties relating to the subject matter of this Agreement at the date of this Agreement to the exclusion of any terms implied by law which may be excluded by contract and supersedes any previous written or oral agreement between the parties in relation to the matters dealt with in this Agreement. |
17.6.2 | The Purchaser acknowledges that it has not been induced to enter this Agreement by any representation, warranty or undertaking not expressly incorporated into it. |
17.6.3 | So far as is permitted by law and except in the case of fraud, each of the parties agrees and acknowledges that its only right and remedy in relation to any representation, warranty or undertaking made or given in connection with this Agreement shall be for breach of the terms of this Agreement to the exclusion of all other rights and remedies (including those in tort or arising under statute). |
17.6.4 | In Clauses 17.6.1 to 17.6.3, this Agreement includes the Disclosure Letters, the Tax Indemnity and all documents entered into pursuant to this Agreement. |
17.7 | Reasonableness |
Each of the parties confirms that it has received independent legal advice relating to all the matters provided for in this Agreement, including the terms of Clause 17.6, and agrees that the provisions of this Agreement (including the Disclosure Letters, the Tax Indemnity and all documents entered into pursuant to this Agreement) are fair and reasonable.
17.8 | Assignment |
17.8.1 | Except as otherwise expressly provided in this Agreement, no party may, without the prior written consent of the other parties, assign, grant any security interest over, hold on trust or otherwise transfer the benefit of the whole or any part of this Agreement nor shall the Purchaser be entitled to make any claim against any Seller in respect of any Losses which it does not suffer in its own capacity as beneficial owner of the Shares. |
17.8.2 | Except as otherwise expressly provided in this Agreement, a party may, without the consent of the others, assign to a connected company the benefit of the whole or any part of this Agreement, provided that: |
(i) | if the assignee ceases to be a member of the Sellers Group it shall before so leaving assign the benefit so far as assigned to it to another member of the Sellers Group; and |
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(ii) | the assignee shall not be entitled to receive under this Agreement any greater amount than that to which the Purchaser would have been entitled. |
For the purposes of this Clause, a connected company is a company which is a subsidiary of the party concerned or which is a holding company of such party or a subsidiary of such holding company.
17.8.3 | The parties acknowledge and agree that at any time during the period commencing on the date of this Agreement and ending on the Completion Date, the Purchaser shall have the right to designate Hindustan Zinc Limited or an entity controlled by the Purchasers Guarantor (the Purchasers Assignee) in the Purchasers place as the purchaser of the Shares under this Agreement and in respect of all other documents required for the Transaction to be delivered to or by the Purchaser (the Designation) by at least five (5) Business Days advance notice in writing to the Sellers of its wish to effect the Designation and provided that the Purchasers Assignee enter into a deed of adherence in the form set out in Schedule 17. |
17.9 | Third Party Rights |
17.9.1 | Subject to Clauses 17.9.2 and 17.9.3, a person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of, or enjoy any benefit under, this Agreement. |
17.9.2 | Where any provision of this Agreement is, by its terms, expressed to be in favour of (whether or not together with other persons), or otherwise relates (in whole or in part) to the rights or obligations of any member of the Sellers Group or the Purchasers Group, as the case may be, any such member of the Sellers Group or the Purchasers Group, as the case may be, shall be entitled to enforce such term or enjoy the benefit of it pursuant to the Contracts (Rights of Third Parties) Act 1999. |
17.9.3 | Following the relevant Completion the Group Companies or any of their respective directors, officers and agents may enforce and rely on Clause 11.5 to the same extent as if it were a party. |
17.9.4 | Notwithstanding the provisions of Clause 17.9.2, the parties to this Agreement shall be entitled by agreement, subject to the other terms and provisions of this Agreement, to rescind, terminate or vary this Agreement in any way and at any time without the consent of any member of the Sellers Group or the Purchasers Group or any person referred to in Clause 17.9.3 who is not a party to this Agreement. |
17.10 | Variation |
No variation of this Agreement shall be effective unless in writing and signed by or on behalf of each of the parties.
17.11 | Method of Payment |
Wherever in this Agreement provision is made for the payment by one party to the other, such payment shall be effected by crediting for same day value the account specified by the payee to the payer reasonably in advance and in sufficient detail to enable payment by telegraphic or other electronic means to be effected on or before the due date for payment.
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17.12 | Costs |
17.12.1 | The Sellers shall bear all costs incurred by them in connection with the preparation, negotiation and entry into of this Agreement, the Tax Indemnity and the sale of the Shares. |
17.12.2 | The Purchaser shall bear all such costs incurred by it in connection with the preparation, negotiation and entry into of this Agreement, the Tax Indemnity, the filing of all consents, approvals and clearances required in respect of the BMM Conditions, the Lisheen Condition and the Namibia Conditions and the purchase of the Shares. |
17.13 | Notarial Fees, Registration, Stamp and Transfer Taxes and Duties, Tax on Sale Proceeds |
17.13.1 | The Purchaser shall bear the cost of all stamp duty, any notarial fees and all registration and transfer taxes and duties or their equivalents in all jurisdictions where such fees, taxes and duties are payable as a result of, or in connection with any document effecting, the transactions contemplated by this Agreement (including without limitation any applicable real estate transfer taxes). The Purchaser shall be responsible for arranging the payment of such stamp duty and all other such fees, taxes and duties, including fulfilling any administrative or reporting obligation imposed by the jurisdiction in question in connection with the payment of such taxes and duties. The Purchaser shall indemnify each of the Sellers and any other member of the Sellers Group against any Losses suffered by any Seller or member of the Sellers Group as a result of the Purchaser failing to comply with its obligations under this Clause 17.13.1. |
17.13.2 | For the avoidance of doubt, the Sellers shall bear any Tax assessable on the Sellers and any withholding taxes payable under the laws of South Africa, Namibia, Ireland or Luxembourg on account of the Sellers liability to Tax and arising on or in respect of the payment by the Purchaser to the Sellers in consideration for the transfer of any of the Shares, the BMM Claims, the BMM Payables, the Lisheen Payables or the Namibia Payables (other than stamp duties, transfer taxes or duties or VAT payable by reference to the same). The Sellers shall be responsible for arranging the payment of any such Tax (other than withholding taxes) including fulfilling any administrative or reporting obligation imposed by the jurisdiction in question in connection with the payment of such Tax. |
17.13.3 | In circumstances where, in advance of the Lisheen Completion, either: |
(i) | the Lisheen Seller delivers to the Purchaser a certificate issued under section 980 (8) of the Irish Taxes Consolidation Act 1997 by the Irish Revenue Commissioners in respect of the sale of the Lisheen Shares to be effected at Lisheen Completion; or |
(ii) | the Lisheen Seller provides evidence satisfactory to the Purchaser or the Purchaser otherwise determines (in each case acting reasonably and in good faith) that it is not required to make any withholding or deduction from the Lisheen Share Consideration for or on account of Irish Capital Gains Tax pursuant to section 980 of the Irish Taxes Consolidation Act 1997, |
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then the Purchaser shall pay the Lisheen Share Consideration without any deduction or withholding pursuant to section 980 of the Irish Taxes Consolidation Act 1997.
17.14 | Interest |
If any party defaults in the payment when due of any sum payable under this Agreement or the Tax Indemnity, its liability shall be increased to include interest on such sum from the date when such payment is due until the date of actual payment (after as well as before judgment) at a rate per annum of 3 per cent above LIBOR. Such interest shall accrue from day to day and shall be compounded monthly.
17.15 | Grossing-up of Payments |
17.15.1 | All sums payable under this Agreement or the Tax Indemnity shall be paid free and clear of all deductions, withholdings, set-offs or counterclaims whatsoever save only as may be required by law. If any deductions or withholdings are required by law the party making the payment shall (except in the case of (a) interest payable under Clause 17.14 of this Agreement or (b) any deduction or withholding required by the laws of South Africa, Namibia, Ireland or Luxembourg in respect of any amounts payable by the Purchaser (i) in consideration for the transfer of any of the Shares, the BMM Claims, the BMM Payables, the Namibia Payables or in respect of the Lisheen Payables or (ii) under the Intra-Group Payable Assignment Agreement) be obliged to pay to the other party such sum as will after such deduction or withholding has been made leave the other party with the same amount as it would have been entitled to receive in the absence of any such requirement to make a deduction or withholding, provided that if either party shall have assigned the benefit in whole or in part of this Agreement or the Tax Indemnity then the liability of the other party under this Clause 17.15.1 shall be limited to that (if any) which it would have been had no such assignment taken place. |
17.15.2 | If any Tax Authority charges to Taxation (or would charge to Taxation in the absence of any Reliefs available to the recipient) any payment made under this Agreement pursuant to an indemnity, compensation or reimbursement provision (which, for the avoidance of doubt, shall not include any payment made by the Purchaser in consideration for the transfer of any of the Shares, the BMM Claims, the BMM Payables, the Lisheen Payables or the Namibia Payables) or any sum paid under Clause 2 or Clause 9 of the Tax Indemnity (other than Taxation attributable to a payment being properly treated as an adjustment to the consideration paid by the Purchaser for the Shares under the terms of this Agreement) then, except to the extent that the amount of the payment takes account of the Taxation that will be suffered by the recipient on receipt of such payment, the amount so payable shall be increased by such amount as will ensure that after payment of the Taxation so charged (or which would have been so charged if any Reliefs available to the recipient were ignored, and after giving credit for any Relief available to the recipient in respect of the matter giving rise to the payment) there shall be left a sum equal to the amount that would otherwise have been payable under this Agreement or the Tax Indemnity, provided that if either party shall have assigned the benefit in whole or in part of this Agreement or the Tax Indemnity then the liability of the other party under this |
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Clause 17.15.2 shall be limited to that (if any) which it would have been had no such assignment taken place. |
17.15.3 | The recipient of an amount paid under this Clause 17.15 shall claim from the appropriate Tax Authority any exemption, rate reduction, refund, credit or similar benefit (including pursuant to any relevant double tax treaty) to which it is entitled in respect of any deduction or withholding in respect of which a payment has been made pursuant to Clause 17.15.1 and, for such purposes shall, within any applicable time limits, submit any claims, notices, returns or applications and send a copy thereof to the payer. |
17.15.4 | If the recipient of a payment constituting an indemnity, compensation or reimbursement under this Agreement or a payment under the Tax Indemnity receives a credit for or refund of any Taxation payable by it or similar benefit by reason of any deduction or withholding for or on account of Taxation then it shall reimburse to the other party such part of such additional amounts paid to it pursuant to Clause 17.15.1 as the recipient of the payment certifies to the other party will leave it (after such reimbursement) in no better and no worse after-tax position than it would have been in if the other party had not been required to make such deduction or withholding. |
17.16 | VAT |
17.16.1 | Where under the terms of this Agreement or the Tax Indemnity one party is liable to indemnify or reimburse another party in respect of any costs, charges or expenses, the payment shall include an amount equal to any VAT thereon not otherwise recoverable by the other party (or by a member of any group for VAT purposes of which it is a member), subject to that party (and the members of any relevant group for VAT purposes) using all reasonable endeavours to recover such amount of VAT as may be practicable. |
17.16.2 | If any payment under this Agreement constitutes the consideration for a taxable supply for VAT purposes, then in addition to that payment the payer shall, following the presentation of a valid VAT invoice, pay any VAT due in respect of such payment. |
17.17 | Notices |
17.17.1 | Any notice or other communication in connection with this Agreement (each, a Notice) shall be: |
(i) | in English; |
(ii) | in writing; and |
(iii) | delivered by hand, fax, pre-paid first class post or courier using an internationally recognised courier company. |
17.17.2 | A Notice to the Sellers shall be sent to such party at the following address, or such other person or address as the Sellers may notify to the Purchaser from time to time: |
Anglo American Services (UK) Ltd.
20 Carlton House Terrace
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London
SW1Y 5AN
Fax: +44 20 7968 8755
Attention: The Company Secretary
with a copy to:
Linklaters LLP
One Silk Street London EC2Y 8HQ
Fax: +44 20 7456 2222
Attention: Michael Sullivan, Partner
17.17.3 | A Notice to the Seller Guarantor shall be sent to such party at the following address, or such other person or address as the Seller Guarantor may notify to the Purchaser from time to time: |
Anglo American Services (UK) Limited
20 Carlton House Terrace
London
SW1Y 5AN
Fax: +44 20 7968 8755
Attention: The Company Secretary
with a copy to:
Linklaters LLP
One Silk Street
London EC2Y 8HQ
Fax: +44 20 7456 2222
Attention: Michael Sullivan, Partner
17.17.4 | A Notice to the Purchaser shall be sent to the following address, or such other person or address as the Purchaser may notify to the Sellers from time to time: |
Vedanta Resources plc
16 Berkeley Street
London W1J 8DZ
Fax: +44 20 7491 8440
Attention: The Company Secretary
with a copy to:
Dewey & LeBoeuf
No.1 Minster Court
Mincing Lane
London EC3R 7YL
Fax: +44 20 7459 5999
Attention: Camille Abousleiman, Partner
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17.17.5 | A Notice to the Purchasers Guarantor shall be sent to the following address, or such other person or address as the Purchasers Guarantor may notify to the Sellers from time to time: |
Vedanta Resources plc
16 Berkeley Street
London W1J 8DZ
Fax: +44 20 7491 8440
Attention: The Company Secretary
with a copy to:
Dewey & LeBoeuf
No.1 Minster Court
Mincing Lane
London EC3R 7YL
Fax: +44 20 7459 5999
Attention: Camille Abousleiman, Partner
17.17.6 | A Notice shall be effective upon receipt and shall be deemed to have been received: |
(i) | 60 hours after posting, if delivered by pre-paid first class post; |
(ii) | at the time of delivery, if delivered by hand or courier; or |
(iii) | at the time of transmission in legible form, if delivered by fax. |
17.18 | Invalidity |
17.18.1 | If any provision in this Agreement shall be held to be illegal, invalid or unenforceable, in whole or in part, the provision shall apply with whatever deletion or modification is necessary so that the provision is legal, valid and enforceable and gives effect to the commercial intention of the parties. |
17.18.2 | To the extent it is not possible to delete or modify the provision, in whole or in part, under Clause 17.18.1, then such provision or part of it shall, to the extent that it is illegal, invalid or unenforceable, be deemed not to form part of this Agreement and the legality, validity and enforceability of the remainder of this Agreement shall, subject to any deletion or modification made under Clause 17.18.1, not be affected. |
17.19 | Counterparts |
This Agreement may be entered into in any number of counterparts, all of which taken together shall constitute one and the same instrument. Any party may enter into this Agreement by executing any such counterpart.
17.20 | Governing Law and Submission to Jurisdiction |
17.20.1 | This Agreement and the documents to be entered into pursuant to it, save as expressly referred to therein, and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with English law. |
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17.20.2 | Each of the parties irrevocably agrees that the courts of England are to have exclusive jurisdiction to settle any dispute which may arise out of or in connection with this Agreement and the documents to be entered into pursuant to it and that accordingly any proceedings arising out of or in connection with this Agreement and the documents to be entered into pursuant to it shall be brought in such courts. Each of the parties irrevocably submits to the jurisdiction of such courts and each waives any objection to proceedings in any such court on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum. |
17.21 | Appointment of Process Agent by the Sellers |
17.21.1 | Each of the Sellers hereby irrevocably appoints Anglo American Services (UK) Ltd. of 20 Carlton House Terrace, London SW1Y 5AN as its agent to accept service of process in England in any legal action or proceedings arising out of this Agreement, service upon whom shall be deemed completed whether or not forwarded to or received by the Sellers. |
17.21.2 | Each of the Sellers agrees to inform the Purchaser in writing of any change of address of such process agent within 28 days of such change. |
17.21.3 | If such process agent ceases to be able to act as such or to have an address in England, each Seller irrevocably agrees to appoint a new process agent in England acceptable to the Purchaser and to deliver to the Purchaser within 14 days a copy of a written acceptance of appointment by the process agent. |
17.21.4 | Nothing in this Agreement shall affect the right to serve process in any other manner permitted by law or the right to bring proceedings in any other jurisdiction for the purposes of the enforcement or execution of any judgment or other settlement in any other courts. |
17.22 | Appointment of Process Agent by the Purchaser |
17.22.1 | The Purchaser hereby irrevocably appoints Vedanta Resources plc of 16 Berkeley Street, London W1J 8DZ as its agent to accept service of process in England in any legal action or proceedings arising out of this Agreement, service upon whom shall be deemed completed whether or not forwarded to or received by the Purchaser. |
17.22.2 | The Purchaser agrees to inform the Sellers in writing of any change of address of such process agent within 28 days of such change. |
17.22.3 | If such process agent ceases to be able to act as such or to have an address in England, the Purchaser irrevocably agrees to appoint a new process agent in England acceptable to the Sellers and to deliver to the Sellers within 14 days a copy of a written acceptance of appointment by the process agent. |
17.22.4 | Nothing in this Agreement shall affect the right to serve process in any other manner permitted by law or the right to bring proceedings in any other jurisdiction for the purposes of the enforcement or execution of any judgment or other settlement in any other courts. |
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In witness whereof this Agreement has been duly executed.
SIGNED by
on behalf of Anglo Operations Limited: /s/ Duncan Graham Wanblad
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SIGNED by
on behalf of Taurus International S.A.: /s/ Duncan Graham Wanblad
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SIGNED by
on behalf of Anglo South Africa Capital (Pty) Ltd: /s/ Duncan Graham Wanblad
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SIGNED by
on behalf of Anglo American Services (UK) Limited /s/ Duncan Graham Wanblad
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SIGNED by
on behalf of Welter Trading Limited: /s/ Deepak Kumar /s/ Saradhi Rajan
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SIGNED by
on behalf of Vedanta Resources plc: /s/ Deepak Kumar /s/ Saradhi Rajan
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Schedule 1
Details of the Sellers, Shares etc
(Clause 1.1)
The Shares are attributable to each Seller as follows:
(1) Name |
(2) Name of |
(3) Shares | ||
Anglo Operations Limited |
Black Mountain Mining (Pty) Ltd | 740 ordinary shares of ZAR1.00 each | ||
Taurus International S.A. |
Anglo American Lisheen Finance Limited | 12 ordinary shares of US$1.00 each | ||
Anglo South Africa Capital (Pty) Ltd |
AngloBase Namibia Holdings (Pty) Ltd | 1,300 ordinary shares of N$1.00 each |
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Schedule 2
Companies and Subsidiaries
Part I: BMM
1 Particulars of the Company
Name of Company: | Black Mountain Mining (Pty) Ltd | |
Registration Number: | 2005/040096/07 | |
Registered Office: | 44 Main Street, Johannesburg, 2001 | |
Date and place of incorporation: | 11 November 2005, South Africa | |
Issued share capital: | ZAR1,000.00 divided into 1,000 ordinary shares of ZAR1.00 each | |
Authorised share capital: | ZAR10,000.00 divided into 10,000 ordinary shares of ZAR1.00 each | |
Shareholders and shares held: | Anglo Operations Limited: 740 ordinary shares | |
Exxaro Base Metals (Pty) Ltd: 260 ordinary shares | ||
Directors: | D Wanblad, DJ Morris, O Meijer, E Venter, H Faul (Alternate) PA Koppeschaar (Alternate) | |
Secretary: | Anglo Operations Limited |
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Part II: Lisheen Group Entities
1 Particulars of the Company
Name of Company: | Anglo American Lisheen Finance Limited | |
Registered Number: | 257616 | |
Registered Office: | Lisheen Mine, Killoran, Moyne, Thurles, | |
Co. Tipperary, Ireland | ||
Date and place of incorporation: | 3 December 1996, Ireland | |
Issued share capital: | 12 Ordinary Shares of US$1.00 each | |
Authorised share capital: | US$15,000,000 | |
Shareholders and shares held: | Taurus International S.A. owns all 12 issued shares | |
Directors: | Hendrik Faul, Alan Buckley, John Elmes | |
Secretary: | Alan Buckley |
Name of Subsidiary: | Anglo Base Metals (Ireland) Limited | |
Registered Number: |
257617 | |
Registered Office: |
Lisheen Mine, Killoran, Moyne, Thurles, Co. Tipperary, Ireland | |
Date and place of incorporation: |
3 December 1996, Ireland | |
Issued share capital: |
4 Ordinary Shares of US$1.00 each | |
Authorised share capital: |
US$1,000,000 | |
Shareholders and shares held: |
Anglo American Lisheen Finance Limited owns all 4 issued shares | |
Directors: |
Hendrik Faul, Alan Buckley, John Elmes | |
Secretary: |
Alan Buckley |
Name of Subsidiary: | Anglo American Lisheen Mining Limited | |
Registered Number: |
203494 | |
Registered Office: |
Lisheen Mine, Killoran, Moyne, Thurles, Co. Tipperary, Ireland | |
Date and place of incorporation: |
2 June 1993, Ireland | |
Issued share capital: |
2 Ordinary Shares of $1.00 each | |
Authorised share capital: |
US$1,000,000 | |
Shareholders and shares held: | Anglo American Lisheen Finance Limited |
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owns the 2 issued shares |
Name of Subsidiary: | Anglo American Lisheen Mining Limited | |
Directors: |
Hendrik Faul, Alan Buckley, John Elmes | |
Secretary: |
Alan Buckley |
Name of Subsidiary: | Killoran Lisheen Mining Limited | |
Registered Number: |
253648 | |
Registered Office: |
Lisheen Mine, Killoran, Moyne, Thurles, Co. Tipperary, Ireland | |
Date and place of incorporation: |
30 August 1996, Ireland | |
Issued share capital: |
3 Ordinary Shares of US$1.00 each | |
Authorised share capital: |
US$1,000,000 | |
Shareholders and shares held: |
Anglo American Lisheen Finance Limited owns all 3 issued shares | |
Directors: |
Hendrik Faul, Alan Buckley, John Elmes | |
Secretary: |
Alan Buckley |
Name of Subsidiary: | Killoran Lisheen Finance Limited | |
Registered Number: |
258371 | |
Registered Office: |
Killoran, Moyne, Thurles, Co. Tipperary, Ireland | |
Date and place of incorporation: |
17 December 1996, Ireland | |
Issued share capital: |
3 Ordinary Shares of US$1.00 each | |
Authorised share capital: |
US$15,000,000 | |
Shareholders and shares held: |
Anglo American Lisheen Finance Limited owns all 3 issued shares | |
Directors: |
Hendrik Faul, Alan Buckley, John Elmes | |
Secretary: |
Alan Buckley |
Name of Subsidiary: | Lisheen Milling Limited | |
Registered Number: |
261670 | |
Registered Office: |
Lisheen Mine, Killoran, Moyne, Thurles, Co. Tipperary, Ireland | |
Date and place of incorporation: |
18 February 1997, Ireland | |
Issued share capital: |
1,000 A Ordinary Shares of US$1.00 each |
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1,000 B Ordinary Shares of US$1.00 each |
Name of Subsidiary: | Lisheen Milling Limited | |
Authorised share capital: |
US$1,000,000 divided into 500,000 A Ordinary Shares of US$1.00 each and 500,000 B Ordinary Shares of US$1.00 each | |
Shareholders and shares held: |
Anglo American Lisheen Finance Limited owns all 2,000 issued shares | |
Directors: |
Hendrik Faul, Alan Buckley, John Elmes | |
Secretary: |
Alan Buckley |
Name of Subsidiary: | Killoran Concentrates Limited | |
Registered Number: |
306421 | |
Registered Office: |
Lisheen Mine, Killoran, Moyne, Thurles, Co. Tipperary, Ireland | |
Date and place of incorporation: |
7 May 1999, Ireland | |
Issued share capital: |
4 Ordinary Shares of US$1.00 each | |
Authorised share capital: |
US$2,000 | |
Shareholders and shares held: |
Anglo American Lisheen Finance Limited owns all 4 issued shares | |
Directors: |
Hendrik Faul, Alan Buckley, John Elmes | |
Secretary: |
Alan Buckley |
Name of Subsidiary: | Killoran Lisheen Limited | |
Registered Number: |
53514 | |
Registered Office: |
Killoran, Moyne, Thurles, Co. Tipperary, Ireland | |
Date and place of incorporation: |
5 December 1975, Ireland | |
Issued share capital: |
117,466,133 Ordinary Shares of 0.126974 each | |
Authorised share capital: |
15,871,725 | |
Shareholders and shares held: |
Anglo American Lisheen Finance Limited owns all the issued shares | |
Directors: |
Hendrik Faul, Alan Buckley, John Elmes | |
Secretary: |
Alan Buckley |
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Name of Subsidiary: | Killoran Lisheen Holdings Limited | |
Registered Number: |
253647 | |
Registered Office: |
Killoran, Moyne, Thurles, Co. Tipperary, Ireland | |
Date and place of incorporation: |
30 August 1996, Ireland | |
Issued share capital: |
2 Ordinary Shares of 1.269738 | |
Authorised share capital: |
1,269,738 | |
Shareholders and shares held: |
Azela Limited and Killoran Lisheen Limited hold 1 Ordinary share each | |
Directors: |
Hendrik Faul, Alan Buckley, John Elmes | |
Secretary: |
Alan Buckley |
Name of Subsidiary: | Azela Limited | |
Registered Number: |
273022 | |
Registered Office: |
Lisheen Mine, Killoran, Moyne, Thurles, Co. Tipperary, Ireland | |
Date and place of incorporation: |
6 October 1997, Ireland | |
Issued share capital: |
2 Ordinary Shares of 1.269738 | |
Authorised share capital: |
1,269,738 | |
Shareholders and shares held: |
Killoran Lisheen Limited owns both issued shares. | |
Directors: |
Hendrik Faul, Alan Buckley, John Elmes | |
Secretary: |
Alan Buckley |
Name of Partnership: | Lisheen Mine Partnership | |
Registered Business Name Number: |
155243 | |
Registered Office: |
Lisheen Mine, Killoran, Moyne, Thurles Co. Tipperary, Ireland | |
Date and place of incorporation: |
28 November 1997, Ireland | |
Partners: |
The partnership is an equal 50/50 partnership between Anglo American Lisheen Mining Limited and Killoran Lisheen Mining Limited | |
Management Committee: |
Hendrik Faul, Alan Buckley, John Elmes |
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Part III: Namibia Group Companies
2 Particulars of the Company
Name of Company: | AngloBase Namibia Holdings (Pty) Ltd (formerly Ambase Exploration Namibia) | |
Registered Number: |
98/227 | |
Registered Office: |
24 Orban Street, Klein Windhoek, Windhoek | |
Date and place of incorporation: |
16 June 1998, Namibia | |
Issued share capital: |
N$1,300.00 divided into 1,300 ordinary shares of N$1.00 each | |
Authorised share capital: |
N$5,000.00 divided into 4,000 ordinary shares of N$1.00 each and 1,000 5% redeemable preference shares of N$1.00 each | |
Shareholders and shares held: |
Anglo South Africa Capital (Pty) Ltd: 1,300 ordinary shares | |
Directors: |
MD Bentley, SJ van Schalkwyk, JC Posthumus, HJ Faul and JS Coetzee | |
Secretary: |
SGA Corporate Secretaries (Pty) Ltd |
Name of Subsidiary: | AngloBase Namibia (Pty) Ltd | |
Registered Number: |
97/146 | |
Registered Office: |
24 Orban Street, Klein Windhoek, Windhoek | |
Date and place of incorporation: |
27 May 1997, Namibia | |
Issued share capital: |
N$101.00 divided into 101 ordinary shares of N$1.00 each | |
Authorised share capital: |
N$4,000.00 divided into 4,000 ordinary shares of N$1.00 each | |
Shareholders and shares held: |
AngloBase Namibia Holdings (Pty) Ltd: 101 ordinary shares | |
Directors: |
MD Bentley, SJ van Schalkwyk, HJ Faul and JS Coetzee | |
Secretary: |
SGA Corporate Secretaries (Pty) Ltd |
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Name of Subsidiary: | Amica Guesthouse (Pty) Ltd | |
Registered Number: |
2004/358 |
Registered Office: |
24 Orban Street, Klein Windhoek, Windhoek | |
Date and place of incorporation: |
19 July 2004, Namibia | |
Issued share capital: |
N$100.00 divided into 100 ordinary shares of N$1.00 each | |
Authorised share capital: |
N$4,000.00 divided into 4,000 ordinary shares of N$1.00 each | |
Shareholders and shares held: |
AngloBase Namibia (Pty) Ltd: 100 ordinary shares | |
Directors: |
MD Bentley and RP Coetzee | |
Secretary: |
SGA Corporate Secretaries (Pty) Ltd |
Name of Subsidiary: | Namzinc (Pty) Ltd | |
Registered Number: |
98/226 | |
Registered Office: |
24 Orban Street, Klein Windhoek, Windhoek | |
Date and place of incorporation: |
16 June 1998. Namibia | |
Issued share capital: |
N$100.00 divided into 100 ordinary shares of N$1.00 each | |
Authorised share capital: |
N$4,000.00 divided into 4,000 ordinary shares of N$1.00 each | |
Shareholders and shares held: |
AngloBase Namibia (Pty) Ltd: 100 ordinary shares | |
Directors: |
MD Bentley, SJ van Schalkwyk, HJ Faul and JS Coetzee | |
Secretary: |
SGA Corporate Secretaries (Pty) Ltd |
Name of Subsidiary: | Skorpion Mining Company (Pty) Ltd | |
Registered Number: |
98/384 | |
Registered Office: |
24 Orban Street, Klein Windhoek, Windhoek | |
Date and place of incorporation: |
15 September 1998, Namibia | |
Issued share capital: |
N$100.00 divided into 100 ordinary shares of N$1.00 each | |
Authorised share capital: |
N$4,000.00 divided into 4,000 ordinary shares of N$1.00 each | |
Shareholders and shares held: |
AngloBase Namibia (Pty) Ltd: 100 ordinary shares |
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Directors: |
MD Bentley, SJ van Schalkwyk, HJ Faul and JS Coetzee | |
Secretary: |
SGA Corporate Secretaries (Pty) Ltd |
Name of Subsidiary: | Rosh Pinah Health Care (Pty) Ltd | |
Registered Number: |
2006/701 | |
Registered Office: |
24 Orban Street, Klein Windhoek, Windhoek | |
Date and place of incorporation: |
27 December 2006, Namibia | |
Issued share capital: |
N$200.00 divided into 200 ordinary shares of N$1.00 each | |
Authorised share capital: |
N$4,000.00 divided into 4,000 ordinary shares of N$1.00 each | |
Shareholders and shares held: |
AngloBase Namibia (Pty) Ltd: 138 ordinary shares
Rosh Pinah Zinc Corporation (Proprietary) Limited: 62 ordinary shares | |
Directors: |
MD Bentley, RP Coetzee, MHK Kaulinge and PJ Fourie | |
Secretary: |
SGA Corporate Secretaries (Pty) Ltd |
Name of Subsidiary: | Roshskor Township (Pty) Ltd | |
Registered Number: |
2000/512 | |
Registered Office: |
24 Orban Street, Klein Windhoek, Windhoek | |
Date and place of incorporation: |
24 October 2000, Namibia | |
Issued share capital: |
N$100.00 divided into 100 ordinary shares of N$1.00 each | |
Authorised share capital: |
N$4,000.00 divided into 4,000 ordinary shares of N$1.00 each | |
Shareholders and shares held: |
AngloBase Namibia (Pty) Ltd: 50 ordinary shares
Rosh Pinah Zinc Corporation (Proprietary) Limited: 50 ordinary shares | |
Directors: |
MD Bentley, SJ van Schalkwyk, CP Aspeling, EM Castelyn and MHK Kaulinge | |
Secretary: |
SGA Corporate Secretaries (Pty) Ltd |
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Schedule 3
The Properties
(Clause 1.1)
1 Properties owned by BMM
Title Deed |
Property Description | |
T14686/2010 | The Remaining Extent of Portion 1 of the Farm Bloemhok 61, Division Namaqualand, Province of the Northern Cape. Measuring 1797,3847 hectares. Portion 1 of the Farm Gams 60, Division Namaqualand, Province of the Northern Cape. Measuring 3869,8037 hectares. Remainder of the Farm Aroams 57, Division Namaqualand, Province of the Northern Cape. Measuring 3837,7102 hectares. | |
T14689/2010 | Remainder of Portion 1 (Aggeneys West) of the Farm Aggeneys 56, Division Namaqualand, Province of the Northern Cape. Measuring 10206,5892 hectares. Portion 1 of the Farm Koeris 54, Division Namaqualand, Province of the Northern Cape. Measuring 207,9041 hectares. Portion 4 (a portion of portion 2) of the Farm Zuurwater 62, Division Namaqualand, Province of the Northern Cape. Measuring 3433,6725 hectares. Remainder of the Farm Aggeneys 56, Division Namaqualand, Province of the Northern Cape. Measuring 10167, 7525 hectares. Portion 3 (a portion of portion 1) of the Farm Uitkyk 889, Division Calvinia, Province of the Northern Cape. Measuring 35, 5611 hectares. Erf 691 Aggeneys, Division Namaqualand, Province of the Northern Cape. Measuring 612 square metres. | |
T14684/2010 | Remainder of Erf 202 Aggeneys in the municipal area Khai-ma, Division of Namaqualand, Province of Northern Cape. Measuring 1,7207 hectares. | |
T14685/2010 | Portion 4 of the Farm Gams 60 situated in the Khai-Ma Municipality, Division Namaqualand, Province of the Northern Cape. Measuring 5699, 8066 hectares. | |
T14687/2010 | Remainder of Erf 204 Aggeneys, in the division of Namaqualand, Province of the Northern Cape measuring 1,4150 hectares. | |
T14683/2010 | Remainder of Erf 684 Aggeneys in the Division of Namaqualand, Province of the Northern Cape. Measuring 75,8384 hectares. | |
T14683/2010 | Remaining Extent of Erf 683 Aggeneys Township in the Municipality of Khai-Ma, Division of Namaqualand, Province of the Northern Cape which includes 271 erven and 10 public spaces. |
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2 Properties leased by BMM
Address of Property |
Original parties and further description | |
A portion of Portion 15 of the Farm Pienaarspoort 197 measuring 1,6613 hectares, a portion of the Remainder of the Farm 196 measuring 18 601.5 square metres and a portion of the Farm 1185 measuring 9057.5 square metres. |
Transnet Limited trading as Transnet National Port Authority (as lessor) and BMM (as lessee) |
3 Properties owned by the Lisheen Group Entities
Name of Lisheen Group Entity owning the Property |
Address of Property |
Title number(s) or plot number(s) if applicable | ||
(1) Anglo American Lisheen Mining Limited; and (2) Killoran Lisheen Mining Limited are the registered owners of these lands. |
Lands at Killoran, Barnalisheen, Derryfadda, Cooleeny, Derryville and Kilclonagh, Moyne, Thurles, Co. Tipperary | All of the lands comprised in Folios 19838F, 20987, 22848, 23749F, 23849F, 25241F, 25511F, 26316F, 26819F, 28372F, 3008F, 31295, 34969F, 37415F, 39806, 6600F, 26072F and 21230F County Tipperary and 9950 County Laois. | ||
(1) Anglo American Lisheen Mining Limited; and (2) Killoran Lisheen Limited are the registered owners of these lands. |
Lands at Killoran, Moyne, Thurles, Co. Tipperary | All of the lands comprised in Folio 22284 County Tipperary | ||
(1) Lisheen Milling Limited is entitled to be (and is in the course of being) registered as owner of part of the lands comprised in Folios 34283 and 26477F County Tipperary. This registration is pending in the Land Registry (Dealing Number D2008PS028031T). (2) Anglo American Lisheen Mining Limited is the registered owner of a half share in the remainder |
Lands at Derryfadda, Cooleeny and Killoran, Moyne, Thurles, Co. Tipperary. | All of the lands comprised in Folios 34283 and 26477F County Tipperary. |
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of the lands comprised in Folios 34283 and 26477F County Tipperary (i.e. the lands not transferred to Lisheen Milling Limited). (3) Killoran Lisheen Mining Limited is entitled to be (and is in the course of being) registered as owner of the other half share in the remainder of the lands comprised in Folios 34283 and 26477F County Tipperary. This registration is pending in the Land Registry (Dealing Number D2008PS031082C). |
||||
(1) Lisheen Milling Limited is entitled to be (and is in the course of being) registered as owner of part of the lands comprised in Folio 28445 County Tipperary. This registration is pending in the Land Registry (Dealing Number D2008PS028031T). (2) Anglo American Lisheen Mining Limited is the registered owner of a half share in the remainder of the lands comprised in Folio 28445 County Tipperary (i.e. the lands not transferred to Lisheen Milling Limited). (3) Killoran Lisheen Mining Limited is entitled to be (and is in the course of being) registered as owner of the other half share in the remainder of the lands comprised in Folio 28445 County Tipperary. This registration is pending in the Land Registry (Dealing Number D2008PS031082C). |
Lands at Derryfadda, Moyne, Thurles, Co. Tipperary. | All of the lands comprised in Folio 28445 County Tipperary. |
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(4) Anglo American Lisheen Mining Limited and Killoran Lisheen Mining Limited have however transferred part of the lands that they are the registered owners of/entitled to be registered as owners of comprised in Folio 28445 County Tipperary to a third party (JJ (otherwise John Joe) Fleming), which transfer has not been lodged in the Land Registry as yet. | ||||
(1) Anglo American Lisheen Mining Limited; and (2) Killoran Lisheen Mining Limited are entitled to be (and are in the course of being) registered as owners of part of these lands. The registration of Anglo American Lisheen Mining Limited and Killoran Lisheen Mining Limited as owners of the lands comprised in Folios 37622, 8664F and 27981F County Tipperary pending in the Land Registry (Dealing Number D2008PS003267C). |
Lands at Killoran, Cooleeny and Derryfadda, Moyne, Thurles, Co. Tipperary | Part of the lands comprised in the following Folios: 37622, 8664F and 27981F County Tipperary. | ||
Lisheen Milling Limited is entitled to be (and is in the course of being) registered as owner of all/part of the lands comprised in Folios 14531, 22468F, 23694F, 24179F, 31012 (part), 37622 (part), 10421F (part), 8664F (part), 26476F (part) and 26162F(part) County Tipperary. The registration of Lisheen Milling Limited as owner of these lands is pending |
Lands at Killoran, Cooleeny and Derryfadda, Moyne, Thurles, Co. Tipperary | The lands comprised in the following Folios: 14531, 22468F, 23694F, 24179F, 31012 (part), 37622 (part), 10421F (part), 8664F (part), 26476F (part) and 26162F (part) County Tipperary. |
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in the Land Registry (Dealing Number D2008PS003265A). | ||||
(1) Anglo American Lisheen Mining Limited; and (2) Killoran Lisheen Mining Limited are entitled to be (and are in the course of being) registered as owners of these lands. The registration of Anglo American Lisheen Mining Limited and Killoran Lisheen Mining Limited as owners of these lands is pending in the Land Registry (Dealing Numbers D2008PS000133W & D2008PS010122Y). |
Lands at Killoran, Moyne, Thurles, Co. Tipperary | All of the lands comprised in Folios 22733 & 33527 County Tipperary. | ||
(1) Anglo American Lisheen Mining Limited; and (2)Killoran Lisheen Mining Limited are the registered owners of the lands comprised in the folios set out opposite. However (1) Anglo American Lisheen Mining Limited and (2) Killoran Lisheen Mining Limited have transferred part of the lands comprised in these folios to a third party, which transfer has not been lodged in the Land Registry as yet. |
Lands at Derryville, Derryfadda and Killoran, Moyne, Thurles, Co. Tipperary | Part of the lands comprised in Folios 23280F and 12444F County Tipperary. |
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The Lisheen Group Entities have possessory title to a small portion of lands which contain a small section of the embankment/retaining wall of the tailings management facility on the mine site, which is not within the Lisheen Group Entities registered title boundary. | Lands at Lisheen Mine, Killoran, Moyne, Thurles, Co. Tipperary | Lands will be identified on map attached to Statutory Declaration | ||
A Statutory Declaration has been uploaded to the data site and confirms that the Lisheen Group Entities have been in sole and exclusive control and occupation and undisputed possession of this small portion of lands since the construction of the tailings management facility in 1997. |
4 | Properties leased by the Lisheen Group Entities |
Name of Lisheen Group |
Address of Property |
Date of Lease and original parties | ||
(1) Anglo American Lisheen Mining Limited; and (2) Killoran Lisheen Mining Limited. |
Lands at Killoran, Moyne, Thurles, Co. Tipperary being all of the lands comprised in Folio 3061L County Tipperary. | Lease dated 22 September 1997 between Coillte Teoranta of the one part and Ivernia Lisheen Mining Limited and Minorco Lisheen Mining Limited of the other part. | ||
Lisheen Milling Limited | Site at the Port of Cork, Cork | Lease dated 8 January 2003 between the Port of Cork Company and Lisheen Milling Limited |
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5 | Properties in respect of which the Lisheen Group Entities have been granted rights |
Name of Lisheen Group |
Address of Property |
Date of Deed and original parties | ||
(1) Anglo American Lisheen Mining Limited; and (2) Killoran Lisheen Mining Limited. |
Lands at Killoran, Moyne, Thurles, Co. Tipperary being part of the lands comprised in Folio 39804 County Tipperary (Registered owner of Folio: John Mullaney). | Deed of Easement dated 14 June 1999 between John Mullaney of the one part and Minorco Lisheen Mining Limited and Ivernia Lisheen Mining Limited of the other part. | ||
(1) Anglo American Lisheen Mining Limited; and (2) Killoran Lisheen Limited. |
Lands at Cooleeny, Moyne, Thurles, Co. Tipperary being part of the lands comprised in Folio 50082F County Tipperary (Registered owners of Folio: Sean Hayden & Nora Hayden). | Deed of Transfer dated 19 February 1996 between Sean Hayden and Nora Hayden of the one part and Minorco Lisheen Limited and Ivernia West plc of the other part. | ||
(1) Anglo American Lisheen Mining Limited; and (2) Killoran Lisheen Limited. |
Lands at Cooleeny, Moyne, Thurles, Co. Tipperary being part of the lands comprised in Folio 43134F County Tipperary (Registered owners of Folio: James OGrady and Mary Jo OGrady). | Deed of Transfer dated 12 November 1995 between Minorco Lisheen Limited and Ivernia West plc of the one part and James OGrady of the other part. | ||
The Lisheen Group Entities have the benefit of a wayleave over lands owned by Bord na Mona (and has used this wayleave for a number of years). A copy of the Deed of Grant of Wayleave has not been located as yet. | Bord na Mona Wayleave identified on the map attached to the Declaration of Identity. |
6 | Properties leased by the Namibia Group Companies |
Address of Property |
Original parties and further description | |
A portion of reclaimed land in the Port of Ludertiz, measuring approximately 12,060 square meters | Namibian Ports Authority (as lessor) and AngloBase Namibia (Pty) Ltd (as lessee) | |
A portion of reclaimed land in the Port of Ludertiz, measuring approximately 2 700 square meters | Namibian Ports Authority (as lessor) and AngloBase Namibia (Pty) Ltd (as lessee) enduring 1 August 2007 31 July 2010 |
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Schedule 4
Intellectual Property
[NOT USED]
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Schedule 5
Sale and Purchase of BMM Shares and BMM Claims
(Clause 2.1)
1 | BMM Offer |
1.1 | The Purchaser acknowledges that, prior to any Disposal or Sale (as such terms are defined in the Black Mountain Shareholders Agreement) of the BMM Shares, the BMM Claims and the BMM Shareholder Loan by BMM Seller, the BMM Seller is required by the terms of the Black Mountain Shareholders Agreement and the BMM Articles of Association first to offer the BMM Shares, the BMM Claims and the BMM Shareholder Loan to the Other BMM Shareholders and, accordingly, the provisions of the following paragraphs of this Schedule 5 shall apply in respect of the actions to be taken by the BMM Seller and the Purchaser in connection with the making of such offer and the consequences of acceptance or non-acceptance of such offer. |
1.2 | The BMM Seller and the Purchaser shall consult in good faith in relation to the timing of the BMM Seller delivering to the board of directors of BMM (the BMM Board) an offer notice (the BMM Offer Notice) offering the BMM Shares, the BMM Claims and the BMM Shareholder Loan to the Other BMM Shareholders as required by Clause 18 of the Black Mountain Shareholders Agreement and Article 32 of the BMM Articles of Association and, without prejudice to such consultation obligations: |
1.2.1 | subject to paragraph 1.2.3, the BMM Seller shall determine, in its discretion, the timing of delivery of the BMM Offer Notice to the BMM Board; |
1.2.2 | the form in which the BMM Offer Notice is delivered to the BMM Board shall be determined by the BMM Seller, provided that, prior to such delivery, the BMM Seller shall provide the Purchaser with reasonable opportunity to review and comment on such form, and shall have regard to any comments made by the Purchaser thereon, provided that the BMM Seller shall retain the right to deliver the Offer Notice to the BMM Board in such form as the BMM Seller, acting reasonably, considers is necessary for the purposes of satisfying its obligations under the Black Mountain Shareholders Agreement and the BMM Articles of Association, including in connection with any subsequent sale of the BMM Shares, the BMM Claims and the BMM Shareholder Loan to the Purchaser on the terms of this Agreement; |
1.2.3 | if the BMM Seller has not delivered the BMM Offer Notice to the BMM Board within ten (10) Business Days of the date of this Agreement (or such later date as the BMM Seller and the Purchaser shall agree), the Purchaser shall, by notice in writing to the BMM Seller, be entitled to require the BMM Seller to deliver the BMM Offer Notice to the BMM Board and, if the Purchaser so notifies the BMM Seller, the BMM Seller shall use all reasonable endeavours to deliver the BMM Offer Notice to the BMM Board in accordance with the provisions of paragraph 1.2.2 as soon as reasonably practicable following receipt of such notice; and |
1.2.4 | the Purchaser hereby consents to the BMM Offer Notice naming the Purchaser as a third party to whom the BMM Seller wishes to transfer the BMM Shares, the BMM Claims and the BMM Shareholder Loan and the inclusion in the BMM Offer Notice of the terms contained in this Agreement as being the terms on which the Purchaser has offered (subject to this Agreement) to purchase the BMM Shares, the BMM Claims and the BMM Shareholder Loan. |
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1.3 | The BMM Seller shall notify the Purchaser in writing, as soon as practicable following receipt of the same by the BMM Board, of any acceptance, or purported acceptance, of the offer contained in the BMM Offer in respect of the BMM Shares, the BMM Claims and the BMM Shareholder Loan which is received by the BMM Board. If the BMM Seller, acting reasonably, determines that any such acceptance is validly made, on the terms of the Black Mountain Shareholder Agreement and the BMM Articles of Association, in respect of all of the BMM Shares such notice shall state that to be the case and the agreements between the BMM Seller and the Purchaser with respect to the BMM Shares, the BMM Claims, the BMM Shareholder Loan, other BMM Indebtedness and otherwise in relation to BMM (but, not for the avoidance of doubt, provisions relating to the Lisheen Shares and the Lisheen Group Entities and/or the Namibia Shares and the Namibia Group Companies) contained in this Agreement (other than Clauses 1, 16 and 17.6 to 17.22) shall lapse and neither the Sellers nor the Purchaser shall have any claim against the other under this Agreement with respect to such matters as aforesaid, save for any claim arising from breach of the obligations contained in paragraph 1.5. |
1.4 | If the BMM Seller, acting reasonably, determines that acceptance of the offer contained in the BMM Offer Notice has not been validly made, on the terms of the Black Mountain Shareholder Agreement and the BMM Articles of Association, in respect of all of the BMM Shares or if no such acceptance, or purported acceptance, has been received by the BMM Board within a period of 20 BMM Business Days of receipt by the Other BMM Shareholders of the BMM Offer Notice, the BMM Seller shall notify the Purchaser in writing (a Free to Sell Notice), as soon as practicable and in any event within 5 BMM Business Days of expiry of such period, of such determination or the expiry of such period, as the case may be, and delivery of a Free to Sell Notice by the BMM Seller shall constitute an offer (the BMM Purchaser Offer) by the BMM Seller to the Purchaser to sell to the Purchaser the BMM Shares, the BMM Claims and the BMM Shareholder Loan on the terms and conditions of this Agreement which, without requiring any further act of the Purchaser, will be deemed to have been accepted by the Purchaser on the day which is 30 days following expiry of the aforementioned period of 20 BMM Business Days (the Acceptance Date). |
1.5 | By way of collateral contract, and in consideration of the other party assuming the obligations expressed to be assumed by it in this paragraph, each of the BMM Seller and the Purchaser agrees to carry out and perform the obligations assumed by it in paragraphs 1.2 to 1.4 and, without limiting the foregoing: |
1.5.1 | the BMM Seller agrees to deliver the BMM Offer Notice to the BMM Board in the circumstances set out in paragraph 1.2; |
1.5.2 | the BMM Seller agrees to deliver to the Purchaser the Free to Sell Notice where required to do so under paragraph 1.4; and |
1.5.3 | the Purchaser hereby acknowledges and confirms its acceptance of the BMM Purchaser Offer, if made, as provided in paragraph 1.4, and irrevocably agrees and undertakes to the BMM Seller that such acceptance shall not be withdrawn or revoked. |
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For the avoidance of doubt, the obligations of the BMM Seller and the Purchaser under this paragraph 1.5 are not conditional on or otherwise subject to the BMM Conditions or the Anti-Trust Conditions.
1.6 | Acceptance by the Purchaser of the BMM Purchaser Offer as provided in paragraph 1.4 shall constitute an agreement between the BMM Seller and Purchaser under which: |
1.6.1 | the BMM Seller agrees to sell and cede; and |
1.6.2 | the Purchaser agrees to purchase, |
the BMM Shares, the BMM Claims and the BMM Shareholder Loan on the terms and conditions of this Agreement (including, for the avoidance of doubt the BMM Conditions specified in paragraph 1.8 and subject to the provisions of paragraphs 1.9 and 1.10).
1.7 | The BMM Shares shall be sold with full title guarantee and free from Encumbrances and together with all rights and advantages attaching to them as at BMM Completion (including, without limitation, the right to receive all dividends or distributions declared, made or paid on or after BMM Completion but excluding any BMM Dividend). |
1.8 | The agreement for the sale and purchase of the BMM Shares, the BMM Claims and the BMM Shareholder Loan referred to in paragraph 1.6 and the provisions of this Agreement with respect to the assignment or payment of other BMM Indebtedness are conditional on: |
1.8.1 | the approval of all aspects of this Agreement requiring approval from the South African Department of Mineral Resources in terms of section 11 of the Mineral and Petroleum Resources Development Act, 28 of 2002; |
1.8.2 | the approval of all aspects of this Agreement requiring approval from the South African Reserve Bank in terms of the Currency and Exchanges Act, 9 of 1933; |
1.8.3 | the approval of the sale of the BMM Shares by the relevant competition authorities in terms of the Competition Act, 89 of 1998; |
1.8.4 | all mandatory consents and approvals for the sale of the BMM Shares having been obtained from the Korea Fair Trade Commission pursuant to the Monopoly Regulation and Fair Trade Act (MRFTA), Law No. 3320, December 31, 1980 as amended; and |
1.8.5 | all mandatory consents and approvals for the sale of the BMM Shares having been obtained from the Chinese Ministry of Commerce pursuant to the Anti-Monopoly Law of the Peoples Republic of China adopted at the 29th meeting of the Standing Committee of the 10th National Peoples Congress of the Peoples Republic of China on August 30, 2007. |
1.9 | Without prejudice to paragraph 3 of this Schedule, the BMM Seller and the Purchaser shall consult in good faith as to timing of lodgement of any application for obtaining any consent or approval referred to in paragraph 1.8 and, without prejudice to such consultation obligations: |
1.9.1 | the BMM Seller may, at any time by notice in writing to the Purchaser (a Party Lodgement Notice) require, within 30 BMM Business Days of delivery of such notice, the lodgement of any such application (subject always to the rights or |
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obligations of the applicant therefor to amend or supplement any such application as may be necessary or desirable); |
1.9.2 | if an Other BMM Shareholder gives notice in writing to the BMM Seller or the Purchaser requiring the lodgement of any such application (a Shareholder Lodgement Notice), the party in receipt of such notice shall as soon as practicable following such receipt, notify in writing the other party of such receipt and the BMM Seller and the Purchaser shall each use their respective best endeavours to lodge any such application which has not then already been lodged (subject always to the rights of the applicant therefor to amend or supplement any such application as may be necessary or desirable); and |
1.9.3 | if the conditions referred to in paragraph 1.8 have not been fulfilled within 180 days of delivery of a Party Lodgement Notice or a Shareholder Lodgement Notice, the provisions of paragraph 1.10 shall apply. |
1.10 | Where this paragraph applies, as provided in paragraph 1.9.3: |
1.10.1 | the agreement between the BMM Seller and the Purchaser for the sale and purchase of the BMM Shares, the BMM Claims and the BMM Shareholder Loan referred to in paragraph 1.6 and the provisions of this Agreement with respect to the assignment or payment of other BMM Indebtedness, with effect from the end of the period referred to in paragraph 1.9.3 and without requiring any act, agreement or acknowledgement on the part of the BMM Seller or the Purchaser, shall lapse; and |
1.10.2 | the provisions of paragraphs 1.1 to 1.9 of this Schedule shall, at the same time, apply anew save that: |
(i) | the BMM Offer Notice shall be delivered to the BMM Board not later than 30 days following the end of the period referred to in paragraph 1.9.3; |
(ii) | paragraphs 1.2.1 and 1.2.3 shall not apply; |
(iii) | paragraphs 1.9.3 and 1.10.2 (other than this paragraph 1.10.2(iii)) shall not apply anew and if the conditions referred to in paragraph 1.8 have not been fulfilled within 180 days of delivery of a Party Lodgement Notice or a Shareholder Lodgement Notice (which is delivered after the date of delivery of the BMM Offer Notice delivered pursuant to this paragraph 1.10.2 and not any earlier Party Lodgement Notice or Shareholder Lodgement Notice), the agreement between the BMM Seller and the Purchaser for the sale and purchase of the BMM Shares, the BMM Claims and the BMM Shareholder Loan provided for in paragraph 1.6 (as applied anew) and the provisions of this Agreement with respect to the assignment or payment of other BMM Indebtedness shall lapse as provided in paragraph 1.10.1 but, for the avoidance of doubt, the provisions of this paragraph 1.10.2 shall not apply a second time. |
2 | Assignment of BMM Payables |
2.1.1 | Subject to the satisfaction of the BMM Conditions, and, in the case of the BMM Shareholder Loan, an agreement for the sale and purchase of the same being constituted under paragraph 1.6, on and subject to the terms of this Agreement (and in the case of the BMM Shareholders Loan, in furtherance of the obligations |
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of the BMM Seller and the Purchaser with respect to the purchase and sale of the BMM Shareholders Loan pursuant to paragraph 1.6), the BMM Seller agrees to procure that the relevant members of the Sellers Group assign as of BMM Completion the benefit of the BMM Payables to the Purchaser and the Purchaser agrees to assume the rights in respect of the BMM Payables. |
2.1.2 | On the BMM Completion Date, the Purchaser shall pay an amount in cash by wire transfer to such bank account(s) as shall be notified to the Purchaser not less than five BMM Business Days prior to the BMM Completion Date, of immediately available funds which is equal to the aggregate of the BMM Payables to the relevant members of the Sellers Group as follows: |
Member of Sellers Group | Relevant BMM Payables | |
Anglo American SA Finance Limited | the interest bearing ZAR500,000,000 revolving credit facility | |
BMM Seller | the BMM Shareholder Loan | |
The relevant member of the Sellers Group to whom such BMM Payable is owed | Any other BMM Payable |
3 | Amount of BMM Share Consideration |
3.1 | Subject to paragraph 1 of this Schedule, the purchase price payable by the Purchaser to the BMM Seller for the BMM Shares and the BMM Claims under this Agreement shall be an amount in cash equal to: |
3.1.1 | ZAR 1,708.4 million (the BMM Share Value); plus |
3.1.2 | an amount equivalent to the interest accrued at the Agreed Rate on an amount equal to the BMM Share Value (less all cash and cash equivalents in the BMM Sale Group as at the Locked Box Date) in respect of the period from (but excluding) the Locked Box Date and to (but excluding) the BMM Completion Date, such interest to accrue daily and be compounded monthly; plus |
3.1.3 | an amount equivalent to the actual interest accrued on all cash and cash equivalents in the BMM Sale Group as at the Locked Box Date in respect of the period from (but excluding) the Locked Box Date and to (but excluding) the BMM Completion Date; plus |
3.1.4 | an amount equivalent to the interest accrued at the Agreed Rate on an amount equal to the BMM Shareholder Loan in respect of the period from (but excluding) the Locked Box Date and to (but excluding) the BMM Completion Date, such interest to accrue daily (by reference to the amount outstanding under the BMM Shareholder Loan on each such day during such period) and be compounded monthly, (together with the amount referred to in paragraph 3.1.2, the BMM Interest Amount); minus |
3.1.5 | an amount equal to any Leakage which has occurred in respect of the period from (but excluding) the Locked Box Date and to (and including) the BMM Completion Date (the BMM Leakage Adjustment); minus |
3.1.6 | any BMM Dividend or BMM Accrued Transaction Bonus Amount, |
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(being the BMM Share Consideration).
3.2 | To the extent that any amount referred to in paragraph 3.1.5 arises in respect of Leakage denominated in a currency other than Rand, or any BMM Dividend is paid or declared in a currency other than Rand, for the purposes of paragraphs 3.1.5 or 3.1.6, as the case may be, such amount shall be converted into Rand at the prevailing exchange rate at the time such Leakage occurred or BMM Dividend was paid/declared. |
3.3 | This paragraph 3.3 shall apply, and shall only apply, if the Purchaser gives notice in writing to the BMM Seller not earlier than receipt by the Purchaser of a Free to Sell Notice and not later than the Acceptance Date, to the effect that this paragraph shall apply. Any such notice shall be irrevocable and, for the avoidance of doubt, unless any such notice is given during such period, the provisions of this paragraph 3.3 shall have no effect whatsoever. Where this paragraph 3.3 applies as aforesaid, for all purposes of this Agreement: |
3.3.1 | the amount expressed to be the BMM Share Value in paragraph 3.1.1 shall be converted into US$ at an exchange rate of 7.6597 ZAR: 1 US$ and the result of such conversion shall, for all purposes of this Agreement, be deemed to be the BMM Share Value in substitution for the BMM Share Value referred to in paragraph 3.1.1; |
3.3.2 | the amount expressed to be the BMM Interest Amount in paragraph 3.1.2 and 3.1.3 shall be converted into US$ at an exchange rate of 7.6597 ZAR: 1 US$ and the result of such conversion shall, for all purposes of this Agreement, be deemed to be the BMM Interest Amount in substitution for the BMM Interest Amount referred to in paragraph 3.1.2; |
3.3.3 | the amount expressed to be the BMM Leakage Adjustment in paragraph 3.1.5 shall be converted into US$ at the prevailing US$/ZAR exchange rate at the time such Leakage occurred and the result of such conversion shall, for all purposes of this Agreement, be deemed to be the BMM Leakage Adjustment in substitution for the BMM Leakage Adjustment referred to in paragraph 3.1.5; and |
3.3.4 | any BMM Dividend referred to in paragraph 3.1.6 shall be converted into US$ at the prevailing US$/ZAR exchange rate at the time such BMM Dividend was paid or declared (if unpaid at BMM Completion) and the result of such conversion shall, for all purposes of this Agreement, be deemed to be the BMM Dividend. |
3.4 | The Purchaser will pay to the BMM Seller an amount equal to any Taxation for which BMM would otherwise have been accountable or liable to be assessed which is actually reduced or extinguished as a result of any Leakage taken into account in the BMM Leakage Adjustment or the payment of any BMM Accrued Transaction Bonus Amount. The due date for this payment will be thirty (30) Business Days after the date on which such Taxation is actually reduced or extinguished and the parties agree that the BMM Share Consideration shall be adjusted by the amount of such payment. |
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4 | The BMM Conditions |
4.1 | Responsibility for Satisfaction |
4.1.1 | The BMM Seller shall use all reasonable endeavours to ensure the satisfaction of the BMM Conditions and the Purchaser shall use all reasonable endeavours to ensure the satisfaction of the BMM Conditions provided that (i) in the case of the BMM Seller this shall not give rise to an obligation on it to assume material expenditure or investment or to agree to any other obligation, condition or undertaking to achieve the same or (ii) in the case of either party this shall not require them to take such action which would be likely to have such a detrimental effect on the current or future development of the business of that party such that it would be unreasonable to expect that party to take it and (iii) in the case of the Purchaser and notwithstanding (ii) above, such obligation shall include (but not be limited to) proposing and agreeing to any divestments or other conditions or other undertakings in order to obtain clearance from the relevant competition authorities as soon as possible. |
4.1.2 | The Purchaser shall provide the BMM Seller with drafts of all material correspondence, documents or other communications (including the Purchasers filing under the BMM Conditions set out at paragraphs 1.8.1 to 1.8.5 above) relating to the BMM Conditions (removing any information confidential from the BMM Seller) and shall give the BMM Seller reasonable opportunity to comment on such communications prior to their submission to the competent authorities. Furthermore, the Purchaser shall promptly provide the BMM Seller with copies of all such material communications received from or sent to the relevant Governmental Authorities. The Purchaser shall also involve the BMM Seller in any meetings or material discussions with the relevant Governmental Authorities. |
4.1.3 | The parties agree that all requests and enquiries from the relevant competition authorities or any other government, governmental, supranational or trade agency, court or other regulatory body shall be dealt with by the BMM Seller and the Purchaser promptly and in consultation with each other and the BMM Seller and the Purchaser shall promptly co-operate with and provide all necessary information and assistance reasonably required by the relevant competition authorities or other such government, agency, court or body upon being requested to do so by the other. |
4.1.4 | The Purchaser shall give notice to the BMM Seller of satisfaction of any BMM Condition within two BMM Business Days of becoming aware of the same. |
4.2 | Non-satisfaction of the Conditions Precedent |
4.2.1 | Each party shall keep the other informed of the satisfaction or, if applicable, the non-satisfaction of the relevant BMM Conditions. |
4.2.2 | If the BMM Conditions are not satisfied on or before the BMM Long Stop Date, the provisions of this Agreement (other than Clauses 1, 16 and 17.6 to 17.22) in respect of the BMM Shares, the BMM Claims, the BMM Shareholder Loan, other BMM Indebtedness and otherwise in relation to BMM (but not, for the avoidance of doubt, provisions relating to the Lisheen Shares and the Lisheen Group Entities and/or the Namibia Shares and the Namibia Group Companies) shall lapse and neither the Sellers nor the Purchasers shall have any claim against the other under |
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this Agreement with respect to such matters as aforesaid, save for any claim arising from breach of the obligations contained in paragraphs 1.5 or 4.1. |
5 | Notification of the BMM Share Consideration and other settlement obligations |
By no later than the second BMM Business Day after receipt by the BMM Seller of the notification of the satisfaction of the BMM Conditions, the BMM Seller shall deliver to the Purchaser a schedule (the BMM Completion Statement) setting out:
5.1 | the BMM Share Consideration, broken down into the BMM Share Value, the BMM Interest Amount, the BMM Leakage Adjustment, any BMM Dividend and the BMM Accrued Transaction Bonus Amount; |
5.2 | the BMM Payables, specifying the relevant debtor and creditor for each BMM Payable; and |
5.3 | the BMM Receivables, specifying the relevant debtor and creditor for each BMM Receivable. |
6 | Allocation of the BMM Enterprise Value |
6.1 | The parties acknowledge and agree that the BMM Enterprise Value as at the Locked Box Date shall be allocated as follows: |
Gamsberg Assets | Allocation of BMM Enterprise Value | |
Mineral licences | US$389.2 million |
BMM Assets | Allocation of BMM Enterprise Value | |
Mineral licences | US$59 million |
6.2 | The parties agree to allocate the BMM Enterprise Value between the BMM Assets and the Gamsberg Assets at the BMM Completion by completing the following Schedule on the BMM Completion Date: |
Gamsberg Asset | Allocation of BMM Enterprise Value | |
Mineral licences | |
BMM Asset | Allocation of BMM Enterprise Value | |
Mineral licences | |
6.3 | In allocating the BMM Enterprise Value between the BMM Assets and the Gamsberg Assets pursuant to paragraph 6.2 above, the parties agree that such allocation will |
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be consistent with the allocation of the BMM Enterprise Value at the Locked Box Date (as outlined in paragraph 6.1 above), subject to such amendments as they may deem necessary or appropriate by reference to the circumstances then subsisting. |
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Schedule 6
Sale and Purchase of the Lisheen Shares
(Clause 2.1)
1 | Agreement to Sell the Lisheen Shares |
1.1 | Sale and Purchase of the Lisheen Shares |
1.1.1 | On and subject to the terms of this Agreement, the Lisheen Seller agrees to sell as legal and beneficial owner and the Purchaser agrees to purchase the Lisheen Shares. |
1.1.2 | The Lisheen Shares shall be sold free from Encumbrances and together with all rights and advantages attaching to them as at Lisheen Completion (including, without limitation, the right to receive all dividends or distributions declared, made or paid on or after Lisheen Completion). |
1.2 | Repayment of Lisheen Payables |
1.2.1 | Subject to the satisfaction of the Lisheen Conditions on and subject to the terms of this Agreement, the Purchaser agrees to procure that any Lisheen Group Entity which is a debtor in respect of a Lisheen Group Payable shall, at Completion, repay in full such Lisheen Payable; |
1.2.2 | On the Lisheen Completion Date, the Purchaser shall, on behalf of each relevant Lisheen Group Entity which is a debtor in respect of a Lisheen Group Payable, pay such amounts in cash by wire transfer to such bank account(s) as shall be notified to the Purchaser not less than five Lisheen Business Days prior to the Lisheen Completion Date, of immediately available funds which are equal to the amount owed by such Lisheen Group Entity in respect of such Lisheen Group Payable and which in aggregate is equal to the Lisheen Payables due to the relevant members of the Sellers Group as follows: |
Member of Sellers Group | Relevant Lisheen Payables | |
Anglo American Capital plc | Amount due under the revolving cash deposit agreement | |
The relevant member of the Sellers Group to whom such Lisheen Payable is owed | Any other Lisheen Payable |
2 | Amount of Lisheen Share Consideration |
2.1 | The purchase price payable by the Purchaser to the Lisheen Seller for the Lisheen Shares under this Agreement shall be an amount in cash equal to: |
2.1.1 | US$517 million (the Lisheen Share Value); plus |
2.1.2 | an amount equivalent to the interest accrued at the Agreed Rate on an amount equal to the Lisheen Share Value (less all cash and cash equivalents in the Lisheen Sale Group as at the Locked Box Date) in respect of the period from (but excluding) the Locked Box Date and to (but excluding) the Lisheen Completion |
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Date, such interest to accrue daily and be compounded monthly (the Lisheen Interest Amount); plus |
2.1.3 | an amount equivalent to the actual interest accrued on all cash and cash equivalents in the Lisheen Sale Group as at the Locked Box Date in respect of the period from (but excluding) the Locked Box Date and to (but excluding) the Lisheen Completion Date; minus |
2.1.4 | an amount equal to any Leakage which has occurred in respect of the period from (but excluding) the Locked Box Date and to (and including) the Lisheen Completion Date (the Lisheen Leakage Adjustment); minus |
2.1.5 | any Lisheen Accrued Transaction Bonus Amount, |
(being | the Lisheen Share Consideration). |
2.2 | To the extent that any amount referred to in paragraph 2.1.4 arises in respect of Leakage denominated in a currency other than US$, for the purposes of paragraph 2.1.4, such amount shall be converted into US$ at the prevailing exchange rate at the time such Leakage occurred. |
2.3 | The Purchaser will pay to the Lisheen Seller an amount equal to any Taxation for which a Lisheen Group Entity would otherwise have been accountable or liable to be assessed which is actually reduced or extinguished as a result of any Leakage taken into account in the Lisheen Leakage Adjustment or the payment of any Lisheen Accrued Transaction Bonus Amount. The due date for this payment will be thirty (30) Business Days after the date on which such Taxation is actually reduced or extinguished and the parties agree that the Lisheen Share Consideration shall be adjusted by the amount of such payment. |
3 | Lisheen Conditions |
3.1 | Conditions Precedent |
The Lisheen Completion is conditional on the satisfaction of the following conditions:
3.1.1 | the approval of the sale of the Lisheen Shares by the Irish Minister for Communications, Energy and Natural Resources; |
3.1.2 | all mandatory consents and approvals for the sale of the Lisheen Shares having been obtained from the Korea Fair Trade Commission pursuant to the Monopoly Regulation and Fair Trade Act (MRFTA), Law No. 3320, December 31, 1980 as amended; and |
3.1.3 | all mandatory consents and approvals for the sale of the Lisheen Shares having been obtained from the Chinese Ministry of Commerce pursuant to the Anti-Monopoly Law of the Peoples Republic of China adopted at the 29th meeting of the Standing Committee of the 10th National Peoples Congress of the Peoples Republic of China on August 30, 2007. |
3.2 | Responsibility for Satisfaction |
3.2.1 | The Lisheen Seller shall use all reasonable endeavours to ensure the satisfaction of the Lisheen Conditions and the Purchaser shall use all reasonable endeavours to ensure the satisfaction of the Lisheen Conditions provided that (i) in the case of |
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the Lisheen Seller this shall not give rise to an obligation on it to assume material expenditure or investment or to agree to any other obligation, condition or undertaking to achieve the same or (ii) in the case of either party this shall not require it to take such action which would be likely to have such a detrimental effect on the current or future development of the business of that party that it would be unreasonable to expect that party to take it and (iii) in the case of the Purchaser and notwithstanding (ii) above, such obligation shall include (but not be limited to) proposing and agreeing to any divestments or other conditions or other undertakings in order to obtain clearance from the relevant competition authorities as soon as possible. |
3.2.2 | The Purchaser shall provide the Lisheen Seller with drafts of all material correspondence, documents or other communications (including the Purchasers filing under the Lisheen Conditions) relating to the Lisheen Conditions (removing any information confidential from the Lisheen Seller) and shall give the Lisheen Seller reasonable opportunity to comment on such communications prior to their submission to the competent authorities. Furthermore, the Purchaser shall promptly provide the Lisheen Seller with copies of all such material communications received from or sent to the relevant Governmental Authorities. The Purchaser shall also involve the Lisheen Seller in any meetings or material discussions with the relevant Governmental Authorities. |
3.2.3 | Without prejudice to paragraph 3.2.1, the parties agree that all requests and enquiries from the relevant competition authorities or any other government, governmental, supranational or trade agency, court or other regulatory body shall be dealt with by the Lisheen Seller and the Purchaser promptly and in consultation with each other and the Lisheen Seller and the Purchaser shall promptly co-operate with and provide all necessary information and assistance reasonably required by the relevant competition authorities or other such government, agency, court or body upon being requested to do so by the other. |
3.2.4 | The Purchaser shall give notice to the Lisheen Seller of satisfaction of the Lisheen Conditions within two Lisheen Business Days of becoming aware of the same. |
3.3 | Non-satisfaction of the Conditions Precedent |
3.3.1 | Each party shall keep the other informed of the satisfaction or, if applicable, the non-satisfaction of the Lisheen Conditions. |
3.3.2 | If the Lisheen Conditions are not satisfied on or before the Lisheen Long Stop Date, the provisions of this Agreement (other than Clauses 1, 15 and 17.6 to 17.22) in respect of the Lisheen Shares and the Lisheen Indebtedness and otherwise in relation to the Lisheen Group Entities (but not, for the avoidance of doubt, provisions relating to the BMM Shares and BMM and/or the Namibia Shares and the Namibia Group Companies) shall lapse and neither the Sellers nor the Purchaser shall have any claim against the other under this Agreement with respect to such matters as aforesaid, save for any claim arising from breach of the obligations contained in paragraph 3.2. |
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4 | Notification of the Lisheen Share Consideration and other settlement obligations |
By no later than the second Lisheen Business Day after receipt by the Lisheen Seller of the notification of the satisfaction of the Lisheen Condition, the Lisheen Seller shall deliver to the Purchaser a schedule (the Lisheen Completion Statement) setting out:
4.1 | the Lisheen Share Consideration, broken down into the Lisheen Share Value, the Lisheen Interest Amount the Lisheen Leakage Adjustment and the Lisheen Accrued Transaction Bonus Amount; |
4.2 | the Lisheen Payables, specifying the relevant debtor and creditor for each Lisheen Payable; and |
4.3 | the Lisheen Receivables, specifying the relevant debtor and creditor for each Lisheen Receivable. |
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Schedule 7
Sale and Purchase of the Namibia Shares
(Clause 2.1)
1 | Agreement to Sell the Namibia Shares |
1.1 | Sale and Purchase of the Namibia Shares |
1.1.1 | On and subject to the terms of this Agreement, the Namibia Seller agree to sell and the Purchaser agrees to purchase the Namibia Shares. |
1.1.2 | The Namibia Shares shall be sold with full title guarantee and free from Encumbrances and together with all rights and advantages attaching to them as at Namibia Completion (including, without limitation, the right to receive all dividends or distributions declared, made or paid on or after Namibia Completion). |
1.2 | Assignment of Namibia Payables |
1.2.1 | Subject to the satisfaction of the Namibia Conditions on and subject to the terms of this Agreement, the Namibia Seller agrees to procure that the relevant members of the Sellers Group assign as of Namibia Completion the benefit of the Namibia Payables to the Purchaser and the Purchaser agrees to assume the rights in respect of the Namibia Payables. |
1.2.2 | On the Namibia Completion Date, the Purchaser shall pay an amount in cash by wire transfer to such bank account(s) as shall be notified to the Purchaser not less than five Namibia Business Days prior to the Namibia Completion Date, of immediately available funds which is equal to the aggregate Namibia Payables to the relevant members of the Sellers Group as follows: |
Member of Sellers Group | Relevant Namibia Payable | |
The relevant member of the Sellers Group to whom such Namibia Payable is owed | Any Namibia Payable |
1.3 | Amount of Namibia Share Consideration |
The purchase price payable by the Purchaser to the Namibia Sellers for the Namibia Shares under this Agreement shall be an amount in cash equal to:
1.3.1 | US$716 million (the Namibia Share Value); plus |
1.3.2 | an amount equivalent to the interest accrued at the Agreed Rate on an amount equal to the Namibia Share Value (less all cash and cash equivalents in the Namibia Sale Group as at the Locked Box Date) in respect of the period from (but excluding) the Locked Box Date and to (and including) the Namibia Completion Date, such interest to accrue daily and be compounded monthly (the Namibia Interest Amount); plus |
1.3.3 | an amount equivalent to the actual interest accrued on all cash and cash equivalents in the Namibia Sale Group as at the Locked Box Date in respect of the period from (but excluding) the Locked Box Date and to (but excluding) the Namibia Completion Date; minus |
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1.3.4 | an amount equal to any Leakage which has occurred in respect of the period from (but excluding) the Locked Box Date and to (and including) the Namibia Completion Date (the Namibia Leakage Adjustment); minus |
1.3.5 | any Namibia Dividend other than the Disclosed Namibia Dividend or Namibia Accrued Transaction Bonus Amount, |
(being the Namibia Share Consideration).
1.4 | To the extent that any amount referred to in paragraph 2.1.4 arises in respect of Leakage denominated in a currency other than US$, or any Namibia Dividend is paid or declared in a currency other than US$, for the purposes of paragraphs 2.1.4 or 1.3.5, as the case may be, such amount shall be converted into US$ at the prevailing exchange rate at the time such Leakage occurred or Namibia Dividend was paid/declared. |
1.5 | The Purchaser will pay to the Namibia Seller an amount equal to any Taxation for which a Namibia Group Company would otherwise have been accountable or liable to be assessed which is actually reduced or extinguished as a result of any Leakage taken into account in the Namibia Leakage Adjustment or the payment of any Namibia Accrued Transaction Bonus Amount. The due date for this payment will be thirty (30) Business Days after the date on which such Taxation is actually reduced or extinguished and the parties agree that the Namibia Share Consideration shall be adjusted by the amount of such payment. |
1.6 | If, prior to Namibia Completion, none of the following events have occurred: |
1.6.1 | an agreement (the Gergarub Transfer Agreement) between Ambase Prospecting (Namibia) (Proprietary) Limited, Skorpion Mining Company (Proprietary) Limited (Skorpion) and Rosh Pinah Zinc Corporation (RPZC), substantially in the form in the Agreed Terms, in respect of the Gergarub Deposit (as defined in such agreement) and the other matters referred to therein is executed by the proposed parties thereto; |
1.6.2 | the Gergarub Definitive Agreement (as defined in the Gergarub Transfer Agreement) is executed by Skorpion (or a subsidiary of Skorpion) and RPZC (or a member of RPZCs group); or |
1.6.3 | other arrangements legally binding on Skorpion (or a subsidiary of Skorpion) and RPZC (or a member of RPZCs group) with respect to the joint development and exploitation of the Gergarub Deposit (as defined in such agreement) on terms substantially the same as those referred to in the Gergarub Transfer Agreement or on other terms and conditions satisfactory to the Purchaser (acting reasonably), are entered into, |
the Namibia Share Value will be reduced by US$25 million.
2 | Namibia Conditions |
2.1 | Conditions Precedent |
The Namibia Completion is conditional on the satisfaction of the following conditions:
2.1.1 | the approval of the sale of all aspects of this Agreement requiring approval from the Namibian Reserve Bank in terms of the Currency and Exchanges Act, 9 of 1933; |
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2.1.2 | the approval of the sale of the Namibia Shares by the relevant competition authorities in terms of the Competition Act, 2 of 2003; |
2.1.3 | all mandatory consents and approvals for the sale of the Namibia Shares having been obtained from the Korea Fair Trade Commission pursuant to the Monopoly Regulation and Fair Trade Act (MRFTA), Law No. 3320, December 31, 1980 as amended; and |
2.1.4 | all mandatory consents and approvals for the sale of the Namibia Shares having been obtained from the Chinese Ministry of Commerce pursuant to the Anti-Monopoly Law of the Peoples Republic of China adopted at the 29th meeting of the Standing Committee of the 10th National Peoples Congress of the Peoples Republic of China on August 30, 2007. |
2.2 | Responsibility for Satisfaction |
2.2.1 | The Namibia Seller shall use all reasonable endeavours to ensure the satisfaction of the Namibia Conditions and the Purchaser shall use all reasonable endeavours to ensure the satisfaction of the Namibia Conditions provided that (i) in the case of the Namibia Seller this shall not give rise to an obligation on it to assume material expenditure or investment or to agree to any other obligation, condition or undertaking to achieve the same or (ii) in the case of either party this shall not require them to take such action which would be likely to have such a detrimental effect on the current or future development of the business of that party that it would be unreasonable to expect that party to take and (iii) in the case of the Purchaser and notwithstanding (ii) above, such obligation shall include (but not be limited to) proposing and agreeing to any divestments or other conditions or other undertakings in order to obtain clearance from the relevant competition authorities as soon as possible as well as filing the requisite merger notice and filing fee. |
2.2.2 | The Purchaser shall provide the Namibia Seller with drafts of all material correspondence, documents or other communications (including the Purchasers filings under the Namibia Conditions set out at paragraphs 2.1.1 to 2.1.4 above) relating to the Namibia Conditions (removing any information confidential from the Namibia Seller) and shall give the Namibia Seller reasonable opportunity to comment on such communications prior to their submission to the competent authorities. Furthermore, the Purchaser shall promptly provide the Namibia Seller with copies of all such material communications received from or sent to the relevant Governmental Authorities. The Purchaser shall also involve the Namibia Seller in any meetings or material discussions with the relevant Governmental Authorities. |
2.2.3 | Without prejudice to paragraph 2.2.1, the parties agree that all requests and enquiries from the relevant competition authorities or any other government, governmental, supranational or trade agency, court or other regulatory body shall be dealt with by the Namibia Seller and the Purchaser promptly and in consultation with each other and the Namibia Seller and the Purchaser shall promptly co-operate with and provide all necessary information and assistance reasonably required by the relevant competition authorities or other such government, agency, court or body upon being requested to do so by the other. |
2.2.4 | The Purchaser shall give notice to the Namibia Seller of the relevant condition within two Namibia Business Days of becoming aware of the same. |
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2.3 | Non-satisfaction of the Conditions Precedent |
2.3.1 | The party responsible for the satisfaction of each Namibia Condition shall keep the other informed of the satisfaction or, if applicable, the non-satisfaction of the relevant Namibia Conditions. |
2.3.2 | If the Namibia Conditions are not satisfied on or before the Namibia Long Stop Date, the provisions of the Agreement (other than Clauses 1, 15 and 17.6 to 17.22) in respect of the Namibia Shares and the Namibia Indebtedness and otherwise in relation to the Namibia Group Companies (but, not for the avoidance of doubt, provisions relating to the BMM Shares and BMM and/or the Lisheen Shares and the Lisheen Group Entities) shall lapse and neither the Sellers nor the Purchaser shall have any claim against the other under this Agreement with respect to such matters as aforesaid, save for any claim arising from breach of the obligations contained in paragraph 2.2. |
3 | Notification of the Namibia Share Consideration and other settlement obligations |
By no later than the second Namibia Business Day after receipt by the Namibia Seller of the notification of the satisfaction or waiver of the Namibia Conditions, the Namibia Seller shall deliver to the Purchaser a schedule (the Namibia Completion Statement) setting out:
3.1 | the Namibia Share Consideration, broken down into the Namibia Share Value, the Namibia Interest Amount, the Namibia Leakage Adjustment any Namibia Dividend and the Namibia Accrued Transaction Bonus Amount; |
3.2 | the Namibia Payables, specifying the relevant debtor and creditor for each Namibia Payable; and |
3.3 | the Namibia Receivables, specifying the relevant debtor and creditor for each Namibia Receivable. |
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Schedule 8
Permitted Leakage
(Clause 5.3)
1 | Any payments provided for in this Agreement including, for the avoidance of doubt, payments made in respect of the Intra-Group Indebtedness. |
2 | Any matter undertaken at the written request of the Purchaser. |
3 | The payment or repayment of any amounts of principal or interest (together with the accrual of any such interest) in respect of any loans owing from any member of the Group to any member of the Sellers Group, in each case in accordance with the terms of the relevant intra-group loan agreement in force as at the date of this Agreement and which terms have been disclosed to the Purchaser prior to the date of this Agreement, or in respect of a loan made by a member of the Sellers Group to a member of the Group after the Locked Box Date for the purposes of refinancing the outstanding principal and accrued interest of an intra-group loan agreement in force at the date of this Agreement and which terms have been disclosed to the Purchaser prior to the date of this Agreement or renewing or extending the term of any intra-group loan facility, in each case where the terms of the relevant loan or facility are no more favourable to the Sellers Group than (i) the terms of the intra-group loan agreement the subject of such refinancing, renewal or extension or (ii) the terms agreed between the Sellers and the Purchasers as acceptable terms for such refinancing as set out in the Disclosure Letters. |
4 | Any payments made in the ordinary or usual course of trading by any member of the Group to any member of the Sellers Group in respect of the purchase or sale of goods or the provision of services on terms no more favourable than the purchase or sale of such goods or the provision of such services during the 12 month period prior to the Locked Box Date, including, for the avoidance of doubt: |
(i) | procurement and supply chain services for example platforms/infra-structure and staffing for site-specific procurement; |
(ii) | information technology recharges and shared services (for example central staffing and infra-structure to support existing group-wide IT systems); |
(iii) | insurance recharges in respect of insurance provided by a member of the Sellers Group to, or charges for insurance for the benefit of, a Group Company which are allocated to the member of the Group; |
(iv) | aircraft provision costs and other travel services; |
(v) | consulting services provided by Anglo Technical Division; |
(vi) | exploration and technical services provided by Anglo Research; |
(vii) | marketing and logistics services provided to BMM and the Namibia Group Companies in the negotiation and management of outbound logistics; |
(viii) | company secretarial and other legal services (including internal audit); |
(ix) | all services provided by the BMM Seller pursuant to the Black Mountain Shareholders Agreement; |
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(x) | access to and use of the Sellers Groups standards on rehabilitation, safety, health and environmental matters; |
(xi) | remittances to the Sellers Group in respect of employees seconded to a Group Company for the benefit of the Group; |
(xii) | contributions to the Anglo Medical Aid Scheme or any pension scheme on behalf of employees of Group Companies; and |
(xiii) | any payments necessary for ensuring compliance by the Group Companies with relevant legislation including, in respect of REACH, |
5 | Any liabilities or obligations incurred by any member of the Group on an arms length basis in relation to the procurement of goods or services by or on behalf of a member of the Sellers Group in the ordinary course of the Groups business. |
6 | Any payments made by any member of the Group to any member of the Sellers Group representing the deposit by such member of the Group of surplus cash for the purposes of treasury management provided that such deposit is made on terms as to the payment or accrual of interest to or for the benefit of such member of the Group which are arms length. |
7 | Any (i) payments made to the Lisheen Escrow Account and/or (ii) any payments made or liabilities incurred or obligations assumed, in each case pursuant to the terms of the Escrow Agreement and/or the Implementation Agreement. |
8 | Any Namibia Dividend. |
9 | Any BMM Dividend. |
10 | Any Specified Transaction Bonus Amount. |
11 | Any bonus or other discretionary payment or benefit paid in connection with the Transaction to a Relevant Employee (other than a Specified Transaction Bonus Amount) paid by a Group Company prior to Completion provided that the aggregate of all such amounts does not exceed the aggregate of 250,000, ZAR1,200,000 and N$1,400,000 (a General Transaction Bonus Amount). |
12 | Any payments made in respect of any of the Anglo Trusts by a Group Company in relation to the business of such Group Company or members of its Sale Group or its Relevant Employees of such Group Company or members of its Sale Group. |
13 | Payment by any Namibia Group Company of up to US$3.4 million (or its equivalent in local currency) to the Anglo Skorpion Trust Foundation. |
14 | To the extent not included in any of paragraphs 1 to 13 above, any payments made in respect of: |
(i) | the Service Agreement between Namzinc (Pty) Ltd and the BMM Seller dated 1 January 2008; and |
(ii) | the Service Agreement BMM and the BMM Seller dated 11 September 2006. |
15 | Any obligations of any of the Group Companies arising from time to pursuant to any of (i) the Escrow Agreement (ii) the Implementation Agreement (iii) the Gergarub Transfer Agreement or (iv) the Zinc Asset Transfer Agreement (excluding any money consideration payable). |
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16 | Any obligation assumed by a Group Company pursuant to the proposed licence to Namzinc (Proprietary) Limited in connection with the Licence and Supply Agreement, as referred to in Clause 5.7.2. |
17 | Any obligation assumed by a Group Company under any Zinc Specific Third Party Contract assigned to it pursuant to Clause 5. |
18 | Any obligations assumed by a Lisheen Group Entity under any ISDA Master Agreement (Multicurrency-Cross Border) entered into after the date of this Agreement and prior to the Lisheen Completion Date on terms substantially in the form of the draft disclosed to the Purchaser prior to the date of this Agreement other than obligations in respect of the payment of any Premium (as defined therein) or any analogous payment or consideration for the grant to such Lisheen Group Entity of the rights thereunder. |
19 | Out of pocket costs and expenses of Relevant Employees incurred in connection with the Transaction, not exceeding US$50,000. |
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Schedule 9
Completion Obligations
(Clause 6)
1 | Sellers Obligations |
1.1 | On each Completion, the relevant Seller shall deliver or make available to the Purchaser the following: |
1.1.1 | evidence of the due fulfilment of the BMM Conditions, the Lisheen Condition or the Namibia Conditions (as the case may be) required for that Completion for which the relevant Seller is responsible; |
1.1.2 | to the extent not already delivered, the Tax Indemnity duly executed by the relevant Seller; |
1.1.3 | a copy of the Intra-Group Payables Assignment Agreement duly executed by or on behalf of the relevant member of the Sellers Group in favour of the Purchaser; |
1.1.4 | evidence of the release of any guarantee referred to in Clause 14.2 which has been obtained prior to such Completion; |
1.1.5 | evidence that the relevant Seller and its representatives are authorised to execute this Agreement, the relevant Intra-Group Payables Assignment Agreement, and the Tax Indemnity. |
1.2 | On each Completion, the relevant Seller shall repay, as agent on behalf of the relevant member of the Sellers Group, or procure the repayment of the Intra-Group Receivables owed by the members of the Sellers Group as at the relevant Completion Date to the members of the relevant Sale Group. |
1.3 | On Namibia Completion the Namibia Seller shall deliver or make available to the Purchaser the Skorpion Trust Amendment Agreement duly executed by the relevant parties thereto. |
1.4 | On each Completion, the relevant Seller shall make available copies of the Shared Exploration Data relevant to such Completion. |
1.5 | After each relevant Completion, the relevant Seller shall deliver to the relevant Group Company such core samples and other physical (excluding documentary) Exploration Data as is in the possession of the relevant Seller or the Sellers Group in relation to the Mine the subject of the relevant Completion. |
2 | The Purchasers Obligations |
2.1 | On each Completion, the Purchaser shall pay, procure payment of, deliver or make available to the relevant Sellers the following: |
2.1.1 | pay the BMM Share Consideration, the Lisheen Share Consideration or the Namibia Share Consideration, as the case may be, in accordance with Clause 3.1; |
2.1.2 | pay the consideration for the assignment of the Intra-Group Payables to be assigned to the Purchaser on such Completion, in accordance with Clause 3.2 and Schedule 5, Schedule 6 or Schedule 7, as the case may be; |
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2.1.3 | evidence of the due fulfilment of the BMM Conditions, the Lisheen Condition or the Namibia Conditions (as the case may be) required for that Completion for which the Purchaser is responsible; |
2.1.4 | to the extent not already delivered, the Tax Indemnity duly executed by the Purchaser; |
2.1.5 | a copy of the Intra-Group Payables Assignment Agreement duly executed by the Purchaser. |
2.1.6 | evidence that the Purchaser and its representative are authorised to execute this Agreement and the Tax Indemnity; and |
2.1.7 | evidence of the release of the following guarantees given by members of the Sellers Group for the benefit of the Group Companies referred to in Clause 14.1 to the extent obtained prior to such Completion: |
Guarantor |
Beneficiary |
Amount | Description | |||
Anglo American South Africa Limited | Transnet Freight Rail | ZAR10,000,000 | This is disclosed at 3.7.1 of the Black Mountain and Gamsberg folder in the Data Room. | |||
Anglo American South Africa Limited | Eskom Holdings Limited | ZAR334,800 | This is disclosed at 3.7.2 of the Black Mountain and Gamsberg folder in the Data Room. | |||
Anglo American South Africa Limited | Eskom Holdings Limited | ZAR134,634 | This is disclosed at 3.7.3 of the Black Mountain and Gamsberg folder in the Data Room. |
3 | Transfer of the Shares |
3.1 | General Transfer Obligations |
On each Completion, the relevant Seller and the Purchaser shall take such steps as are required to transfer the Shares that are the subject of the Completion.
3.2 | Specific Transfer Obligations |
On each Completion, the relevant Sellers and the Purchaser shall do the following in the order set out below:
3.2.1 | In relation to the transfer of relevant Shares: |
Namibia | Shares |
deliver or make available to the Purchaser:
(i) | duly completed, executed and dated share transfer forms in the name of the Purchaser; |
(ii) | a resolution of the board of directors of Anglo Base Namibia Holdings (Pty) Ltd approving the transfer of the Namibia Shares; and |
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(iii) | all share certificates in respect of the Namibia Shares. |
BMM | Shares |
deliver or make available to the Purchaser:
(i) | duly completed, executed and dated share transfer forms in favour of the Purchaser; |
(ii) | all share certificates in respect of the BMM Shares; and |
(iii) | a resolution of the board of directors of BMM approving the transfer of the BMM Shares and the BMM Claims. |
Lisheen | Shares |
deliver or make available to the Purchaser:
(i) | duly completed, executed and dated share transfer forms in favour of the Purchaser; and |
(ii) | all share certificates in respect of the Lisheen Shares. |
4 | Further Obligations in Addition to Transfer |
4.1 | General Obligations |
On each Completion, the relevant Seller shall deliver or make available to the Purchaser the following, insofar as they relate to the Group Companies the subject of the relevant Completion:
4.1.1 | the written resignations (in a form reasonably satisfactory to the Purchaser) of such persons named in Schedule 2 as the Purchaser shall request in writing not less than 2 Business Days prior to the relevant Completion from the office or position specified in Schedule 2, to take effect on the relevant Completion; |
4.1.2 | evidence of the assignment of the Zinc Specific Third Party Contracts that have been assigned to the relevant Group Company prior to Completion and/or, where any such Zinc Specific Third Party Contracts have not been assigned to the relevant Group Company prior to the relevant Completion, evidence of such transitional arrangements as have been put in place in respect of such agreements; |
4.1.3 | if the Purchaser so requires, irrevocable powers of attorney or such other appropriate document (in such form as the Purchaser may reasonably require) executed by the Sellers in favour of the Purchaser or as it may direct to enable the Purchaser (pending registration of the relevant transfers) to exercise post Completion all voting and other rights attaching to the Shares the subject of such Completion and to appoint proxies for this purpose; |
4.1.4 | in each case where the said information is not in the possession of the relevant Group Company, the corporate books and records, duly written up-to-date, including the shareholders register and share certificates in respect of the Group Companies, and all other books and records, all to the extent required to be kept by each Group Company under the law of its jurisdiction of incorporation; |
4.1.5 | evidence as to: |
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(a) | the acceptance by shareholders or the directors of each of the relevant Group Companies of the resignations referred to in paragraph 4.1.2 and of the appointment of such persons to take effect on Completion (within the maximum number permitted by the constitutional documents of the Group Company concerned) as the Purchaser may nominate (and notify to the relevant Seller not later than two Business Days prior to the relevant Completion Date) as directors and (if relevant) secretary; |
(b) | the approval by the shareholders or the directors of the transfer of the Shares to the Purchaser; |
where such acceptance or approval is required by law or under the constitutional documents of the Group Company concerned; and
4.1.6 | evidence reasonably satisfactory to the Purchaser of the revocation of existing authorities given by the Group Company to banks (in respect of the operation of its bank accounts) and giving authority in favour of such persons as the Purchaser may nominate (and notify to the relevant Seller not later than two Business Days prior to the relevant Completion Date) to operate such accounts; |
4.1.7 | for the purposes of stamping the stock transfer forms relating to the Lisheen Shares, the Lisheen Seller shall provide all necessary details, including a tax reference number, to the Purchaser to allow the Purchaser to stamp the said transfers within the time periods prescribed by law. |
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Schedule 10
Share Schemes
(Clause 7)
1 | Scope |
This Schedule describes the treatment of the Relevant Employees who participate in the Anglo Share Schemes, the process for delivery of Anglo Shares to those employees after the relevant Completion Date and the discharge of liabilities in relation to withholding on account of Tax and social security obligations (Employee Tax). Certain capitalised terms used in this Schedule are defined in the rules of the Anglo Share Schemes.
2 | Bonus Share Plan and Long Term Incentive Plan |
2.1 | Time for delivery of Anglo Shares |
The rules of the Anglo Share Schemes provide that the Release Date for Bonus Shares awarded under the Bonus Share Plan will be advanced to a date shortly after the relevant Completion Date. In relation to the Enhancement Shares awarded under the Bonus Share Plan and the Conditional Awards awarded under the Long Term Incentive Plan, the number of Vested Shares will be determined after the end of each Performance Period and transferred to the participants shortly after Vesting in accordance with the same timetable used for other participants in the Bonus Share Plan and Long Term Incentive Plan.
2.2 | Procedure for Delivery of Anglo Shares |
In relation to each delivery of Anglo Shares pursuant to the Anglo Share Schemes, the following procedure shall apply:
2.2.1 | The Sellers will ensure that Anglo will: |
(i) | provide the Group Companies with a schedule of participants specifying their respective entitlements to Anglo Shares and to dividend equivalents and the anticipated date on which entitlements are due at least ten (10) Business Days prior to the date of such entitlement; |
(ii) | procure the sale of sufficient Anglo Shares to discharge the Group Companies withholding obligation (if any) in respect of the participants liability to Employee Tax as notified under paragraph 2.2.1, and procure the delivery of the remaining Anglo Shares to the relevant participants; and |
(iii) | pay to the Group Companies the proceeds of sale and the dividend equivalents within fifteen (15) Business Days from the notification to the Sellers of the amount of Employee Tax. |
2.2.2 | The Purchaser will ensure that the Group Companies will: |
(i) | at Anglos request, provide Anglo with up-to-date information in relation to each participant, including their addresses for the purposes of Anglo satisfying its obligation to deliver Anglo Shares to the participants pursuant to paragraph 2.2.1; |
(ii) | calculate the amount of Employee Tax payable in respect of the Anglo Shares, and notify Anglo of such amount so it may determine the number of |
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Anglo Shares to be sold pursuant to paragraph 2.2.1(ii), on the understanding that Anglo and the Sellers will accept the calculation made by the Group Company; |
(iii) | account to the appropriate Tax Authority for the Employee Tax out of the funds received pursuant to paragraph 2.2.1(ii); and |
(iv) | pay the dividend equivalents to the relevant participants through payroll out of the funds received pursuant to paragraph 2.2.2(iii), subject to such deductions as may be required by law. |
2.3 | Tax Relief |
2.3.1 | The Purchaser will pay to the relevant Seller an amount equal to the Taxation for which any Group Company (or any relevant employer in relation to any Group Company) would otherwise have been accountable or liable to be assessed is actually reduced or extinguished as a result of a Relief arising from the acquisition of shares in Anglo by any Relevant Employees in respect of their participation in the Anglo Share Schemes. The due date for this payment will be thirty (30) Business Days after the date on which such Tax would have had to have been paid but for the Relief. |
2.3.2 | Any such payment shall constitute additional consideration for the shares in the Group Companies or Affiliates (as the case may be). |
2.4 | Indemnity |
2.4.1 | The Sellers irrevocably and unconditionally agree to indemnify (and keep indemnified) the Purchaser on demand against any Losses (excluding any payment made by the Purchaser under paragraph 2.3.1 above) incurred by the Purchaser (or any member of the Purchasers Group) as a direct result of the participation of the Relevant Employees in the Anglo Share Schemes. |
2.4.2 | The Sellers shall not be liable for a claim under this paragraph 2.4 unless a notice is given by the Purchaser to the Sellers setting out the matters specified in Clause 13.2 within 12 months from the date on which the payment under the Anglo Share Schemes or the delivery of the Anglo Shares pursuant to this Schedule 10 is due. |
The provisions of Clauses 12.1, 12.2 and 12.3 shall not apply to the Sellers obligations under this paragraph 2.4.
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Schedule 11
Covenants relating to certain Relevant Individuals in respect of BMM and the
Lisheen Escrow Fund
(Clause 8)
Part 1BMM
1 | Scope |
Part 1 of this Schedule describes the treatment of the Relevant Employees and Relevant Pensioners who participate in the Anglo Medical Aid Trust and/or the Anglo Pension Trust and certain arrangements in respect of the Anglo Rehabilitation Trust following the BMM Completion Date.
2 | Anglo Medical Aid Trust |
2.1 | Relevant Employees and Relevant Pensioners who are members of the Anglo Medical Aid Trust will cease to accrue benefits in the Anglo Medical Aid Trust on and with effect from the BMM Completion Date. |
2.2 | The Purchaser will procure that as soon as reasonably practicable following the date of this Agreement, and in any event with effect from the BMM Completion Date, there is established or made available to the Relevant Individuals a medical aid scheme or arrangement (the Purchasers Medical Aid Scheme) which in the BMM Sellers opinion provides benefits on terms and conditions that are, on the whole, no less favourable than the benefits to which the Relevant Individuals were entitled as members of the Anglo Medical Aid Trust before the BMM Completion. |
2.3 | Each Relevant Individual who was serving a waiting period before joining the Anglo Medical Aid Trust will be eligible to join the Purchasers Medical Aid Scheme no later than the date on which he or she would have been able to join the Anglo Medical Aid Trust. |
2.4 | The Purchaser will also procure that a Relevant Individuals service with any member of the Sellers Group is counted as service with the Purchaser for the purposes of determining eligibility for the Purchasers Medical Aid Scheme and the entitlement to receive the relevant subsidy from the Purchaser or any member of the Purchasers Group. |
3 | Anglo Pension Trust |
3.1 | Relevant Employees and Relevant Pensioners who are members of the Anglo Pension Trust will cease to accrue benefits in the Anglo Pension Trust on and with effect from the BMM Completion Date. |
3.2 | The Purchaser will procure that as soon as reasonably practicable following the date of this Agreement, and in any event with effect from the BMM Completion Date, there is established or made available to the Relevant Individuals pension scheme or arrangement (the Purchasers Pension Scheme) which in the BMM Sellers opinion provides benefits on terms and conditions that are, on the whole, no less favourable than the benefits that the Relevant Individuals were accruing in the Anglo Pension Trust before the BMM Completion. |
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3.3 | The Purchaser will also procure that a Relevant Individuals Post-Completion Employees service with any member of the Sellers Group is counted as service with the Purchaser for the purposes of determining eligibility for the Purchasers Pension Scheme and the accumulation and vesting of benefits under that scheme. |
3.4 | The rules of the Anglo Pension Trust shall continue to apply mutatis mutandis to the contributions to be made by the Purchaser and the Relevant Employees and Relevant Pensioners to the Anglo Pension Trust, until the transfer of the Relevant Individuals to the Purchasers Pension Scheme has been effected pursuant to paragraph 3.2 above. |
4 | Indemnity in relation to the Anglo Medical Aid Trust and the Anglo Pension Trust |
The Purchaser hereby indemnifies the BMM Seller and the Sellers Group and agrees to hold the BMM Seller and the Sellers Group harmless against all claims made against the BMM Seller and the Sellers Group, all costs and expenditure incurred by the BMM Seller and the Sellers Group, and all losses and damages suffered by the BMM Seller and the Sellers Group, to the extent arising out of any claim from a Relevant Employee or a Relevant Pensioner specifically in relation to the transfer from the Anglo Medical Aid Trust and/or the Anglo Pension Trust to the Purchasers Medical Aid Scheme and/or the Purchasers Pension Scheme respectively, or the failure by the Purchaser to establish and register the Relevant Employees and Relevant Pensioners as participants of the Purchasers Medical Aid Scheme and/or the Purchasers Pension Scheme.
5 | Anglo Rehabilitation Trust |
5.1 | The Purchaser will procure that as soon as reasonably practicable following the date of this Agreement, and in any event with effect from the BMM Completion Date, there is established a closure rehabilitation company or trust for the purposes contemplated in section 37A(1)(a) of the South Africa Income Tax Act, No. 58 of 1962 (South Africa) (the Purchaser Rehabilitation Vehicle). |
5.2 | As soon as reasonably practicable following the date of this Agreement the Purchaser shall use all reasonable endeavours to obtain all relevant approvals and registrations for the establishment of the Purchaser Rehabilitation Vehicle, including (without limitation): |
5.2.1 | the approval of the Commissioner for the South African Revenue Service; |
5.2.2 | the approval of the Department of Mineral Resources; and |
5.2.3 | either (i) the registration of such new rehabilitation trust with the Master of the South African High Court or (ii) the incorporation of such new rehabilitation company at the Companies and Intellectual Property Registration Office (as the case may be), |
and the BMM Seller shall cooperate with the Purchaser and BMM to achieve such approvals and registrations.
5.3 | As soon as reasonably possible following the later of: |
5.3.1 | either (i) the date on which the Master of the High Court issues letters of authority to the trustees of the Purchaser Rehabilitation Vehicle or (ii) the date on the |
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Registrar of Companies issues a certificate to commence business in respect of the Purchaser Rehabilitation Vehicle (as the case may be); and |
5.3.2 | the approval of the Commissioner for the South African Revenue Service and the Department of Mineral Resources having been granted (to the extent such approvals are required); and |
5.3.3 | the BMM Completion Date, |
the BMM Seller shall procure that the auditors of the Anglo Rehabilitation Trust provide the BMM Seller and the Purchaser with a schedule (the Rehabilitation Schedule) detailing the amount standing to the credit of BMM in the books of account of the Anglo Rehabilitation Trust (the Credited Amount). The Credited Amount shall include any returns on contributions made by BMM to the Anglo Rehabilitation Trust and allocated to the mining operations of BMM up until the relevant date of transfer of the Credited Amount to the Purchaser Rehabilitation Vehicle pursuant to paragraph 5.4 below.
5.4 | As soon as reasonably practicable following receipt of the Rehabilitation Schedule the BMM Seller shall procure that the trustees of the Anglo Rehabilitation Trust transfer the Credited Amount to the Purchaser Rehabilitation Vehicle. |
5.5 | The Purchaser acknowledges and agrees that the BMM Seller has made proper payments to the Anglo Rehabilitation Trust in respect of Closure of the BMM Assets and that the BMM Seller and the trustees of the Anglo Rehabilitation Trust shall have no liability whatsoever in respect of any under-provision of the Purchaser Rehabilitation Vehicle following the transfer of the Credited Amount, and any such under-provision shall be for the account of BMM. |
5.6 | The Purchaser hereby indemnifies the trustees of the Anglo Rehabilitation Trust, the BMM Seller and the Sellers Group and agrees to hold the trustees of the Anglo Rehabilitation Trust, the BMM Seller and the Sellers Group harmless against all claims made against the trustees of the Anglo Rehabilitation Trust, the BMM Seller and the Sellers Group, all costs and expenditure incurred by the trustees of the Anglo Rehabilitation Trust, the BMM Seller and the Sellers Group, and all losses and damages suffered by the trustees of the Anglo Rehabilitation Trust, the BMM Seller and the Sellers Group, after the transfer of the Credited Amount to the extent arising out of any claim in respect or arising from of any under-funding of the Purchaser Rehabilitation Vehicle, or the operation or any acts, omissions or transaction of the Purchaser Rehabilitation Vehicle or its trustees in each case after transfer to the Purchaser Rehabilitation Vehicle of the Credited Amount. |
Part 2The Lisheen Escrow Fund
1 | Scope |
Part 2 of this Schedule describes the treatment of the Lisheen Escrow Fund and certain arrangements in respect of the Lisheen Escrow Fund prior to and following the Lisheen Completion Date.
2 | Funding of the Lisheen Escrow Fund |
The Lisheen Seller shall use reasonable endeavours to procure, prior to the Lisheen Completion, that the Lisheen Group Entities fund the Lisheen Escrow Account with an
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amount equal to the Lisheen Escrow Amount from the cash reserves of the Lisheen Group Entities existing at the time of such funding (the Lisheen Funding). To the extent that the Lisheen Funding has not been completed by the Lisheen Completion Date, the Purchaser shall procure that, as soon as reasonably practicable following the Lisheen Completion Date, the Lisheen Group Entities fund the Lisheen Escrow Account with an amount equal to the Lisheen Escrow Amount from the cash reserves of the Lisheen Group Entities existing at the time of such funding (the Purchaser Lisheen Funding).
3 | Purchaser undertakings |
The Purchaser undertakes to the Lisheen Seller with effect from the Lisheen Completion Date as follows:
3.1 | to procure the performance by Anglo American Lisheen Finance Limited of its obligations from time to time under the Escrow Agreement and the Implementation Agreement; |
3.2 | not to carry out any action or do any other thing or act, and to procure that neither Anglo American Lisheen Finance Limited nor any other Lisheen Group Entity or member of the Purchasers Group shall carry out any action or do any other thing or act, the intention or effect of which is to prejudice, restrict or distort in any way (i) the making of any payment provided for under the Implementation Agreement or the Escrow Agreement or (ii) the terms of a redundancy situation contemplated by the Implementation Agreement or the Escrow Agreement; and |
3.3 | for such time as any amounts stand to the credit of the Lisheen Escrow Account (i) to keep Anglo American Lisheen Finance Limited solvent and (ii) not to commence any action to wind up Anglo American Lisheen Finance Limited. |
4 | Surplus amounts |
4.1 | To the extent that there are any amounts standing to the credit of the Lisheen Escrow Account on 31 December 2013 (including, for the avoidance of doubt, any reimbursements from the relevant Irish authorities) (the Lisheen Surplus Amount) such amounts shall be for the benefit of the Lisheen Sale Group. |
4.2 | The Purchaser acknowledges and agrees that neither the Lisheen Seller nor any member of the Sellers Group shall have any liability whatsoever in respect of any redundancy claims whether under the Lisheen Escrow Account or otherwise except as provided in this Agreement and, in any circumstances, (i) in excess of the Lisheen Escrow Amount or (ii) at any time following 31 December 2013. |
4.3 | The Purchaser hereby agrees that to the extent any amounts standing to the credit of the Lisheen Escrow Account are transferred to the Lisheen Group Entities, on or after 31 December 2013, it shall ensure that appropriate arrangements are agreed between it, the Lisheen Group Entities and representatives of the Lisheen Group Entities employees, to provide for the safeguarding of such amounts, by means of escrow or otherwise, prior to their release from the Lisheen Escrow Account. The Purchaser acknowledges that neither Anglo nor any of its subsidiaries, shall have any obligations or responsibilities to any party, in respect of any such arrangements entered into in this regard, after the closure of the Lisheen Escrow Account or 31 December 2013, whichever occurs first. |
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5 | Indemnity |
The Purchaser hereby indemnifies the Lisheen Seller and the Sellers Group and agrees to hold the Lisheen Seller and the Sellers Group harmless against all claims made against the Lisheen Seller and the Sellers Group all costs and expenditure incurred by the Lisheen Seller and the Sellers Group, and all losses and damages suffered by the Lisheen Seller and the Sellers Group, to the extent arising out of any claim in respect of (i) any failure by the Purchaser to procure the Purchaser Lisheen Funding (to the extent required pursuant to paragraph 2 above) and (ii) any claims by current or former employees of the Lisheen Group Entities which are not provided for by, or are otherwise in excess of, the Lisheen Escrow Amount.
6 | Exceptions to Sellers Obligations in relation to the conduct of business |
The Purchaser acknowledges and agrees that any actions taken by any member of the Sellers Group pursuant to the arrangements outlined in this Schedule 11 will not operate to contravene the provisions of Clause 5.1 of this Agreement.
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Schedule 12
Other Post-Completion Obligations
(Clause 9)
1 | Post-Completion Obligations in relation to BMM |
1.1 | Trade receivables |
As soon as reasonably practicable following BMM Completion, the BMM Seller and the Purchaser shall cooperate to identify and determine any outstanding payables or receivables or other debt obligations arising in the ordinary course of business between BMM and the Sellers Group that do not, by their express terms, set dates and provisions for payment (BMM Trade Obligations). The BMM Seller and the Purchaser shall net off such BMM Trade Obligations and, as soon as reasonably practicable following BMM Completion (and in any event within 30 BMM Business Days of the BMM Completion Date) the relevant party shall make a net settlement payment in respect of such BMM Trade Obligations to the other party.
1.2 | BMM Dividend |
To the extent any BMM Dividend has not been paid on the BMM Completion Date, the Purchaser shall procure the payment of such BMM Dividend to the BMM Seller within five BMM Business Days of the BMM Completion Date.
2 | Post-Completion Obligations in relation to the Lisheen Group Entities |
As soon as reasonably practicable following Lisheen Completion, the Lisheen Seller and the Purchaser shall cooperate to identify and determine any outstanding payables or receivables or other debt obligations arising in the ordinary course of business between the Lisheen Group Entities and the Sellers Group that do not, by their terms, set dates and provisions for payment (Lisheen Trade Obligations). The Lisheen Seller and the Purchaser shall net off such Lisheen Trade Obligations and, as soon as reasonably practicable following the Lisheen Completion (and in any event within 30 Lisheen Business Days of the Lisheen Completion Date) the relevant party shall make a net settlement payment in respect of such Lisheen Trade Obligations to the other party.
3 | Post-Completion Obligations in relation to the Namibia Group Companies |
3.1 | Post Completion Filings |
The Namibia Seller and the Purchaser shall co-operate in the filing of any consents, notifications or other regulatory requirements that may be required in respect of the sale of the Namibia Shares.
3.2 | Trade Receivables |
As soon as reasonably practicable following Namibia Completion, the Namibia Seller and the Purchaser shall cooperate to identify and determine any outstanding payables or receivables or other debt obligations arising in the ordinary course of business between the Namibia Group Companies and the Sellers Group that do not, by their express terms, set dates and provisions for payment (Namibia Trade Obligations). The Namibia Seller and the Purchaser shall net off such Namibia Trade Obligations and, as soon as reasonably
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practicable following the Namibia Completion (and in any event within 30 Namibia Business Days of the Namibia Completion Date) the relevant party shall make a net settlement payment in respect of such Namibia Trade Obligations to the other party.
3.3 | Namibia Dividend |
To the extent any Namibia Dividend has not been paid on the Namibia Completion Date, the Purchaser shall procure the payment of such Namibia Dividend to the Namibia Seller within five Namibia Business Days of the Namibia Completion Date.
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Schedule 13
Warranties given under Clause 11.1
1 | Corporate Information |
1.1 | The Shares and the Group Companies |
1.1.1 | The Sellers specified in Schedule 1: |
(i) | are the sole legal and beneficial owner of the Shares; and |
(ii) | have the right to exercise all voting and other rights over such Shares. |
1.1.2 | The Shares comprise the whole of the issued and allotted share capital of the Companies, have been properly and validly issued and allotted and are each fully paid. |
1.1.3 | The shares in the Subsidiaries comprise the whole of the issued and allotted share capital of the Subsidiaries, have been properly and validly issued and allotted and each are fully paid. |
1.1.4 | No person has the right (whether exercisable now or in the future and whether contingent or not) to call for the allotment, conversion, issue, registration, sale or transfer, amortisation or repayment of any share or loan capital or any other security giving rise to a right over, or an interest in, the capital of any Group Company under any option, agreement or other arrangement (including conversion rights and rights of pre-emption). |
1.1.5 | There are no Encumbrances on the shares in any Group Company. |
1.1.6 | The particulars contained in Schedule 2 are true and accurate in all material respects. |
1.2 | Constitutional Documents, Corporate Registers and Minute Books |
1.2.1 | The constitutional documents of the Group Companies in the Data Room are true and accurate copies of the constitutional documents of the Group Companies and, so far as the Sellers are aware, there have not been and are not any breaches by any Group Company of its constitutional documents which would have a material adverse effect on the business of the Group. |
1.2.2 | The registers, statutory books and books of account required to be maintained by each Group Company under applicable law: |
(i) | are up-to-date; |
(ii) | are maintained in accordance with applicable law; and |
(iii) | contain complete and accurate records of all matters required to be dealt with in such books and records, |
in all material respects.
1.2.3 | All the registers, books and records referred to in paragraph 1.2.2 of this Schedule 13 are in the possession (or under the control) of the relevant Group Company. |
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1.2.4 | All filings, publications, registrations and other formalities required by applicable law to be delivered or made by the Group Companies to company registries in each relevant jurisdiction have been duly delivered. |
1.3 | No Leakage |
Since the Locked Box Date, no Group Company has permitted, nor has there been, any Leakage other than Permitted Leakage. The Disclosure Letters (or documents expressly identified in the Disclosure Letters and made available to the Purchaser prior to the date of this Agreement):
1.3.1 | set out details of the Specified Transaction Bonus Amounts and the Specified Transaction Bonus Employees; and |
1.3.2 | Fairly Disclose any General Transaction Bonus Amounts to the extent that any individual such amount exceeds US$50,000 (or its equivalent in any other currency) or represents more than 30 per cent. of the salary of the Relevant Employee to whom it relates for the 12 month period ending on the Locked Box Date. |
2 | Accounts |
2.1 | Audited Accounts |
The Audited Accounts:
2.1.1 | give a true and fair view (or the equivalent for each relevant jurisdiction) of the state of affairs of the Group Companies at the Accounts Date and of the profit and loss of the Group Companies for the period then ended; |
2.1.2 | have been prepared in accordance with applicable law and with the Relevant Accounting Standards applicable at the Accounts Date; and |
2.1.3 | subject to paragraphs 2.1.1 and 2.1.2 above, have been prepared on a consistent basis with that adopted in preparing the audited accounts of the Group Companies for the financial year of the relevant Group Company ended on 31 December 2008 (except where disclosed in the Audited Accounts). |
2.2 | HFM Management Accounts |
The HFM Management Accounts have been prepared with due care and give a reasonable view of the profit and loss of the Zinc Mining Businesses for the period commencing on 1 January 2010 and ending on the Management Accounts Date and the assets and liabilities of the Zinc Mining Businesses as at the Management Accounts Date, having regard to the purposes for which they have been prepared.
3 | Financial Obligations |
3.1 | Financial Facilities |
Details of all bank or other financial facilities outstanding or available to the Group Companies from any bank, credit or lending institution (other than those provided by the Sellers Group) or loan notes, debentures or other Indebtedness are given in the Disclosure Letters.
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3.2 | Guarantees |
Other than in the ordinary course of business, there is no outstanding guarantee, indemnity, suretyship or security given:
3.2.1 | by the Group Companies for the benefit of any person other than the Group Companies; or |
3.2.2 | for the benefit of the Group Companies by a member of the Sellers Group. |
4 | Assets |
4.1 | The Properties |
4.1.1 | General |
The Properties comprise all the land and buildings owned, leased, in the possession of or occupied by the Group Companies or, so far as the Sellers are aware, in which the Group Companies have any ownership, interest or liability (whether contingent, secondary or otherwise).
4.1.2 | Title to the Properties |
The Group Companies are the owners of (or the tenant or grantee of, as the case may be) and are entitled to occupy the Properties and plots as indicated in Schedule 3 for the purposes of the current business operations of the Group Companies.
4.1.3 | Charges |
There are no material charges, encumbrances, easements and/or third-party rights registered or otherwise over the Properties or any part of them that materially adversely affects the relevant Sellers enjoyment or use of the Properties.
4.1.4 | Title documents |
The Data Room contains copies of all relevant and material documents of title in respect of the Group Companies ownership of and title to the Properties and each of such documents is in the possession and under the control of the relevant Group Company.
4.1.5 | Operation |
The Group Companies have not required ownership or occupation rights to any real property other than the Properties for the purpose of carrying on the business of the Group as carried on at the date of this Agreement and during the 12 month period prior to the Locked Box Date.
4.1.6 | Leasehold Properties |
Where any Property is held under a lease, tenancy or licence there have been no variations or documents supplemental to the lease, tenancy or licence which are not in the Data Room and which materially vary the terms of such lease, tenancy or licence.
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4.1.7 | Compulsory Acquisition |
So far as the Sellers are aware, there is no outstanding resolution or proposal for compulsory acquisition of any Property, or of rights in respect of any Property, as a whole or as to any part, by a local or other authority or other person with legislative power.
4.1.8 | Adverse Interests |
There is no person in possession of, or who has or claims a right or interest of any kind in, any Property as a whole or as to any part, materially adversely to the interest of the Group Companies.
4.1.9 | Obligations affecting title to the Properties |
So far as the Sellers are aware, the Group Companies have performed or complied in all material respects with each obligation, condition, and agreement (including, without limitation, the terms of any lease or licence) and legal and administrative requirement affecting each Property, its ownership or the right to occupy the Properties.
4.1.10 | Outstanding Obligations |
There is no provision of any agreement to which a Group Company is a party which materially adversely affects the Group Companies title to or rights to occupy the Properties.
4.1.11 | Planning Permissions |
The current use of each Property, its original construction and any subsequent material alteration is or was permitted under any relevant planning legislation in force at the date of this Agreement or at any prior relevant time.
4.1.12 | Planning Applications |
No application for planning permission relating to the Properties or any part of them awaits determination, no planning decision or deemed refusal is the subject of any appeal and no monetary claim or liability (whether contingent or otherwise) in respect of any Property under any relevant planning legislation is outstanding.
4.1.13 | Designations |
No Property is:
(i) | listed as being of special historic or architectural interest; or |
(ii) | subject to any other order or statutory designation applicable only to the Properties (or any of them) which materially adversely affects the use of such Property as at the date of this Agreement. |
4.2 | Ownership of Assets |
So far as the Sellers are aware, all assets included in the Audited Accounts or acquired by any of the Group Companies since the Accounts Date, in each case exceeding US$5 million, other than the Properties, the Intellectual Property and any assets disposed of or realised in the ordinary course of business, and excepting rights and retention of title arrangements arising by operation of law in the ordinary course of business:
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4.2.1 | are legally and beneficially owned by the Group Companies; and |
4.2.2 | are, where capable of possession, in the possession or under the control of the relevant Group Company. |
None of such assets is the subject of an Encumbrance or the subject of any factoring arrangement, conditional sale or credit agreement.
4.3 | Sufficiency of Assets |
The Data Room or the Disclosure Letters contain details of all material fixed assets used by the Group Companies in carrying on the business of the Group as at the date of this Agreement which are not the property of the Group Companies or hired or leased by a Group Company in circumstances where, so far as the Sellers are aware, such hire or lease will not continue to be available to the Group Companies following the date of this Agreement.
5 | Intellectual Property and Information Technology |
5.1 | Ownership etc. |
5.1.1 | So far as the Sellers are aware, all the Material Intellectual Property is, and all pending applications therefor are (or where appropriate in the case of pending applications, will upon registration be) owned by, licensed to or lawfully used under the authority of the owner by, a member of the Group. |
5.1.2 | So far as the Sellers are aware, all the Material Intellectual Property which is owned by a member of the Group, and all pending applications therefor, is: |
(i) | not being attacked or opposed by any person; |
(ii) | not licensed to a third party except as disclosed in the Data Room; and |
(iii) | in the case of Material Intellectual Property that is registered or the subject of applications for registration in any intellectual property registry, listed and briefly described in Schedule 4. |
5.1.3 | The Data Room or the Disclosure Letters disclose all Material Intellectual Property not owned by a Group Company the absence of which would materially adversely affect the carrying on of the business of the relevant Group Company as carried on at the date of this Agreement. |
5.2 | Information Technology |
So far as the Sellers are aware, in the 12 months prior to the date of this Agreement, there have been no failures or breakdowns of any Information Technology which have caused any substantial disruption or interruption in or to the business of the Group.
5.3 | Data Protection |
So far as the Sellers are aware:
5.3.1 | no notice alleging non-compliance with any applicable data protection legislation (including any enforcement notice, deregistration notice, transfer prohibition notice |
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or equivalent notice) has been received by the Group from any competent data protection authority; and |
5.3.2 | the Group has not during the two year period prior to the date of this Agreement breached in any material respect any applicable law relating to data protection. |
6 | Contracts |
6.1 | Contracts |
No Group Company is a party to or subject to any contract or agreement (other than in relation to any property, lease or contract of employment) which is material to the business of the Group as carried on at the date of this Agreement which:
6.1.1 | is not in the ordinary course of business; |
6.1.2 | is not on an arms length basis; |
6.1.3 | is of a long term nature that has an unexpired term of 3 years or more; or |
6.1.4 | materially restricts its freedom to carry on its current business operations. |
6.2 | Joint Ventures etc. |
No Group Company is, or has agreed to become, a member of any joint venture, consortium, partnership or other unincorporated association (other than a recognised trade association in relation to which the Group Company has no liability or obligation except for the payment of annual subscription or membership fees).
6.3 | Agreements with Connected Parties |
6.3.1 | There are no existing contracts or arrangements material to the business of the Group between, on the one hand, any Group Company and, on the other hand, any relevant Seller or any other member of the Sellers Group, other than Intra-Group Indebtedness or on normal commercial terms in the ordinary course of business. |
6.3.2 | No Group Company is a party to any contract material to the business of the Group with any current or former employee or current or former director of any Group Company or any person connected (as defined by applicable law in the relevant jurisdiction) with any of such persons, or in which any such person as aforesaid is interested (whether directly or indirectly), other than on normal commercial terms in the ordinary course and usual of business. |
6.4 | Compliance with Agreements |
6.4.1 | So far as the Sellers are aware: |
(i) | all the contracts material to the business of the Group to which any of the Group Companies is a party are valid and binding obligations of the parties thereto and the terms thereof have been complied with in all material respects by the relevant Group Company and by any other party to such contracts. |
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(ii) | no written notice of termination or of intention to terminate or written notice of material breach has been received in respect of any such material contracts. |
6.5 | Effect of Transaction |
The Data Room contains copies of each contract or agreement to which a Group Company is a party and which is material to the business of the Group the terms of which are such that:
6.5.1 | it cannot be terminated by the other party thereto on less than 3 months notice; and |
6.5.2 | the sale of the Shares contemplated by this Agreement would give the other party thereto the right to terminate or vary in a material way such contract or agreement or give rise to a material breach thereof or a material Encumbrance thereon. |
6.6 | Third Party Contracts |
6.6.1 | Schedule 6 to the Disclosure Letters contains details of all material contracts between any member of the Sellers Group and a third party relating solely to the business and operations of any Group Company or where the purpose of the contract is solely for the benefit of any Group Company (Zinc Specific Third Party Contracts). |
6.6.2 | Schedule 6 to the Disclosure Letters Fairly Discloses all contracts between any member of the Sellers Group and a third party which relate in part to the business and operations of any Group Company or where the purpose of the contract is in part for the benefit of a Group Company which contract is material to the business of the Group as carried on at the date of this Agreement. |
6.6.3 | If the Gergarub Transfer Agreement is executed on or prior to Namibia Completion by the proposed parties thereto, it will supersede in its entirety the MOA (as defined therein) which will, at all times following such execution, have no legal effect among the parties thereto (save insofar as it records provisions which form (in whole or in part) the basis of the legal rights and obligations of the parties to the Gergarub Transfer Agreement). |
7 | Employees and Employee Benefits |
For the purposes of this paragraph 7, Relevant Employees means those employees of the Group employed (on the basis of full time employment) by a Group Company immediately prior to Completion and Relevant Employee means any one of them.
7.1 | Employees and Terms of Employment |
7.1.1 | The Data Room contains details, in relation to each Group Company, of: |
(i) | the total number (to within 5 per cent) of Relevant Employees; |
(ii) | the total payroll cost for the previous year; |
(iii) | the salary and other benefits, period of continuous employment, location and grade of each Senior Employee; |
(iv) | the contract of employment of each Senior Employee; |
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(v) | specimen terms and conditions of each grade or category of Relevant Employee; and |
(vi) | the Consultancy Agreements. |
7.1.2 | So far as the Sellers are aware, all of the Relevant Employees have where required valid employment permits to work in the relevant jurisdictions where such employees are working. |
7.2 | Termination of Employment |
7.2.1 | In six months prior to the date of this Agreement, no Group Company has received written notice of the intention of any Senior Employee or Consultant to terminate his or her employment or provision of services or Consultancy Agreement. |
7.2.2 | In the six months prior to the date of this Agreement, no Group Company issued written notification to terminate the employment or provision of services of, or Consultancy Agreement of: |
(i) | any Senior Employee; |
(ii) | more than 5% of the Relevant Employees in any one location; or |
(iii) | any Consultant |
7.2.3 | No material liability which remains undischarged has been incurred by any Group Company for: |
(i) | breach of any contract of employment or Consultancy Agreement with any Relevant Employee or Consultant; |
(ii) | breach of any statutory employment right; or |
(iii) | failure to comply with any order for the reinstatement or re-engagement of any Relevant Employee. |
7.3 | Works Councils and Employee Representative Bodies |
The Disclosure Letters list all works councils, trade unions and employee representative bodies with which the Group Companies deal or formally recognise. No written request has been received by any Group Company for the recognition of any other works council, trade union or employee representative body.
7.4 | Collective Bargaining Agreements etc. |
Other than national collective bargaining agreements or industry wide collective agreements, the union recognition agreements, collective agreements and other relevant agreements listed in the Disclosure Letters are all the material agreements between the Group Companies and any works councils, trade unions or representative bodies.
7.5 | Strikes or Industrial Action |
There are no strikes, go slows or other industrial action taking place or, so far as the Sellers are aware, pending or threatened in respect of the employees of any Group Company.
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7.6 | Employment Related Claims |
So far as the Sellers are aware, there are no pending or threatened claims from any Relevant Employee or former employee of any Company arising out of his or her employment with a Group Company which could reasonably be expected to give rise to a claim in excess of US $1.5 million.
7.7 | Group Retirement Benefit Arrangements |
7.7.1 | Group Retirement Benefit Arrangements |
The arrangements listed in the Disclosure Letters are the only arrangements under which the Sellers or the Group Companies make payments for providing retirement, death, disability or life assurance benefits (the Group Retirement Benefit Arrangements), except for arrangements to which the Sellers or Group Companies contribute in compliance with any law or regulation.
7.7.2 | Disclosure |
The Data Room contains copies of documents governing such Group Retirement Benefit Arrangements as will transfer to the Purchaser on Completion and membership data to establish members entitlements to benefits under such Group Retirement Benefit Arrangements.
7.8 | Bonus or other Profit-related Schemes |
There are contained in the Data Room the written rules and other documentation to all share incentive, share option, profit sharing, bonus or other incentive arrangements for or affecting any Relevant Employees.
8 | Mining rights, licences, concessions and consents |
8.1 | So far as the Sellers are aware, all regulatory licences, consents, concessions, state mining leases, mineral mining and exploration rights and permits, other than such the absence of which would not have a material adverse effect on the Group, required for the activities of the Group as carried out up to the date of this Agreement have been obtained, are in force and are being complied with in all material respects. So far as the Sellers are aware, no notice to suspend or revoke (including as a result of the change of control of the Companies) such regulatory licences, consents, concessions, mining rights or permits has been received by the Group Companies and the Sellers are not aware of any events or circumstances having arisen which might reasonably be expected to give rise to such a suspension or revocation. |
8.2 | No Group Company has created any Encumbrance over any of the licences, consents, concessions, leases, rights and permits set forth in paragraph 8.1 above. |
9 | Compliance with Laws |
9.1 | So far as the Sellers are aware, the business and corporate affairs of the Group are being conducted and have, during the two year period ending on the date of this Agreement, been conducted, in all material respects in accordance with the respective constitutional documents of each Group Company and all applicable law, rules, regulations, judgments, decrees and orders of (or of any court or regulatory authority in) the jurisdictions in which the Group Companies are incorporated or have |
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assets which are pertinent to the operating of the business and corporate affairs of the Group, including without limitation any applicable competition laws of any such jurisdictions. |
9.2 | So far as the Sellers are aware, there is no order, decree, decision or judgment of, any court, tribunal or arbitrator in which any Group Company is defendant and which is outstanding and which will have a material adverse effect upon the business of the Group. |
9.3 | So far as the Sellers are aware, no Group Company has received any written notice during the past 12 months from any court, tribunal, arbitrator, governmental agency or regulatory body with respect to a violation and/or failure to comply with any such applicable law, regulation, or requiring it to take or omit any action which in any case would have a material adverse effect on the business of the Group. |
10 | Environment |
10.1 | For the purposes of this paragraph 10: |
Environment means all or any of the following media (alone or in combination): air (including the air within buildings and the air within other natural or man-made structures whether above or below ground); water (including water under or within land or in drains or sewers); soil and land and any ecological systems and living organisms supported by these media including humans;
Environmental Authority means any legal person or body of persons (including any government department or government agency or court or tribunal) having jurisdiction to determine any matter arising under Environmental Law and/or relating to the Environment;
Environmental Law means all applicable laws (including, for the avoidance of doubt, common law), statutes, regulations, statutory guidance notes and final and binding court and other tribunal decisions of any relevant jurisdiction in force and binding on the Group in the relevant jurisdiction at, or prior to Completion whose purpose is to protect, or prevent pollution of, the Environment (including, for the avoidance of doubt, the protection of human health and safety) or to regulate emissions, discharges, or releases of Hazardous Substances into the Environment, or to regulate the use, treatment, storage, burial, disposal, transport or handling of Hazardous Substances, and all bye-laws, codes, regulations, decrees or orders issued or promulgated or approved thereunder to the extent that the same have force of law and are binding on the Group at, or prior to Completion;
Environmental Matters means all matters relating to:
(a) | the pollution or protection of the Environment and/or human health and safety; |
(b) | the use, treatment, storage, burial, disposal, transport or handling of Hazardous Substances; or |
(c) | Environmental Permits; |
Environmental Permit means any permit, licence, approval, authorisation, permission, consent, notification, waiver, order or exemption which is issued, granted or required under Environmental Law and which is material to the operation of the business of any of the Group Companies; and
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Hazardous Substances means any wastes, pollutants, contaminants and any other natural or artificial substance (whether in the form of a solid, liquid, gas or vapour) which, alone or in combination with other substances, is capable of causing harm or damage to the Environment or human health.
10.2 | So far as the Sellers are aware, the Group Companies are, and during the two years prior to the date of this Agreement have been, conducting the business of the Group in material compliance with Environmental Law. |
10.3 | So far as the Sellers are aware, all Environmental Permits required for the activities of any Group Company as carried out on the date of this Agreement: |
10.3.1 | have been obtained and complied with in all material respects; |
10.3.2 | are in full force and effect; and |
10.3.3 | there are no conditions or circumstances in existence at the date of this Agreement which, if known to an Environmental Authority, would be reasonably likely to result in any Environmental Permit being terminated, revoked, suspended, materially varied or modified or which would be reasonably likely to prejudice its renewal, provided that this warranty is given only in respect of activities of the Group Companies as at the date of this Agreement. |
10.4 | No Group Company has received written notice from any Environmental Authority during the two years prior to the date of this Agreement of any material non-compliance with Environmental Law or Environmental Permits that remains outstanding at the date of this Agreement. |
10.5 | There are no claims, proceedings, prosecutions, legal actions or regulatory investigations that have been commenced against and notified to any of the Group Companies with respect to non-compliance with, or liability, obligation or duty under Environmental Laws or Environmental Permits nor, so far as the Sellers are aware, are any such claims, proceedings, actions or investigations pending or threatened. |
10.6 | So far as the Sellers are aware, none of the Group Companies have any actual or contingent material contractual liabilities or obligations in respect of Environmental Matters which remain undischarged in relation to any properties previously owned, leased, used or occupied by any of the Group Companies or in respect of any activities or operations formerly carried on by any of the Group Companies. |
10.7 | So far as the Sellers are aware, there are no Environmental Matters other than those stated in the ERM Reports which at the date of this Agreement might reasonably be expected to have a material adverse effect on the financial or trading position of any Group Company. |
10.8 | So far as the Sellers are aware, other than as disclosed in the Data Room no Group Company has agreed to indemnify any third party in respect of any Environmental Matters relating to any of the Properties where such indemnity is reasonably likely to result in a material liability in the context of the Sale Group of which such Group Company is a member. |
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11 | Litigation |
11.1 | Current Proceedings |
No Group Company is a party to any litigation, arbitration or other legal proceeding (other than as claimant in the collection of debts arising in the ordinary course of its business) which is material to the Group.
11.2 | Pending or Threatened Proceedings |
So far as the Sellers are aware, no such litigation, arbitration or other legal proceeding that would fall within paragraph 11.1 above is pending or threatened by or against the Group.
12 | Insurance |
12.1 | Particulars of Insurances |
Summary particulars of the insurances of the Group material to the business of the Group are contained in the Data Room.
12.2 | Details on Policies |
In respect of the insurances referred to in paragraph 12.1:
12.2.1 | all premiums have been duly paid to date; and |
12.2.2 | no Seller has received any notification that such insurances are not valid or enforceable. |
13 | Tax |
13.1 | No Material Disputes |
Other than as set out in the Data Room, no Group Company is or has in the three years preceding the date of this Agreement been involved in any material dispute, audit or investigation by any Tax Authority and as far as the Sellers are aware no event has occurred or circumstances arisen by reason of which any such dispute is reasonably likely to arise.
13.2 | Returns, Information and Clearances |
Other than as set out in the Data Room, all material registrations, returns, computations, notices and information which are or have been required to be made or given by the Group Companies for any Taxation purpose have been made or given within the requisite periods and on a proper basis and are up-to-date and correct in all material respects.
13.3 | Special Regimes/Elections/Rulings |
There are set out in the Data Room full particulars of any agreement, arrangement or election between the Group Companies and any Tax Authority pursuant to which the Group Companies are authorised not to comply with what, but for such agreement or arrangement, would be its statutory obligations in respect of any Tax.
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13.4 | Residence and Establishment |
Each Group Company is and, as far as the Sellers are aware, has always been resident for Taxation purposes only in the jurisdiction in which it is incorporated. No Group Company has nor, so far as the Sellers are aware, nor has any Group Company ever had, any branch, agency or permanent establishment located in a jurisdiction other than that in which such Group Company was incorporated.
13.5 | Arms length transactions |
The Sellers have taken reasonable steps to ensure that all material transactions entered into between a Group Company and any other Group Company or between a Group Company and any other current or former member of the Sellers Group were made on arms length terms and no Tax Authority has made any adjustment for Taxation purposes to the terms on which any such transaction has been treated as taking place.
13.6 | Tax avoidance arrangements |
No Group Company has been engaged in or been a party to a scheme or arrangement in respect of which its main purpose, or one of its main purposes, was the avoidance of, or reduction in liability to, Taxation.
13.7 | No consolidation |
No Group Company is a party to any contract, agreement or arrangement of any kind which provides for the allocation, sharing or payment of Taxation or the transfer or surrender of any Relief, other than any such contract, agreement or arrangement made solely with one or more other Group Companies.
14 | Issues since the Accounts Date |
14.1 | Since the Accounts Date: |
14.1.1 | Save as reflected in the HFM Management Accounts, there has been no material adverse change in the financial position of the Group (other than a change affecting or reasonably likely to affect other companies (i) carrying on a similar business to that carried on by the Group Companies or (ii) carrying on business in similar countries in which the Group carries on its business; |
14.1.2 | no material capital commitments have been entered into by any Group Company; and |
14.1.3 | the business of the Group has not been materially and adversely affected by the loss of a customer or source of supply that accounts or has accounted for in the financial period ending on the Accounts Date more than 10 per cent. (in the case of a customer) of the turnover of the Group or (in the case of a source of supply) of the goods, services or equipment supplied to the Group. |
15 | General |
15.1 | Authority and Capacity |
15.1.1 | Each of the Sellers and each Group Company is validly existing and is a company duly incorporated under the law of its jurisdiction of incorporation. |
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15.1.2 | Each of the Sellers has the legal right and full power and authority to enter into and perform this Agreement, the Tax Indemnity and any other documents to be executed by it pursuant to or in connection with this Agreement and no Seller requires the consent of any third party for it to transfer the Shares agreed to be sold by it to the Purchaser which consent has not been obtained or will not be obtained by Completion. |
15.1.3 | The documents referred to in paragraph 15.1.2 above will, when executed, constitute valid and binding obligations on the Sellers, in accordance with their respective terms. |
15.1.4 | Each of the Sellers has taken or will have taken by Completion all corporate action required by it to authorise it to enter into and to perform this Agreement, the Tax Indemnity and any other documents to be executed by it pursuant to or in connection with this Agreement. |
16 | Insolvency etc. |
16.1 | No Group Company is insolvent under the laws of its jurisdiction of incorporation or unable to pay its debts as they fall due. |
16.2 | There are no proceedings in relation to any compromise or arrangement with creditors or any winding up, bankruptcy or other insolvency proceedings concerning any Group Company. |
16.3 | So far as the Sellers are aware, no steps have been taken to enforce any security over any assets of any Group Company and no event has occurred to give the right to enforce such security. |
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Schedule 14
Part 1Sellers knowledge
For the purposes of Clause 11.1.5, any Sellers Warranty qualified by the expression as far as the Sellers are aware or any similar expression shall be deemed to refer in respect of all the Sellers Warranties, to the knowledge of Duncan Wanblad, David Bentley, John Elmes, Hendrik Faul, Olaf Meijer Terry McKenna; Alan Buckley; Brian Keady; Andre Trytsman; John Foley; Philip Wright; Malcolm van der Mescht; IIse Karsten; Archie Eksteen; Bruce van der Nest; Lance Williamson; Nathan Williams; Johan Kamfer; Johan Coetzee; Chris Bessinger; Henry Bruwer; Shaan van Schalkwyk; Henk de Klerk; and Justus Tsauseb.
Part 2Purchasers knowledge
For the purposes of Clause 12.11, references to the Purchasers actual knowledge shall be deemed to refer to the knowledge of Kishore Kumar; Jeyakumar Janakaraj; Keith Kapin; Laxman Shekhawat; Bradapan Gnanasivam; Brahm Prakash and Pooja Somani.
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Schedule 15
Warranties given by the Purchaser and the Purchasers Guarantor
(Clause 11.4)
1 | Authority and Capacity |
1.1 | Incorporation |
Each of the Purchaser and the Purchasers Guarantor is validly existing and is a company duly incorporated under the law of its jurisdiction of incorporation.
1.2 | Authority to enter into Agreement |
1.2.1 | Each of the Purchaser and the Purchasers Guarantor has the legal right and full power and authority to enter into and perform this Agreement, the Tax Indemnity and any other documents (as applicable) to be executed by it pursuant to or in connection with this Agreement or the Tax Indemnity. |
1.2.2 | The documents referred to in paragraph 1.2.1 above will, when executed, constitute valid and binding obligations on the Purchaser and where applicable the Purchasers Guarantor in accordance with their respective terms. |
1.3 | Authorisation |
1.3.1 | Each of the Purchaser and the Purchasers Guarantor has taken or will have taken by Completion all corporate action required by it to authorise it to enter into and perform this Agreement, the Tax Indemnity and any other documents (as applicable) to be executed by it pursuant to or in connection with this Agreement or the Tax Indemnity. |
1.3.2 | Each of the Purchaser and the Purchasers Guarantor has all consents, approvals, licences and permits and has made all declarations or filings with, and given all notices to, any governmental, regulatory or administrative authority or any other person required to enable it to enter into and perform this Agreement, the Tax Indemnity and any other documents (as applicable) to be executed by it pursuant to or in connection with this Agreement. |
2 | Financing |
At the relevant time for payment, the Purchaser will be able to pay the Relevant Consideration from its existing banking facilities and available cash.
3 | Companies |
As at the date of this Agreement, neither the Purchaser nor the Purchasers Guarantor is a party to any agreement or arrangement relating to the sale, or partial sale, of the Group Companies, the business of the Group Companies or any of the underlying assets of the Group Companies, and nor is the Purchaser or the Purchasers Guarantor in negotiations to enter into any such agreement or arrangement.
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4 | Assignees |
As at the date of this Agreement, Hindustan Zinc Limited is an entity controlled by the Purchasers Guarantor.
5 | Knowledge |
The Purchaser has no actual knowledge of any breach of the Sellers Warranties at the date of this Agreement.
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Schedule 16
Environmental and Closure Indemnity
1 | Interpretation |
For the purposes of this Schedule 16 capitalised words and expressions shall have the meanings ascribed to them in Clause 1.1 of this Agreement unless otherwise defined below:
1.1 | Definitions |
Authority means any legal person or body of persons (including any government department or government agency or court or tribunal) having jurisdiction to determine any matter arising in respect of any Mine or any Closure, the impact of any Mine or any such Closure on the local community and includes any Environmental Authority;
BMM Trust means the Purchaser Rehabilitation Vehicle to be established in respect of liabilities arising as a result of Closure of Black Mountain Mine as provided for in paragraph 5 of Schedule 11, and/or any further financial provision and/or any successor financial provision required by applicable laws;
Closure means the process of partial or total cessation of mining and related activities at the relevant Mine that triggers Mine Closure Obligations;
Environmental and Closure Losses means any Losses (including the reasonable cost of Remedial Action but excluding internal costs and expenses and indirect or consequential losses except to the extent that any member of the Sellers Group is legally liable to pay such Losses to a third party) suffered or incurred by the relevant Seller or any member of the Sellers Group (each a Seller Indemnified Person) after the Completion Date that arise from or out of:
(i) | Known Contamination; |
(ii) | any failure to carry out and/or to procure the carrying out of the applicable Mine Closure Obligations in accordance with Good Industry Practice after the Completion Date in the event of a Closure; |
(iii) | an Exposure Claim; and/or |
(iv) | Unknown Contamination in respect of Losses incurred after the expiry of the time period in paragraph 4.2.1 of this Schedule (save to the extent such Losses arise from a Claim by the Purchaser under paragraph 2.2 of this Schedule that was made within the relevant time period); |
Environmental Impact Assessment means any assessment of environmental and social impacts in relation to a relevant Mine required to be made under Environmental Law at any time after the relevant Completion Date or disclosed in the Data Room and, where required, as approved or submitted to the relevant Authority and as may be amended, supplemented or replaced from time to time;
Environmental Law means all applicable laws (including, for the avoidance of doubt, common law), statutes, regulations, statutory guidance notes and final and binding court and other tribunal decisions of any relevant jurisdiction in force and binding on the Indemnified Party in the relevant jurisdiction at any time hereafter whose purpose is (a) to protect, or prevent pollution of, the Environment (including, for the avoidance of doubt, the
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protection of human health and safety) or (b) to regulate emissions, discharges, or releases of Hazardous Substances into the Environment, or (c) to regulate the use, treatment, storage, burial, disposal, transport or handling of Hazardous Substances or (d) that regulate any Closure or (e) the social impacts of the Mine and Closure on the local community, and, in relation to (a) to (e) all bye-laws, codes, regulations, decrees or orders issued or promulgated or approved thereunder to the extent that the same have force of law and are binding on the Indemnified Party at any time hereafter;
Environmental Management Plan means any plan or program relating to management of environmental matters and/or social impacts on the local community in relation to a relevant Mine required to be made under Environmental Law at any time after the relevant Completion Date or disclosed in the Data Room and, where required, as approved or submitted to the relevant Authority and as may be amended, supplemented or replaced from time to time;
Environmental Proceeding means any criminal, civil, judicial, administrative or regulatory proceeding, suit or action by any Authority or third party (excluding any Seller Indemnified Person in respect of a claim by a Relevant Seller or Purchaser Indemnified Person in respect of a claim by the Purchaser (as the case may be)) under Environmental Law in relation to any matter giving rise to Environmental and Closure Losses or Purchasers Environmental Losses;
Exposure Claim means any claim made after the relevant Completion Date by any person (or the spouse or dependants of any such person) in respect of his or her exposure or alleged exposure to Hazardous Substances at, on or under the Mines and/or the Properties or Hazardous Substances which have migrated from the Mines and/or the Properties at any time before or after the relevant Completion Date but excluding any Former Employee Exposure Claims;
Former Employee Exposure Claim means any claim made after the relevant Completion Date by any person employed at any time before but not after the relevant Completion Date by the relevant Acquired Company (or the spouse or dependants of any such person) in respect of his or her exposure or alleged exposure at any time before the relevant Completion Date to Hazardous Substances at, on or under the Mines and/or the Properties or Hazardous Substances which have migrated from the Mines and/or the Properties at any time before the relevant Completion Date;
Indemnified Party means a Seller Indemnified Person in respect of the indemnity in paragraph 2.1 and a Purchaser Indemnified Person in respect of the indemnity in paragraph 2.2;
Indemnifying Party means the relevant Seller or Purchaser as appropriate;
Known Contamination means the presence at any time at or prior to the Completion Date of Hazardous Substances in on or under the Properties and/or the migration of such Hazardous Substances at any time from the Properties provided and only to the extent that the existence or likely existence in, on or migrating to or from the relevant Property of such Hazardous Substances is Fairly Disclosed, stated in the relevant ERM Report, or is otherwise known to the Indemnifying Party at the date of this Agreement provided that a reference in the relevant ERM Report to the existence or likely existence of Hazardous Substances in one location of the relevant Property shall not be considered as disclosure of its existence in another location unless its existence in the second location is part of a
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direct pollution linkage (as that concept is understood in DEFRA Circular 01/2006 under the Environmental Protection Act 1990: Part 2A) to its existence in the first;
Lisheen Financial Security means the amounts required to be provided as security to cover the costs of Closure, restoration/rehabilitation and aftercare under the terms of the State Mining Lease, Lisheen Planning Permission and the Lisheen IPC Licence and all applicable Environmental Laws and applicable social laws;
Lisheen IPC Licence means the Integrated Pollution Control Licence dated 15 March 2001, number 550, granted to Anglo American Lisheen Mining Limited, as may be amended, supplemented or replaced (including by an Integrated Pollution Prevention Control licence or other licence) from time to time;
Lisheen State Mining Lease means the mining lease dated 7 October 1997 granted by the Irish Minister for Energy and Natural Resources and the Minister for Finance to Minorco Lisheen Mining Limited, as may be amended, supplemented or replaced from time to time;
Lisheen Planning Permission means the planning permission planning register reference number PLC/17,663 dated 30 May 1997 and the planning permission planning register reference number 04511667 (An Bord Pleanala reference number PL22.212637) dated 18 October 2005 both issued by An Bord Pleanala and planning permission reference number T.P. 21738/97 dated 5 March 1998 issued by Cork Corporation and any other planning permission applicable to the Lisheen Mine, as may be amended, supplemented or replaced from time to time;
Mine means:
(A) In respect of BMM, any and all of the following: (i) the Black Mountain underground zinc, lead and copper mine, its associated mining area (as defined in the Mineral and Petroleum Resources Development Act, 28 of 2002) and related properties, including the Swartberg operations, all associated treatment processes and all operations and/or activities incidental thereto, located in the Bushmanland region of the Northern Cape Province of the Republic of South Africa, south of the Big Syncline/Aggeneys Mountains; (ii) the Gamsberg underground zinc mining activities, its associated mining area (as defined in the Mineral and Petroleum Resources Development Act, 28 of 2002), the zinc mining development project and exploration activities and all operations and/or activities incidental thereto, located in the Bushmanland region of the Northern Cape Province of the Republic of South Africa at Gamsberg Mountain; (iii) the proclaimed town of Aggeneys, including the Pelladrift Water Scheme and associated municipal services; (iv) Loop 10 of the Transnet line, approximately 175km to the south of the mining area; (v) the stock and loading yards at Saldanha on the west coast of South Africa all as more fully described in the ERM Project Zambezi (Black Mountain Mine) Report dated 5 March 2010; and (vi) any other mining or related activities or assets of BMM, and Black Mountain Mine shall have the corresponding meaning.
(B) In respect of the Lisheen Group Entities, any and all of the following: (i) the Lisheen underground mine in Tipperary and all related properties; (ii) the port loading facility at Tivoli, County Cork, Republic of Ireland all as more fully described in the ERM Project Zambezi (Lisheen) Report dated 5 March 2010; and (iii) any other mining or related activities or assets of the Lisheen Group Entities, and Lisheen Mine shall have the corresponding meaning.
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(C) In respect of the Namibia Group Entities, any and all of the following (i) the Skorpion open-cut mine and all related properties and associated treatment and refining processes; (ii) the rights of Skorpion Mining Company (Pty) Ltd and Namzinc (Pty) Ltd with respect to the unproclaimed settlement of Rosh Pinah; (iii) the port loading facility at Luderitz in the west of South Africa, all as more fully described in the ERM Project Zambezi (Skorpion Mine Namibia) Report dated 5 March 2010; and (iv) any other mining or related activities or assets of the Namibia Group Companies and Namibia Mine shall have the corresponding meaning.
Mine Closure Obligations means:
(i) | the legally binding obligations of BMM, the Lisheen Group Entities or the Namibia Group Companies, as applicable, in respect of decommissioning and/or during-Closure and/or post-Closure rehabilitation, restoration and remediation and/or compensation for any residual environmental and/or social impacts at the Mines and/or resulting from the mining activities contained within: |
(a) | the Lisheen State Mining Lease, the Lisheen Planning Permission and the Lisheen IPC Licence; |
(b) | any environmental contract entered into with the Namibian Ministry of Environment and Tourism: (x) after the Namibia Completion Date; or (y) after the date of this Agreement and prior to the Namibia Completion Date with the consent of the Purchaser (such consent not to be unreasonably withheld or delayed); or (z) prior to the date of this Agreement which has been Fairly Disclosed to the Purchaser, in each case, as may be amended, supplemented or replaced from time to time in accordance with Good Industry Practice; |
(c) | the applicable Mine Closure Plan; and |
(d) | applicable Environmental Laws; and |
(ii) | the legally binding obligations of the Lisheen Group Entities or BMM, as applicable, to maintain, and comply with all the relevant requirements of, the Lisheen Financial Security and the BMM Trust; |
Mine Closure Plan means, as applicable, all of the following:
(i) | in respect of the Black Mountain Mine only, each of the following documents: (i) the Black Mountain Mine Social Closure Plan prepared by Umsizi Sustainable Social Solutions dated February 2009; (ii) the Black Mountain Tailings Storage Facility Interim Closure Plan prepared by Golder Associates dated July 2008; (iii) the Consolidated Closure Plan prepared by Fraser Alexander Environmental Division and Umsizi Sustainable Social Solutions dated 22 March 2008; (iv) the Closure Plan Status Report for Black Mountain Mine dated 3 December 2009; and (v) the Integrated Closure Plan being developed by Fraser Alexander and Umsizi as required by the Department of Mineral Resources provided that such plan is developed by the relevant Seller in accordance with Good Industry Practice; each as may be amended, supplemented or replaced from time to time in accordance with Good Industry Practice and, where relevant, as may be required by any relevant Authority; |
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(ii) | in respect of the Lisheen Mine only, the Lisheen Closure, Restoration and Aftercare Management Plan (CRAMP) dated 27 November 2009 as may be amended, supplemented or replaced from time to time in accordance with Good Industry Practice and, where relevant, as may be required by any relevant Authority; |
(iii) | in respect of the Namibia Mine only, the Preliminary Mine Closure Report dated July 2007 as may be amended, supplemented or replaced from time to time in accordance with Good Industry Practice and, where relevant, as may be required by any relevant Authority; |
(iv) | such other documents produced after the relevant Completion Date and/or disclosed in the Data Room that may comprise part of the planning for Closure of each Mine and that have been approved or submitted for approval to the relevant Authority; and |
(v) | for each Mine, the Environmental Impact Assessment and/or Environmental Management Plan; |
Purchasers Environmental Losses means Losses suffered or incurred by the Purchaser or any member of the Purchasers Group (each a Purchaser Indemnified Person) (but excluding internal costs and expenses and indirect or consequential losses except to the extent that the relevant member of the Purchasers Group is legally liable to pay such Losses to a third party) that arise from or out of Unknown Contamination (excluding Unknown Contamination at the Lisheen Mine) and/or Former Employee Exposure Claims;
Remedial Action means measures to investigate, inspect, monitor, respond to, remove, remedy, abate, contain, control, treat or ameliorate the effect of Hazardous Substances; and
Unknown Contamination means the presence at or prior to the Completion Date of any Hazardous Substances in or under the Properties and/or the migration of such Hazardous Substances from the Properties at any time at or prior to the Completion Date which in either case is not Known Contamination.
1.2 | References to paragraphs in this Schedule 16 shall be to paragraphs in this Schedule, unless otherwise expressly stated. |
1.3 | Where there is any inconsistency between this Schedule and any other provision of this Agreement, the provisions of this Schedule shall prevail. |
2 | Indemnity |
2.1 | Subject to the provisions of this Schedule, the Purchaser undertakes to indemnify each of the Sellers for itself and on behalf of each member of the Sellers Group against any and all Environmental and Closure Losses. |
2.2 | Subject to the provisions of this Schedule, the relevant Seller shall indemnify and keep indemnified the Purchaser (for itself and on behalf of each member of the Purchasers Group against any and all Purchasers Environmental Losses. |
3 | Trigger Conditions |
3.1 | The Indemnifying Party shall not be liable in relation to any claim made under this Schedule unless the relevant Environmental and Closure Losses or Purchasers |
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Environmental Losses, as appropriate, have arisen from one of the following events in relation to the matter to which the Indemnified Partys claim under this indemnity relates: |
3.1.1 | an Environmental Proceeding is commenced (or notification is received in writing of an intention to bring such proceedings) against a Seller Indemnified Person or Purchaser Indemnified Person as appropriate after the relevant Completion Date; or |
3.1.2 | A reasonable and prudent person acting in accordance with Good Industry Practice would undertake Remedial Action after taking into account the likely costs and benefits of undertaking or not undertaking such Remedial Action in order to prevent the imminent commencement of or notification of Environmental Proceedings. |
4 | Time Limit |
4.1 | The Purchaser shall not be liable in relation to any claim made under this Schedule unless the relevant Seller has notified the Purchaser of its claim in accordance with Paragraph 7 of this Schedule within: |
4.1.1 | the period ending with commencement of Closure in respect of a claim made pursuant to limbs (i) and (iv) of the definition of Environmental and Closure Losses; |
4.1.2 | 10 years of end of Closure (excluding for the purposes of determining the end of Closure any period of aftercare) in respect of a claim made pursuant to limb (ii) of the definition of Environmental and Closure Losses; and |
4.1.3 | 15 years of the relevant Completion Date in respect of a claim made pursuant to limb (iii) of the definition of Environmental and Closure Losses. |
4.2 | A Seller shall not be liable for any claim made under paragraph 2.2 above unless the Purchaser has notified the relevant Seller of its claim (in accordance with paragraph 7 below) within: |
4.2.1 | 5 years of the relevant Completion Date in the case of a claim in relation to Unknown Contamination; and |
4.2.2 | 15 years of the relevant Completion Date in the case of a Former Employee Exposure Claim. |
4.3 | If the Indemnifying Party serves written notice on the relevant Indemnified Party denying liability in relation to any claim made under this Schedule within 30 Business Days of receiving notice of such claim from the relevant Indemnified Party pursuant to paragraphs 4.1 or 4.2 and 7 (as the case may be) of this Schedule, the relevant claim shall (unless it has been previously agreed, satisfied, settled or withdrawn) be deemed to have been withdrawn (and shall not be capable of reinstatement) unless the relevant Indemnified Party commences and serves legal proceedings in respect of such claim against the Indemnifying Party within 12 months of receiving such written notice from the Indemnifying Party. |
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5 | Cap |
The maximum aggregate liability of the Purchaser under this Schedule 16 shall not under any circumstances exceed 15 per cent of the amount received by the Sellers pursuant to Clause 3.1 of this Agreement.
6 | Limitations on Liability |
6.1 | General Limitations on Liability |
The relevant Seller or Purchaser as appropriate shall not be liable in relation to any claim under paragraph 2 to the extent that the Environmental and Closure Losses or Purchasers Environmental Losses or part thereof result from or would not have occurred but for, or are increased by:
(i) | any act, omission or transaction (other than the transaction contemplated by this Agreement) on or after the date of this Agreement of any member of the Indemnified Partys Group or any of its directors, officers, employees, agents, contractors (together referred to as a Relevant Person) or any person at the request of or with the consent or connivance of a Relevant Person, excluding any act, omission or transaction which: |
(a) | is the minimum necessary to comply with Environmental Laws or Environmental Permits or the express written requirements of an Authority acting lawfully; or |
(b) | is in the ordinary course of business and is in accordance with Good Industry Practice; or |
(c) | is otherwise required or permitted under the provisions of this Schedule; or |
(ii) | the disclosure of information (or the authorisation of such disclosure) concerning the contents of this Schedule or any Known or Unknown Contamination, Closure or Exposure Claim by any member of the Indemnified Partys Group or any Relevant Person or any person at the request of or with the consent or connivance of a Relevant Person after the date of this Agreement to any Authority or to any third parties in circumstances where the information was provided otherwise than (a) in response to an unsolicited written request by an Authority for such information where such response is the minimum required pursuant to an obligation at law to comply with such request; (b) disclosure which is the minimum required pursuant to an obligation at law; or (c) with prior written consent of the Indemnifying Party (such consent not to be unreasonably withheld or delayed); or |
(iii) | any investigative works undertaken by or on behalf of the Indemnified Party, other than investigative works: |
(a) | for which the Indemnifying Party has given its prior written consent (such consent not to be unreasonable withheld or delayed); or |
(b) | which are required by an Authority; or |
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(c) | which are the minimum necessary in order to comply with Environmental Laws or Environmental Permits; or |
(iv) | in relation to Purchasers Environmental Losses only any material change of use of, or material change to any industrial process carried on at, any Property or any part thereof after the relevant Completion Date; or |
(v) | in relation to Purchasers Environmental Losses only any development undertaken at any Property after the relevant Completion Date; or |
(vi) | any failure by an Indemnified Party after the relevant Completion Date to comply with the provisions of this Schedule. |
For the avoidance of doubt, Clause 11.8.2 of this Agreement shall not be applicable to claims under this Schedule 16.
6.2 | Double Claims etc |
The relevant Seller or Purchaser as appropriate shall not be entitled to recover from the Indemnifying Party under this Schedule (i) more than once in respect of the same Environmental and Closure Losses suffered and any recovery by any Seller Indemnified Person shall be deemed to be a recovery by all of them; and (ii) more than once in respect of the same Purchasers Environmental Losses suffered and any recovery by any Purchaser Indemnified Person shall be deemed to be a recovery by all of them.
6.3 | The Indemnifying Party shall not be liable in relation to any claim under paragraph 2 to the extent that: |
(i) | the Environmental and Closure Losses or Purchasers Environmental Losses, as appropriate, or part thereof have not yet been actually incurred by the relevant Indemnified Party or are contingent only; or |
(ii) | the Environmental and Closure Losses or Purchasers Environmental Losses, as appropriate, are recoverable under a policy of insurance effected by or for the benefit of the relevant Indemnified Party; or |
(iii) | the relevant Indemnified Party is entitled to recover (whether by payment, discount, credit, relief or otherwise) from some other person any sum in respect of the Environmental and Closure Losses or Purchasers Environmental Losses, in which case: |
(A) | the relevant Indemnified Party shall promptly notify the Indemnifying Party of this fact and provide such information as the Indemnifying Party may require relating to such entitlement; and |
(B) | the relevant Indemnified Party shall, if so required by the Indemnifying Party and at the Indemnifying Partys cost and expense, take all steps including, without limitation, legal proceedings as the Indemnifying Party may reasonably require to enforce such entitlement before seeking to recover any such Environmental and Closure Losses from the Indemnifying Party under this Schedule; and |
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(C) | the relevant Indemnified Party shall keep the Indemnifying Party informed of the progress of any action taken under sub-paragraph (B) above; and |
(D) | any claim in respect of such Environmental and Closure Losses or Purchasers Environmental Losses shall be limited to the amount by which the Environmental and Closure Losses or Purchasers Environmental Losses exceed the amount so recovered; and |
(E) | the Indemnified Party shall (or, as appropriate, shall procure that any relevant other Indemnified Party shall) forthwith repay to the Indemnifying Party any amount the Indemnifying Party has paid pursuant to the claim under this Schedule (net of costs and taxes) which the relevant Indemnified Party subsequently recovers (whether by payment, discount, credit, relief or otherwise) from a third party. |
6.3.2 | In relation to any claim under paragraph 2.2 above, the relevant Seller shall only be liable for 50 per cent of any Losses that would, in the absence of this paragraph 6.3.2, otherwise be payable to the Indemnifying Party under this Schedule. |
7 | Notice |
As soon as reasonably practicable after a Party becomes aware of any circumstances which are likely to lead to a claim by it under this Schedule, such Party shall give written notice thereof to the Indemnifying Party specifying in reasonable detail the relevant matters giving rise to and relating to a claim under this Schedule, and an estimate of the amount of the claim if reasonably practicable, and thereafter such Party shall keep the Indemnifying Party informed in writing of all material developments relating thereto.
8 | Settlement and Conduct of Indemnified Claims |
If any matter or circumstance which may give rise to a claim against the Indemnifying Party under this Schedule is a result of or in connection with a claim by or liability to a third party (including an Authority) then:
8.1.1 | no admission of liability shall be made by or on behalf of the relevant Indemnified Party or any other member of the Indemnified Partys Group and the claim shall not be compromised, disposed of or settled (including any decision not to appeal) and no Remedial Action plan shall be agreed without the written consent of the Indemnifying Party, not to be unreasonably withheld or delayed; |
8.1.2 | the relevant Indemnified Party shall, and shall procure that all relevant other Indemnified Parties shall: |
(i) | defend and contest any such claim or liability in such manner as would a reasonable and prudent operator acting in accordance with Good Industry Practice; |
(ii) | give the Indemnifying Party and its advisers a reasonable opportunity (to the extent this lies within the relevant Indemnified Partys power) to: |
(a) | attend any material site visits or meetings; |
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(b) | comment in advance on any material instruction, scope of work, specification, proposals, statements, reports or other material documents or correspondence; and |
(c) | attend and inspect the carrying out of any Remedial Action at any time whilst it is being carried out; |
8.1.3 | the Indemnifying Party will give, and procure that any relevant Group Company will give, all such information and assistance, including access to personnel, and the right to examine and copy or photograph any assets, accounts, documents and records, for the purpose of avoiding, disputing, denying, defending, resisting, appealing, compromising or contesting any such claim or liability as the relevant Indemnified Person or its professional advisers reasonably request. |
9 | Duty to Mitigate Loss |
Where a Party has made or anticipates making a claim against the Indemnifying Party under this Schedule, the relevant Party shall, and shall procure that all relevant Party Indemnified Persons shall, use its/their reasonable endeavours to avoid in whole or in part any Environmental and Closure Losses or Purchasers Environmental Losses (as appropriate) and to minimise the liability of the Indemnifying Party in respect thereof.
10 | Standard of Remedial Action |
10.1 | The Indemnifying Party shall not be liable under this Schedule for the costs of any Remedial Action which go beyond the minimum which is reasonably necessary to: |
10.1.1 | meet the lawful requirements of an Environmental Authority; or |
10.1.2 | achieve the minimum standards that are required under Environmental Law or Environmental Permits having regard to the use and operations of the Group Companies as carried out on the Completion Date. |
10.2 | The Indemnified Party shall, and shall procure that all other relevant Indemnified Parties shall, use all reasonable endeavours to keep the costs of Remedial Action to a minimum and ensure that any Remedial Action undertaken is the least expensive option available to satisfy the minimum standards referred to in paragraph 10.1 above. |
11 | Exclusive Remedies |
The exclusive remedies of the Sellers against the Purchaser in connection with any Environmental and Closure Losses shall be under this Schedule for the duration of the relevant indemnity but are not exclusive thereafter provided that the Seller shall not assert that or be entitled to reply upon this Schedule or the fact that the Purchaser has indemnified the Seller in relation to such Environmental and Closure Losses as a basis for establishing a duty of care or any other tortious or non-contractual claim against the Purchaser after the expiry of the relevant time limits contained in paragraph 4. The exclusive remedies of the Purchaser against the Sellers in connection with any Losses recoverable under this Schedule shall be under this Schedule or, where a claim could also be made under paragraph 10 of Schedule 13, either under this Schedule or paragraph 10 of Schedule 13.
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12 | Fraud |
None of the limitations contained in this Schedule 16 shall apply to any claim against the relevant Indemnifying Party which arises or is increased, or to the extent to which it arises or is increased, as the consequence of, or which is delayed as a result of, fraud or wilful concealment by such Indemnifying Party, or any of its affiliates or any of their respective directors, officers, employees or agents.
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Schedule 17
Form of Deed of Adherence
THIS DEED OF ADHERENCE is made on [] 2010 and is supplemental to the Share Purchase Agreement dated [] and made between Anglo Operations Limited, Taurus International S.A., Anglo South Africa Capital (Pty) Limited, Anglo American Services (UK) Limited, Welter Trading Limited and Vedanta Resources PLC (together the Parties) as amended from time to time (the Share Purchase Agreement).
WHEREAS:
(A) | The Parties entered into the Share Purchase Agreement in relation to the sale and purchase of the Shares. |
(B) | Pursuant to the provisions of Clause 16.8.3 of the Share Purchase Agreement, the Sellers and the Purchaser acknowledge and agree that the Purchaser shall effect the Designation. |
(C) | This Deed is entered into in compliance with the terms of Clause 16.8.3 of the Share Purchase Agreement. |
NOW THIS DEED WITNESSES AS FOLLOWS:
1 | [Purchasers Assignee] (Purchasers Assignee), hereby confirms that it has been supplied with a copy of the Share Purchase Agreement and undertakes to observe, perform and be bound by all the terms of the Share Purchase Agreement applicable to the Purchaser and which have not been performed at the date hereof to the intent and effect that the Purchasers Assignee shall be deemed with effect from the date of this Deed to be a party to the Share Purchase Agreement and to be designated as the Purchaser under the Share Purchase Agreement. |
2 | This Deed is made for the benefit of the Parties to the Share Purchase Agreement and any other person or persons who after the date of the Share Purchase Agreement (and whether or not prior to or after the date of this Deed) adhere to the Share Purchase Agreement. |
3 | Save where the context otherwise requires, words and expressions defined in the Share Purchase Agreement have the same meanings when used herein. |
4 | The provisions of Clauses 16 (Confidentiality), 17.6 (Whole Agreement), 17.9 (Third Party Rights), 17.10 (Variation), 17.12 (Costs), 17.17 (Notices), 17.19 (Counterparts), 17.20 (Governing Law and Submission to Jurisdiction) and 17.22 (Appointment of Process Agent by the Purchaser) shall apply mutatis mutandis to this Deed as if set out herein. |
5 | For the purposes of Clause 17.17 (Notices) of the Share Purchase Agreement, the name and address of the Purchasers Assignee are as set out in this Deed. |
6 | For the purposes of Clause 17.22 (Appointment of Process Agent by the Purchaser), the Purchasers Assignee hereby irrevocably appoints [] as its agent to accept process on the terms of such Clause. |
IN WITNESS whereof this Deed of adherence has been executed on the date first above written.
EXECUTED and DELIVERED as a |
) |
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deed by |
) | |||
[PURCHASERS ASSIGNEE] |
) | Director | ||
acting by [] and [], each a director in |
||||
the presence of: |
||||
Witnesss Signature |
||||
Name: |
||||
Director | ||||
Address: |
||||
EXECUTED and DELIVERED as a deed |
) | |||
by |
) | |||
WELTER TRADING LIMITED | ) | Director | ||
acting by [] and [], each a director |
||||
in the presence of: |
||||
Witnesss Signature |
||||
Name: |
||||
Director | ||||
Address: |
||||
) | ||||
) | ||||
) | Director | |||
EXECUTED and DELIVERED as a |
||||
deed by |
||||
TAURUS INTERNATIONAL S.A. | ||||
acting by [] and [], each a director in |
||||
the presence of: |
||||
Witnesss Signature |
||||
Name: |
||||
Director | ||||
Address: |
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EXECUTED and DELIVERED as a |
) | |||
deed by ANGLO OPERATIONS |
) | |||
LIMITED |
) | Director | ||
acting by [] and [], each a director in |
||||
the presence of: |
||||
Witnesss Signature |
||||
Name: |
||||
Director | ||||
Address: |
||||
EXECUTED and DELIVERED as a |
) | |||
deed by |
) | |||
ANGLO SOUTH AFRICA CAPITAL |
) | Director | ||
(PTY) LIMITED |
||||
acting by [] and [], each a director in |
||||
the presence of: |
||||
Witnesss Signature |
||||
Name: |
||||
Director | ||||
Address: |
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Schedule 18
Affected Areas
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Schedule 19
Transitional Services Framework
The Purchaser and the Sellers agree to use their respective reasonable endeavours following the date of this Agreement to establish the framework and execute the relevant agreements for such transitional service arrangements as may be reasonably required by the Purchaser following each relevant Completion. The Purchaser and the Sellers acknowledge and agree that the scope of such transitional services shall be on substantially the same terms as those provided by the members of the Sellers Group for or for the benefit of the Group Companies prior to the relevant Completion and shall include the provision of services in respect of:
(i) | the continuation of Anglo American REACH Limited as the Only Representative for Namzinc (Pty) Ltd and Skorpion Mining (Pty) Ltd in relation to REACH; |
(ii) | payroll execution services by GSS; |
(iii) | IT services including software licence agreements; |
(iv) | procurement arrangements in relation to: (a) certain consumables for BMM including but not limited to fuels, lubricants and consolidated inbound logistics; and (b) certain group-level procurement contracts in relation to the Namibia Sale Group; |
(v) | technical assistance; |
(vi) | secondees; and |
(vii) | such other transitional services as the Purchaser and the Sellers may agree. |
The Purchaser and the Seller agree that such transitional services will be charged on a cost-plus 7.5% basis.
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Schedule 20
Escrow Agreement
- 142 -
Schedule 21
Implementation Agreement
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Table of Contents
Contents | Page | |||||
1 | Interpretation |
2 | ||||
2 | Agreements in respect of the Sale of the Shares |
17 | ||||
3 | Consideration |
17 | ||||
4 | Conditions |
18 | ||||
5 | Pre-Completion |
19 | ||||
6 | Completion |
26 | ||||
7 | Share Schemes |
27 | ||||
8 | Covenants in respect of certain Relevant Individuals and other matters |
27 | ||||
9 | Transitional Arrangements |
27 | ||||
10 | Other Post-Completion Obligations |
27 | ||||
11 | Warranties |
27 | ||||
12 | Limitation of Sellers Liability |
30 | ||||
13 | Claims |
34 | ||||
14 | Release of Guarantees |
36 | ||||
15 | Guarantees |
37 | ||||
16 | Confidentiality |
39 | ||||
17 | Other Provisions |
41 | ||||
Schedule 1 Details of the Sellers, Shares etc (Clause 1.1) |
58 | |||||
Schedule 2 Companies and Subsidiaries Part I: BMM |
59 | |||||
Part II: Lisheen Group Entities |
60 | |||||
Part III: Namibia Group Companies |
64 | |||||
Schedule 3 The Properties (Clause 1.1) |
67 | |||||
Schedule 4 Intellectual Property |
74 | |||||
Schedule 5 Sale and Purchase of BMM Shares and BMM Claims (Clause 2.1) |
75 | |||||
Schedule 6 Sale and Purchase of the Lisheen Shares (Clause 2.1) |
84 | |||||
Schedule 7 Sale and Purchase of the Namibia Shares (Clause 2.1) |
88 | |||||
Schedule 8 Permitted Leakage (Clause 5.3) |
92 |
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Schedule 9 Completion Obligations (Clause 6) |
95 | |||||
Schedule 10 Share Schemes (Clause 7) |
99 | |||||
Schedule 11 Covenants relating to certain Relevant Individuals in respect of BMM and the Lisheen Escrow Fund (Clause 8) |
101 | |||||
Schedule 12 Other Post-Completion Obligations (Clause 9) |
106 | |||||
Schedule 13 Warranties given under Clause 11.1 |
108 | |||||
Schedule 14 |
122 | |||||
Schedule 15 Warranties given by the Purchaser and the Purchasers Guarantor (Clause 11.4) |
123 | |||||
Schedule 16 Environmental and Closure Indemnity |
125 | |||||
Schedule 17 Form of Deed of Adherence |
136 | |||||
Schedule 18 Affected Areas |
139 | |||||
Schedule 19 Transitional Services Framework |
141 | |||||
Schedule 20 Escrow Agreement |
142 | |||||
Schedule 21 Implementation Agreement |
143 |
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Exhibit 4.59 | ||
Ref: CDT/ADMN/360/2009 | Date: December 8, 2009 |
Bharat Aluminium Company Limited
BALCO Nagar
Korba 495694
Chhatisgarh
Attn. Mr. V. Ramanathan, CFO/ Mr. Prahlad RawatAGM Finance
Dear Sirs,
We refer to our recent discussions and are pleased to inform you that DBS Bank Limited., Singapore (we or the Bank) is willing to extend the following Buyers Credit Import Advance facility (the Facility) to M/s Bharat Aluminium Company Limited (you or the Borrower) subject to the following terms and conditions:
1. |
Amount and Facility: | (1) Uncommitted multicurrency buyers credit Facility of floating rate (Facility) equivalent up to US$ 50,000,000/- (United States Dollars Fifty Million Only) operative under External Commercial Borrowing (ECB) Guidelines of Reserve Bank of India and other regulatory guidelines/policies/regulations, as may be applicable from time to time in India of an advance (Advance) under the Facility may be in United States Dollars, Euro, Swiss Franc, Japanese Yen and / or Great Britain Pound (subject to availability) for trade advances up to a maximum tenor of 1 year for raw materials and 3 years for capex. | ||
(2) If by reason of any material and adverse change in the Indian or international financial and capital markets, or any material and adverse change in Indian or international financial political or economic conditions or any currency availability or exchange rates or control, the foreign currency requested for by the Borrower under the Facility is unavailable to the Bank, the borrowers request for such foreign currency shall (on notice by the Bank) be deemed to be withdrawn and the Borrower may request for an alternative foreign currency subject to the terms herein and to availability of that currency. | ||||
2. |
Purpose: | To assist the company in the import of goods into India upto 1 year for raw materials and upto 3 years for capex |
Incorporated in Singapore with Limited Liability Biz Regn No. 49413400 C |
DBS Bank Ltd 3rd Floor, Fort House 221, Dr. D. N. Road, Fort Mumbai400 001 India |
Tel :91.22.6638 8888 Fax :91.22.6638 8888 SWI: Dest: DBSS SINBB www.dbs.com |
1
3. |
Security: | First Parri Passue Charge on capital goods imported under the facility (Charge to be perfected within 9 months from 1st Drawdown of facility) | ||
4. |
Availability and Availability Period: |
(1) The Facility is uncommitted in nature. Accordingly the availability and maximum limit of the Facility is subject to the Banks review at any time and from time to time at its absolute discretion. The Bank will consider each request for the drawdown of an Advance made during the Availability Period (as defined hereinafter) for acceptance or refusal in its absolute discretion, notwithstanding previous requests may have been permitted. The Bank may at any time in its absolute discretion and without assigning any reason thereof and notwithstanding any other provision in this letter, standard conditions or any other document and without prior notice to the Borrower to: (i) vary, terminate, reduce, suspend or cancel the undrawn amount of the Facility and cease to make available any further utilization of the Facility;, and/or (ii) to demand immediate repayment of all the moneys and liabilities owing to the Bank under the Uncommitted Facility, whether actual or contingent if, at the relevant time, any one or more of the Events of Defaults has occurred and upon such demand the moneys so demanded by the Bank shall become a debt due and payable by you to us forthwith; or (iii) if no such Event of Default shall have occurred, to demand in writing repayment of all moneys and liabilities owing to us under the Facility (whether actual or contingent) and upon such demand, the moneys so demanded by us shall become a debt due and payable by you to us on the earlier of the following:
(a) the Interest Payment Date (as defined hereinafter) following such demand; and (b) the date of expiry of 7 days from the date upon which such demand was made by us.
Availability Period for this purpose means the period beginning from the date of receipt by the Bank of the duplicate copy of this letter duly accepted on behalf of the Borrower and ending on (whichever is the earliest) (a) 6 months from offer letter date; or (b) the day on which an Event of Default as specified in the clause 13 shall have occurred; or (c) the day on which the Bank shall have withdrawn the Facility in accordance with sub-Clause (a) of this clause. | ||
5A. |
Conditions Precedent: | Each Advance may be made by the Bank to the Borrower subject to the Borrowers representations then being true and to receipt by the Bank of the Borrowers notice for the drawdown of an Advance (Drawdown Notice) in writing in the form specified in attachment [ ] entitled Form of Drawdown Notice requesting for an Advance in a form and substance satisfactory to the Bank. Additionally, an Advance may be made available by the Bank to the Borrower after receipt by the Bank, in form and substance satisfactory to the Bank, of: (i) this, letter, duly executed on behalf of the Borrower; (ii) a certified true copy of the Borrowers certificate of incorporation; (iii) a certified true copy of the Borrowers memorandum and articles of association including all amendments thereto, up to the date of this Letter |
2
(iv) A demand promissory note (DP Note) and, if so required by the Bank, other facility documents such as, but not limited to, a guarantee ( Guarantee) by a person acceptable to the Bank, declaration (Declaration), undertaking (Undertaking) or any other instrument creating or evidencing the creation of any mortgage, charge, lien, encumbrance any other security interest or any other third party interest on or with respect to any property, in favour of the Bank as and by way of security for repayment of the outstanding amount of the Facility drawn-down as reduced by repayment and/or pre-payment (the Loan), and payment of interests, costs, charges and all other amounts payable by the Borrower to the Bank (Loan Amounts), (the aforesaid DP Note and other documents the Security Documents), and any other deeds, documents and writings as may be required (all of which together with this Letter Agreement and the Security Documents to be known as the Facility Documents)
(v) a certified extract of the Borrowers board resolutions and shareholders resolutions if required under the Borrowers constitutional documents or under the laws of the Borrowers country of incorporation or business, accepting this Letter and the Facility, as well as for the issuance of the D/P Note required under this Letter in the Banks format; (vi) such other documents as the Bank may require in relation to the Facility, and; | ||||
5B | Documentation | (a) Board Resolution; (b) Offer cum Agreement letter duly accepted (c) Demand Promissory note for USD 50 Million (d) Deed of hypothecation (e) No-Objection/Pari Passu letter, as applicable from the existing charge holders (f) Filing of Form 8 evidencing creation of charge
Security documents as stated in Serial (a) to (d), above to be completed/submitted before the draw-down of the Facility and security document as stated in Serial (e) to (g) above to be completed on or before 9 months of first drawdown. | ||
6. | Drawdown Notice: | The Borrower shall give the Bank a Drawdown Notice for the drawing of an Advance (four) Business Days prior or such other period mutually agreed by the Borrower and the Bank. Every Drawdown Notice must be accompanied by the following documents: (i) the Borrowers written instructions to the Bank to pay down the proceeds of each Advance (the Advance) directly to the supplier mentioned in the drawdown notice as per attached |
3
format; (ii) evidence, acceptable to the Bank, that the import transaction is in compliance with the procedures/provisions set out under the Master Circular- Import of Goods and Services into India issued by the Reserve Bank of India as amended from time to time; (iii) Copies of the relevant trade documents evidencing the shipment of the goods including but not limited to Commercial Invoice for the purchase by the Borrower and Bill of Lading; and (iv) an undertaking in form and substance acceptable to the Bank, to provide the Bill of Entry of the goods within 30 days of arrival of the goods in India or, such other period as mutually agreed between the Bank and Borrower. | ||||
7. |
Interest: | (1) Each Advance shall bear interest at the rate being the aggregate of a margin over LIBOR. LIBOR means, in relation to any Advance or any unpaid sum in a particular currency:
(i) the rate per annum determined by the Bank to be the offered rate (if any) appearing on the LIBOR01 page of Reuters screen which displays the British Bankers Association Interest Settlement Rate for deposits in the currency of the relevant Advance or unpaid sum and for the specified period or any equivalent successor to such page at or about 11.00 a.m. (London time) two business days prior to the drawdown date. (ii) If no such rate appears on the Reuters screen, the rate per annum determined by the Bank to be equal to the arithmetic mean (rounded upwards, if not already such a multiple, to the nearest whole multiple of one-sixteenth of one per cent) of the rates (as notified to the Bank) at which the principal London offices of Bank of America NA, The Hong Kong and Shanghai Banking Corporation Limited and Calyon was offering to prime banks in the London interbank market deposits in the currency of the relevant Advance or unpaid sum and for the specified period at or about 11.00 a.m. (London time) two business days prior to the drawdown date.
(2) For the purpose of this definition specified period means the interest period (Interest Period) of the relevant Advance or, as the case may be, the period in respect of which LIBOR falls to be determined in relation to such unpaid sum.
(3) For the purpose of this Letter business day means a day (other than a Saturday and Sunday) on which banks are generally open for business in Mumbai, London Singapore, and for payment or purchase of US Dollars, New York City, for payment or purchase of Euro, Frankfurt, Germany, for payment or purchase of Swiss Franc, Zurich, Switzerland, for payment or purchase of Japanese Yen, Tokyo, Japan and for payment or purchase of Great Britain Pound, London, United Kingdom. For purposes of determining LIBOR, business day means a day (other than Saturday and Sunday) on which banks are generally open for business in London.
(4) Interest shall be payable on the last day of the relevant Interest Periods for which interest has been determined in accordance |
4
with this clause. All interest (including default interest) shall be calculated for the actual number of
(5) Any sum which the Borrower fails to pay
when due shall be regarded as an advance made by
(6) Any determination by the Bank of an interest rate applicable under this Clause
shall in the | ||||
8. |
Tenor and Repayment: | Each Advance is for a period of 30, 60, 90, 120, 150,180 or 360 days for raw materials and maximum upto 3 years for capex only, on the last day of which it shall be repaid in full together with accrued Interest calculated at the rates set out above, and other costs, expenses until the date of payment. | ||
9. |
Termination: | As this is an uncommitted Facility, the Bank may in its absolute discretion and without assigning any reason therefor and notwithstanding any other provision in this letter, standard conditions or any other document and without prior notice to the Borrower to:
(i) vary, terminate, reduce, suspend or cancel the undrawn amount of the Facility and cease to make available any further utilization of the Facility;, and/or (ii) demand immediate repayment of all the moneys and liabilities owing to the Bank under the Uncommitted Facility, whether actual or contingent if, at the relevant time, any one or more of the Events of Defaults has occurred and upon such demand the moneys so demanded by the Bank shall become a debt due and payable by you to us forthwith; or (iii) even if no such Event of Default shall have occurred, to demand in writing repayment of all moneys and liabilities owing to us under the Facility (whether actual or contingent) and upon such demand, the moneys so demanded by us shall become a debt due and payable by you to us on the earlier of the following:
a. The interest payment date following such demand; and b. The date of expiry of 7 days from the date upon which such demand was made by us. |
5
10. |
Payments: | (1) For advance in US Dollars All payments by the Borrower to the Bank of the principal, interest and other charges in respect of the advances are to be made in New York same day funds or such other US Dollar funds commonly used for the settlement of international banking transactions in New York City, by crediting the Banks Account Number: 8900347880 CHIPS ID: 353240 SWIFT IRVTUS3N with Bank of New York, New York or such other account designated by the Bank.
(2) For advance in Japanese Yen All payments by the Borrower to the Bank of the principal, interest and other charges in respect of the advances are to be made in Tokyo same day funds or such other Yen funds commonly used for the settlement of international banking transactions in Tokyo, by credit to the Banks Account Number 3071 SWIFT Address: SMBCJPJT with Sumitomo Mitsubishi Bank Ltd. Tokyo or such other account designated by the Bank.
(3) For advance in Euro All payments by the Borrower to the Bank of the principal, interest and other charges in respect of the advances are to be made in Frankfurt same day funds or such other EURO funds commonly used for the settlement of international banking transactions in Frankfurt, by credit to the Banks Account Number 411/6059/008 SWIFT Address: CITIDEFF with Citibank, Frankfurt or such other account designated by the Bank.
(4) For advance in Swiss Franc All payments by the Borrower to the Bank of the principal, interest and other charges in respect of the advances are to be made in Zurich same day funds or such other CHF funds commonly used for the settlement of international banking transactions in Zurich, by credit to the Banks Account Number 0230-36478.05N SWIFT Address: UBSWCHZH80A with UBS, Zurich or such other account designated by the Bank.
(5) For advance in Great Britain Pound All payments by the Borrower to the Bank of the principal, interest and other charges in respect of the advances are to be made in London same day funds or such other GBP funds commonly used for the settlement of international banking transactions in London, by credit to the Banks Account Number 440 0010001271 SWIFT Address: NWBKGB2L with National Westminster Bank, London or such other account designated by the Bank.
(6) Notwithstanding any other provision herein, if on any date an amount (first amount) is to be advanced by the Bank and an amount (second amount) is due from the Borrower to the Bank hereunder, the Bank shall apply the first amount in or towards payment of the second amount. The Bank shall remain obliged to advance any excess (or, as the case may be, the Borrower shall remain obliged to pay any shortfall) in accordance with this Paragraph. | ||
11. |
Representations and Warranties: | (1) The Borrowers execution hereof shall constitute its representations and warranties as of such date that: (i) the Borrower is a company duly incorporated under the laws of India (ii) the execution, delivery and performance of the Facility |
6
Documents are within its corporate powers, have been duly authorized by all necessary corporate action, have received all necessary governmental approvals, and do not contravene any law or contractual restriction binding on the Borrower; (iii) the Facility Documents are, and all documents contemplated there under when issued are or will be when issued, legal, valid and binding obligations of the Borrower enforceable in accordance with their terms; (iv) no material litigation, arbitration or administrative proceedings are at present current or pending nor, to the knowledge of the Borrower, threatened against it or against any of its assets which would in the Borrowers reasonable opinion, have a material adverse effect on its business, assets and condition and;
(2) Each of the above representations and warranties shall be continuing and shall survive the execution and delivery of this Letter up to the complete fulfillment of the Borrowers obligations hereunder. | ||||
12. |
Covenants and Undertakings | (1) The Borrower covenants and undertakes that: (i) its payment obligations under this Letter are unconditional and unsubordinated and will at all times rank at least pari passu with all its other secured and unsubordinated indebtedness; and (ii) It will maintain a positive net worth at all times. (iii) It will not enter into any negotiations or convene a meeting with any of its creditors with a view towards readjustment or rescheduling of any of its indebtedness or propose or make any arrangements for composition with, or any assignment for the benefit of its respective creditors without the banks prior written consent; (iv) The Borrower will not, sell, transfer, lease out, lend or otherwise dispose of all or substantially all of its respective assets or any part of such assets which, either alone or when aggregated with all other disposals required to be taken into account under this paragraph, is substantial in relation to its respective assets, of which (either alone or when so aggregated) could have a material or adverse effect on it; (v) substantially alter the nature of its business or amend or alter any provision in its constitutive documents relating to its borrowing powers and principal business activities; (vi) undertake or permit any re-organisation, amalgamation, reconstruction, take-over or any other schemes of compromise or arrangement affecting its present constitution without the Banks prior written consent. | ||
13. |
Events of Default: | (1) The Banks obligation to make the Facility available to the Borrower shall cease and all amounts, interest and other charges outstanding hereunder shall be immediately due and payable if any of the following events occurs: (i) Failure by the Borrower to pay when due any amount, interest or any other amount payable under the Facility Documents; or (ii) The Borrower breaches any representation or warranty in any Facility Document in any material respect or breaches |
7
any covenant or undertaking, declaration or statement given by it; or (iii) Any other indebtedness of the Borrower is not paid when due, or is or is declared to be or is capable of being declared due and payable before its normal maturity or if the borrower defaults under any foreign exchange or foreign exchange options transactions (or other similar transactions), or any derivative transactions with any other parties; or (iv) The Borrower defaults in the performance of any of the provisions of any Facility Document , other than payment default or default under any covenant and undertaking and such default remains unremedied for 30 days after the default shall have occurred or such other period as mutually agreed between the Bank and Borrower; or (v) The Borrower is insolvent or unable to pay its debts, stops, suspends or threatens to stop or suspend payment of all or a material part of (or of a particular type of) its indebtedness, begins negotiations or takes any other step with a view to deferring, rescheduling or readjusting all or a material part of (or a particular type of) its indebtedness (or of any part of its respective indebtedness which it will or might otherwise be unable to pay when due), proposes or makes a general assignment or an arrangement or composition with or for the benefit of its creditors, or a moratorium is agreed or declared in respect of or affecting all or a material part of (or of a particular type of) its indebtedness; or (vi) The Borrower takes any corporate action or applies to any court for its winding up or the appointment of a liquidator or a receiver or a similar officer of all or any part of its properties is appointed or any step is taken by any person with a view to the bankruptcy, liquidation, winding up or dissolution of the Borrower or for the appointment of a liquidator (including a provisional liquidator), receiver and/or manager, judicial manager, trustee, administrator, agent or similar officer of the Borrower; or (vii) Any security on or over any part of the Borrower assets becomes enforceable or a distress, attachment, writ of seizure and sale, garnishee order, injunction or any form of execution is levied or enforced upon or issued against any such assets ; or (viii) Any provision herein is or becomes, or is claimed by the Borrower to be, for any reason invalid or unenforceable, or it is or will become unlawful for the Borrower to perform or comply with any of its obligations hereunder; or (ix) The Borrower changes or threatens to change the nature or scope of its businesses, ceases or suspends or threatens to cease or suspend all or a substantial part of its business operations or any governmental or other authority takes any step to expropriate, nationalize or compulsorily acquire all or a substantial part of its assets or share capital; or (x) The Borrowers present management is wholly or substantially changed or displaced or has its authority curtailed; or (xi) Vedanta Group(defined as Vedanta Resources Plc and its operating subsidiaries) cease to exercise management control and majority ownership of the borrower, or (xii) Any circumstances arises which gives reasonable grounds in the opinion of the Bank for the belief that the Borrower may not (or may be unable to) perform its obligations under this Letter; or |
8
(xiii) Invalidity, Repudiation and Illegality: Any provision of any of the Facility Documents is or becomes, or is claimed by the Borrower to be, for any reason invalid or unenforceable; or it is or will become unlawful for the Borrower to perform or comply with any of its obligations under any of the Facility Documents to which it is a party or (xiv) Material or Adverse Change: Any event or change or series of events or changes occurs which, in DBS Banks opinion, might have a material or adverse effect on the business or financial condition of the Borrower or a material or adverse effect on the ability of the Borrower to perform its obligations under the facility documents; (2) Upon the notice referred to in Paragraph 12 (1) above being given to the Borrower :-
(i) any Facility which has not been drawn-down, utilised or cancelled shall automatically be cancelled and forthwith cease;
(ii) any sum repaid to the Bank by the Borrower shall be applied at the Banks sole discretion towards the settlement and discharge of the Borrowers liabilities and obligations on any account;
the Borrower shall without demand immediately procure the complete and unconditional release of the Bank from all its liabilities and obligations (whether contingent or otherwise) and including without limitation, all of the Banks liabilities and obligations under all notes and bills accepted, endorsed or discounted by and all letters of guarantee and documentary credits entered into or issued by the Bank for the Borrowers account or at the Borrowers request failing which the Borrower shall without demand immediately pay to the Bank such sums as may be necessary to be paid to the beneficiaries or any other persons whatsoever under or in relation to the said notes, bills, letters of guarantee and documentary credits in order for the Bank to obtain such release together with all costs and expenses incurred or which may be incurred by the Bank in respect thereof; and the Borrower shall provide cash cover for all contingent liabilities and for all notes and bills accepted endorsed or discounted by and letters of guarantee and documentary credits entered into or issued by the Bank for the Borrowers account or at the Borrowers request. | ||||
14. |
Information: | (1) The Borrower shall provide the Bank with financial information, accounting statements and/or any other documents which the bank may reasonably request.
(2) The Borrower shall provide the Bank with (i) its audited financial statements not later than six (6) months after the end of each financial year (ii) its unaudited statements not later than ninety (90) days after the end of each half-year; and (iii) its management reports, comprising at least of its unaudited balance sheet and profit and loss statement for and as at the end of each quarter, as soon as available but not later than 90 days after the end of each quarter; and (iii) promptly any other information, certifications and / or documents as may from time to time required by the Bank.
(3) The Borrower shall promptly notify the Bank of the occurrence |
9
of any Event of Default or prospective Event of Default and the steps being taken to rectify any such Event of Default or prospective Event of Default.
(4) The Borrower shall forthwith provide the Bank with all amendments to the Memorandum and Articles of Association of the Borrower as and when the same are effected. | ||||
15. |
Indemnity/Break Funding costs: | (1) The Borrower shall indemnify the bank against any expenses, costs, losses or damages suffered by it in connection with the Facility Documents, including legal costs and expenses on an indemnity basis incurred by the Bank in the preservation, enforcement or contemplation of enforcement of its rights thereunder and/or at law.
(2) The Bank is hereby authorized to accept, rely and act upon all written instructions and/or instructions by telephone, telex, facsimile transmission or other electronic means by the Borrower and by any person(s) so authorized by the Borrower to give instructions on behalf of the Borrower including, without limitation, instructions to make drawings under the Facility and the Bank shall be entitled to act upon any written instructions given or purported to be give by the Borrower and by any person(s) so authorized, and the Banks determination of any written instructions shall be conclusive and the Borrower will indemnify the Bank against any cost or expense suffered or incurred by the Bank as a result of the Bank acting on any such instructions which it believed in good faith to be genuine and to be what was intended. In the event the Bank is of the opinion that there are errors or ambiguities in the instructions, which opinion shall be conclusive and binding on the Borrower, the Bank will not be held responsible for acting or omitting to act on such instructions.
(3) If the Borrower prepays any Advance before its maturity date, the Borrower shall pay any break funding costs incurred by the Bank. The Borrower will also pay break funding costs for any Advances requested but not made. In this connection, the Borrower will also pay any unwinding costs for foreign exchange, or any derivative transactions determinated before the contracted maturity date. The Banks determination of its break funding and other costs incurred under this sub-paragraph shall be final and conclusive absent manifest error. | ||
16. |
Set-off and Application: | (1) The Bank may, without notice to the Borrower, combine, consolidate or merge all or any accounts of the Borrower whether alone or jointly with any other person (whether in Singapore or elsewhere) with, and the liabilities to, the Bank, and may set off any sum standing to the credit of any such accounts in or towards satisfaction of the Borrowers obligations hereunder notwithstanding that the balances on the accounts and the liabilities may not be expressed in the same currency and the Bank is hereby authorized to effect any necessary conversions at the Banks then prevailing exchange rate.
(2) If any sum paid or recovered by the Bank is less than the amount then due from the Borrower to the Bank, the bank may apply the sum received to the amounts outstanding in such proportions and order as it thinks fit.
(3) The Borrower irrevocably authorizes the Bank to debit its accounts with the Bank (whether in Mumbai or elsewhere and whether alone or jointly or jointly with any other person) at any |
10
time and without any notice to the Borrower for amounts owing under the Facility provided always that any such debiting shall not be deemed to be a payment of any moneys to which it relates except to the extent of any amount in credit in that account. | ||||
17. |
Rights of Bank: | The rights of the Bank hereunder are cumulative, may be exercised as often as the Bank thinks fit and are in addition to the rights under the general law. The rights of the Bank are not capable of being waived or varied except by an express waiver or variation in writing. | ||
18. |
Assignment: | The Borrower may not assign or transfer any rights or obligations hereunder without the Banks prior written consent. The Bank may make the Facility available and receive the benefit of any payment due to it through any of its offices and may at any time without the consent of and without notice to the Borrower or any other person assign or transfer all or any part of its benefits, rights and/or obligations hereunder to any person as the Bank shall think fit. Any such assignee or transferee shall be entitled to the full benefit of such rights and/or obligations as if it were the Bank in respect of the rights or obligations assigned or transferred to it. | ||
18A |
Special Consultant | If the Bank determines that the Borrower is or will be unable to perform its obligations hereunder, the Bank may appoint on the borrowers behalf or require the Borrower to appoint a Special Consultant to conduct an audit of the Borrower or perform such other duties as the Bank may specify. The Bank may nominate any person whom the Bank considers suitably qualified to be the Special Consultant (including without limitation an accountant, lawyer, banker or engineer). A Special Consultant so appointed shall be the agent of the Borrower, who shall be solely responsible for the Special Consultants acts, defaults and remuneration. | ||
19. |
Expenses: | All costs, charges and expenses legal or otherwise incurred in connection with documenting the Facility Documents and the related documents contemplated hereunder execution and perfection thereof and the preservation and enforcement or attempted preservation or enforcement of the rights of the Bank for the recovery of monies due and payable under the Facility or in conection with dealing with any third party claim or order against the Borrowers accounts with the Bank are to the account of the Borrower and shall be payable by the Borrower upon and in accordance with the Banks instructions from time to time on an indemnity basis. All such payments shall be paid in the currencies in which such costs and expenses were incurred. If the Bank in its discretion pays any such costs, charges, expenses, taxes the Borrower shall forthwith on demand repay the same to the Bank together with interest thereon at the rate(s) referred to in Paragraph 6 above. The Borrower shall also pay the Bank on demand all broken funding costs for any advances prepaid, any advances requested for but not made, unwinding costs for foreign exchange and such amounts as the Bank may certify as sufficient to indemnify the Bank in respect of the costs, expenses or loss incurred by the Bank resulting from such pre-Payment or non-Payment. | ||
20. |
Notices: | All notices, statements, confirmations etc. hereunder must be in writing and delivered to the address given above or to the last address notified by either party to the other in writing. | ||
21. |
Non-Waiver: | No failure or delay in exercising any right, power or privilege under |
11
this Letter will operate as a waiver thereof nor will any single or partial exercise of any right, power or privilege preclude any further exercise thereof or the exercise of any right, power or privileges under this Letter. | ||||
22. |
Disclosure of Information: | (1) The Borrower authorizes the Bank and its officers or agents to disclose any information (Information) in connection with the Borrower or its account or the Facility to any person to whom such disclosure is permitted or required under any law or pursuant to any court order. The Bank may also disclose Information to (a) any competent authority under the relevant laws or (b) to its branches or any of its related companies or a potential assignee or transferee, (c) to any person providing security to the Bank for the payment and discharge of all obligations of the Borrower hereunder, (d) any person in connection with a Transfer or proposed Transfer (e) any person for the purpose of enforcing or protecting its rights or interest in relation to the Facility (e) any person in connection with any insolvency proceeding relating to the Borrower or any other person in connection with the Facility (f) any government department, agency or statutory board if, in the Banks opinion, this is necessary or desirable in connection with the Facilities. Transfer includes any assignment or transfer of any of the Banks rights or obligations, any participation, sub-participation, transfer of credit or other risk (entirely or in part) or benefit (entirely or in part) by any means, and entry into any other contractual relationship, in relation to the Facilities.
(2) The right of the Bank hereunder is without prejudice to the right of the Bank under law to make disclosures of information relating to the Borrower and also without prejudice to the terms of any other express consent given by the Borrower relating to disclosures of information relating to the Facility and/or the Borrower or its accounts with the Bank. | ||
23. |
Third Parties Rights: | A person who is not a party to this Letter has no rights under the Contracts (Rights of Third Parties) Act, 1999 of United Kingdom to enforce any term of this Letter. | ||
24. |
Withholding and other Tax: | (1) All payments to be made by the Borrower hereunder shall be made without set-off or counterclaim and free and clear of any deduction or withholding: if the Borrower is required by law to make any deduction or withholding on account of tax or otherwise from any such payment, then the sum due from the Borrower in respect of such payment shall be increased to the extent necessary to ensure that, after making of such deduction or withholding, the Bank receives and retains (free from any liability in respect of any such deduction or withholding) a net sum equal to the sum which the Bank would have received had no such deduction or withholding been made.
(2) If the Borrower makes payment for withholding tax in relation to the Facility and the Bank in the country in which it is incorporated receives or is granted a credit against a relief, remission or repayment of any tax paid or payable by the Borrower in respect of or calculated by reference to the deduction or withholding giving rise to such payment the Bank shall to the extent that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment and without leaving it in any worse position than that in which it would have been had such tax not been required to be made, reimburse such amount to the Borrower |
12
as the Bank shall in its sole discretion determine to be attributable to such deduction or withholding. Nothing herein contained shall oblige the Bank to disclose any of the books and other records or information of the Bank nor shall anything herein contained interfere with the right of the Bank to arrange its tax and commercial affairs and its dealing with its various Borrowers in whatever manner it thinks fit and in particular the Bank shall be under no obligation to claim credit, relief, remission, or repayment from or against its corporate profits or similar tax liability in respect of the amount of any tax as aforesaid
(3) The Borrower will pay all goods and services and all other levies and taxes now or hereafter imposed by law on any payment hereunder and indemnify the Bank against such payment. The Bank shall have the right to debit the same from the Borrowers account(s). | ||||
25. |
Increased Costs | If on or after the date hereof, the introduction of any applicable law, rule or regulations or any change therein or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by the Bank or its lending office with any request or directive of any such authority, central bank or comparable agency, shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by the bank or its lending office, any other condition affecting the loan and result of any of the forgoing is to increase to cost to the Bank or to its Lending office of making or maintaining the facility to be granted herein or to reduce the amount of any sum receive or receivable by the Bank or its Lending office under this Letter with respect thereto by an amount deemed by the Bank to be material, then within 15 days after demand by Bank, the Borrower shall pay to the Bank such additional amount or will compensate the Bank for such increased cost or reduction. | ||
26. |
Other Conditions | (1) Rights Binding on Borrower The rights given to the Bank in the facility documents shall be binding on the Borrower and its successors and shall not be determined or in any way prejudiced or affected by (i) any liquidation (whether compulsory or voluntary) affecting the Borrower or any change in the Borrowers constitution whether by way of amalgamation, consolidation, reconstruction or otherwise, or (ii) any change in the Banks constitution whether by way of amalgamation, consolidation, reconstruction or otherwise.
(2) Material and Adverse Change If by reason of any material and adverse change in the international financial and capital markets, or any material and adverse change in national or international financial political or economic conditions or any currency availability or exchange rates or control, the foreign currency requested for by the Borrower under the Facility is unavailable to the Bank, the Borrowers request for such foreign currency shall (upon the Banks notification to the Borrower of the unavailability) be deemed to be withdrawn and the Borrower may request for an alternative foreign currency subject to the terms of the Facility Letter and to availability.
(3) Severability: The illegality, invalidity or unenforceability of any |
13
provision or part thereof of the facility Document under the law of any jurisdiction shall not affect or impair the validity, legality and enforceability of any other provision or part of the provision and the remaining provisions of the facility documents shall be construed as if such invalid, unlawful or unenforceable provision or part thereof had never been contained in the facility documents.
(4) Currency Indemnity If the Bank receives or recovers any sum due to it from the Borrower in a currency (the Relevant Currency) other than the currency in which such sum is due (the Currency of Account) (whether as a result of, or arising from the enforcement of, a judgement or order of a court or tribunal of any jurisdiction, or in the bankruptcy or dissolution of the Borrower or otherwise) this shall only discharge the Borrower to the extent of the amount in the Currency of Account which the Bank is able, in accordance with its usual practice, to exchange or purchase with the amount of the Relevant Currency so received or recovered on the date of receipt or recovery (or, if it is not practicable to make that exchange or purchase on that date, on the first date on which it is practicable to do so). If that amount in the Currency of Account is less than the amount of the Currency of Account due to Bank, the Borrower shall indemnify the Bank against any loss sustained by it as a result. In any event, the Borrower shall indemnify the Bank against the cost of making any such exchange or purchase. | ||||
27. |
Illegality | If on or after date of this letter, on account of introduction of any applicable law, rule or regulation or any change therein or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof shall makes it unlawful or impossible for the Bank or its lending office to make and maintain loan facility contemplated herein, the Bank shall be entitled to cancel or suspend the facility hereunder and also shall be entitled to call upon the Borrower for payment of principal and payment of interest and other sums accruing due hereunder. | ||
28. |
Statement/Certificate | A statement or certificate in writing issued by the Bank or signed by any of its authorized officer(s) (including any computer generated statement or certificate) certifying any sum payable to it or any other certificate, determination or opinion of the Bank under the Facility shall (in the absence of manifest error) be final and conclusive and binding upon the Borrower. The entries in the accounts which the Bank maintains in accordance with its usual practice shall be prima facie evidence of the existence and amounts of the obligations of the Borrower recorded in them. | ||
29. |
Notices | Unless otherwise agreed, all notices, statements, confirmations and correspondence to the Borrower shall be sent by post or left at the registered office or principal place of business or address in the Banks records or if sent by fax, to the numbers in the Banks records, and shall be deemed to be received by the Borrower on the date following such posting, or on the day when so left, or on dispatch of such fax. | ||
30. |
Law and Jurisdiction: | The laws of England shall govern this Letter, the Facility and ancillary documents. The Borrower hereby irrevocably submits to the non-exclusive jurisdiction of the courts of England. The Borrower may appoint its agent to receive service of process in England and agrees that the Bank may serve any writ of |
14
summons or other legal process on it by sending the same by hand or by registered post to such address within England and service shall be deemed to be good and effectual service on the Borrower notwithstanding it is returned by the post office undelivered. Nothing affects the Banks right to serve process in any other manner permitted under any applicable law. |
As per the Indian Banks Association Circular (No. DB/LEG/MCA-21/944) dated 17th April, 2006, all directors of your company are mandatorily required to obtain Directors Identification Number (DIN) and Corporate Identification Number (CIN) in order to ensure that proper e-filing of charge forms with Registrar of Companies is done / completed.
Any of the above terms and conditions (including, without limitation, any reduction / cancellation / variation of the Facility or any part thereof) may be amended by the Bank from time to time and advised to the Borrower; such amendments to be effective upon such advice or notification to the Borrower.
We trust this offer meets with your approval. Please sign and return to us the duplicate copy of this Letter, together with the documents mentioned under Clause 5 (Conditions Precedent), as your acceptance within thirty (30) days from the date hereof thereby constituting your obligation to borrow the moneys upon the terms and conditions set out herein failing which the offer of the Facility in this Letter shall lapse and be of no effect.
We look forward to a mutually beneficial long term and close relationship.
Should you require any clarification, please do not hesitate to contact Mr. Devapriya Anand Relationship Manager- Corporate Banking (DID: 022-67528304 Mobile 9833488395 or e-mail at devapriya@dbs.com.)
Yours for and on behalf of
DBS Bank Ltd., Singapore
/s/ Rishad Reporter | ||||
Rishad Reporter HeadMumbai DBS Bank Ltd India |
|
15
Demand Promissory Note
USD 50,000,000/- | ||
To
The Manager DBS Bank Ltd. Singapore
|
Dear Sirs,
ON DEMAND We, Bharat Aluminium Company Limited, unconditionally promise to pay DBS Bank Ltd. (the Bank) or order at their office mentioned above, the sum of USD 50,000,000/- (United States Dollar Fifty Million Only) with interest thereon at the rate of mutually agreed with monthly/quarterly rests and/or at a rate and/or rest which may from time to time be prescribed by the Bank, for value received.
*for M/s Bharat Aluminium Company Limited
Director / Authorized Signatory
|
*The common seal of M/s Bharat Aluminium Company Limited |
) | ||||
was affixed hereunto pursuant to a resolution passed |
) | |||||
by the Board of Directors at their meeting held on 18 May 2010 |
) | |||||
) | ||||||
in the presence of Mr. Dinesh Mantri and |
) | |||||
Mr. Azad Shaw |
) | |||||
of the company who have in token thereof |
) | |||||
affixed their signatures hereto. |
) |
|
- 1 -
Acceptance by the Borrower
We hereby acknowledge and accept the terms and conditions set out in the Letter issued by the Bank to us and of which this is a duplicate copy.
In terms of extent Reserve Bank of India regulations, we also confirm and undertake that we shall utilize the facilities, sanctioned by DBS Bank, only for such purposes for which they have been approved. We shall provide the confirmation at such frequencies as may be required by DBS Bank, which is not expected to be less than once every year.
IN WITNESS WHEREOF the Parties hereto have set and subscribed their respective hands on the day, month and year first above-written.
The common seal of Bharat Aluminium Company Ltd |
) | |
the Borrower withinnamed has been |
) | |
hereunto affixed pursuant to a resolution |
) | |
passed at a meeting of its board of directors |
) | |
held on 18.05.2010 in the presence of |
) | |
Mr. Dinesh Mantri and |
) | |
Mr. Azad Shaw Director/Authorised |
) | |
Signatory who has/have signed /counter |
) | |
signed these presents in token of the |
) | |
common seal having been affixed |
) | |
in their presence. |
) | |
16
EXHIBIT 4.60
LETTER OF CREDIT FACILITY AGREEMENT
THIS FACILITY AGREEMENT made this 30th day of August Two Thousand and Ten BETWEEN Talwandi Sabo Power Limited a Public limited company within the meaning of the Companies Act, 1956 having its Registered Office at Village Banwala, MansaTalwandi Sabo Road, Mansa in the State of Punjab, INDIA (the Company, which expression shall, unless it be repugnant to the subject or context thereof, include its successors and permitted assigns) of the ONE PART
AND
ICICI Bank LIMITED, a public company within the meaning of the Companies Act, 1956 and a banking company within the meaning of the Banking Regulation Act, 1949 and having its Registered Office at Landmark, Race Course Circle, Vadodara 390 007 and its Corporate Office at ICICI Bank Towers, Bandra Kurla Complex, Mumbai 400051 and its Zonal/Regional/Branch Office at Punjab (ICICI Bank, which expression shall, unless it be repugnant to the subject or context thereof, include its successors and permitted assigns) of the OTHER PART.
1
ARTICLE I
DEFINITIONS
In the Facility Agreement and the General Conditions, unless there is anything repugnant to the subject or context thereof, the expressions listed below shall have the following meanings viz:
(a) | Applicable Rate means the rate specified as Applicable Rate of Interest in the Schedule I hereto. |
(b) | Applicable Rate of Exchange means - |
i) in case a forward exchange contract /swap has not been booked by the Company with ICICI Bank, the applicable foreign currency bill selling rate of ICICI Bank prevailing on the Date of Crystalisation. Provided however, that if the relevant rate of exchange not quoted or not available for any reason on such days, then the rate prevailing on the immediately next Business Day when such rate shall be quoted or be available shall be the applicable rate of exchange;
ii) the forward exchange contract /swap rate in case a forward exchange contract /swap has been booked by the Company with ICICI Bank.
(c) | Bills Outstanding means the sum of the payments due from the Company under the LCs for which the Documents have been presented to ICICI Bank but reimbursement/payment has not yet been made by the Company to ICICI Bank. |
(d) | Bills means bills of exchange drawn under LCs. |
(e) | Business Day means a day on which the corporate office of ICICI Bank or such other office as may be notified by ICICI Bank to the Company, is open for normal business transactions. |
2
(f) | Commitment means the period between the date of LC opening and the last date for presentation of documents as mentioned in the LC. |
(g) | Credit Arrangement Letter (CAL) means the letter number CBG/2010/CMOG No 01/W01MUM/27253 dated July 28, 2010 and the letter number CBG/2010/CMOG No 01/W01MUM/27808 issued in connection with sanction of the Facility and BG Facilities. The CAL shall be read in conjunction with the provisions of this Agreement and shall form an integral part of this Agreement. All references to this Agreement shall include the reference to CAL wherever applicable. To the extent of any inconsistency or repugnancy, the contents of this Agreement shall prevail to all intents and purposes. The expression CAL shall include all amendments to the CAL. |
(h) | Date of Crystalisation means the 10th day after the date of receipt of Documents by ICICI Bank under the LC in the case of a Sight LC, or the date of maturity in the case of a Usance LC. |
(i) | Defaulted Amountsshall have the meaning ascribed thereto in clause 2.3(e) hereof. |
(j) | Documentary Credit Application/(s) means the Companys application/(s) to ICICI Bank for opening LC and all supporting documents furnished by the Company in respect thereof to ICICI Bank. |
(k) | Documents mean the documents as specified under LC (including the Bills) and drawn up in accordance with the terms of the LC opened under the Facility. |
(l) | Due Date means, in respect of any amount payable under the Facility Agreement, the date on which such amount falls due in terms of the Facility Agreement. |
(m) | Facility shall have the meaning ascribed thereto in Section 2.1 hereof. |
(n) | FEDAI means Foreign Exchange Dealers Association of India. |
3
(o) | General Conditions means the General ConditionsLC applicable to Letter of Credit Facilities provided by ICICI Bank. The Facility hereby agreed to be provided by ICICI Bank shall be subject to the Company complying with the terms and conditions set out herein and also in the General Conditions, which is annexed hereto. The General Conditions shall be deemed to form part of the Facility Agreement and shall be read as if they are specifically incorporated herein. |
(p) | Goods mean goods described in the Documentary Credit Application. |
(q) | ICICI Bank Base Rate means the percentage rate per annum decided by the Bank from time to time and announced / notified by the Bank from time to time as its Base rate. |
(r) | LC outstanding means the sum of the value of all the LCs opened by ICICI Bank on behalf of the Company for which the Documents have not been presented to ICICI Bank. |
(s) | Letter of Credit or LC means the Letter of Credit issued/opened by ICICI Bank as per the Documentary Credit Application under the Facility. |
(t) | RBI means Reserve Bank of India. |
(u) | Sight LC means the LC which provides for payment by ICICI Bank to the negotiating bank on presentation of Documents drawn under the LC. |
(v) | Suppliers means the suppliers of Goods as per the terms of the LC. |
(w) | SWIFT means Society for World Wide International Financial Telecommunications |
(x) | Usance LC means the LC which provides for payment on maturity as per the terms of the LC. |
4
All capitalised terms used but not defined in the Facility Agreement shall have the respective meanings assigned to them under the General Conditions.
5
ARTICLE II
AMOUNT AND TERMS OF FACILITY
2.1 | AMOUNT |
At the request of the Company, ICICI Bank has agreed to open Letters of Credit in foreign currencies in favour of the Suppliers for amounts equivalent in the aggregate to Rs. 10,000.0 million (the Facility) from time to time, on the terms and conditions contained herein as also in the General Conditions and Documentary Credit Application(s).
Further, ICICI Bank has, at the request of the Company, agreed to grant to the Company, a bank guarantee facility for issuance of bank guarantees of Rs. 3,000.0 million (the BG Facilities or BGs, which expression shall, as the context may permit or require, mean any or each of such BGs and all renewals made thereto from time to time, in favour of entities/ persons acceptable to the ICICI Bank guaranteeing / undertaking payment obligations / obligations to make payment upto the guaranteed amount in case of shortfall in performance / non-performance in terms of various contracts / agreements entered into between the Company and the respective beneficiaries. The BG Facilities shall be a sublimit of the Facility (for LC issuance) as aforesaid.
Provided that the sum total of LCs Outstanding, Bills Outstanding and BGs outstanding under the Facility and the BG Facilities shall not at any point of time in the aggregate exceed the amount of the Facility being Rs. 10,000 million.
2.2 | Additional Terms for BG Facilities |
The BG Facilities shall, in addition to the terms hereunder, be subject to the terms as contained in Schedule III hereto. All other provisions herein as applicable to the Facility shall be mutatis mutandis applicable to the BG Facilities.
2.3 | COMMISSION/CHARGES |
a) | The Company shall pay to ICICI Bank non-refundable commissions/charges in |
6
respect of the LCs and BGs at the rate and on the dates specified in the Schedule I hereto. |
b) | The Company shall also pay to ICICI Bank on demand the charges that may be levied as per FEDAI rules in force from time to time for any early/late delivery of the relevant foreign exchange/currency under the forward exchange contract, if any, booked by the Company. |
2.4 | PAYMENT AND INTEREST |
(a) | The Company shall accept and /or pay all Bills drawn pursuant to the terms of the LCs and pay for all the Documents negotiated thereunder in accordance with the terms thereof, as also any payment made or liability incurred by ICICI Bank under the LC and/or the Facility on behalf of the Company, together with interest, costs, charges and expenses due to ICICI Bank in respect thereof as hereinafter mentioned. |
(b) | The Company shall make due payment/reimbursement to ICICI Bank of the amount payable/paid by ICICI Bank in respect of the Companys liability under the- |
(i) Sight LC, on presentation of Documents; and
(ii) Usance LC, on the date of its maturity.
(c) | The Company shall pay to ICICI Bank interest on amounts paid by ICICI Bank in respect of the Companys liability under the Sight LC at the Applicable Rate for the period from the date of payment by ICICI Bank under the Sight LC upto the date of payment/reimbursement by the Company or the Date of Crystalisation, whichever is earlier and such interest shall be payable on the date of payment/reimbursement by the Company of the amounts payable under the LC or the Date of Crystalisation, as the case may be. |
(d) | If, on default by the Company in paying / reimbursing amounts paid/payable by ICICI Bank in respect of the Companys liability under the LCs on the Date of Crystalisation, ICICI Bank is called upon/required to pay or paid, all or any of the monies in pursuance of the LCs, the Company shall forthwith pay to ICICI Bank, all amounts payable or as the case may be, paid by ICICI Bank under the LCs. |
(e) | Notwithstanding the above and without prejudice to ICICI Banks rights under the Facility Agreement, ICICI Bank shall be at liberty to crystalise on the Date of |
7
Crystalisation, the Companys outstanding liability in respect of the LCs by converting the foreign currency amount into Rupees, whereupon the Company shall be liable to pay ICICI Bank the Indian Rupee equivalent of such foreign currency amount as calculated at the Applicable Rate of Exchange (the Defaulted Amounts) and until such payment by the Company, the same shall unless otherwise agreed to by ICICI Bank in writing be deemed to be on demand loan to the Company. |
(f) | The Company shall pay to ICICI Bank interest on the Defaulted Amounts at the Applicable Rate + 10% over the ICICI Bank Base Rate. Such interest shall be paid on demand. |
(g) | The crystalisation of the Companys liability and charging of interest at a higher rate as above shall not be deemed to create any right in the Company to default in making payments when due. |
(h) | The Company shall pay to ICICI Bank interest on all other monies payable to ICICI Bank under the Facility Agreement, at the Applicable Rate + 10% over the ICICI Bank Base Rate. Such interest shall be payable on the dates specified in Sub-clause (f) above. |
(i) | All interest on all monies accruing due under the Facility Agreement shall, in case the same be not paid on the respective Due Dates, carry further interest at the Applicable rate + 10% over the ICICI Bank Base Rate. Such interest will be computed from the respective Due Dates and shall become payable upon the footing of compound interest with quarterly rests and shall be payable on the dates specified in Sub-clause (f) above. |
(j) | The interest rates mentioned in Sub-clauses (f), (h) and (i) above shall until creation of full and final security for the Facility as specified in Article IV hereof in favour of ICICI Bank be increased by the same percentage as specified in Section2.2 (b) hereof. |
(k) | All provisions in the Facility Agreement shall apply to all payments made by ICICI Bank in pursuance of the LCs. |
2.5 | COMPUTATION OF INTEREST AND OTHER CHARGES |
Interest and all other charges shall accrue from day to day and shall be computed
8
on the basis of 365 days year and the actual number of days elapsed.
2.6 | LAST DATE OF UTILISATION |
Unless ICICI Bank otherwise agrees, the Borrower can request ICICI Bank for issuance of LCs upto July 22, 2011. The tenor of such LCs shall have a maximum usance period of 3 years from the date of shipment/ dispatch of goods under the LCs.
Maximum Commitment period of any LC shall not be more than 720 days. Notwithstanding the above, the total Commitment and usance period cannot be beyond July 30, 2015.
2.7 | IMPOSTS, COSTS AND CHARGES |
a) | The Company shall, bear all interest tax as may be levied from time to time under the Interest Tax Act, 1974 and all other imposts, duties and taxes (of any description whatsoever) as may be levied from time to time by the Government or other authority pertaining to or in connection with the Facility. |
b) | The Company shall pay all costs, charges (including legal fees, cost of investigation of title to the Companys assets and protection of ICICI Banks interest), and expenses in any way incurred by ICICI Bank and such stamp duty, other duties, taxes, charges and penalties if and when the Company is required to pay according to the laws for the time being in force. |
c) | In the event of the Company failing to pay the monies referred to in sub-clause (a) and (b) above, ICICI Bank will be at liberty (but shall not be obliged) to pay the same. The Company shall reimburse all sums paid by ICICI Bank in accordance with the provisions contained herein. |
d) | All payments and reimbursements by the Company under the Facility Agreement shall be made free and clear of and without any deduction, except to the extent that the Company is required by law to make payment subject to any taxes. If any tax or amounts in respect of tax must be deducted, or any other deductions must be made, from any amounts payable or paid by the Company, the Company shall pay such additional amounts as may be necessary to ensure that ICICI Bank receives |
9
a net amount equal to the full amount which it would have received had payment not been made subject to tax or other deduction. Provided that, all taxes required by law to be deducted by the Company from any amounts of interest paid or payable under the Facility Agreement shall be paid by the Company when due and the Company shall, within 30 days of the payment being made, deliver to ICICI Bank evidence satisfactory to ICICI Bank (including all relevant tax receipts in originals) that the payment has been duly remitted to the appropriate authority.
2.8 | DUE DATE OF PAYMENT |
If the Due Date in respect of any amounts including Defaulted Amounts, commission, charges and interest falls on a day which is not a Business Day at the place where the payment is to be made, the immediately preceding Business Day shall be the Due Date for such payment.
2.9 LIQUIDATED DAMAGES ON DEFAULTED AMOUNTS
In case of default in payment of any monies (except liquidated damages) including Defaulted Amounts, commission, charges and interest on their respective Due Dates, the Company shall pay on the defaulted amounts, liquidated damages at the rate of 2.1% per annum for the period of default. Liquidated damages shall be payable in the manner, and on the dates specified in Section 2.3(f) hereof.
2.10 REIMBURSEMENT OF EXPENSES
(a) The Company shall reimburse all expenses incurred by ICICI Bank under the Facility Agreement within 20 Business Days from the date of notice of demand from ICICI Bank. All such sums shall be debited to the Companys Facility account and shall carry interest from the date of payment till such reimbursement at the Applicable Rate + 10% over the ICICI Bank Base Rate.
(b) In case of default in making such reimbursement in accordance with Sub-clause (i) above within 20 Business Days from the date of notice of demand, the Company shall also pay on the defaulted amounts, liquidated damages at the rate of 2.1% per annum from the expiry of 20 Business Days from the date of notice of demand till reimbursement, in accordance with the provisions of Section 2.8 hereof.
10
2.11 APPROPRIATION OF PAYMENTS
The Company agrees and confirms that ICICI Bank may at its absolute, appropriate any payments made by the Company under the Facility Agreement, towards the dues payable by the Company to ICICI Bank under the Facility Agreement and/or other financing agreements entered into between the Company and ICICI Bank with respect to this facility, and such appropriation by ICICI Bank shall be final and binding on the Company in all respects.
2.12 PLACE AND MODE OF PAYMENTS AND CREDIT THEREFOR
Notwithstanding anything contained in the Facility Agreement, all monies payable by the Company under the Facility Agreement shall be payable in equivalent rupees in lieu of foreign currencies. For the purpose of this Section the following conditions shall apply:
a) | The Rupee sum shall be the Rupee equivalent of the foreign currencies to be remitted on the Due Dates inclusive of all commissions or other bank charges and out of pocket expenses as determined by ICICI Bank. |
b) | The Rupee sum shall be so paid by the Company as to enable ICICI Bank to realise the amounts at par on the Due Dates. |
c) | The Rupee sum shall be paid by the Company to ICICI Bank at their office in Mumbai or to such other places as may be specified by them by telegraphic, telex or mail transfer to the account of such offices or by cheque /bank draft drawn in favour of ICICI Bank on a Scheduled Bank at Mumbai or such other places or to such other accounts as ICICI Bank may notify to the Company and shall be so paid as to enable ICICI Bank to realise the amounts at par. |
d) | Credit for all payments by local cheque /bank draft will be given on the immediately next Business Day after the date of receipt of the instrument or the relative Due Date, whichever is later. Credit for all payments by outstation cheque/bank draft will be given only on realisation or on the relative Due Date, whichever is later. |
11
e) | For the purpose of Sub-clause (a) above a statement signed by a designated officer of ICICI Bank shall be sufficient evidence of the Rupee equivalent of the foreign currencies, costs, commission, charges and expenses. |
f) | Any difference on account of exchange fluctuations in the rates of foreign currencies involved between the payment made by the Company to ICICI Bank and the actual amounts incurred by ICICI Bank as referred to in Sub-clause (a) above shall be borne by or be given credit to the Company. |
2.13 | SALE OF PLEDGED GOODS |
(a) | On the happening of any of the Events of Default, ICICI Bank shall be entitled without prejudice to any of its other rights contained in the Facilty Agreement or under the law and without notice to the Company (which the Company hereby expressly waives), to sell the Goods whether before or after their arrival either by public auction or tender or by private contract and subject to such conditions as ICICI Bank may deem fit to impose, or otherwise dispose of or deal with the Goods or any part thereof and/or with the relative documents of title to Goods in any manner whatsoever, without being bound to exercise any of these powers or liable for any loss in the exercise or non-exercise thereof. The proceeds realised from sale of the Goods or transfer or any document of title, remaining after deducting therefrom the costs and expense of and incidental to such sale or transfer, shall be applied in or towards payment or satisfaction of the amount(s) due to ICICI Bank in respect of any payment made by ICICI Bank under the Facility for the account of the Company, and interest thereon and all costs charges and expenses as hereinabove mentioned. The Company shall accept ICICI Banks account of sale or realisation as conclusive evidence both in and out of court as to the amount(s) realised and expenses incurred, and shall pay forthwith any shortfall or deficiency remaining after such application. ICICI Bank shall not be liable to the Company for any loss which may occur pending sale or disposal of the Goods and/or document of title of goods, whether by reason of theft, damage, deterioration or decay of the Goods or depreciation in the value thereof or otherwise whatsoever be the cause. |
(b) | The Company agrees and undertakes to sign, execute and deliver to ICICI Bank from time to time on demand made by ICICI Bank, such further or other deeds, documents and writings and do all such acts, matters and things as may be required by ICICI Bank for better perfecting the title of ICICI Bank to the Goods |
12
and the Documents covered under the Facility and/or to render the same readily saleable or transferable by ICICI Bank to any purchaser(s) at all time. |
2.14 | INSURANCE OF THE GOODS |
The Company shall keep the Goods further insured from the time of expiry of insurance cover under the initial policy, or policies of insurance , against all risks which are normally covered for goods of the nature purchased under the Facility as also against such other risk(s) as may be required by ICICI Bank, and in the event of the Company failing to do so, ICICI Bank shall be at liberty to insure the Goods at the cost and expenses of the Company without prejudice to the rights of ICICI Bank hereunder. Until all the dues in respect of the Facility are paid in full, the Company shall forthwith pay ICICI Bank all moneys if received by the Company under any policy or policies of insurance and until payment to ICICI Bank of moneys received by the Company under any policy or policies of Insurance, the Company shall hold the same in trust for ICICI Bank.
2.15 | UNDERTAKING BY COMPANY |
a) | The Company shall make adequate arrangement for retiring the Documents under the Facility and does not contemplate to seek any financial assistance from ICICI Bank for such purpose. |
b) | The Company shall furnish to ICICI Bank at the time of submitting the Documentary Credit Application, the following, duly completed: |
i) | Order together with the order confirmation of Supplier, or |
ii) | Proforma Invoice of Supplier duly countersigned by the Company; or |
iii) | Indent/Offer from Supplier or his authorised agent together with the exchange control copy of the relative Import licence. |
c) | The Company undertakes to submit to ICICI Bank the exchange control copy of the relative Customs Bills of Entry within the time limit stipulated by RBI. |
2.16 CONFIRMATION BY COMPANY
The Company agrees , confirms and declares that-
(a) | the Documentary Credit Application shall be deemed to have been accepted when |
13
advice thereof has been sent to the beneficiary through SWIFT / Tested Telex / Airmail. |
(b) | the date of receipt of Documents by ICICI Bank under the Facility as registered in the records of ICICI Bank shall be conclusive and binding on the Company. |
(c) | the negotiations of the Documents drawn under the Facility shall be confined to ICICI Bank. |
(d) | the import of Goods is/are not in contravention of Trade Policy/Exim Policy guidelines prescribed by the Government of India from time to time. |
(e) | it has a valid Import Export code number assigned by the Director General of Foreign Trade and is authorised to undertake imports of the Goods. |
(f) | the transaction covered under the Facility does not involve and is not designed for the purpose of any contravention or evasion of the provisions of Foreign Exchange Management Act, 1999 or of any rule, regulations, notifications direction or order made thereunder or of any other law, rule, regulation or direction. |
(g) | the LC may be amended and/or modified for an increased limit on the Company giving ICICI Bank written instruction for the same and in such an event, such amendment/ modification will be deemed to form part of the Documentary Credit Application and will be governed by the terms hereof and the Company agrees, covenants, records and confirms that it shall be bound by the same as if such amendment/modification including the increased limit had originally constituted the term of the LC. |
(h) | the Facility shall be utilised only for the purpose as has been disclosed to ICICI Bank in Documentary Credit Application, unless otherwise previously permitted by ICICI Bank in writing. |
2.17 NO LIABILITY
The Company agrees that the transmission of all instructions and communications under the LC and the shipping of Documents and the Goods thereunder is entirely at its risk. ICICI Bank or its correspondents or agents shall not be responsible for any error or delay in such transmission or loss or delay in delivery of the Documents or the Goods.
2.18 INDEMNITY
a. | The Company hereby agrees to pay to ICICI Bank on demand, all costs (including legal costs on full indemnity basis) customs duty, penalty, demurrage, storage charges, clearing and forwarding charges and all other charges and expenses which ICICI Bank may be put to or suffer or incur in connection with the Goods and/or the documents of |
14
title to Goods covered by the LC including for re-shipment thereof for any reason whatsoever, or in the exercise or enforcement of any right or power hereby conferred or otherwise howsoever, and further agrees and undertakes to hold ICICI Bank safe and harmless and keep it indemnified against any claim, action or proceedings made or brought against ICICI Bank, its correspondents or agents, as also against any liability or loss incurred or suffered by it, its correspondents or agents by reason of it having established the LC.
b. | The Company hereby agrees to indemnify and keep ICICI Bank indemnified against any liability, loss, damages, costs and expenses (including legal expenses) awarded against or incurred or paid by ICICI Bank as a result of or in connection with ICICI Bank making payment outside India to the Supplier, under the LC, without deducting tax in India whether or not such payment attracts withholding tax in India or requires due certification by a qualified accountant. |
2.18 | DISCLOSURE |
The Company hereby agrees, confirms and undertakes that :
(1) | ICICI Bank shall, as it may deem appropriate and necessary, be entitled to disclose all or any : |
(i) | information and data relating to the Company; |
(ii) | information or data relating to the Facility or any other credit facility availed / to be availed by the Company from ICICI Bank; |
(iii) | obligations assumed / to be assumed by the Company in relation to the Facility; |
(iv) | default, if any, committed by the Company in discharge of the aforesaid obligations, |
to any agency/credit bureau (the Agency) authorised in this behalf by Reserve Bank of India (RBI);
(2) | The Agency so authorised may use, process the aforesaid information and data disclosed by ICICI Bank in the manner as deemed fit by them; |
(3) | The Agency so authorised may furnish for consideration, the processed information |
15
and data or products thereof prepared by them, to banks / financial institutions and other credit grantors or registered users, as may be specified by RBI in this behalf; |
(4) | The information and data furnished by the Company to ICICI Bank from time to time shall be true and correct. |
2.20 GENERAL
(a) | The Company acknowledges that the rates of further interest hereof are genuine and reasonably charged to them. |
(b) | The Company acknowledges that the Facility provided under the Facility Agreement is for a commercial transaction and waives any defence available under usury or other laws relating to the charging of interest. |
16
ARTICLE III
SECURITY
3.1 | SECURITY FOR THE FACILITY |
The Facility together with all interest, Defaulted Amounts, LC Outstanding, Bills Outstanding, commissions, costs, charges, expenses and other monies whatsoever stipulated in or payable under the Facility Agreement shall be secured by:
1. An exclusive charge by way of hypothecation in favour of ICICI Bank of the Companys all movable properties, including movable machinery, machinery spares, tools and accessories, imported under the LCs provided to the Borrower under this Agreement.
2. Corporate Guarantee from Sterlite Industries (India) Limited (Guarantor) for the entire amount of the Facility
Exclusive Pledge of the Goods:
The Company agrees that the Goods shall be deemed to have been pledged to ICICI Bank upon delivery of Documents to ICICI Bank or its agents by the Company or by any person on Companys behalf
3.2 | CREATION OF ADDITIONAL SECURITY |
If, at any time during the subsistence of the Facility Agreement, ICICI Bank is of the opinion that the security provided for the Facility has become inadequate to cover the Facility then outstanding, then, on ICICI Bank advising the Company to that effect, the Company shall procure, provide and furnish to ICICI Bank, to the satisfaction of ICICI Bank such additional security as may be acceptable to ICICI Bank to cover such deficiency.
3.3 | MARGINS |
The Company shall during the currency of the Facility Agreement, maintain such margin(s) in respect of the Facility as set out in Schedule I hereto (Margin Money). In the event of default by the Company in payment of any monies due and payable under the Facility
17
Agreement, ICICI Bank shall have the right to appropriate the Margin Money towards such dues.
3.4 | GUARANTEE |
The Company shall procure and deliver to ICICI before any disbursement by ICICI out of the Facility, irrevocable and unconditional corporate guarantee from Sterlite Industries (India) Limited in favour of ICICI for the due repayment of the Facility and the payment of all interest and other monies payable by the Company, in a form prescribed by ICICI.
18
ARTICLE IV
SPECIAL CONDITIONS
The Facility hereby granted shall also be subject to the Company complying with the special conditions set out in Schedule II hereto.
19
ARTICLE V
EFFECTIVE DATE OF FACILITY AGREEMENT
The Facility Agreement shall become binding on the Company and ICICI Bank on and from the date first above written. It shall be in full force and effect till all the monies due and payable by the Company under the Facility Agreement and or the LC Outstanding and/or the Bills Outstanding and/or the BGs outstanding are fully paid off to the satisfaction of ICICI Bank.
20
SCHEDULE I
Schedule for the Facility (For LC Issuance)
Due Date | ||||
Opening Charges of LC | 0.35% p.a | |||
Retirement Charges | - | |||
Other Charges | Amendment charges: Rs. 500/- per LC amended. In case of foreign currency Letters of Credit, the following charges will be additional: SWIFT/communication charges Rs.500 per LC. Correspondent bank charges including finance charges, if any, shall be charged on actuals. |
|||
Applicable Rate of Interest | Nil | |||
Schedule for the Facility (For BG Issuance) | ||||
Opening Charges of BG | 0.35% p.a | |||
Retirement Charges | - | |||
Other Charges | Amendment charges: Rs. 500/- per BG amended. In case of foreign BG, the following charges will be additional: SWIFT/communication charges Rs.500 per BG. Correspondent bank charges including finance charges, if any, shall be charged on actuals. |
MARGIN MONEY
NA
21
SCHEDULEII
SPECIAL CONDITIONS
The Borrower shall get this Facility rated by an external Rating Agency before December 31, 2010 as AA (TR) (or equivalent). If the Borrower fails either to get the Facility rated or the rating is below AA (TR) (or equivalent), the LC commission shall be revised to 1.00% p.a. with retrospective effect.
22
SCHEDULE III
ADDITIONAL PROVISIONS RELATING TO BANK GUARANTEE FACILITIES
1. DEFINITIONS
All capitalised terms used but not specifically defined herein shall have the respective meanings ascribed to them under the relevant portions of the Facility Agreement.
2. PAYMENT AND INTEREST
(i) If the ICICI Bank is called upon to pay, or pays, all or any of the monies in pursuance of the BGs, the Company shall, without questioning the reasonableness or validity or otherwise of any payment made or required to be made by the ICICI Bank under the BGs, forthwith pay to the ICICI Bank, all amounts payable or as the case may be, paid by the ICICI Bank, including without limitation, all costs, charges and expenses whatsoever payable or paid, suffered or incurred by the ICICI Bank in respect of or in relation to or arising out of the obligations undertaken under the BGs (collectively, the Defaulted Amounts BGs) and until such payment by the Company, the same shall unless otherwise agreed to by the ICICI Bank, be deemed to be on demand loans to the Company carrying interest at the rate specified in the CAL. The ICICI Bank shall be entitled, at its sole discretion, without any further consent from the Company, to debit any of the Accounts of the Company with any of the branches of the ICICI Bank, with the amount of any payments the ICICI Bank is required to make / makes under or in respect of the BGs, as also all interest, commission, charges and other monies payable by the Company in respect of the BGs.
(ii) All payments made by the ICICI Bank in foreign currencies may be, at the option of the ICICI Bank, converted into rupees with reference to the actual cost to the ICICI Bank (including all commission or other bank charges and out-of-pocket expenses) in remitting the foreign currencies.
3. ADDITIONAL PROVISIONS
The Company further agrees, confirms and undertakes as follows :
(i) the Company shall indemnify the ICICI Bank and keep the ICICI Bank indemnified against all actions, proceedings, claims, demands, duties, penalties, taxes, losses, damages, actions, costs, charges and expenses (including costs between attorney and client) and other liabilities whatsoever which may be brought or made against or sustained or incurred by the ICICI Bank (and whether paid by the ICICI Bank or not) or which the ICICI Bank may become liable under or in respect of the BGs;
(ii) the ICICI Bank may in its sole and absolute discretion and without reference to the Company and without the ICICI Bank being required to ascertain whether or not there was any breach on the part of the Company of the agreements / contracts underlying the BGs and without the ICICI Bank being required to go into the validity thereof or otherwise and notwithstanding any directions to the contrary given by the Company or any other person on the ground of a dispute as to the liability of the Company/ the ICICI Bank or otherwise, admit or compromise and pay or submit to arbitration or dispute or resist any claim or demand made against the ICICI Bank under or in respect of such BGs, and the indemnities of the Company contained in the Facility Agreement shall continue to be available to the ICICI Bank in respect of any action or payment which the ICICI Bank may take or make;
(iii) the Company shall (unless otherwise agreed to by the ICICI Bank):
23
(a) duly and punctually observe, perform and comply with all the covenants, obligations and conditions of all the agreements / contracts underlying the BGs including due payment and discharge of all its payment obligations under such contracts / agreements on the due dates;
(b) not create or permit to subsist, any encumbrance of any nature whatsoever over all or any part of the underlying agreements / contracts or its rights thereunder;
(c) | not amend or agree to amend or grant waiver of any of the provisions of the underlying agreements / contracts; |
(d) the BGs will be issued by the ICICI Bank only as per the provisions of applicable laws and regulations including those laid down by RBI;
(e) | the ICICI Bank shall issue BGs only in a format acceptable to the ICICI Bank; |
(f) in case of bid bond / earnest money deposits / advance payment / retention money BGs, stipulated under project exports or if the BGs are issued under any Export Promotion Capital Goods Scheme (EPCGS), the ICICI Bank shall be entitled to obtain counter guarantees from Export Credit Guarantee Corporation (ECGC) or similar authority, at the costs and expenses of the Company;
(g) if for any reason whatsoever the liability of the ICICI Bank extends beyond the validity period specified in the BGs or if the ICICI Bank is prevented by any action initiated by the Company or otherwise from making payment of part or whole of the guaranteed amounts to the beneficiary of the BGs, the Company shall be liable to pay commission also for the period for which the ICICI Bank remains liable under the BGs and / or the period for which the payment of the guaranteed amount / discharge from the guaranteed obligations has been delayed;
(h) the Company shall provide / deposit immediately on demand and without demur, additional acceptable security to the ICICI Bank and / or sufficient amounts by way of 100% cash margin on the outstanding amounts of the BGs, which in the ICICI Banks opinion are likely to be invoked due to non / inadequate fulfillment of obligation, in particular of performance undertaken under the BGs. The Company shall accept the ICICI Banks judgement on the likelihood of guarantee obligation being unfulfilled, as final and binding;
(i) in the event of the interest rate on the principal amount of the financial assistances guaranteed by the ICICI Bank increasing for any reason whatsoever beyond the percentage specified in the underlying agreements / contracts and consequentially the liability and obligation of the ICICI Bank under the BGs increasing, the Company shall indemnify and keep indemnified the ICICI Bank to the extent of additional interest liability paid in such form as may be determined by the ICICI Bank.
24
IN WITNESS WHEREOF the Company and ICICI Bank have caused the Facility Agreement to be executed in duplicate on the day, month and year first hereinabove written as hereinafter appearing.
*The Common Seal of Talwandi Saboo Power
Limited has, pursuant to the Resolution of its Board
of Directors passed in that behalf on the
day of 2010, hereunto been affixed in
the presence of Shri B.K.Sharma /s/ B.K.Sharma
and
Shri Anup Agarwal /s/ Anup Agarwal Directors, who have
signed these presents in token thereof and
Shri Secretary / authorised
person who has countersigned the same in token
thereof.
SIGNED AND DELIVERED by the withinnamed ICICI
LIMITED by the hand of Pradeep Chauhan /s/ Pradeep Chauhan, its
authorised official.
* | In accordance with Articles of Association of the Company. |
25
Name of the Company: Talwandi Sabo Power Limited
GENERAL CONDITIONSLC
APPLICABLE TO LETTER OF CREDIT FACILITIES PROVIDED BY
ICICI BANK LIMITED
Date of the Facility Agreement:
Amount of the Facility: Rs. 10.00 billion
1
ARTICLE I
APPLICABILITY
The General Conditions (the General Conditions) set out herein shall, if the Facility Agreement so provides, be applicable to Facilities provided by ICICI Bank.
If there is any inconsistency between the General Conditions and the Facility Agreement, the Facility Agreement will prevail.
2
Article II
DEFINITIONS AND CONSTRUCTION
Section 2.1DEFINITIONS
In the Facility Agreement and the General Conditions, unless there is anything repugnant to the subject or context thereof, the expressions listed below shall have the following meanings viz.:
a) | Business Day means a day on which the Corporate Office/Registered/Zonal/Regional/Branch Office of ICICI Bank described in the Facility agreement, or such other office as may be notified by ICICI Bank to the Company, is open for normal business transactions. |
b) | Event of Default means any of the Events of Default specified in Section 7.1 hereof. |
c) | Facility Agreement means the particular facility agreement entered into between the Company and ICICI Bank in respect of the Facility and includes the General Conditions as applied thereto, and all schedules and amendments to such Facility Agreement. Unless the term General Conditions is used separately, the term Facility Agreement, wherever used in the Facility Agreement or the General Conditions, shall be deemed to refer to the Facility Agreement read together with and including the General Conditions. |
d) | Indebtedness means any indebtedness whatsoever of the Company at any time for or in respect of monies borrowed, contracted or raised (whether or not for cash consideration) or liabilities contracted by whatever means (including under guarantees, indemnities, acceptance, credits, deposits, hire-purchase and leasing). |
e) | Intellectual Property means all patents, trademarks, permits, service marks, brands, trade names, trade secrets, proprietary information and knowledge, technology, computer programs, databases, copyrights, licences, franchises, formulae, designs, rights of confidential information and all other intellectual property. |
f) | Intellectual Property Rights mean all rights, benefits, title or interest in or to any Intellectual Property, anywhere in the world (whether registered or not and including all applications for the same). |
g) | Material Adverse Effect means the effect or consequence of any event or circumstance which is or is likely to be: |
(i) | adverse to the ability of the Company or any person to perform or comply with any of their respective obligations under the Facility |
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Agreement or any Transaction Document in accordance with their respective terms; or |
(ii) | prejudicial to any of the businesses, operations or financial condition of the Company or of any person who is party to any Transaction Document. |
(h) | Transaction Documentsinclude Documentary Credit Applications and all agreements, instruments, undertakings, indentures, deeds, writings and other documents (whether financing, security or otherwise) executed or entered into, or to be executed or entered into, by the Company or as the case may be, any other person, in relation, or pertaining, to the transactions contemplated by, or under the Facility Agreement or any Transaction Document, and each such Transaction Document as amended from time to time. |
All capitalised terms used but not defined in the General Conditions shall have the respective meanings assigned to them under the Facility Agreement.
Section 2.2CONSTRUCTION
In the Facility Agreement, unless the contrary intention appears:
(a) | a reference to: |
an amendment includes a supplement, modification, novation, replacement or re-enactment and amended is to be construed accordingly;
assets include all properties whatsoever both present and future, (whether tangible, intangible or otherwise) (including Intellectual Property and Intellectual Property Rights), investments, cash-flows, revenues, rights, benefits, interests and title of every description;
an authorisation includes an authorisation, consent, clearance, approval, permission, resolution, licence, exemption, filing and registration;
control includes the power to direct the management and policies of an entity, whether through the ownership of voting capital, by contract or otherwise;
encumbrance includes a mortgage, charge, lien, pledge, hypothecation, security interest or any lien of any description whatsoever.
person includes an individual, corporation, partnership, joint venture, association of persons, trust, unincorporated organisation, government (central, state or otherwise), sovereign state, or any agency, department, authority or political subdivision thereof, international organisation, agency or authority (in each case, whether or not having separate legal personality) and shall include their respective successors and assigns and in case of an individual
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shall include his legal representatives, administrators, executors and heirs and in case of a trust shall include the trustee or the trustees for the time being.
law includes any constitution, statute, law, rule, regulation, ordinance, judgement, order, decree, authorisation, or any published directive, guideline, requirement or governmental restriction having the force of law, or any determination by, or interpretation of any of the foregoing by, any judicial authority, whether in effect as of the date of the Facility Agreement or thereafter and each as amended from time to time.
repayment includes redemption and vice-versa and repaid, repayable, repay, redeemed, redeemable and redemption shall be construed accordingly.
(b) | a reference to a Sub-clause, Section or a Schedule of the Facility Agreement or the General Conditions shall denote a reference to such Sub-clause, Section or Schedule as specified, of the Facility Agreement or the General Conditions; |
(c) | the singular includes the plural (and vice versa); |
(d) | the index to and the headings in the Facility Agreement are inserted for convenience of reference only and are to be ignored in construing and interpreting the Facility Agreement; |
(e) | reference to the words include or including shall be construed without limitation; |
(f) | reference to a gender shall include references to the female, male and neuter genders; |
(g) | all approvals, permissions, consents or acceptance required from ICICI Bank for any matter shall require the prior, written approval, permission, consent or acceptance of ICICI Bank; |
(h) | the words hereof, herein, and hereto and words of similar import when used with reference to a specific Section or Sub-clause in, or Schedule to, the Facility Agreement or the General Conditions shall refer to such Section or Sub-clause in, or Schedule to, the Facility Agreement or as the case may be, the General Conditions, and when used otherwise than in connection with specific Sections, Sub-clauses or Schedules, shall refer to the Facility Agreement as a whole; |
(i) | in the event of any disagreement or dispute between ICICI Bank and the Company regarding the materiality of any matter including of any event, occurrence, circumstance, change, fact, information, document, authorisation, proceeding, act, omission, claims, breach, default or otherwise, the opinion of ICICI Bank as to the materiality of any of the foregoing shall be final and binding on the Company. |
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3REPRESENTATIONS AND WARRANTIES
In order to induce ICICI Bank to enter into the Facility Agreement and to provide the Facility in terms of the Facility Agreement, the Company makes the following representations, warranties and agreements and confirms that they are, true, correct, valid and subsisting in every respect as of the date of the Facility Agreement, as of the date of Documentary Credit Application, as of the date of opening LC by ICICI Bank, as of date of each payment made by ICICI Bank under LC (in each case, before and after ICICI Bank makes payment under the LC) and as on each Due Date, which representations, warranties and agreements shall survive the execution and delivery of the Facility Agreement and the provision of the Facility under the Facility Agreement and payment/reimbursement in full of all monies payable under the Facility Agreement, LC Outstanding and Bills Outstanding.
(a) | DOCUMENTARY CREDIT APPLICATION |
The Documentary Credit Application is true and accurate in all material respects, is not misleading and does not omit any material fact, the omission of which would make any fact or statement therein misleading and the Documentary Credit Application shall be deemed to form part of the warranties herein contained.
(b) | STATUS AND AUTHORISATIONS |
i) | The Company is a body corporate duly incorporated and validly existing under the laws of India and has the power to enter into the Facility Agreement and the Transaction Documents and to own its assets and carry on its business and operations as it is being or is proposed to be conducted. |
ii) | All acts, conditions and things required to be done, fulfilled or performed, and all authorisations required or essential, for the entry and delivery of the Facility Agreement and the Transaction Documents or for the performance of the Companys obligations in terms of and under the Facility Agreement and the Transaction Documents have been done, fulfilled, obtained, effected and performed and are in full force and effect and no such authorisation has been, or is threatened to be, revoked or cancelled. |
iii) | The Company has not received any notice, which has a Material Adverse Effect, nor is it aware that any authorisation necessary or required to be obtained in present or in future will not be granted or obtained. |
iv) | The Company has, wherever necessary, obtained import licences with list of goods and/or necessary authorisation about eligibility, scope and validity of import under open general licence for goods to be imported. |
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v) | The Company is and shall be in compliance in all respects with all laws and regulations affecting its assets and its business and operations |
vi) | Except to the extent disclosed to ICICI Bank: (I) all the Borrowers contracts or agreements with, or any commitments to, any affiliates or group companies (if applicable) are on arms length basis; |
(II) No director of ICICI Bank is: a director, manager, managing agent, employee or guarantor of the Borrower, or of a subsidiary of the Borrower, or of the holding company of the Borrower, or holds substantial interest, in the Borrower or a subsidiary or the holding company of the Borrower and no directors of any other bank holds substantial interest or is interested as director or as a guarantor of the Borrower;
(III) No relative (as specified by RBI) of a Chairman / Managing Director or director of banking company (including ICICI Bank) or a relative of senior officer (as specified by RBI) of ICICI Bank, hold substantial interest or is interested as a director or as guarantor of Borrower.
vii) | Neither the Borrower nor any director, partner, member or trustee of the Borrower has been declared to be a wilful defaulter. The borrower shall not induct a person in the capacity of director / promoter who is a director / partner / member / trustee of a company / firm / Association of persons / trust as the case may be, identified as willful defaulter. In the event of such a person is found to be a director / partner / member / trustee of a company / firm / Association of persons / trust as the case may be, identified as willful defaulter, the Borrower shall take expeditious and effective steps for removal of such person. |
(c) | LEGAL VALIDITY |
The Facility Agreement has been duly and validly executed by its authorised Directors or executives and the Facility Agreement constitutes, and each Transaction Document constitutes or when executed in accordance with its terms will constitute, legal, valid and binding obligations of the Company enforceable in accordance with their respective terms. The Company has taken all steps and done all acts to ensure that the Facility Agreement and each Transaction Document is admissible in evidence in India.
(d) | NON-CONFLICT |
The entry into, delivery and performance by the Company of, and the transactions contemplated by, the Facility Agreement and the Transaction Documents do not and will not conflict with:
i) | any law; |
ii) | the constitutional documents of the Company; or |
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iii) | any document which is binding upon the Company or on any of its assets. |
(e) | NO DEFAULT |
i) | No default is subsisting or might result from the execution of, or the availing of the Facility under, the Facility Agreement by the Company. |
ii) | No other event or circumstance is subsisting which constitutes (or with the giving of notice, lapse of time, determination of materiality or the fulfilment of any other applicable condition or any combination of the foregoing, might constitute) a default under any document which is binding on the Company or any of its assets. |
iii) | The Company is not in breach of the terms of the Facility Agreement or any Transaction Document and no Event of Default is subsisting. |
(f) | TAXES ON PAYMENTS |
Save as otherwise specified in the Facility Agreement, all amounts payable by the Company under the Facility Agreement will be made free and clear of and without deduction for or on account of any tax or levy.
(g) | OWNERSHIP OF ASSETS |
The Company has good title to, or valid leases or licences of, or is otherwise entitled to use its assets.
(h) | IMMUNITY |
i) | The execution or entering into by the Company of the Facility Agreement and the Transaction Documents constitute, and its exercise of its rights and performance of its obligations under the Facility Agreement and the Transaction Documents will constitute, private and commercial acts done and performed for private and commercial purposes. |
ii) | The Company is not, will not be entitled to, and will not claim immunity for itself or any of its assets from suit, execution, attachment or other legal process in any proceedings in relation to the Facility Agreement or the Transaction Documents. |
(i) | JURISDICTION/GOVERNING LAW |
The Companys:
i) | irrevocable submission to the jurisdiction of courts as specified in Section 10.3 hereof, and |
ii) | agreement that the Facility Agreement is governed by Indian law |
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are legal, valid and binding on the Company under Indian law. |
(j) | ACCOUNTS |
The most recent audited accounts of the Company delivered to ICICI Bank:
i) | have been prepared in accordance with accounting principles and practices generally accepted in India, consistently applied; |
ii) | have been duly audited by the statutory auditors of the Company; and |
iii) | represent a true and fair view of its financial condition as at the date to which they were drawn up, |
and | there has been no Material Adverse Effect since the date on which those accounts were drawn up. |
(k) | LITIGATION |
No litigation, arbitration, administrative or other proceedings are pending or threatened against the Company or its assets, which, if adversely determined, might have a Material Adverse Effect.
(l) | INFORMATION |
i) | All information communicated to or supplied by or on behalf of the Company to ICICI Bank from time to time, whether in writing, electronic form or otherwise, is true, correct and complete in all respects as on the date on which it was communicated or supplied. |
ii) | Nothing has occurred since the date of communication or supply of any information to ICICI Bank which renders such information untrue or misleading in any respect and which, if disclosed, might adversely affect the decision of ICICI Bank to process the Documentary Credit Application or issue the LC under the Facility Agreement. |
(m) | INTELLECTUAL PROPERTY |
i) | The Company owns, has license to use or otherwise has the right to use, free of any pending or threatened liens, all Intellectual Property or Intellectual Property Rights, which are required or desirable for the conduct of the Companys business and operations and the Company does not, in carrying on its business and operations, infringe any Intellectual Property Rights of any person. |
ii) | None of the Intellectual Property or Intellectual Property Rights owned or enjoyed by the Company, or which the Company is licensed to use, which are material in the context of the Company's business and operations are being infringed nor, so far as the Company is aware, is |
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there any infringement or threatened infringement of those Intellectual Property or Intellectual Property Rights licensed or provided to the Company by any person. |
iii) | All Intellectual Property or Intellectual Property Rights owned by the Company or which the Company is licensed to use are valid and subsisting. All actions (including registration, payment of all registration and renewal fees) required to maintain the same in full force and effect have been taken. |
(n) | INSURANCES |
i) | All insurances which are required to be maintained or effected by the Company or any other person pursuant hereto or any of the Transaction Documents are in full force and effect and no event or circumstance has occurred, nor has there been any omission to disclose a fact, which would in either case entitle any insurer to avoid or otherwise reduce its liability under any policy relating to the insurances. |
ii) | The Company has complied with its obligations with respect to insurances under the Facility Agreement and each Transaction Document. |
(o) | NO OTHER BUSINESS |
The Company has not engaged in any business or activities, either alone or in partnership or joint venture other than those disclosed to, or permitted by, ICICI Bank.
(p) | TAXES |
i) | Save for stamp duty and relevant registration and filing charges and duties, no tax or levy is or will be imposed on, or by virtue of, the execution, entering into or delivery of the Facility Agreement or any Transaction Document. |
ii) | The Company has complied in all material respects with all taxation laws in all jurisdictions in which it is subject to taxation and has filed all tax returns and paid all taxes and statutory dues due and payable by it and, to the extent any taxes are not due, has established reserves that are adequate for the payment of those taxes and statutory dues. |
(q) | BANKRUPTCY |
The Company has not taken any action and no other steps have been taken or legal proceedings started by or against it in any court of law for its winding-up, dissolution, administration or re-organisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of the Company or of/for any or all of its assets
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(r) | ENVIRONMENT |
i) | The Company has obtained, all authorisations under applicable environmental laws and is and has been in compliance with all such authorisations and laws and there are no circumstances that may at any time prevent or interfere with such compliance. The company shall obtain any such authorizations as required from time to time for its business and operations. |
ii) | There is no claim pending or threatened, against the Company for any breach of environmental law, which, if adversely determined, might have a Material Adverse Effect. |
(s) | ENCUMBRANCES |
Except as otherwise disclosed to ICICI Bank in writing or unless otherwise permitted by ICICI Bank, there are no encumbrances subsisting or in existence on any of the Companys assets
(t) | AFFILIATES |
Except to the extent disclosed to ICICI Bank, the company is not a party to any contract or agreement with, or any commitments to, whether or not in the ordinary course of business, any affiliates or group companies other than on a commercial basis and on terms no less favorable to the company than those that the company would have obtained had the company entered into any contracts or agreements with any party other than such affiliates or group companies.
ARTICLE IV
PRE-ISSUANCE CONDITIONS
Section 4CONDITIONS PRECEDENT
The obligation of ICICI Bank to issue the LCs under the Facility Agreement shall be subject to the Company performing all its obligations and undertakings under the Facility Agreement and Documentary Credit Application(s) besides compliance by the Company with the procedure stipulated by ICICI Bank, and compliance with the conditions, set out below to the satisfaction of ICICI Bank:
Section 4.1CONDITIONS PRECEDENT TO ISSUANCE OF LC
(a) | CORPORATE DOCUMENTS |
The Company shall submit the following information and documents:
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i) | An up-to-date certified true copy of the Memorandum and Articles of Association, and certificate of incorporation and commencement of business, of the Company. |
ii) | A certified true copy of a resolution of the board of directors of the Company: |
(a) | approving the terms and execution of, and the transactions contemplated by, the Facility Agreement and the Transaction Documents; |
(b) | authorising, the affixation of the common seal on the Facility Agreement and the Transaction Documents, and/or a director or directors or other authorised executives to execute the Facility Agreement and the Transaction Documents; and |
(c) | authorising a person or persons, on its behalf, to sign and/or despatch all documents and notices to be signed and/or despatched by it under or in connection with the Facility Agreement and the Transaction Documents. |
iii) | A specimen signature of each such person authorised by the resolutions referred to in Sub-clauses (a)(ii)(b) and (a)(ii)(c) above. |
iv) | A certificate of the legal advisers of the Company certifying that the Company and its Directors have the necessary powers under the constitutional documents of the Company to avail the Facility and enter into the Facility Agreement. |
v) | Documentary evidence that the Company has complied with all of its obligations to file all of its corporate and other documents with the relevant Registrar of Companies. |
vi) | A copy of the Companys most recent audited accounts and auditors report and un-audited accounts. |
(b) | AUTHORISATIONS |
The Company shall submit the following:
i) | Certified copies of each authorisation necessary or desirable in connection with the entry into, performance, validity, enforceability and admissibility of the Facility Agreement and the Transaction Documents (and the transactions contemplated thereby), including where applicable authorisations from its secured creditors stating that they have no objection to the Company creating the security interests on its assets in accordance with the Facility Agreement. |
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ii) | Documentary evidence that each of the Transaction Documents has been duly executed by the parties to it and that each of the Transaction Documents is in full force and effect. |
iii) | Documentary evidence that all registration, notices and filings which are necessary or desirable in relation to the Transaction Documents have been completed. |
(c) | SECURITY |
Unless otherwise permitted by ICICI Bank, the Company shall create the security as stipulated in the Facility Agreement to secure the Facility.
(d) | TRANSACTION DOCUMENTS |
Unless otherwise permitted by ICICI Bank, the Company shall have executed or entered into all Transaction Documents as may be required by ICICI Bank.
(e) | SUBMISSION OF INFORMATION AND DOCUMENTS |
The Company shall furnish to ICICI Bank, such information and documents, financial or otherwise, as may be required by ICICI Bank from time to time in relation to the Facility and its business and operations.
(f) | COMPLIANCE WITH CONDITIONS |
The Company shall abide and comply with such conditions as may be imposed by ICICI Bank from time to time during the currency of the Facility.
ARTICLE V
CONDITIONS APPLICABLE DURING CURRENCY OF THE FACILITY AGREEMENT
Section 5.1INFORMATION COVENANTS
The Company shall promptly:
(a) | REPRESENTATIONS AND WARRANTIES |
notify ICICI Bank upon becoming aware, having used best endeavours, of the occurrence of any event or the existence of any circumstances which constitutes or results in any representation, warranty, covenant or condition under the Facility Agreement being or becoming untrue or incorrect in any respect.
(b) | ACCOUNTS |
deliver to ICICI Bank, its duly audited annual accounts, in any event, within
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four months from the close of its accounting year. The Company shall also deliver to ICICI Bank, as soon as the same are available and in any event within 45 days of the end of each quarter its audited, or as the case may be, unaudited accounts for that quarter.
(c) | LOSS OR DAMAGE |
notify ICICI Bank of any material loss or damage which the Company may suffer due to any event, circumstances or act of God.
(d) | WINDING-UP AND LEGAL PROCESS |
i) | notify ICICI Bank of any action or steps taken or legal proceedings started by or against it in any court of law for its winding-up, dissolution, administration or re-organisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of the Company or of any or all of its assets. |
ii) | notify ICICI Bank of any litigation, arbitration, administrative or other proceedings initiated or threatened against the Company or any of its assets. |
(e) | NEW PROJECTS |
notify ICICI Bank of any new project, or diversification, modernisation or substantial expansion of any of its existing projects or of any project that it may undertake during the currency of the Facility.
(f) | CHANGES IN BOARD AND MANAGEMENT SET-UP |
notify ICICI Bank of any change that may occur or is likely to occur in the composition of its Board of Directors or in its management set-up.
(g) | OTHER INFORMATION |
deliver to ICICI Bank, copies of all documents despatched by the Company to all its creditors (or any general class of them) at the same time as they are despatched.
Section 5.2 AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees that until all the monies due and payable by the Company under the Facility Agreement are fully paid off to the satisfaction of ICICI Bank, the Company shall comply with the following:
(a) | CARRYING ON BUSINESS AND OPERATIONS |
The Company shall:
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i) | maintain its corporate existence and right to carry on its business and operations and ensure that it has the right and is duly qualified to conduct its business and operations as it is conducted in all applicable jurisdictions and will obtain and maintain all franchises and rights necessary for the conduct of its business and operations in such jurisdictions; |
ii) | develop, maintain and implement its projects in accordance with prudent industry standards and accepted industry practices and conduct its business and operations. |
(b) | AUTHORISATIONS |
The Company shall promptly obtain, maintain and comply with the terms of all authorisations necessary for entering into or performing its obligations under the Facility Agreement or for conducting its business and operations and will keep all licenses, leases, contracts, agreements in force and will comply with all statutory regulations in the matter of operation / running of the business.
(c) | RANKING OF CLAIMS |
The Company shall ensure that, save as otherwise provided in the Facility Agreement and the Transaction Documents, its obligations under the Facility Agreement and the Transaction Documents do and will rank above and prior to all its other present and future obligations.
(d) | COMPLIANCE WITH LAWS AND PAYMENT OF TAXES |
The Company shall comply with all laws applicable to or binding on it or its business and operations. The Company shall file all relevant tax returns and pay all its taxes promptly when due.
(e) | INSURANCE |
i) | The Company shall keep insured upto the reinstatement value thereof as approved by ICICI Bank (including surveyors and architects fees) the assets charged/to be charged to ICICI Bank and such of its other assets as are of an insurable nature against fire, theft, lightning, explosion, earthquake, riot, strike, civil commotion, storm, tempest, flood, marine risks, erection risks, war risks and such other risks as may be specified by ICICI Bank. |
ii) | The Company shall duly pay all premia and other sums payable for the aforesaid purpose. The insurance in respect of the assets charged/to be charged to ICICI Bank shall be taken in the joint names of the Company and ICICI Bank and any other person or institution having an insurable interest in the assets of the Company (pursuant to the approval of ICICI Bank) and acceptable to ICICI Bank. |
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iii) | The Company agrees that, in the event of failure on the part of the Company to insure the assets or to pay the insurance premia or other sums referred to above, ICICI Bank may at its sole discretion get the assets insured or pay the insurance premia and other sums referred to above, as the case may be. |
iv) | The Company shall deliver to ICICI Bank promptly and in no event, later than 10 days after the same are issued, originals of all policies of insurance and renewals thereof and endorsements thereto. |
(f) | AUDITORS |
In the event that auditors acting as the auditors for the company cease acting as the auditors for any reason, the company shall promptly inform ICICI Bank of the reasons for such cessation and shall appoint in accordance with applicable laws and maintain as its auditors, another firm of independent chartered accountants, approved by ICICI Bank.
Section 5.3NEGATIVE COVENANTS
The Company hereby covenants and agrees that until all the monies due and payable by the Company under the Facility Agreement are fully paid off to the satisfaction of ICICI Bank, without the written approval of ICICI Bank the Company shall not:
(a) | MERGER, CONSOLIDATION ETC. |
In case of Event of Default, undertake or permit any merger, de-merger, consolidation, reorganisation, scheme or arrangement or compromise with its creditors or shareholders or effect any scheme of amalgamation or reconstruction.
(b) | DIVIDEND |
declare or pay any dividend or authorise or make any distribution to its shareholders: (a) unless it has paid all the dues in respect of the Facility upto the date on which the dividend is proposed to be declared or paid, or has made satisfactory provisions therefor, or (b) if an Event of Default has occurred and is subsisting or would occur as a result of such declaration or payment of dividend or authorisation or making of distribution.
(c) | NEGATIVE PLEDGE |
create or permit to subsist any encumbrance or any type of preferential arrangement (including retention arrangements or escrow arrangements having the effect of granting security), in any form whatsoever on any or all of its assets charged to ICICI Bank or (b) (whether voluntarily or involuntarily) sell, transfer, grant lease or otherwise dispose of or deal with (or agree to do any of the foregoing at any future time), all or any of its assets charged to ICICI Bank.
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(d) | COMMISSION |
In case of Event of Default, pay any commission to its promoters, directors, managers or other persons for furnishing guarantees, counter guarantees or indemnities or for undertaking any other liability in connection with any indebtedness incurred by the company or in connection with any other obligation undertaken for or by the company.
ARTICLE VI
RECORDS
Section 6. RECORDS
The Company shall keep and maintain in accordance with good business practice and applicable laws, all statutory books, books of accounts, bank statements and other records of the Company and in particular, maintain records with respect to the Facility and such records shall be open to examination by ICICI Bank and their authorised representatives.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 EVENTS OF DEFAULT
a) | DEFAULT IN PAYMENT OF ANY BILLS DRAWN/ LIABILITY INCURRED UNDER THE LC |
Default has occurred in the payment of any Bill drawn and/or liability incurred under the LC on the Due Dates for payment thereof.
b) | DEFAULT IN PAYMENT OF INTEREST, COMMISSION, CHARGES AND OTHER MONIES |
Default has occurred in payment of interest, commission, charges on the Facility or any other monies payable under the Facility Agreement.
c) | DEFAULT IN PERFORMANCE OF COVENANTS AND CONDITIONS |
Default (other than a payment default) has occurred in the performance of any covenant, condition or agreement on the part of the Company under the Facility Agreement or by the Company or any other person under the Transaction Documents and such default has continued for a period of 30 days after notice in writing thereof has been given to the Company or as the case may be, to such other person, by ICICI Bank (except where ICICI Bank is of the opinion that such default is incapable of remedy, in which event, no notice shall be required).
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d) MISLEADING INFORMATION AND REPRESENTATIONS
Any information given by the Company in its Documentary Credit Application, in the reports and other information furnished by or on behalf of the Company in accordance with the reporting system is incorrect or misleading, or a representation, warranty or statement made or repeated or deemed to be made or repeated in or in connection with the Facility Agreement or any Transaction Document by the Company or any other person, is incorrect or misleading in any respect.
e) | INADEQUATE SECURITY AND INSURANCE |
(i) | If the Companys assets have not been kept insured by the Company or depreciate in value to such an extent that such depreciation in value could in the opinion of ICICI Bank, have a Material Adverse Effect. |
(ii) | Any insurance contracted or taken by the Company is not, or ceases to be, in full force and effect at any time when it is required to be in effect or any insurance is avoided, or any insurer or re-insurer avoids or suspends or becomes entitled to avoid or suspend, any insurance or any claim under it or otherwise reduce its liability under any insurance or any insurer of any insurance is not bound, or ceases to be bound, to meet its obligations in full or in part under any insurance. |
f) | PROCEEDINGS AGAINST OR DISSOLUTION OF COMPANY |
The Company, has voluntarily or involuntarily become the subject of proceedings under any bankruptcy or insolvency law, or is voluntarily or involuntarily dissolved, or if the Company has taken or suffered to be taken any action for its reorganisation, liquidation or dissolution or if a receiver or liquidator has been appointed or allowed to be appointed of all or any part of the assets of the Company or if an attachment or distraint has been levied on the Companys assets or any part thereof or certificate proceedings have been taken or commenced for recovery of any dues from the Company or if one or more judgements or decrees have been rendered or entered against the Company and such judgements or decrees are not vacated, discharged or stayed for a period of 30 days, and such judgements or decrees involve in the aggregate, a liability which in the opinion of ICICI Bank, could have a Material Adverse Effect.
g) | CESSATION OR CHANGE IN BUSINESS |
If the Company ceases or threatens to cease to carry on any of its businesses or gives notice of its intention to do so or if all or any part of the assets of the Company required or essential for its business or operations are damaged or destroyed or in the opinion of ICICI Bank, there occurs any change from the date of the Facility Agreement in the general nature or scope of the business, operations, management or ownership of the Company, which, in the opinion of ICICI Bank, could have a Material Adverse Effect.
h) | SECURITY IN JEOPARDY |
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If, in the opinion of ICICI Bank, the security for the Facility is in jeopardy or ceases to have effect or if any Transaction Document including any security document executed or furnished by or on behalf of the Company becomes illegal, invalid, unenforceable or otherwise fails or ceases to be in effect or fails or ceases to provide the benefit of the liens, rights, powers, privileges or security interests purported or sought to be created thereby or if any such Transaction Document shall be assigned or otherwise transferred, amended or terminated, repudiated or revoked without the approval of ICICI Bank.
i) | EXPROPRIATION EVENTS |
Any government (including any political or administrative sub-division thereof), governmental authority, agency, official or entity takes or threatens any action:
(i) | for the dissolution of the Company, or any action which deprives or threatens to deprive the Company: (a) from conducting any of its businesses or carrying out its operations in the manner it is being conducted or carried out, , or (b) of the use of any of its assets; |
(ii) | to revoke or terminate or to refuse to provide or renew any authorisation or to impose onerous conditions on or on the grant or renewal of any authorisation; or |
(iii) | with a view to regulate, administer, or limit, or assert any form of administrative control over the rates applied, prices charged or rates of return achievable, by the Company in connection with its business; |
which, in each case, in the opinion of ICICI Bank, could have a Material Adverse Effect.
j) | CHANGE IN CONTROL |
Any person acting singularly or with any other person (either directly or indirectly) acquires control of the Company or of any other person who controls the Company, without the approval of ICICI Bank.
k) | ILLEGALITY |
(i) | It is or becomes unlawful for the Company or any person (including ICICI Bank) to perform any of their respective obligations under the Facility Agreement or any Transaction Document; |
(ii) | The Facility Agreement or any Transaction Document or any provision thereof are required by any law to be amended, waived or repudiated; or |
(iii) | Any obligation under the Facility Agreement or any Transaction Document is not or ceases to be a valid and binding obligation of any person party to it or becomes void, illegal, unenforceable or is repudiated by such person (other than ICICI Bank). |
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l) | CROSS DEFAULT |
(i) | The Company is unable or has admitted in writing its inability to pay any of its Indebtedness as they mature or when due. |
(ii) | An event of default howsoever described (or any event which with the giving of notice, lapse of time, determination of materiality or fulfilment of any other applicable condition or any combination of the foregoing would constitute an event of default) occurs under any agreement or document relating to any Indebtedness of the Company or if any other lenders of the Company including financial institutions or banks with whom the Company has entered into agreements for financial assistance have recalled its/their assistance or any part thereof. |
(iii) | Any person is in breach of, or does not comply with, any term or condition (whether, financial, performance or otherwise) of any Transaction Document including any security document or undertaking. |
m) | MATERIAL ADVERSE EFFECT |
One or more events, conditions or circumstances (including any change in law) shall occur or exist which in the opinion of ICICI Bank, could have a Material Adverse Effect.
Section 7.2 NOTIFICATION OF DEFAULT
The Company shall promptly notify ICICI Bank in writing upon becoming aware of any default and any event which constitutes (or, with the giving of notice, lapse of time, determination of materiality or satisfaction of other conditions, would be likely to constitute) an Event of Default and the steps, if any, being taken to remedy it.
Section 7.3 CONSEQUENCES OF DEFAULT AND REMEDIES
A. On the happening of any of the Events of Default, ICICI Bank may, by a notice in writing to the Company, declare: (a) the LC Outstanding and/or the Bills Outstanding and all accrued commissions, charges, interest or expenses and all other monies in respect of the Facility to be due and payable forthwith, and/or (b) the security created in terms of the Facility Agreement and the Transaction Documents to be enforceable, and ICICI Bank or such other person in favour of whom such security or any part thereof is created shall have inter alia, the following rights (anything in the Facility Agreement or the Transaction Documents to the contrary notwithstanding) namely:
(i) | to enter upon and take possession of the assets of the Company; and/or |
(ii) | to transfer the assets of the Company comprised within the security created in favour of ICICI Bank or such other person by way of lease, leave and licence, sale or otherwise. |
B. | In addition to the rights specified in Sub-clause (A) above, ICICI Bank shall also have the following rights: |
20
APPOINTMENT OF NOMINEE DIRECTOR
In the event of default, ICICI Bank shall have the right to appoint and remove from time to time, Director(s) on the Board of Directors of the Company (such directors are hereinafter referred to as the Nominee Director(s)).
(i) | The Nominee Director(s) shall: |
a) | not be required to hold qualification shares nor be liable to retire by rotation. |
b) | be entitled to all the rights and privileges of other Directors including the sitting fees and expenses as payable to other Directors but if any other fees, commission, monies or remuneration in any form is payable to the Directors, the fees, commission, monies and remuneration in relation to such Nominee Director(s) shall be paid by the Company directly to ICICI Bank. |
Provided that if any such Nominee Director(s) is an employee of ICICI Bank, the sitting fees and expenses in relation to such Nominee Director(s) shall be paid by the Company directly to ICICI Bank.
Any expenditure incurred by ICICI Bank or the Nominee Director(s) in connection with his appointment of directorship shall be borne and payable by the Company.
c) | be appointed a member of committees of the Board, if so desired by ICICI Bank. |
d) | be entitled to receive all notices, agenda, etc. and to attend all General Meetings and Board Meetings and Meetings of any committees of the Board of which he is a member. |
(ii) | If, at any time, the Nominee Director(s) is not able to attend a meeting of the Board of Directors or any of its committees of which he is a member, ICICI Bank may depute an observer to attend the meeting. The expenses incurred by ICICI Bank in this connection shall be borne and payable by the Company. |
(iii) | The Nominee Director(s)/the observer shall furnish to ICICI Bank a report of the proceedings of all such meetings. |
(iv) | The appointment/removal of the Nominee Director(s) shall be by a notice in writing by ICICI Bank addressed to the Company and shall (unless otherwise indicated by ICICI Bank) take effect forthwith upon such a notice being delivered to the Company. |
C. | OTHER CONSEQUENCES OF DEFAULT |
On the happening of any of the Events of Default and so long as such Event of Default
21
is subsisting, the Company shall not, without the approval of ICICI Bank:
(i) | undertake any new project, modernisation, diversification or substantial expansion of any project. |
(ii) | change the composition of its Board of Directors and/or its management set-up or appoint/re-appoint/remove the managing director or any other person holding substantial powers of management by whatever name called. |
(iii) | amend or modify its Memorandum and Articles of Association. |
(iv) | make any investments whether by way of deposits, loans, or investments in share capital or otherwise, in any concern or provide any credit or give any guarantee, indemnity or similar assurance. |
(v) | (a) buy back, cancel, retire, reduce, redeem, re-purchase, purchase or otherwise acquire any of its share capital now or hereafter outstanding, or set aside any funds for the foregoing purposes, or (b) issue any further share capital whether on a preferential basis or otherwise or change its capital structure in any manner whatsoever. |
(vi) | change its financial year-end from 31st March (or such other date as may be approved by ICICI Bank). |
(vii) | change the accounting method or policies currently followed by the Company. |
(viii) | contract, create, incur, assume or suffer to exist any Indebtedness in any manner whatsoever except as otherwise permitted under the Facility Agreement. This provision shall not apply to normal guarantees. |
(ix) | create or permit to subsist any encumbrance or any type of preferential arrangement (including retention arrangements or escrow arrangements having the effect of granting security), in any form whatsoever on any of its assets other than assets charged/ to be charged to ICICI Bank, or (b) (whether voluntarily or involuntarily) sell, transfer, grant lease or otherwise dispose of or deal with (or agree to do any of the foregoing at any future time), all or any of its assets other than assets charged/ to be charged to ICICI Bank. |
Section 7.4EXPENSES OF PRESERVATION OF ASSETS OF COMPANY AND OF COLLECTION
All expenses incurred by ICICI Bank after an Event of Default has occurred including in connection with:
i) | preservation of, or enforcement action against the Companys assets or the assets comprised within the security for the Facility (whether then or thereafter existing); and |
ii) | collection of amounts due under the Facility Agreement and the Transaction Documents, |
22
shall be payable by the Company. |
Section 7.5 SUSPENSION AND TERMINATION
A. | If any Event of Default has occurred or is continuing or if the Company has not availed of the Facility by the date referred to in the Facility Agreement or such later date as may be permitted by ICICI Bank, then, in such event, ICICI Bank may, by notice in writing to the Company: |
i) | suspend further access by the Company to the use of the Facility under the Facility Agreement. The right of the Company to avail of or make avail of the Facility shall continue to be suspended until ICICI Bank has notified the Company that the right to avail of the Facility has been restored; or |
ii) | terminate the right of the Company to avail of the Facility. Upon such notice, the unutilised amount of the Facility shall stand cancelled. |
B. | Notwithstanding any suspension or termination pursuant to Sub-clause (A) or above, all the provisions of the Facility Agreement for the benefit or protection of ICICI Bank and its interests shall continue to be in full force and effect as specifically provided in the Facility Agreement. |
ARTICLE VIII
CANCELLATION
Section 8.1CANCELLATION
The Company shall not cancel the Facility or any part thereof without the approval of ICICI Bank.
Section 8.2BENEFIT OR PROTECTION
Notwithstanding any cancellation, all the provisions of the Facility Agreement for the benefit or protection of ICICI Bank and its interests shall continue to be in full force and effect as specifically provided in the Facility Agreement.
ARTICLE IX
WAIVER
Section 9. WAIVER NOT TO IMPAIR THE RIGHTS OF ICICI Bank
No delay in exercising or omission to exercise any right, power or remedy accruing to ICICI Bank upon any default or otherwise under the Facility Agreement or the Transaction Documents shall impair any such right, power or remedy or shall be construed to be a waiver thereof or any acquiescence in such default, nor shall the
23
action or inaction of ICICI Bank in respect of any default or any acquiescence by it in any default, affect or impair any right, power or remedy of ICICI Bank in respect of any other default. The rights of ICICI Bank under the Facility Agreement and the Transaction Documents may be exercised as often as necessary, are cumulative and not exclusive of their rights under the general law and may be waived only in writing and specifically and at ICICI Banks sole discretion.
ARTICLE IX
MISCELLANEOUS
Section 10.1SERVICE OF NOTICE
a) | All notices or other communications under or in connection with the Facility Agreement shall be given in writing and, unless otherwise stated may be made by letter, telex or facsimile. Any such notice or other communication will be deemed to be effective: |
(i) | if sent by letter, when delivered personally or if despatched by post, when recall of the letter is outside the control of the sender; |
(ii) | if sent by telex, when sent (if, at the time of transmission, the correct answer-back appears at the start and at the end of the senders copy of the notice); and |
(iii) | if sent by facsimile, when sent (on receipt of a confirmation to the correct facsimile number). |
Provided, however, that no notice or communication to ICICI Bank shall be effective unless actually received by ICICI Bank.
b) | Notices or communication may be made to: (i) the Companys recognised address, telex or facsimile number, and (ii) ICICI Banks address, telex or facsimile number of its Registered Office and Zonal/ Regional Office specified in the Facility Agreement, or to such other address, telex or facsimile number as may be designated by the Company and ICICI Bank in writing to each other. |
Section 10.2EVIDENCE OF DEBT
a) | ICICI Bank shall maintain, in accordance with its usual practice, accounts evidencing the amounts outstanding under the Facility or LCs Outstanding or Bills Outstanding from time to time under the Facility Agreement and the Transaction Documents. |
b) | In any legal action or proceedings arising out of or in connection with the Facility Agreement, the entries made in the accounts maintained pursuant to Sub-clause (a) above shall be prima-facie and conclusive evidence of the existence and amount of obligations of the Company as therein recorded. |
Section 10.3JURISDICTION
24
ICICI Bank and the Company agree that any legal action or proceedings arising out of the Facility Agreement shall be brought in the High Court of Judicature or Debt Recovery Tribunal at Mumbai in India and irrevocably submit themselves to the jurisdiction of that Court. ICICI Bank may, however, in its absolute discretion commence any legal action or proceedings arising out of the Facility Agreement in any other court, tribunal or other appropriate forum, and the Company hereby consents to that jurisdiction.
Section 10.4GOVERNING LAW
The Facility Agreement and the Transaction Documents (unless otherwise specified in any Transaction Document) shall be governed by and construed in accordance with the laws of India.
Section 10.5ASSIGNMENT
The Company shall not assign or transfer all or any of its rights, benefits or obligations under the Facility Agreement and the Transaction Documents without the approval of ICICI Bank. ICICI Bank may, at any time, assign or transfer all or any of its rights, benefits and obligations under the Facility Agreement and the Transaction Documents.
Section 10.6BENEFIT OF THE FACILITY AGREEMENT
Subject to Section 11.5 hereof, the Facility Agreement shall be binding upon and enure to the benefit of each party hereto and its successors and assigns.
Section 10.7SEVERABILITY
Any provision of the Facility Agreement or any Transaction Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of prohibition or un-enforceability but that shall not invalidate the remaining provisions of the Facility Agreement or such Transaction Document or affect such provision in any other jurisdiction.
Section 10.8 DISCLOSURE
a) | The Company hereby agrees that in case the Company commits a default in reimbursement/payment of any amount under the Facility, ICICI Bank and/or the Reserve Bank of India (RBI) will have an unqualified right to disclose or publish the details of the default and the name of the Company and its directors as defaulters, in such manner and through such medium as ICICI Bank or RBI in their absolute discretion may think fit. |
b) | The Company hereby authorises ICICI Bank to exchange, share or part with all the information relating to the Companys financial and other information to |
25
other ICICI Bank Group Companies/ Banks/ Financial Institutions/ Credit Bureaus/ Agencies/ Statutory Bodies as may be required and shall not hold ICICI Bank liable for use of such information. |
***********************************
26
Exhibit 4.61
SHARE PURCHASE AND SHAREHOLDERS AGREEMENT
STERLITE INDUSTRIES (INDIA) LIMITED
(Sterlite)
AND
LEIGHTON CONTRACTORS (INDIA) PRIVATE LIMITED
(LEIGHTON)
AND
VIZAG GENERAL CARGO BERTH PRIVATE LIMITED
(VGCB)
Date: September 17, 2010
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TABLE OF CONTENTS
1. | DEFINITIONS AND INTERPRETATION |
5 | ||||
2. | THE COMPANY |
9 | ||||
3. | SHARE CAPITAL AND SHAREHOLDING |
9 | ||||
4. | ACQUISITION OF THE SHARES |
10 | ||||
5. | OBLIGATIONS ON CLOSING |
11 | ||||
6. | ACCESSION |
12 | ||||
7. | FURTHER CAPITALISATION |
12 | ||||
8. | SHAREHOLDING REQUIREMENTS |
13 | ||||
9. | TRANSFER OF SHARES |
14 | ||||
10. | BOARD OF DIRECTORS |
16 | ||||
11. | MEETINGS OF THE BOARD |
18 | ||||
12. | APPOINTMENT OF KEY EXECUTIVES AND BANK ACCOUNTS |
19 | ||||
13. | GENERAL MEETINGS |
20 | ||||
14. | AFFIRMATIVE VOTE |
20 | ||||
15. | REPRESENTATIONS AND WARRANTIES OF THE PARTIES |
21 | ||||
16. | INDEMNITY |
23 | ||||
17. | APPOINTMENT OF AUDITOR |
23 | ||||
18. | PREPARATION AND CIRCULATION OF ACCOUNTS AND FINANCIAL INFORMATION |
23 | ||||
19. | TERMINATION |
24 | ||||
20. | RESTRICTION ON ANNOUNCEMENT |
24 | ||||
21. | GOVERNING LAW AND JURISDICTION |
24 | ||||
22. | DISPUTE RESOLUTION |
25 | ||||
23. | NOTICES |
25 | ||||
24. | CONFIDENTIALITY OF INFORMATION |
26 | ||||
25. | MISCELLANEOUS PROVISIONS |
27 | ||||
SCHEDULE 1 | 31 | |||||
SCHEDULE 2 | 32 |
- 2 -
THIS SHARE PURCHASE AND SHAREHOLDERS AGREEMENT (AGREEMENT) is made as of September 17, 2010, BETWEEN
STERLITE INDUSTRIES (INDIA) LIMITED, a company incorporated under the laws of India having its registered office at SIPCOT Industrial Complex, Madurai Bypass Road, TV Puram P.O., Tuticorin 628002, Tamil Nadu, India (hereinafter referred to as the Sterlite which expression shall unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and permitted assigns) of the First Part;
AND
LEIGHTON CONTRACTORS (INDIA) PRIVATE LIMITED, a company incorporated under the laws of India and having its registered office at 302-303, 3/F Windsor Building, CST Road, Vidyanagari Marg, Kalina, Santacruz (East), Mumbai-400 098, India (hereinafter referred to as Leighton which expression shall unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and permitted assigns) of the Second Part;
AND
VIZAG GENERAL CARGO BERTH PRIVATE LIMITED a company incorporated under the laws of India and having its registered office at SIPCOT Industrial Complex, Madurai Bypass Road, TV Puram P.O., Tuticorin 628002, Tamil Nadu, India (hereinafter referred to as VGCB which expression shall unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and permitted assigns) of the Third Part.
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Sterlite and Leighton shall hereinafter be severally referred to as Party and collectively as Parties.
WHEREAS:
A. | The Visakhapatnam Port Trust (Authority) had invited proposals from pre-qualified bidders to participate in the bidding process for the mechanization of coal handling facilities and upgradation of general cargo berth at outer harbour at the Visakhapatnam Port to cater to 200,000 DWT on design, build, finance, operate, and transfer basis (DBFOT) (Project); |
B. | Pursuant thereto, the Parties have formed a Consortium (the Consortium) and had submitted pre-qualification document and upon pre-qualification, a bid for the Project as a Consortium (Bid); |
C. | The Consortium has now been selected as the successful bidder and the Authority issued a letter of award dated 1 March 2010 (LOA). As required under the terms of the Bid documents and LOA, VGCB, a special purpose vehicle, was incorporated for the implementation, operation and maintenance of the Project. VGCB has signed the Concession Agreement on 10 June 2010 (Concession Date) and is the Concessionaire under the CA. |
D. | Under the terms of the RFP, each member of the Consortium is required to hold atleast 26% (twenty-six per cent) of the equity share capital of the Concessionaire (being |
- 4 -
VGCB) upto the Date of Commercial Operation. Leighton is now purchasing Shares from Sterlite, upon the terms and subject to the conditions contained herein. The Parties are entering into this Agreement in order to set out the rights and obligations of the Parties inter-se, and other matters in connection therewith. |
NOW THEREFORE IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES AND THIS AGREEMENT WITNESSETH AS UNDER:
1. | DEFINITIONS AND INTERPRETATION |
1.1. | Definitions: |
In this Agreement, unless the context otherwise requires, the following expressions shall have the following meanings. Capitalised words not defined in this Clause, but otherwise in this Agreement, unless the context otherwise requires, shall have the meaning assigned thereto. Capitalised terms not defined in this Agreement shall have the same meaning as ascribed to them in the CA and RFP, unless the context otherwise requires.
Act means the Companies Act, 1956 and any amendment thereto or any other succeeding enactment for the time being in force;
- 5 -
Additional Funding shall have the meaning assigned to it at Clause 7.5 of this Agreement;
Affiliate means, with respect to any Party, any other Person directly or indirectly Controlling, Controlled by or under common Control with such Party;
Agreement means this Share Purchase and Shareholders Agreement, as amended, supplemented or replaced or otherwise modified in accordance with the provisions contained herein and includes all the Schedules attached hereto;
Articles means the Articles of Association of VGCB as amended to reflect the provisions of this Agreement;
Board or Board of Directors means the Board of directors of VGCB, constituted in accordance with the provisions of the Agreement;
Board Meeting means a meeting of the Board of Directors;
Business Day means a day of the year other than Saturday and/or Sunday on which scheduled banks are open for business in Tuticorin and Mumbai;
CA shall mean the concession agreement dated 10 June 2010 signed by VGCB with the Authority following the issue of a letter of award to the Consortium for the Project by
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the Authority;
Chairman means, as the case may be, chairman of the Board or chairman of VGCB;
Charter Documents means the Memorandum of Association and Articles of Association of VGCB, as amended from time to time;
Clause means any clause of this Agreement and the meaning of Clauses shall be understood accordingly;
Closing means completion of the transfer of the Shares to Leighton on the Closing Date;
Closing Date means the date as the Parties may mutually agree in writing to complete Closing, but in any event no later than not later than October 8, 2010;
Control (together with its grammatical variations when used with respect to any Person) means in relation to a body corporate, the right to exercise, or control the exercise, of, whether directly or indirectly, acting alone or together with another Person, more than 50% of the total voting rights at a general meeting of that body corporate, or the right or power to direct, whether directly or indirectly, acting alone or together with another person, the affairs of that body corporate, including the composition of any board of directors of that body corporate, and, in relation to any Person which is not a body corporate, the right or power to direct, whether directly or indirectly, acting alone or together with another Person, the affairs of that Person;
Date of Award of Concession means the date when the Conditions Precedent set out in Article 3 of the CA have either been satisfied or waived by the Party other than the Party responsible for satisfying the same;
Deed of Adherence shall be the deed of adherence as set forth in Schedule 2;
Director means a director of VGCB;
Encumbrance (s) means, as the case may be, any encumbrance including, without limitation (a) any security interest, claim, mortgage, pledge, charge, hypothecation, escrow, custody arrangement, lien, negative lien, lease, title retention, deposit by way of security, beneficial ownership, or any other interest held by a third Person, (b) security interest or other encumbrance of any kind securing, or conferring any privilege or priority of payment in respect of, any obligation of any Person, (c) power of attorney in relation to the shares, voting trust agreement, interest, option or right of pre-emption, right of first offer, right of first refusal, drag-along right or other transfer restriction in favour of any Person, (d) any adverse claim as to title, possession or use;
Equity Contribution shall have the meaning assigned to it at Clause 7.1 of this Agreement;
Group Company means any company which, directly or indirectly, Controls, is Controlled by, or under common Control of, Vedanta Resources PLC and / or Volcan Investments;
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General Meeting means a meeting of the Shareholders of VGCB;
Leightons Contribution shall have the meaning assigned to it at Clause 7.2 of this Agreement;
Management Control means the possession, directly or indirectly of the power to direct or cause the direction of the management and policies of VGCB, whether through the ownership of voting securities, by contract or otherwise or the power to elect or appoint more than fifty per cent (50%) of the directors, managers, partners or other individuals exercising similar authority with respect to VGCB;
Person means any individual, company, corporation, partnership, joint venture, trust, unincorporated organization, government or governmental authority or agency or any other legal entity;
Project Contracts means collectively the CA, the EPC Contract, O&M Contract and any other material contract (other than the Financing Documents, the Escrow Agreement, the Substitution Agreement or any commercial agreement with the users) entered into or may hereafter be entered into by VGCB in connection with the Project;
Purchase Price shall have the meaning assigned to it in Clause 3.2 of this Agreement;
Representations and Warranties means the representations, warranties and undertakings contained in Clause 15;
Request for Proposal or RFP means the Request for Proposal dated 9 January 2010 issued by the Authority to the applicants short-listed pursuant to the request for qualification and includes any addendum / clarifications issued in respect thereof by the Authority;
Rs. means Indian Rupees, the lawful currency of India;
Shareholder means any Person who holds Shares of VGCB;
Shares means the equity shares of VGCB having face value of Rs.10/- each;
Statutory Auditor shall mean the firm set out at Clause 17; and
Tax means all forms of taxation, duties, levies, imposts and social security charges, including without limitation capital gains tax, corporate income tax, wage withholding tax, fringe benefit tax, provident fund, employee state insurance and gratuity contributions, value added tax, service tax, customs and excise duties, and other legal transaction taxes, dividend withholding tax, real estate taxes, other municipal taxes and duties, environmental taxes and duties and any other type of taxes or duties in any relevant jurisdiction, together with any interest, penalties, surcharges or fines relating thereto, due, payable, levied, imposed upon or claimed to be owed in any relevant jurisdiction or country;
Transfer shall have the meaning assigned to it under the CA. .
1.2. | Interpretation |
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Except | where the context requires otherwise, this Agreement will be interpreted as follows: |
a) | The recitals and Schedules form an integral and operative part of the Agreement; |
b) | The singular includes the plural and vice versa; |
c) | Headings and the use of bold typeface shall be ignored in its construction; |
d) | A reference to a Section or Schedule is, unless indicated to the contrary, a reference to a section in, or schedule to, this Agreement; |
e) | References to the word includes or including are to be construed without limitation; |
f) | All references to agreements, documents or other instruments include (subject to all relevant approvals) a reference to that agreement, document or instrument as amended, supplemented, substituted, novated or assigned from time to time; |
g) | The words herein, hereto and hereunder refer to this Agreement as a whole and not to the particular section in which such word may be used; |
h) | Words importing a particular gender shall include all genders; and |
i) | References to any law shall include references to such law as it may, after the date of this Agreement, from time to time be amended, supplemented or re-enacted. |
2. | THE COMPANY |
2.1. | Registered Office |
The registered office of VGCB shall be situated at SIPCOT Industrial Complex, Madurai Bypass Road, TV Puram P.O., Tuticorin 628002, Tamil Nadu, India and shall be open from Monday to Saturday (inclusive) during the hours of 9 a.m. to 5.30 p.m.
2.2. | Memorandum and Articles of Association |
Subject to the provisions of the Act, the Charter Documents shall in all respects reflect the provisions of this Agreement. The Parties hereby agree to take all necessary steps to amend the Charter Documents accordingly.
2.3. | Business of VGCB |
VGCB has been set up to implement, operate and maintain the Project and provide the Project Facilities and Services in accordance with the provisions of the CA.
3. | SHARE CAPITAL AND SHAREHOLDING |
3.1. | Share Capital |
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As at the date of this Agreement, the issued, subscribed and paid up equity share capital of VGCB comprises of ten thousand (10,000) Shares of the face value of Rs 10/- each aggregating to Rupees one lakh only (Rs.1,00,000/-).
3.2. | Present Shareholding Pattern |
As at the date of this Agreement, the shareholding pattern of VGCB is:
Name of the Shareholder |
Percentage Share |
|||
Sterlite Industries (India) Limited |
99.99 | % | ||
Vinod Bhandwat |
0.001 | % |
Subject to the provisions of this Agreement, Leighton hereby undertakes and agrees to purchase 2600 Shares from Sterlite, aggregating to twenty six per cent (26%) of the equity share capital of VGCB, for a total consideration of Rupees twenty-six thousand only (Rs.26,000/-), (Purchase Price), such that post such acquisition, the shareholding pattern of VGCB will be as follows:
Name of the Shareholder |
Percentage Share |
|||
Sterlite Industries (India) Limited |
74 | % | ||
Leighton Contractors (India) Private Limited |
26 | % |
3.3. | All Shares shall rank pari passu in all respects and shall be identical with reference to all the rights and benefits including but not limited to voting rights, rights to dividends, stock splits, bonus issuance and rights issuance. |
3.4. | The rights and obligations attached to the Shares and other characteristics of the Shares shall be governed by the Charter Documents of VGCB, and by the terms of this Agreement and such other agreements that may be executed between the Parties. |
4. | ACQUISITION OF THE SHARES |
4.1. | Leighton agrees to purchase two thousand six hundred (2,600) Shares held by Sterlite, free and clear of all Encumbrances and with all rights attached thereto for the Purchase Price on the Closing Date. |
4.2. | On the Closing Date, Leighton shall release the Purchase Price to Sterlite by way of wire transfer (RTGS) in immediately available funds to a bank account of Sterlite as designated by Sterlite. |
4.3. | Simultaneous with the release of funds, Sterlite shall hand over to Leighton: (i) the duly registered share certificates; (ii) the duly executed and stamped share transfer forms; and (iii) any other documents in relation to the Transfer that may be applicable. |
4.4. | For the purpose of complying with these obligations under this Clause, VGCB and the Parties shall execute all necessary documents as may be required to ensure the full vesting in Leighton of the legal and beneficial title, free of all Encumbrances, to the |
- 10 -
Shares purchased by Leighton. |
4.5. | Transactions Consummated at Closing |
All transactions contemplated under this Agreement on Closing and on the Closing Date shall be deemed to occur simultaneously and no such transaction shall be consummated unless all such transactions are consummated.
5. | OBLIGATIONS ON CLOSING |
5.1. | On the Closing Date, the Shareholders shall cause VGCB and VGCB shall : |
5.1.1. | reconstitute the Board of Directors of the VGCB in accordance with this Agreement; |
5.1.2. | hold a meeting of the Board for passing resolutions in relation to the following matters: |
(a) | approving the Transfer of Shares from Sterlite to Leighton as contemplated in this Agreement; |
(b) | appointment of nominee of Leighton as director on the Board; |
(c) | appointment of nominees of Sterlite as directors on the Board; |
(d) | proposing the amendments to the Charter Documents (in consultation with Leighton) in order to reflect the provisions of this Agreement; and |
(e) | convening General Meeting of VGCB for considering the resolutions set out in Clause 5.1.3 below. |
5.1.3. | VGCB shall hold General Meeting at which the following resolutions shall be passed: |
a) | amendment of the Charter Documents ; and |
b) | appointment of the nominees of Leighton and Sterlite as directors on the Board. |
5.1.4. | VGCB shall record the Transfer of Shares from Sterlite to Leighton in the register of members and the appointment of nominees of Leighton and Sterlite in the register of directors. VGCB shall provide the Shareholders with certified copies of extracts from the updated registers of members and registers of directors. |
5.2. | VGCB shall make all necessary corporate, secretarial and statutory filings, to be made with the Registrar of Companies, within 30 (thirty) days in relation to any actions that have taken place as per this Clause 5 and shall provide certified true copies of such filings to its Shareholders. |
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5.3. | Any subsequent amendment to the Charter Documents which would alter the provisions of Article 11 of the CA (Shareholding), shall require the prior approval of the Authority and the Charter Documents shall include a specific provision to this effect. |
6. | ACCESSION |
6.1. | Accession Instrument |
It shall be a condition precedent to the entry of any person on the register of Shareholders after the date of this Agreement in respect of any Share, that such intending shareholder agrees in writing to be bound by the terms and conditions of this Agreement together with the provisions of the Charter Documents by executing a Deed of Adherence.
6.2. | Endorsement of Scrip |
Upon the registration of such Person as a Shareholder, VGCB shall endorse all certificates issued to such Person in respect of its shareholding with the following legend:
The rights of the holder of the shares the subject of this certificate are subject to the provisions of an agreement made the 17th day of September 2010 (and any additions, supplement or amendment to the same) to which the Company and all shareholders are bound either by original agreement or subsequent accession.
7. | FURTHER CAPITALISATION |
7.1. | Based on the cost for the implementation of the Project and desired debt-equity ratio, the Parties agree that VGCB shall need further infusion of funds by way of equity share capital over the next few months (Equity Contribution). |
7.2. | The Parties agree that Leightons responsibility towards the Equity Contribution shall be an amount which is the lower of the following: |
7.2.1. | Rs.54 crores (Rupees Fifty-Four Crores); or |
7.2.2. | such amount which may be determined by the Parties and validated with the financing documents with the Lenders. |
hereinafter | referred to as Leightons Contribution |
Provided that such Leightons Contribution shall entitle Leighton to hold 26% of the equity share capital of VGCB at all times.
7.3. | The Parties agree that the Equity Contribution shall be in tranches (Tranche Payment(s)). However, the amount, structure, manner and mode of such Tranche Payments shall be finalised between the Parties within forty-five (45) days from the execution of these presents, but in no event later than the Date of Award of Concession. Once the details of the Tranche Payments are finalised, any changes / variations shall be made at the Board level, at a Board meeting where atleast one represenentative of each Pary is present. Further the Board shall have the power to issue the Shares at a premium. |
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7.4. | It is agreed by the Parties that VGCB shall provide fifteen (15) days written notice to the Parties for drawing down a particular Tranche Payment of the Equity Contribution, the Parties shall be bound to contribute towards that tranche in proportion to their shareholding within the time period specified, so as to ensure that the implementation of the Project is not hindered. |
7.5. | Any additional funding in VGCB that may be required to be made in the Project (including but not restricted to any funding requirements on account of an increase in the Project Cost or any cost overrun obligations undertaken in the Financing Documents), over and above the Equity Contribution in terms of Clause 7.1 and subject to Clause 7.2, (Additional Funding) shall be made on such terms as may be agreed between the Parties. It being clarified that upon such infusion of the required Additional Funding, Leightons shareholding in VGCB (being 26% of the equity share capital of VGCB) shall not be diluted at any time.The Parties further agree that Leighton shall be under no obligation to provide any funds or financial assistance or security either by way of cash, equity, guarantee, or any other medium in relation to the Additional Funding over and above Leightons Contribution. |
7.6. | The Parties agree that Sterlite shall be responsible for arranging all debt requirements for the Project or for requirements under the business plan or annual budget of VGCB and shall provide all the necessary sponsor support and guarantee in relation to the Project. Leighton shall not be required to provide any sponsor support, guarantee, undertaking or any other security in relation to such debt funding. The terms of such debt funding shall in no way be prejudicial to the interest of Leighton and Leighton should not be responsible or liable for any liability arising out of such debt funding. Sterlite may also undertake funding of the Project requirements by subscription to various non-participating preference capital / other quasi equity instruments which may reduce the overall equity contribution by the Parties (without diluting the Parties equity stake) |
8. | SHAREHOLDING REQUIREMENTS |
8.1. | Each Party shall be liable to and shall cause VGCB to comply with the shareholding requirements as specified in the CA and the RFP issued by the Authority. |
8.2. | Pending receipt of the Authoritys prior approval for the Transfer of Shares held by Leighton, and notwithstanding any other provisions of this Agreement, Sterlite shall neither effect nor permit to be effected any actions or dealings so as to prevent Leighton from exercising such right, or fetter such right, to exit from VGCB to the extent permissible under the Project Contracts. |
8.3. | Minimum Shareholding |
The Parties represent and warrant that they shall ensure that they maintain their equity shareholding in VGCB such that:
a) | Each Party shall continue to hold at least twenty-six per cent (26%) of the equity capital of VGCB until the Date of Commercial Operations; |
b) | The Parties shall legally and beneficially hold not less than fifty-one per cent (51%) of the paid-up equity capital of VGCB until three (3) years after the |
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Date of Commercial Operations, and not less than twenty-six per cent (26%) of the paid-up equity capital of VGCB during the balance Concession Period; |
c) | Sterlite shall legally and beneficially hold at any time not less than fifty per cent (50%) of the total paid-up equity capital held by Sterlite and Leighton collectively in VGCB; and |
d) | Subject to Clause 8.2, Sterlite shall continue to maintain the shareholding required to be maintained by the Consortium in VGCB as per requirements of CA and RFP and as approved by the Authority from time to time. |
8.4. | Notwithstanding anything to the contrary contained herein, any Transfer of Shares and / or direct or indirect change in the Management Control of VGCB, including by way of a restructuring or amalgamation, shall require the prior written approval of the Authority. |
Provided, nothing contained in this Clause shall preclude or prevent pledge of Shares in favour of Lenders as security for the Financial Assistance subject to the enforcement and consequent Transfer thereof only with the prior written consent of the Authority as stated hereinbefore and in accordance with the Financing Documents.
8.5. | Further, subject to the prior written approval of the Authority, the Parties agree that Leighton shall be entitled, whether by itself or through its parent company, to charge, pledge, mortgage or other form of encumbrances in respect of all or any part of the Shares held by it with the prior written consent of Sterlite, which consent shall not be unreasonably denied. Sterlite undertakes to provide all necessary assistance and support to Leighton as may be requested by Leighton for the purpose of creating and to give effect to such charge, pledge, mortgage and encumbrances provided that all Shares held by Leighton shall, in the event of a transfer or sale by Leighton to Sterlite, be free from all encumbrances on completion of such sale or Transfer. |
9. | TRANSFER OF SHARES |
9.1. | Transfer Restrictions |
9.1.1. | It is expressly agreed that any Transfer of Shares by a Party shall be subject to the prior written approval of the Authority and the other Party, and shall be upon such terms and conditions as may be agreed between the Parties to this Agreement. Any Transfer of Shares which is contrary to the provisions of this Agreement (including Clauses 8 and 9) shall be null and void ab initio, and VGCB shall not register such Transfer and shall reject any such Transfer made or attempted, suo moto. |
9.1.2. | Subject to Clause 8.2 Sterlite shall ensure that it, together with its Affiliates and / or Group Companies shall hold 51% (fifty-one per cent) of the share capital in VGCB till the Date of Commercial Operations. In case of Transfer of Shares or any convertible securities held by Sterlite in VGCB to any of its Affiliates or Group Companie (Sterlite Transferee(s)) then such Sterlite Transferree(s) shall acquire the Shares or convertible securities subject to the restrictions under this Agreement. |
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9.2. | Transfer to Affiliates and / or Group Companies |
Notwithstanding Clause 9.1.1, it is clarified that Sterlite shall be entitled to Transfer its Shares or issue convertible securities to any of its Affiliates and / or Group Companies (Sterlite Transferee), without any consent from Leighjton, provided that: :
a) | the Authoritys prior written approval is obtained; |
b) | Leightons shareholding in VGCB is not diluted; |
c) | Sterlite shall at all times ensure that the shareholding requirements specified in Clause 8 are met; and |
d) | such Sterlite Transferee executes a deed of adherence, in an agreed form. |
If the Sterlite Transferee referenced herein at any time ceases to be an Affiliate and / or Group Company, as the case may be, then Sterlite Transferee shall Transfer the concerned Shares or convertible securities back to the Sterlite before ceasing to be an Affiliate and / or Group Company, as the case may be, and Sterlite shall cause and ensure the same, notwithstanding that such Sterlite Transferee has executed a Deed of Adherence.
9.3. | Call Option |
a) | Subject to the receipt of the approval of the Authority, the Parties agree and confirm that from the period commencing from the completion of three (3) yearsfrom the Date of Commercial Operations, Sterlite shall have an irrevocable right to call and purchase such number of Shares held by Leighton (Call Option) and Leighton shall be obliged to sell its Shares to Sterlite. |
b) | Procedure for the exercise of the Call Option |
Sterlite shall have the right to exercise its Call Option upon delivery of a seven (7) Business Days notice in writing to Leighton (Call Option Notice).
The date, time and venue for the purchase and sale of the Shares pursuant to exercise of the Call Option shall be set out in the Call Option Notice, and shall not exceed thirty (30) Business Days from the date of the Call Option Notice or receipt of approval of the Authority, whichever is later.
9.4. | Put Option |
a) | Subject to the receipt of the approval of the Authority, the Parties agree and confirm that from the period commencing from the Date of Commercial Operations, Leighton shall have an irrevocable right to put and sell to Sterlite such number of Shares held by Leighton (Put Option) where upon Sterlite shall be obliged to purchase the Shares tendered by Leighton. |
b) | Procedure for the exercise of the Put Option |
Leighton shall have the right to exercise its Put Option upon delivery of a seven (7) Business Days notice in writing to Sterlite (Put Option Notice).
The date, time and venue for the purchase and sale of the Shares pursuant
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to exercise of the Put Option shall be set out in the Put Option Notice, and shall not exceed 30 (thirty) Business Days from the date of the Put Option Notice or receipt of approval of the Authority, whichever is later.
9.5. | Costs |
a) | The Parties agree that the stamp duty payable on any Transfer of Shares between the Parties shall be borne by Sterlite. |
b) | The Parties agree that all Taxes, duties (except stamp duty) payable on any Transfer of Shares between the Parties shall be borne by Leighton. |
c) | The Parties agree that if any sum payable to Leighton on Transfer of Shares is subject to Tax (whether by way of deduction or withholding tax or direct assessment of Leighton), such amount of Tax shall be to the account of Leighton, and Sterlite shall, within the period prescribed under applicable laws, deliver to Leighton evidence satisfactory to Leighton (including all relevant Tax receipts/Tax deduction certificate in original) that the payment with respect to such Tax has been duly remitted to the appropriate authority to enable Leighton to claim credit in its tax return for this amount so withheld. Further, a deduction at a lower or nil rate may be made if Leighton provides a withholding order issued by the tax authorities to that effect. |
9.6. | Subject to (i) the provisions of this Agreement and any other understanding between the parties, and (ii) the receipt of the approval of the Port Authority, the Parties agree that, at any time after the expiry of the Date of Commercial Operations, if Leighton desires to sell any of the Shares held by it, Leighton shall offer its Shares to Sterlite. |
Leighton shall send a written notice (Offer Notice) to Sterlite, indicating the total number of Shares that are proposed to be sold (Offer Shares). Sterlite shall be obligated to purchase all the Offer Shares at such terms and principles as agreed between the Parties. The date, time and venue for the purchase and sale of the Shares pursuant to exercise of this option shall be set out in the Offer Notice, and shall not exceed 30 (thirty) Business Days from the date of the Offer Notice or receipt of approval of the Authority, whichever is later.
10. | BOARD OF DIRECTORS |
10.1. | Initial Composition of Board of Directors |
The Board of Directors shall comprise of four (4) Directors. As long as Leighton holds a minimum of 10 per cent (10%) of the equity paid-up share capital of VGCB, Leighton shall have the right to appoint 1 (one) nominee Director on the Board and the remaining Directors shall be appointed by Sterlite.
It is clarified that the rights contained in this Clause are personal to Leighton and Sterlite and not Transferable. In the event Leighton or Sterlite Transfers the Shares held by it to a third party, these rights shall lapse and shall not be enjoyed by such third party. It is clarified that for the purpose of this Clause, Sterlite shall mean to include its Affiliates.
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10.2. | Appointment of Alternates |
Each Party shall be entitled to designate, by delivering written notice to the Board, for its Director representatives on the Board an alternate Director named in such written notice who shall act for, and in stead of such original Director.
Every alternate Director shall be entitled to receive notices of meetings of Directors. In the absence of the Director, the alternate Director shall be entitled to attend and vote at any such meeting in the absent Directors place and exercise full powers, rights and responsibilities of the original Director.
Any decision or action taken by such alternate of the original Director shall be fully binding upon the Party and VGCB as if taken by the original Director of the Board for whom such alternate was acting.
An alternate Director shall vacate his office immediately if the Director for whom he acts as an alternate ceases to be a Director.
10.3. | Appointment of Additional Directors |
VGCB shall also have, subject to and in accordance with the consent of the Parties, such number of additional Directors as may be required to comply with Applicable Laws.
10.4. | Appointment of Chairman |
Sterlite shall at all times have the power to nominate and have appointed the Chairman of the Board. The Chairman shall not have a second or casting vote.
10.5. | Removal of DirectorsGenerally |
Each Party (but only that Party) shall be entitled to recommend to VGCB the removal of any Director nominated by it and to nominate for appointment another Director in place of the Director so removed. If there arises a vacancy in the office of any Director, the Party who nominated that person (but no other Party) shall be entitled to nominate another person to fill the vacancy. The nominating party shall indemnify VGCB in respect of any claim for compensation for loss of office which may be brought against VGCB by the Director so removed.
In appointing as Director any person nominated as above, the Shareholders shall exercise their voting rights at any General Meeting so as to remove as Director the person so recommended and/or confirm the appointment as Director of the person so nominated.
Persons so appointed shall only hold office until the expiry of the term of the persons whom they replace.
10.6. | Removal of Directors |
If the shareholding of Leighton in VGCB falls below 10 per cent (10%) of the total issued capital, any Director nominated by Leighton and appointed on the Board shall resign and Leighton shall forgo all future rights of Board representation.
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11. | MEETINGS OF THE BOARD |
11.1. | Quorum |
Subject to the provisions of the Act and Clause 11, the quorum for a Board Meeting, at the commencement of, and throughout, the Board Meeting, shall be one-third of the total number of Directors for the time being or two Directors, whichever is higher, and shall comprise of at least one Director nominated by Sterlite and one Director nominated by Leighton.
11.2. | Convening of Meetings |
A Director may at any time and the secretary of VGCB shall on requisition of a Director convene a Board Meeting by notice in writing of fourteen (14) days or such other period as all Directors may agree, provided always that a Board Meeting may be convened by a notice shorter than fourteen (14) days with prior consent in writing of all the Directors. Such notice shall contain a detailed agenda of the business to be transacted at the meeting and a statement of any resolutions to be put at the Board Meeting and copies of all relevant papers connected therewith and/or proposed to be placed before or tabled before the Board.
11.3. | Adjourned Meetings |
If within half an hour after the time appointed for the holding of a Board Meeting, a quorum is not present, the Board Meeting shall be adjourned to the same place and time seven (7) days later. Each Party shall be notified immediately by facsimile message or e-mail of such adjournment.
If at such adjourned Board Meeting, a quorum is not present within half an hour of its commencement,
(a) | for all matters on the original agenda, save and except a matter set out in Schedule 1 of this Agreement, any two (2) Directors present shall constitute a quorum for the purposes of the transaction of the business of that Board Meeting. It is clarified that such quorum present at the adjourned Board Meeting shall be entitled to proceed with, and vote on, the matters set out in the original agenda; |
(b) | for matters set out in Schedule 1 of this Agreement and included in the original agenda, it will be deemed that a Deadlock has arisen in relation to such matters and the procedure set out in Clause 14.2 shall be applicable. |
It is clarified that the rights contained in this Clause are personal to Leighton and not Transferable. In the event Leighton Transfers the Shares held by it to a third party, these rights shall lapse and shall not be enjoyed by such party.
11.4. | Meetings by Circular Resolution |
Subject to the provisions of Section 292 and other applicable provisions of the Act which require a physical meeting of directors in relation to certain matters, if all the Directors have signed a document, which for these purposes may be a facsimile transmission or e-mail, containing a statement that the matter has been approved by a majority of the
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Directors entitled to vote thereon provided always that any resolution by circulation in respect of any of the matters referred to in Schedule 1 of this Agreement shall require the affirmative vote of Leighton, a resolution in those terms shall be deemed to have been passed at a meeting of the Directors held at the date and at the time at which the document was last signed by a Director. For the purposes of this Clause, two or more separate documents containing statements in identical terms, each of which is signed by one or more Directors, shall together be deemed to constitute one document containing a statement in those terms signed by those Directors on the respective days on which they sign separate documents.
11.5. | Voting |
Unless otherwise required by Applicable Law and subject to the provisions of Clause 14, all decisions to be taken at a Board Meeting shall be taken by a simple majority of the Directors who are present and entitled to vote (i.e., votes cast in favour of a resolution exceed votes cast against).
11.6. | No Casting Vote of Chairman |
The Chairman shall not have a second or casting vote.
11.7. | Travel Expenses |
Unless otherwise agreed, VGCB shall bear and pay such reasonable travel and accommodation expenses as may be incurred by the Directors for the purpose of traveling to and attending Board Meetings.
11.8. | Frequency of Meetings |
Without limitation to a Directors ability to convene a meeting at any time pursuant to Clause 11.2, the Directors shall meet at least quarterly and otherwise as may be mutually agreed upon from time to time.
11.9. | Minutes of the Meetings |
Minutes of each Board Meeting (and of any committee of the Board) shall be taken in English and kept by VGCB in accordance with Applicable Law.
11.10. | Committees of the Board |
Subject to the provisions of the Act, the Directors may delegate any of their powers to a committee or committees consisting of either Directors, management personnel or a combination of both.
12. | APPOINTMENT OF KEY EXECUTIVES AND BANK ACCOUNTS |
12.1. | Appointments |
Sterlite shall recommend for appointment by VGCB suitable management personnel, including a Chief Executive Officer and Chief Financial Officer for the effective administration of the affairs and business of VGCB.
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The Parties agree that the appointment of the CEO, CFO and other key managerial officers of VGCB shall be made in consultation with Leighton.
The Parties shall procure that all necessary formalities and corporate procedures are undertaken to formalise the appointment of persons nominated pursuant to this Clause.
12.2. | Authority Guidelines |
The Board shall, in respect of the offices referred to in Clauses 12.1, formulate and publish authority guidelines which shall describe the nature and the scope of authority of each of those offices. Such guidelines shall be incorporated in and form part of the service contracts entered into between VGCB and the occupants of those offices.
13. | GENERAL MEETINGS |
13.1. | Convening of General Meetings |
The Board may at any time it considers fit and shall upon a written requisition of any shareholder holding ten per cent (10%) or more of the issued voting capital of VGCB convene a general meeting of VGCB by notice in writing of twenty one (21) days or such other period as all Shareholders may agree. Such notice shall contain a detailed agenda of the business to be transacted at that General Meeting and a statement of any resolutions to be put at the General Meeting, together with copies of all relevant papers connected therewith and/or proposed to be placed before or tabled at the General Meeting.
13.2. | Quorum |
The quorum for all General Meetings shall include at least one authorised representative of Sterlite and Leighton each at the commencement of, and throughout, the General Meeting.
13.3. | Adjourned Meetings |
If within half an hour after the time appointed for the holding of the General Meeting, a quorum is not present, the General Meeting shall be adjourned to the same time and at the same place seven (7) days later and each Shareholder shall be notified immediately by facsimile message or e-mail of such adjournment. If within thirty (30) minutes of commencement of such adjourned General Meeting, a quorum in accordance with Clause 13.2 is not present, the Shareholders present at that time shall constitute a quorum and will be entitled to proceed with, and vote on, the matters set out in the agenda.
13.4. | Appointment of Chairman |
The Chairman of the General Meeting shall be elected / appointed by the Board from time to time.
14. | AFFIRMATIVE VOTE |
14.1. | Matters reserved |
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Notwithstanding anything to the contrary contained herein, but subject to Clause 11.3, as long as Leighton holds a minimum of 10 per cent (10%) of the equity paid-up share capital of VGCB, all decisions of VGCB in the matters set out in Schedule 1 (whether at a Board Meeting, meeting of a committee of the Board, General Meeting or otherwise) shall require the consent of at least one (1) Director nominated by each of Leighton and Sterlite. Such matters shall be first proposed in the Board Meeting, and upon receipt of approval thereof by the Board, the same shall be referred to the Shareholders, if so required, under the Act.
It is clarified that the rights contained in this Clause are personal to Leighton and not Transferable. In the event Leighton Transfers the Shares held by it to a third party, these rights shall lapse and shall not be enjoyed by such party.
14.2. | Deadlock |
If there is a deadlock whether at the Board level (Deadlock), either Party may issue a notice to the other Party stating that a Deadlock has emerged and specify the agenda and reasons thereof on which such Deadlock has emerged (Deadlock Notice). It is clarified that the Party giving such Deadlock Notice shall be under no obligations to justify the Deadlock in the Deadlock notice.After the issuance of the Deadlock Notice, the Parties shall nominate senior representatives at such level as may be proposed by the Parties (Senior Management) for an amicable resolution of the Deadlock within 15 (fifteen) working days of the date of Deadlock Notice. The joint decision of the Senior Management shall be final and binding on the Board and the Shareholders.
15. | REPRESENTATIONS AND WARRANTIES OF THE PARTIES |
15.1. | The Parties represent, warrant, assure, declare, confirm, covenant and undertake what has been stated and/or contained herein are reasonable under the circumstances. |
15.2. | Each of the Representations and Warranties shall be separate and independent and, save as expressly provided to the contrary, shall not be limited by reference to or inference from any other Representations and Warranties or any other term of this Agreement, which is not expressly referenced to the Representations and Warranties concerned. |
15.3. | Each Party to this Agreement hereby represents and warrants to each of the other Parties that: |
a) | it is duly organised, validly existing and is validly incorporated under the laws of India and hereby expressly and irrevocably waives any immunity in any jurisdiction in respect of this Agreement or matters arising thereunder including any obligation, liability or responsibility hereunder; |
b) | it has full power and authority to execute, deliver and perform its obligations under this Agreement and that that the execution and delivery by such Party of this Agreement and the performance by such Party of the transactions contemplated hereby have been duly authorised by all necessary corporate or other action of such Party; |
c) | this Agreement constitutes the legal, valid and binding obligation of that Party, enforceable against it in accordance with the terms hereof; |
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d) | there are no actions, suits or proceedings pending or to its best knowledge, threatened against or affecting it before any court, administrative body or arbitral tribunal which might materially and adversely affect its ability to meet or perform any of its obligations under this Agreement and the Project Contracts; |
e) | it has the financial standing and capacity to perform its obligations in accordance with the terms of this Agreement and the Project Contracts; |
f) | the execution, delivery and performance of this Agreement will not conflict with, result in the breach of, constitute a default under, or accelerate performance required by any of the terms of its memorandum of association and articles of association or any applicable laws or any covenant, contract, agreement, arrangement, understanding, decree or order to which it is a party or by which it or any of its properties or assets is bound or affected; |
g) | it has no knowledge of any violation or default with respect to any order, writ, injunction or decree of any court or any legally binding order of any Government Authority which may result in any Material Adverse Effect under the Project Contracts on its ability to perform its obligations under this Agreement and the Project Contracts and no fact or circumstance exists which may give rise to such proceedings that would adversely affect the performance of its obligations under this Agreement and the Project Contracts; |
h) | it has complied with Applicable Laws in all material respects and has not been subject to any fines, penalties, injunctive relief or any other civil or criminal liabilities which in the aggregate have or may have a Material Adverse Effect on its ability to perform its obligations under this Agreement; |
i) | no representation or warranty by it contained herein or in any other document furnished by it to the Authority including the Bid or to any Government Authority in relation to Applicable Permits contains or will contain any untrue or misleading statement of material fact or omits or will omit to state a material fact necessary to make such representation or warranty not misleading; |
j) | no sums, in cash or kind, have been paid or will be paid, by it or on its behalf, to any person by way of fees, commission or otherwise for securing the Concession or entering into this Agreement or for influencing or attempting to influence any officer or employee of the Authority in connection therewith; |
k) | agrees that the execution, delivery and performance by it of this Agreement and all other agreements, contracts, documents and writings relating to this Agreement constitute private and commercial acts and not public or governmental acts; |
l) | consents generally in respect of the enforcement of any judgement against it in any proceedings in any jurisdiction to the giving of any relief or the issue of any process in connection with such proceedings; |
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m) | undertakes to provide such assistance to VGCB as may be required and agreed to by the Parties, so as to enable VGCB to implement, operate and maintain the Project; and |
n) | covenants and undertakes that it will do all such acts (including exercise of its rights as a Shareholder or otherwise) as may be required or necessary to give full effect to the terms of this Agreement and the Project Contracts. |
16. | INDEMNITY |
16.1. | Notwithstanding anything to the contrary contained elsewhere in this Agreement, the Project and the Project Contracts and RFP, each Party (the Indemnifying Party) shall indemnify, defend and hold harmless and keep indemnified, defended and harmless, the other Party, their respective directors, officers, representatives, employees and agents (collectively, the Indemnified Persons) from and against any and all losses, claims, demands, actions, proceedings, costs or expenses asserted by a third party against or incurred by the Indemnified Persons, as a result of, arising from, or in connection with or relating to: |
a) | a breach or non-performance by the Indemnifying Party of its obligation under this Agreement, the Project, the Project Contracts and / or the RFP; or |
b) | any breach or inaccuracy of any representation, warranty, covenant or agreement made or failure to perform (whether in whole or part) any obligation required to be performed by the Indemnifying Party (either in its own name or in the name of the other Party and its Affiliates) pursuant to or under this Agreement, the Project, Project Contracts and / or the RFP or directions given by the Authority. |
16.2. | Any claim for indemnity pursuant to this Agreement, the Project and the Project Contracts shall be made by the Indemnified Persons by notice in writing to the Indemnifying Party. |
17. | APPOINTMENT OF AUDITOR |
The Parties acknowledge that the existing statutory auditor of VGCB is Deloitte Haskins and Sells (Statutory Auditor), and agree that this appointment of the auditors is acceptable to them.
18. | PREPARATION AND CIRCULATION OF ACCOUNTS AND FINANCIAL INFORMATION |
18.1. | Maintenance of Accounting Records |
VGCB shall prepare and maintain accounts and records of its financial transactions in accordance with applicable Indian and international accounting standards.
18.2. | Annual Audit |
The books of accounts and other financial records and information of VGCB shall be
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audited once a year by the Statutory Auditor. The cost of such audit shall be borne by VGCB as a recurring operating expense.
18.3. | Financial Year |
The financial year of VGCB shall commence on 1 April in any one year and conclude on 31 March in the following year.
18.4. | Information Rights |
18.4.1 | Sterlite shall cause and ensure VGCB to deliver to Leighton the following information pertaining to VGCB: |
(i) | the annual business plan; and |
(ii) | the annual construction plan or the annual operations plan as the case may be. |
VGCB shall ensure that the items set out in Clause 18.4 (i) and (ii) above along with any proposed material changes thereto would be intimated to Leighton in advance and in prior consultation with them.
19. | TERMINATION |
This Agreement is become effective from the date of execution of these presents and shall continue in full force and effect until:
19.1. | terminated by mutual agreement of the Parties; or |
19.2. | at least one Party ceases to be a Shareholder of VGCB; or |
19.3. | the termination of the CA. |
20. | RESTRICTION ON ANNOUNCEMENT |
Each of the Parties undertakes that it will not (save as required by law or by any regulatory body to whose rules any of the Party is subject) make any announcement in connection with this Agreement unless the other Party shall have given their respective consents to such announcement (which consents may not be unreasonably withheld or delayed and may be given either generally or in specific case or cases and may be subject to conditions).
21. | GOVERNING LAW AND JURISDICTION |
21.1. | Governing Law |
This Agreement shall be governed by, interpreted and construed in accordance with the laws of India.
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21.2. | Jurisdiction |
Subject to Clause 22, shall be subject to the exclusive jurisdiction of competent Courts of Tuticorin.
22. | DISPUTE RESOLUTION |
22.1. | Submission to arbitration |
In the event of any dispute, controversy or difference (Dispute) of whatever nature, arising under, out of, in connection with or relating to the enforcement, performance or the terms and conditions of this Agreement or any provision thereof, including any purported termination, such Dispute shall be settled through good faith negotiation amongst the parties to such Dispute. In the event that such Dispute cannot be resolved by negotiation within thirty (30) days of the Dispute having arisen, such Dispute shall be referred to binding arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof for the time being in force.
22.2. | Place and language |
The place of arbitration and the seat of arbitral proceedings shall be Mumbai, Maharashtra, India. Any arbitral proceeding begun pursuant to any reference made under this Agreement shall be conducted in English language. The arbitration shall be concluded within three [3] months of the date of reference of the dispute to arbitration. The decision of the arbitrator or the majority of the arbitrators shall be rendered in writing and shall be final and binding upon the Parties. The costs, charges and expenses of the arbitration shall be at the discretion of the arbitrator or arbitrators and wherenot expressly specified in the award of the arbitrators will be borne equally by the Parties.
22.3. | Appointment of the Arbitral Tribunal |
The arbitral tribunal shall be composed of three (3) arbitrator(s) if the Parties so agree. There shall be three arbitrators, one appointed by each Party and a third selected by the two arbitrators so appointed. Failing such agreement within a period of ten (10) days from the end of the conciliation process provided for in Clause 22.1 hereof, a sole arbitrator shall be appointed in accordance with the provisions of the Applicable Law.
23. | NOTICES |
23.1. | Any notice and other communications provided for in this Agreement shall be in writing and shall be first transmitted by facsimile transmission or by postage prepaid registered post with acknowledgement due or by internationally recognized courier service, in the manner as elected by the Party giving such notice: |
(a) | In the case of notices to Sterlite: |
Address : SIPCOT Industrial Complex, Madurai Bypass Road, TV Puram P.O., Tuticorin 628002, Tamil Nadu, India Fax Number : +914612340203 For Attn. : Mr. Rajiv Choubey |
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(b) | In case of notices to Leighton: |
Address : No. 302/ 303, Windsor Building, CST Road, Kalina, Santa Cruz East, Mumbai- 400 098 Fax Number : +912267190199 For Attn. : Ms. Amita Chatterjee |
23.2. | All notices shall be deemed to have been validly given on (i) the Business Day immediately after the date of transmission with confirmed answer back, if transmitted by facsimile transmission, or (ii) the expiry of seven (7) Business Days after posting if sent by registered post with acknowledgement due, or (iii) the business date of receipt, if sent by courier. |
23.3. | Any Party may, from time to time, change its address or representative for receipt of notices provided for in this Agreement by giving to the other not less than fifteen (15) Business Days prior written notice. |
24. | CONFIDENTIALITY OF INFORMATION |
24.1. | Each Party shall exercise a high degree of care to prevent the unauthorized dissemination, disclosure or use by such Party, other than as expressly provided herein, of any confidential information of another Party and/or of VGCB to which such Party may have access and, except as expressly provided for in this Clause, shall not make or allow any disclosure of the confidential information to any other Person. |
24.2. | Confidential information shall not include information which: |
(a) | was known to the receiving Party at the time it was submitted; or. |
(b) | is, or becomes, publicly known, through no wrongful act of the receiving Party, or any Affiliate, agent or consultant or employee of the receiving Party; or |
(c) | is received by the receiving Party from a third person without similar restrictions; or |
(d) | is approved for release by written authorisation of the disclosing Party; or |
(e) | is shown to have been independently developed by the receiving Party without the use of the information disclosed by the other Party hereunder; or |
(f) | is furnished by the disclosing Party to a third person without a similar restriction on the third persons rights. |
24.3. | A Party may make disclosure of confidential information: |
(a) | to any of its employees, management, Affiliates and agents, to the extent their function requires them to have the confidential information; or |
(b) | to legal advisors, auditors, professional advisors and consultants of the concerned party on a need-to-know basis; |
(c) | in the course of legal proceedings, or to a governmental agency or entity, or to the public if such disclosure is necessary under Applicable Laws or regulations; |
24.4. | In all such cases where disclosure is made under Clause 24.3(c), that Party shall give written notice to the other Party prior to making such disclosure. |
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24.5. | The provisions of this Clause shall apply throughout the term of this Agreement and shall survive termination hereof. |
25. | MISCELLANEOUS PROVISIONS |
25.1. | Relationship of the Parties |
Nothing in this Agreement shall be deemed to constitute a partnership between the Parties.
25.2. | Successors and Assigns |
Subject to Clause 9 of this Agreement, this Agreement shall not be capable of assignment by either Party.
25.3. | Entire Agreement |
This Agreement (together with any documents referred to herein or executed contemporaneously by the Parties in connection herewith) constitutes the whole agreement between the Parties and supersedes any previous agreements, arrangements and discussions (whether oral or written, including all correspondence) if any, between them relating to the subject matter hereof.
25.4. | Amendment |
It is expressly declared that no variations hereof shall be effective unless made in writing signed by duly authorized representatives of the Parties.
25.5. | Effect |
All of the provisions of this Agreement shall remain in full force and effect until the Agreement has been terminated in accordance with the provisions hereof.
25.6. | Survival of Obligations |
Any cause of action which may have occurred in favour of either Party or any right which is vested in either Party under any of the provisions of this Agreement during the subsistence of this Agreement as a result of any act, omission, deed, matter or thing done or omitted to be done by either Party shall survive the termination of this Agreement.
25.7. | Severability |
If any provision or part of a provision of this Agreement shall be, or be found by any authority or court of competent jurisdiction to be, invalid or unenforceable, such invalidity or unenforceability shall not affect the other provisions or parts of such provisions of this Agreement, all of which shall remain in full force and effect.
The Parties shall negotiate, in good faith, a valid, legal and enforceable provision in lieu
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of such provision, which most nearly reflects the Parties intent and circumstances at the time entering into this Agreement. The Parties shall make all reasonable efforts and take all necessary actions to replace any illegal or unenforceable provision of this Agreement with a legal and enforceable substitute provision, and if the need arises, the Parties shall execute a new agreement.
25.8. | Time of Essence |
Any time or period in any provision of this Agreement may be extended by mutual agreement between the Parties but as regards any time, date or period originally fixed or any time, date or period so extended as aforesaid time shall be of the essence.
25.9. | Further Assurances |
The Parties shall do, and shall use their respective reasonable endeavors to procure that any necessary third parties shall do, execute and permit all such further deeds, documents, assurances, acts and things as any of the Parties hereto may reasonably require to carry the provisions of this Agreement into full force and effect.
25.10. | Counterparts |
This Agreement may be executed in one or more counterparts, and by the Parties on separate counterparts, but shall not be effective until each Party has executed at least one counterpart and each such counterpart shall constitute an original of this Agreement but all the counterparts shall together constitute one and the same instrument.
25.11. | Costs: |
Each Party to this Agreement shall pay its own costs of and incidental to this Agreement.
25.12. | Waiver of Rights |
All waivers under this Agreement must be in writing, and failure or delay at any time by a Party to require the other Partys performance of any obligation or to exercise any right or remedy under this Agreement shall not affect the right of the first-named Party subsequently to require performance of that obligation or to exercise such right or remedy. No waiver by a Party of any breach of any provision of this Agreement or of a failure or failures by the other Party to perform any provision of this Agreement shall be construed or shall operate as a waiver of any continuing or succeeding breach of such provision or a waiver or modification of such provision or as a waiver in respect of any other or further failure whether of a like or different character. Each Partys rights and remedies contained in this Agreement are in addition to, and not exclusive of, any other rights or remedies available at law.
IN WITNESS WHEREOF THE PARTIES HERETO HAVE SET AND SUBSCRIBED THEIR RESPECTIVE HANDS TO THESE PRESENTS THE DAY AND YEAR HEREUNDER WRITTEN
Date:- 17.09.2010 (September 17, 2010)
Place:- Tuticorin
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Signed and delivered
for and on behalf of:
Sterlite Industries (India) Limited by:
1. | /s/ Vinod Bhandawat | |
Name: | Vinod Bhandawat | |
Designation: | CFO | |
2. | /s/ Rajiv Choubey | |
Name: | Rajiv Choubey | |
Designation: | COMPANY SECRETARY HEAD LEGAL |
Signed and delivered
for and on behalf of:
Leighton Contractors (India) Private Limited by:
1. | /s/ Ameeta Chatterjee | |
Name: | Ameeta Chatterjee | |
Designation: | GMINVESTMENT & ACQUISITION |
Signed and delivered
for and on behalf of:
Vizag General Cargo Berth Private Limited by:
1. | /s/ Pratap Rane | |
Name: | Pratap Rane | |
Designation: | VP(Projects) | |
2. |
| |
Name: |
| |
Designation: |
|
WITESSES
Witnessed by:
1. | /s/ G. Venkatram | |
Name: | G. Venkatram | |
Designation: | Associate ManagerLegal | |
2. | /s/ Tanay S. Nair | |
Name: | Tanay S. Nair |
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Designation: | Business Analyst |
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SCHEDULE 1
Matters for Affirmative Vote Rights
1. | Any change in the capital structure of VGCB (i.e any consolidation, sub-division, reconstruction or conversion of VGCB share capital.) |
2. | Issue by VGCB of any shares to any third party, except already agreed between Sterlite and Leighton. |
3. | Amendments to or waivers of the memorandum of association or articles of association which adversely affect the rights of LEIGHTON (including, without limitation, change in the number of members of the board of directors of VGCB); |
4. | Commencement of any new line of business outside the scope of the Project except in the ordinary course of business of VGCB; |
5. | The acquisition, sale, transfer or other disposal of any assets of VGCB, including any, fixed and/or movable assets, financial assets and intellectual property rights, except as provided for in the scope of the Project or or in the ordinary course of business of VGCB; |
6. | Mergers, amalgamations, de-mergers, voluntary dissolution, liquidation, winding up, reconstruction, of VGCB of any nature; |
7. | Any change in any of the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the holders of any of the equity shares of VGCB; |
8. | Entering into any joint venture or partnership or collaboration with any person other than in the ordinary course of business or the setting up or establishment of any subsidiary of VGCB; |
9. | Any significant change to the accounting policies employed by VGCB or any of its subsidiaries except in the ordinary course of business; |
10. | Distribution of dividends and reserves of VGCB; |
11. | The creation of a branch or a subsidiary by VGCB, whether or not it is intended to handle the same business as the business of VGCB, or the acquisition of shares in other companies by VGCB; |
12. | Any buy back of securities or initial or follow up public offering of any shares or other securities of VGCB. |
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SCHEDULE 2
FORM OF DEED OF ADHERENCE
THIS DEED is dated the [] day of [] 20[] and made:
BETWEEN
[] of [] (the New Shareholder);
[] of [] (the Transferor);
[] of [] (the Continuing Shareholders); and
THIS DEED IS SUPPLEMENTAL to the shareholders agreement executed on [insert date], between the Transferor, Vizag General Cargo Berth Private Limited (Company) and the Continuing Shareholders (the Shareholders Agreement).
BACKGROUND:
(A) | The Transferor, the Company and the Continuing Shareholders have entered into the Shareholders Agreement dated [] (Shareholders Agreement). |
(B) | [Pursuant to an [] agreement, the Transferor has transferred its [] Shares to the New Shareholder.] OR [The New Shareholder has become entitled to a transfer of [] Shares from the Transferor.] |
(C) | It is a term of the Shareholders Agreement that no Transfer of Shares shall be effected unless the transferee shall have first entered into a deed in the form of this deed. |
NOW THEREFORE THIS DEED OF ADHERENCE WITNESSETH AS FOLLOWS:
In consideration of the Transferor having transferred its [] Shares to the New Shareholder and in consideration of having agreed to such transfer:
1. | The New Shareholder hereby confirms that a copy of the Shareholders Agreement and the Articles of Association of the Company have been made available to it and hereby covenants with the Continuing Shareholders and the Company to observe, perform and be bound by all the terms which are applicable to the New Shareholder and the New Shareholder shall be deemed, with effect from the date on which the New Shareholder is registered as a member of the Company, to be a Party to the Agreement and to be bound by all the terms thereof as they applied to the Transferor and as if the New Shareholder had executed the Agreement instead of the Transferor. |
2. | The New Shareholder hereby covenants that it shall do nothing that derogates from, or obstructs the application and operation of, the provisions of the Shareholders Agreement or the Articles of Association. Further, and in addition to the above, the New Shareholder covenants that it shall facilitate and aid the application of the Shareholders Agreement to itself, the Continuing Shareholders, and the Company. |
3. | The New Shareholder represents and warrants to the Continuing Shareholders and the |
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Company that: |
(a) | [It is a corporate entity has been duly incorporated and organized, and validly exists, under the laws of the jurisdiction of its incorporation.] OR [He/she (1) has full legal capacity to (A) own his assets and carry on his business as it is being conducted and (B) enter into this Deed and Project Agreements, fully understands the content of this Deed and each such Project Agreements; and (2) has obtained legal advice and regulatory/governmental consents if required, with respect to such Deed and Project Agreements prior to the execution thereof.] |
(b) | It has the legal right and full corporate power and authority, and has been duly authorised by all necessary corporate action on the part of its board of directors and/or shareholders, as the case may be, to execute, deliver and perform the Deed and Project Agreements to which it is a party. |
(c) | The execution of this Deed, and the performance or the conditions and obligations there under constitute legally valid and binding obligations of the New Shareholder, enforceable against it in accordance with the terms contained therein. |
(d) | No Authorisation is required in connection with the execution, delivery and performance by it of this Deed and the Project Agreements. |
(e) | The execution, delivery and performance by it of this Deed and the Project Agreements do not and will not: |
(i) | [constitute a breach or constitute a default under its constitutional documents where it is a corporate entity;] |
(ii) | result in a breach of, or constitute a default under, any agreement, instrument, arrangement or understanding to which it is a party or by which it is bound; or |
(iii) | result in a violation or breach of or default under any Applicable Law or of any order, judgement or decree of any Governmental Authority to which its is a party or by which it is bound. |
Capitalised terms not defined herein shall have the meaning ascribed to them in the Shareholders Agreement.
This Deed of Adherence shall be governed in all respects by the laws of India.
Executed as a DEED the day and year first before written.
By:
Title:
For the New Shareholder
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By:
Title:
For the Transferor
By:
Title:
For the Continuing Shareholders
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Exhibit 4.62
GUARANTEE
BY
STERLITE INDUSTRIES INDIA LIMITED
(GUARANTOR)
in favour of
IL&FS TRUST COMPANY LIMITED
(TRUSTEE)
DATED: DECEMBER 08 , 2010
J. SAGAR ASSOCIATES
advocates & solicitors
TABLE OF CONTENTS
1. DEFINITIONS AND INTERPRETATION |
2 | |||
2. GUARANTEE |
9 | |||
3. INDEMNITY |
11 | |||
4. FURTHER INTEREST |
11 | |||
5. APPROPRIATIONS |
11 | |||
6. WAIVERS |
12 | |||
7. NO RELEASE |
13 | |||
8. PRINCIPAL DEBTOR |
13 | |||
9. NO PROOF IN LIQUIDATION; NO EXERCISE OF RIGHTS |
13 | |||
10. IRREVOCABLE GUARANTEE |
13 | |||
11. REPRESENTATIONS AND WARRANTIES |
14 | |||
12. COVENANTS |
14 | |||
13. NOTICES |
14 | |||
14. COSTS AND EXPENSES; TAXES |
15 | |||
15. AMENDMENTS |
16 | |||
16. SEVERABILITY |
16 | |||
17. GOVERNING LAW AND JURISDICTION |
16 | |||
18. COUNTERPARTS |
16 | |||
SCHEDULE 1: FORM OF DEMAND CERTIFICATE |
19 | |||
SCHEDULE 2: REPRESENTATION AND WARRANTIES |
20 | |||
SCHEDULE 3: COVENANTS AND UNDERTAKINGS |
23 | |||
SCHEDULE 4: EVENTS OF DEFAULT |
27 | |||
SCHEDULE 5: REDEMPTION DATES |
30 |
DEED OF GUARANTEE
This DEED OF GUARANTEE (Guarantee) executed in Tamil Nadu on this 08th day of December 2010 by:
1. | STERLITE INDUSTRIES INDIA LIMITED, a company incorporated under the provisions of the Companies Act, 1956 with corporate identity number L65990TN1975PLC062634 and having its registered office at SIPCOT Industrial Complex Madurai, Bypass Road, TV Pura, Tuticorin, Tamil Nadu 628 008 (hereinafter referred to as Guarantor, which expression shall, unless repugnant to the context or meaning thereof, deem to include its successors and permitted assigns); |
IN FAVOUR OF
2. | IL&FS TRUST COMPANY LIMITED, a company incorporated under the provisions of the Companies Act, 1956 with corporate identity number U66020MH1995PLC095507 and having its registered office at IL&FS Financial Centre, Plot C 22, Bandra Kurla Complex, Bandra East, Mumbai 400051, in its capacity as debenture trustee for the Holders of the Debentures issued by Talwandi Sabo Power Limited in terms of the Information Memorandum (hereinafter referred to as the Trustee, which expression shall, unless repugnant to the context or meaning thereof, |
1
deem to include its successors and permitted assigns). |
(In this Guarantee, the Guarantor and the Trustee shall hereinafter be collectively referred to as the Parties and individually as a Party.)
WHEREAS:
(A) | Talwandi Sabo Power Limited, a company incorporated under the provisions of the Companies Act, 1956 with corporate identity number U40101PB2007SGC031035 and having its registered office at Village Banawala, Mansa-Talwandi Sabo Road, District Mansa (Punjab)-147001, India (the Company) proposes to issue secured, redeemable, non convertible debentures of a face value of Rs.10,00,000 each for an aggregate nominal amount of Rs.750,00,00,000 (Debentures) by way of a private placement in terms of the Information Memorandum. |
(B) | Pursuant to a letter dated November 9, 2010 the Trustee has conveyed its consent to act as a debenture trustee in relation to the issue of the Debentures. |
(C) | One of the terms of the issue of the Debentures is that the discharge of all the obligations of the Company in connection with the Debentures including timely payment and due discharge of the Debt as well as maintenance of the DSRA Amount in the DSRA as per the terms set out herein (hereinafter collectively referred to as the Obligations), shall be secured, inter alia, by a guarantee executed by the Guarantor in favour of the Trustee |
2
for the benefit of the Debentureholders. |
(D) | The Guarantor has agreed to guarantee the due and punctual discharge of the Obligations by the Company to the extent provided herein. |
NOW THIS GUARANTEE WITNESSETH AS FOLLOWS
1. | DEFINITIONS AND INTERPRETATION |
1.1. | Definitions. In this Guarantee, in addition to the terms defined in the introduction to, recitals of and the text of this Guarantee, the following terms shall, unless a contrary intention appears, have the following meanings: |
Account Bank means ICICI Bank Limited;
Act means the Companies Act, 1956 of India and shall include any statutory amendment or re-enactment thereof;
Applicable Law means any statute, national, state, provincial, local, municipal, foreign, international, multinational or other law, treaty, code, regulation, ordinance, rule, judgment, order, decree, bye-law, approval of any Governmental Authority, directive, guideline, policy, requirement or other governmental restriction or any similar form of decision of or determination by, or any interpretation or administration having the force of law of any of the foregoing by any Governmental Authority having jurisdiction over the matter in question, whether in effect as of the date of this Deed or at any time thereafter;
Business Day means a day (other than a Saturday or Sunday) on which banks are open for general business in Mumbai and in relation to any payment in any other city, such city;
Call Option means the right (and not the obligation) of the Company to call upon the Trustee and the Debentureholders to redeem the Debentures on the Call Option Date;
Call Option Date means any Business Day falling within the Call Option Period on which the Company chooses to exercise the Call Option;
Call Option Period shall mean the period starting from the end of the 5th (fifth) year from the Deemed Date of Allotment till the Final Redemption Date;
DSRA means a current account opened or to be opened by the Company with the Account Bank for the purpose of holding the DSRA Amount;
DSRA Amount means an amount equal to any amount payable by the Company on the immediately succeeding Payment Date;
Debenture Trust Deed means a debenture trust deed to be executed by the Company in relation to the Debentures;
3
Debentureholders or Holders of Debentures means the persons who are, for the time being and from time to time, the holders of the Debentures and, who arc entered in the Register of Debentureholders as the holders of the Debentures, where such Debentures are held in physical form, or whose names appear in the Register of Beneficial Owners, where such Debentures are held in dematerialised form, and Debentureholder means each such person;
Debt means all present and future moneys, debts and liabilities due, owing or incurred from time to time by the Company to any Debentureholder or the Trustee under or in connection with the Debentures (in each case, whether alone or jointly, or jointly and severally, with any other person, whether actually or contingently, and whether as principal, surety or otherwise) including for the repayment/ redemption of the principal amount of the Debentures, Interest, additional interest in case of default (where applicable), remuneration of the Trustee and all costs, charges, expenses and other monies payable by the Company is respect of the Debentures;
Demand Certificate means the certificate issued by the Trustee substantially in the form set out in Schedule 1 (Form of Demand Certificate) hereto for payment of the amounts due from the Guarantor to the Trustee in terms of this Guarantee;
Deemed Date of Allotment means the date specified as such in the Information Memorandum;
Early Redemption Date means a dale, not earlier than 2 (two) days from the date of an Event of Default as determined by the Trustee, when the Debentures are required to be redeemed on a date prior to a scheduled Redemption Date, pursuant to the occurrence of an Event of Default;
Encumbrances means any mortgage, pledge, equitable interest, assignment by way of security, conditional sales contract, hypothecation, right of other persons, claim, security interest, encumbrance, title defect, title retention agreement, voting trust agreement, interest, option, lien, charge, commitment, restriction or limitation of any nature whatsoever, including restriction on use, voting rights, transfer, receipt of income or exercise of any other attribute of ownership, right of set-off, any arrangement (for the purpose of, or which has the effect of, granting security), or any other Security Interest of any kind whatsoever, or any agreement, whether conditional or otherwise, to create any of the same;
Event of Default means any event specified as such in the Information Memorandum and to be specified as such in the Debenture Trust Deed and reproduced in Schedule 4 (Events of default) hereof;
Final Redemption Date means the date falling at the end of 13 (thirteen) years from the Deemed Date of Allotment, when the nominal amount of the outstanding Debentures or any of the Debentures is to be paid by the Company to the Debentureholders;
Final Settlement Date means the date on which, in the opinion of the Trustee, the
4
Debt has been discharged by the Company in full;
Financial Indebtedness means any indebtedness for or in respect of:
(a) | moneys borrowed; |
(b) | any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent; |
(c) | any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; |
(d) | the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP, be treated as a finance or capital lease; |
(e) | receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis); |
(f) | any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing; |
(g) | any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account); |
(h) | shares which are expressed to be redeemable or shares which are the subject of a put option or any form of guarantee; |
(i) | debentures which are expressed to be compulsorily convertible or debentures which are the subject of a put option or any form of guarantee; |
(j) | any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; and |
the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (j) above;
GAAP means generally accepted accounting principles, standards and practices in India;
Governmental Approval means any authorization, approval, consent, licence or permit required from any Governmental Authority;
Governmental Authority means any:
a. | government (central), federal, state or otherwise) or sovereign state; |
b. | any governmental agency, semi-governmental or judicial or quasi-judicial or administrative entity, department or authority, or any political subdivision thereof; |
c. | international organization, agency or authority, |
5
d. | including, without limitation, any stock exchange or any self-regulatory organization, established under any Applicable Law; |
Information Memorandum means an information memorandum / disclosure document dated issued by the Company for the issue of the Debentures;
Initial Company Credit Rating means the first credit rating in respect of the Company that is provided to the Trustee/Debentureholders by CRISIL, and FITCII being AM (so);
INR or Rs. or Rupees means the lawful currency of the Republic of India;
Interest means interest payable on the Debentures at the rate of 9.8% per annum or the rate as specified in the Information Memorandum;
Interest Payment Date means any date on which the Company is liable to pay Interest on the Debentures;
Majority Debentureholders means such number of Debentureholders holding 51% of the nominal value of the Debentures then outstanding;
Material Adverse Effect means, in the reasonable opinion of the Trustee, a material adverse effect on or material adverse change in:
(a) | the business activities, financial condition and credit standing of the Company or the Guarantor from the date of their respective last published financial statements; |
(b) | the international or domestic money, bank, foreign exchange and capital markets, or in the debt syndication market: |
(c) | the Companys right to possess and use all or any material portion of the Project Site or the Project. |
Mortgaged Premises means such property owned by the Company which is agreed by the Trustee to be mortgaged by the Company to secure the Debentures under the Debenture Trust Deed;
Obligors shall collectively mean the Company and the Guarantor and Obligor shall mean any one of them;
Original Financial Statements means:
(a) | in relation to the Company, its audited financial statements for the financial year ended March 31, 2010; and |
(b) | in relation to the Guarantor, its audited consolidated financial statements for the financial year ended March 31, 2010; |
6
Payment Date means a Redemption Date or an Interest Payment Date;
Project the power project being undertaken by the Company with a total generation capacity of 2640 Mega Watts at Village Banawala, District Mansa, in the state of Punjab, India;
Project Site means the land approximately admeasuring 2113 acres at Village Banawala, Mansa-Talwandi Sabo Road, District Mansa in Punjab on which the Project is to be set up;
Recon Date shall mean a day which is 4 (four) Business Days prior to each Payment Date, (save and except an Early Redemption Date);
Redemption Date means (a) any of the dates specified in the Schedule 5 (Redemption Dates) hereunder written; or (b) an Early Redemption Date on which the nominal amount of the Debentures or any of the Debentures is to be paid by the Company to the Debentureholders; or (c) a Call Option Date;
Register of Beneficial Owners means the register of beneficial owners of the Debentures maintained in the records of any depository duly registered with SEBI;
Register of Debentureholders means the register maintained by the Company at its registered office and containing the names of the Debentureholders entitled to receive Interest on the Debentures;
SEBI means the Securities and Exchange Board of India;
Security Documents means the following:
(a) | the Debenture Trust Deed; and |
(b) | any other security document entered into from time to time for creation of any Security for the benefit of the Debentureholders; |
Security Interest means (i) any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment, deed of trust, security interest or other encumbrance of any kind securing, or conferring any priority of payment in respect of, any obligation of any Person, including without limitation any right granted by a transaction which, in legal terms, is not the granting of security but which has an economic or financial effect similar to the granting of security under Applicable Law, (ii) any voting agreement, interest, option, right of first offer, refusal or transfer restriction in favour of any Person, and/or (iii) any adverse claim as to title, possession or use;
Subsidiary means, in relation to a company or corporation (a holding company), any other company or corporation:
7
(a) | which is controlled, directly or indirectly, by the holding company; |
(b) | more than half the issued share capital of which is beneficially owned, directly or indirectly, by the holding company; or |
which is a subsidiary or another Subsidiary of the holding company;
Transaction Documents means:
a. | this Guarantee; |
b. | the Information Memorandum; |
c. | the Debenture Trust Deed; |
d. | the Security Documents; and |
any other document that may be designated as a transaction document by the Trustee.
Vendors shall mean suppliers and service providers of the Company who supply or will supply equipments, plant and machinery, goods and/ or materials or provide or will provide service in connection with the Project and/or operations of the Company.
1.2 | Interpretation. In this Guarantee, unless the context requires otherwise: |
1.2.1. | the recitals and schedules shall constitute an integral and operative part of this Guarantee; |
1.2.2. | reference to Clause and Schedule is to a clause and schedule of this Guarantee; |
1.2.3. | headings to Clauses, parts and paragraphs of Schedules and Schedules are for convenience only and do not affect the interpretation of this Guarantee; |
1.2.4. | reference to any statute or statutory provision shall include: |
(a) | all statutory instruments or orders including subordinate or delegated legislation (whether by way of rules, notifications, bye-laws and guidelines) made from time to time under that provision (whether or not amended, modified, re-enacted or consolidated); |
(b) | such provision as from time to time amended, modified, re-enacted or consolidated (whether before or after the date of this Guarantee) to the extent such amendment, modification, re-enactment or consolidation applies or is capable of applying to any transactions entered into under this Guarantee and (to the extent liability thereunder may exist or can |
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arise) shall include any past statutory provision as from time to time amended, modified, re-enacted or consolidated) which the provision referred to has directly or indirectly replaced; |
1.2.5. | reference to any document includes an amendment or supplement to, or replacement or novation of, that document, but disregarding any amendment, supplement, replacement or novation made in breach of this Guarantee; |
1.2.6. | reference to an amendment includes a supplement, modification, novation, replacement or re-enactment and amended is to be construed accordingly; |
1.2.7. | words denoting the singular shall include the plural and vice versa; |
1.2.8. | words denoting any gender include all genders; |
1.2.9. | reference to the word include or including shall be construed without limitation; |
1.2.10. | references to a person or Person (or to a word importing a person) shall be construed so as to include: |
(a) | individual, sole proprietorship, firm, partnership, limited liability partnership, trust, joint venture, company, corporation, body corporate, unincorporated body, association, organisation, any Governmental Authority or other entity or organisation (whether or not in each case having separate legal personality); |
(b) | that persons successors in title, executors, and permitted transferees and permitted assignees; and |
(c) | references to a persons representatives shall be to its officers, employees, legal or other professional advisers, sub-contractors, agents, attorneys and other duly authorised representatives; |
1.2.11. | reference to a Party to any document includes that partys successors and permitted transferees and permitted assignees, as the case may be; |
1.2.12. | words hereof, herein, hereto, hereunder and words of similar import when used with reference to a specific clause in this Guarantee shall refer to such clause in this Guarantee and when used otherwise than in connection with specific clauses shall refer to this Guarantee as a whole; |
1.2.13. | in the computation of periods of time from a specified dale to a later specified date, the words from and commencing on mean from and including and commencing on and including, respectively, and the words to, until and ending on each mean to but not including, until but not including and |
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ending on but not including respectively; |
1.2.14. | unless otherwise specified, whenever any payment to be made or action to be taken under this Guarantee, is required to be made or taken on a day other than a Business Day, such payment shall be made or action be taken on the immediately following Business Day; |
1.2.15. | where a wider construction is possible, the words other and otherwise shall not be construed ejusdem generis with any foregoing words; |
1.2.16. | any consent, approval, determination, waiver or finding to be given or made by any of the Debentureholders shall be made or given by such Debentureholder in its sole discretion; and |
1.2.17. | any reference to the Trustee shall be a reference to the Trustee in its capacity as the agent and trustee of the Debentureholders. |
2. | GUARANTEE |
2.1. | Guarantee: The Guarantor hereby irrevocably and unconditionally guarantees to the Trustee that the Company shall duly and punctually discharge the Debt in terms of the Information Memorandum. |
2.2. | Guarantee Obligation: On the failure of the Company to discharge all or part of the Debt, the Guarantor irrevocably and unconditionally agrees to pay to the Trustee without demur or protest, within 2 (two) Business Days from the date of the Demand Notice, the amount stated in the Demand Certificate in accordance with the terms hereof provided that, if on invocation of this Guarantee, the Guarantor has not made a payment within the time so specified for such payment in this Guarantee, the Guarantor shall be liable to pay further interest as set out in Clause 4 (Further Interest) below, till the date of payment by the Guarantor in accordance with this Guarantee to the satisfaction of the Trustee. |
The Guarantor hereby declares and agrees that they have not received and shall not, so long any monies remain due and payable by the Company to the Trustee, without the prior consent in writing of the Trustee, any security or commission from the Company for giving this Guarantee.
2.3. | Funding the DSRA: |
Without prejudice to the generality of the above:
2.3. (a) | the Guarantor shall ensure that on a Recon Date, the funds lying to the credit of the DSRA is at least equal to the DSRA Amount; |
(b) | in the event, for any reason, if the DSRA has not been funded to the extent of the applicable DSRA Amount by no later than the Recon Date, |
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then Trustee shall (on the instructions of the Majority Debenture Holders) be entitled to invoke this Guarantee on the same day, whereupon the Guarantor shall be obligated to fund the DSRA to the extent of the DSRA Amount by no later than 2 (two) Business Days prior to the immediately succeeding Payment Date.
2.3.2. (a) | the Guarantor shall ensure that in the event the Debentures are to be redeemed on an Early Redemption Date, then the funds lying to the credit of the DSRA are not less than the principal amount payable on the redemption of such Debentures together with the accrued unpaid interest payable thereon on the applicable Early Redemption Date (the Early Redemption Amount); |
(b) | in the event, for any reason, the DSRA is not funded to the extent of the Early Redemption Amount by no later than 2 (two) Business Days prior prior to the applicable Early Redemption Date, then the Trustee shall (on the instructions of the Majority Debenture Holders) be entitled to invoke this Guarantee on the same day, whereupon the Guarantor shall be obligated to fund the DSRA to the extent of the Early Redemption Amount by no later than 1 (one) Business Day prior to the immediately succeeding Early Redemption Date. |
2.4. | Effectiveness and Term: The obligations of the Guarantor hereunder shall be effective on and from the date of this Guarantee and shall continue until the Debt has been unconditionally and irrevocably discharged to the satisfaction of the Trustee. |
2.5. | Demand Notice: Any demand given or made by the Trustee to the Guarantor shall, in the absence of any manifest error, be final, conclusive and binding evidence of the Guarantors liability hereunder, notwithstanding any difference or any dispute in relation to the amount due from the Company or arbitration or any other legal proceedings, pending before any court, tribunal, arbitrator or any other Governmental Authority. The Guarantor agrees and confirms that the Demand Certificate shall be final, conclusive and binding evidence against the Guarantor of the amount for the time being due from the Guarantor in any action or proceeding brought in connection to this Guarantee against the Guarantor. |
2.6 | Continuing Guarantee: This Guarantee is a continuing guarantee and shall remain in full force and effect and be binding upon the Guarantor till the Debt has been unconditionally and irrevocably discharged to the satisfaction of the Trustee. |
2.7 | No Requirement to Exhaust Remedies: Prior to making any demand hereunder, the Trustee or the Debentureholders shall not be required to take any step, make any demand upon, exercise any remedies or obtain any judgment against the Company, give notice to the Company or make or file any claim or proof in the dissolution or winding-up of the Company or enforce or seek to enforce any security now or hereafter held by the Trustee in respect of the Debt. |
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3. | INDEMNITY |
The Guarantor shall indemnify and keep the Trustee indemnified against all actions, proceedings, charges, losses, damages, costs, claims, expenses and demands whatsoever which the Trustee may suffer or incur by reason of or in connection with any such default on the part of the Company and/or the Guarantor including legal proceedings taken against the Company and/or the Guarantor for recovery of the moneys referred to in Clause 2 (Guarantee) above.
4. | FURTHER INTEREST |
In the event of default in payment by the Guarantor in accordance with Clauses 2.2 and 2.3.3 above the Guarantor shall pay further interest on the outstanding amounts hereunder at the rate of 2 % per annum (Further Interest). The Further interest shall be computed from the clue date of payment of the amounts due and payable by the Guarantor till the date of actual payment thereof. The Guarantor agrees that the Further Interest is a genuine preestimate of the loss likely to be suffered by the Trustee on account of any default by the Guarantor in discharging its obligations as agreed herein.
5. | APPROPRIATIONS |
Until the Debt has been unconditionally and irrevocably paid in full to the satisfaction of the Trustee, the Trustee may without affecting the liability of the Guarantor:
(a) | refrain from applying or enforcing any other moneys, security or rights held or received by the Trustee in respect of those amounts; or |
(b) | apply and enforce them in such manner and order as it deems fit (whether against those amounts or otherwise). |
6. | WAIVERS |
6.1. | The Guarantor shall not be released by any act or omission on the part of the Debentureholders or the Trustee or by any other matter or thing whatsoever which under the law relating to sureties would have the effect of so releasing the Guarantor. This includes but is not limited to: |
6.1.1 | any time or waiver granted to, or composition with, any person; |
6.1.2 | any release of any person under the terms of any composition or arrangement; |
6.1.3 | the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of any person; |
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6.l.4 | any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security; |
6.1.5 | any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of any person; |
6.1.6 | any amendment of any of the Transaction Documents or any other document or security created pursuant thereto; |
6.1.7 | any unenforceability, illegality, invalidity or non-provability of any obligation of any person under any document or security; |
6.1.8 | any change in the constitution, ownership or corporate existence of any person or any absorption, merger or amalgamation of any person with any other company, corporation or concern; |
6.1.9 | any insolvency, liquidation, bankruptcy, sickness (by way of erosion of net worth as per the provisions of Applicable Law) or similar situation or proceeding in respect of any person; |
6.1.10 | any change in the management of any person or take over of the management of the any person by any Governmental Authority; |
6.1.11 | acquisition or nationalisation of the Company and/or of any of its undertaking(s) pursuant to any Applicable Law; or |
6.1.12 | any change in the constitution of the Debentureholders or the Trustee. |
6.2. | The Guarantor hereby waives in favour of the Trustee so far as may be necessary to give effect to any of the provisions of this Guarantee, all the suretyship and other rights which the Guarantor might otherwise be entitled to enforce. |
7. | NO RELEASE |
This Guarantee shall not be wholly or partially satisfied or exhausted by any payments made to or settled with any Debentureholder or the Trustee by the Company and shall be valid and binding on the Guarantor and operative until all the obligations of the Company in relation to or in connection with the Debentures are not duly discharged to the satisfaction of the Trustee.
Any admission or acknowledgement in writing given by the Company in respect of the Debt shall be binding on the Guarantor and shall be treated as given on behalf of the Guarantor, save manifest error.
8. | PRINCIPAL DEBTOR |
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To give effect to this Guarantee, the Trustee may act as though the Guarantor were the principal debtor.
9. | NO PROOF IN LIQUIDATION; NO EXERCISE OF RIGHTS |
9.1. | Whilst this Guarantee is in continuance, the Guarantor agrees that: |
9.1.1 | it shall not in the event of the liquidation of the Company prove in competition with the Trustee in liquidation proceedings; and |
9.1.2 | it shall have no right of subrogation or indemnity against the Company nor shall it exercise any such rights available under law, to claim any sum relating to the Debt from the Company, including those of subrogation and of proof in the Companys insolvency, and shall hold the benefit of any such rights on trust for the benefit of the Debentureholders and the Trustee. |
9.2. | The Guarantor hereby agrees that the Guarantors right to indemnity against the Company will arise only after the Final Settlement Date. |
10. | IRREVOCABLE GUARANTEE |
This Guarantee shall be unconditional and irrevocable and the obligations of the Guarantor hereunder shall not be conditional on the receipt of any prior notice by the Guarantor or by the Company and the demand or notice by the Trustee as provided in Clause 13 (Notices) hereof shall be sufficient notice to or demand on the Guarantor.
11. | REPRESENTATIONS AND WARRANTIES |
11.1. | The Guarantor makes the representations and warranties to the Trustee as set out in Schedule 2 (Representations and Warranties) hereto. |
11.2. | Each of the representations and warranties set out in Schedule 2 (Representations and Warranties) hereto are deemed to be made by the Guarantor by reference to the facts and circumstances then existing, on the date of this Guarantee and on each day during which the Debt is outstanding. |
12. | COVENANTS |
The Guarantor irrevocably agrees and undertakes to abide by the covenants and undertakings; set out in Schedule 3 (Covenants and Undertakings) hereto at all times until the Debt has been duly discharged.
13. | NOTICES |
13.1. | Communications in writing |
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Any communication or document to be made or delivered under or in connection with this Deed shall be made in writing and, unless otherwise stated, may be made or delivered by fax or hand delivery.
13.2. | Addresses |
The address and fax number (and the department or officer, if any for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with this Deed is that identified with its name below or any substitute address, fax number or department or officer as the Party may notify to the other Party by not less than five Business Days notice.
Guarantor: | ||||||||||
Name | : | Sterlite Industries India Limited | ||||||||
Address | : | Sterlite Industries (India) Limited | Vedanta, 75, Nehru Road, Vile Parle (East), Mumbai 400099 | ||||||||
Attention | : | Rajiv Choubey Company Secretary & Head Legal | ||||||||
Fax | : | +91 0461 234 0203 | | ||||||||
Telephone | : | +91 0461 661 2982 | | ||||||||
Trustee: | ||||||||||
Name |
: | IL&FS Trust Company Limited | ||||||||
Address |
: | The IL & FS Financial Center, 3rd Floor, East Quadrant, Plot C- 22, G- Block, Bandra- Kurla Complex Bandra (East), Mumbai- 400 051, India | ||||||||
Attention |
: | Ms. Sujatha Rangachari General Counsel (Sr. Vice President) | ||||||||
Fax |
: | +91-22- 2653 3333 | ||||||||
Telephone |
: | +91-22-2653 3297 |
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13.3. | Delivery |
Any communication or document made or delivered by one person to another under or in connection with this Deed will only be effective:
(i) | if sent by fax before 6 p.m. (local time in the place to which it is sent) on a Business Day in that place, when sent or, if sent by fax at any other time, at 9 a.m. (local time in the place to which it is sent) on the next Business Day in that place, provided, in each case, that the person sending the fax shall have received a successful transmission receipt; or |
(ii) | if by way of letter, when it has been delivered at the relevant address two Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address or within two Business Days after being sent by courier or on the same Business Day, if sent by hand delivery; or |
and, if a particular department or officer is specified as part of its address details provided under Clause 13.2 (Addresses), if addressed to that department or officer.
(iii) | Notwithstanding anything contained hereinabove, any notice required to be served upon the Guarantor in terms of clauses 2.2 and 2.3 this Deed shall be sent either by way of fax or by hand delivery. |
13.4. | Notification of address and fax number |
Promptly upon receipt of notification of an address and fax number or change of address or fax number pursuant to Clause 13.2 (Addresses) or changing its own address or fax number, a Party shall notify the other Party.
13.5. | English language |
Any notice or communication given under or in connection with this Deed must be in English.
14. | COSTS AND EXPENSES; TAXES |
14.1. | The Guarantor shall pay to the Trustee all legal, travelling and other costs, charges and expenses incurred by it or its officers, employees or agents in connection with execution of these presents including costs, charges and expenses of and incidental to the approval and execution of these presents and all other documents affecting the guarantee herein. |
14.2. | Any stamp duty payable on this Guarantee shall be payable by the Guarantor. In the event the Trustee makes such payment of stamp duty, the Guarantor shall reimburse the Trustee immediately, and in no event by later than 5 (five) days on demand by the Trustee. |
l4.3. | All payments required to be made by the Guarantor in relation to the Debentures shall be |
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paid free and clear of all present and future taxes, levies, duties, imposts, withholdings, and deductions of whatever nature excluding deduction of tax at source under the direct taxes applicable including those under the Income Tax Act, 1961. In the event taxes are deductible at source on any amounts payable in connection with the Debentures held by persons resident in India or outside India, the following provisions shall apply: |
(a) | in the event the Guarantor is required to make a tax deduction on any payment it is required to make in connection with the Debentures, it shall make the requisite tax deduction before making any payment to the Debenture Holders and, thereafter, make the payment required in connection with that tax deduction within the time allowed and in the minimum amount required by Applicable Law; |
(b) | the Guarantor shall within 30 (thirty) days after the due date of payment of any tax or other amount which it is required to pay, deliver to the Trustee, evidence of such deduction, withholding or payment and of the remittance thereof to the relevant taxation or other authority. |
15. | AMENDMENTS |
The terms of this Guarantee may be amended only by an instrument in writing signed by an authorised officer of the Guarantor and by an authorised signatory on behalf of the Trustee.
16. | SEVERABILITY |
Any provision of this Guarantee which is or becomes prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability but that shall not invalidate the remaining provisions of this Guarantee in such jurisdiction or affect such provision in any other jurisdiction.
17. | GOVERNING LAW AND JURISDICTION |
17.1. | This Guarantee is governed by and shall be construed in accordance with the laws of India. |
17.2. | The Parties agree that the High Court of Mumbai shall have non-exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Guarantee. |
18. | COUNTERPARTS |
This Guarantee may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any Party may enter into this Guarantee by executing a counterpart. Delivery of an executed counterpart of the signature page to this Guarantee by facsimile shall be as effective as delivery of a manually executed counterpart of this Guarantee.
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IN WITNESS WHEREOF the Guarantor has executed these presents on the day, month and year first hereinabove written:
The Common Seal of STERLITE INDUSTRIES INDIA LIMITED, the within named Guarantor, has been hereunto affixed under the signatures of Mr. A. SATISH and Mr. , pursuant to the resolution of the board of directors of the Guarantor dated November 16, 2010
Witnessed by:
1. G. Venkatram [G. Venkatram]
2. D. Sunil Kumar [D. Sunil Kumar]
Signed in acceptance by for and on behalf of IL&FS Trust Company Limited, the within named Trustee.
Authorised Signatory |
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SCHEDULE 1: FORM OF DEMAND CERTIFICATE
STERLITE INDUSTRIES INDIA LIMITED
[Address]
Dated: []
Dear Sirs,
Re: Payment under Deed of Guarantee dated []
We refer to the Deed of Guarantee dated [], as amended from time to time (Guarantee) executed by Sterlite Industries India Limited in favour of IL&FS Trust Company Limited (Trustee).
Please note that an amount of Rs. [] is outstanding from the Company in terms of the Debentures issued by it.
OR
Please note that there is a shortfall of Rs. [ ] in the DSRA.
Accordingly, we hereby give you notice pursuant to Clause 2 (Guarantee) of the Guarantee that you are required to make payment of Rs. [] to the Trustee towards the discharge of the outstanding Debt.
OR
Accordingly, we hereby give you notice pursuant to Clause 2 (Guarantee) of the Guarantee that you are required to deposit Rs. [] in the DSRA to ensure that the amount lying to the credit thereof is at equal to the DSRA Amount.
Please make such payment on or before [date].
Capitalised terms used herein and not defined shall have the meanings ascribed to such terms in the Guarantee.
Yours faithfully,
For | ||
(Trustee) |
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SCHEDULE 2: REPRESENTATION AND WARRANTIES
1. | Status |
1.1 | Each Obligor is a corporation, duly incorporated and validly existing under the law of its jurisdiction of incorporation. |
1.2 | Each Obligor has the power to own its assets and carry on its business as it is being conducted. |
1.3 | Neither of the Obligors is registered as a non banking financial company and is not required to be registered as a non banking financial company with the Reserve Bank of India. |
2. | Binding obligations |
The obligations expressed to be assumed or to be assumed by the Obligors under each of the Transaction Documents, to which it is a party, are legal, valid, binding and subject to any general principles of law limiting its obligations.
3. | Non-conflict with other obligations |
The entry into and performance by any Obligor of, and the transactions contemplated by, the Transaction Documents to which it is a party, do not and will not conflict with:
(i) | any Applicable Law; |
(ii) | its respective constitutional documents; or |
(iii) | any agreement or instrument binding upon it or any of its assets, |
4. | Power and authority |
Each Obligor has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Transaction Documents to which it is or will be a party, and the transactions contemplated by those Transaction Documents.
5. | Validity and admissibility in evidence |
All authorisations required or desirable:
(i) | to enable each Obligor to lawfully to enter into, exercise its rights and comply with its obligations in the Transaction Documents to which it is a party; |
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(ii) | to make the Transaction Documents to which each Obligor is a party admissible in evidence in its jurisdiction of incorporation, |
have been obtained or effected and are in full force and effect.
6. | No filing or stamp taxes |
Under the law of jurisdiction of incorporation of each of the Obligors it is not necessary that the Guarantee be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Transaction Documents or the transactions contemplated by the Transaction Documents except for the payment of stamp duty on any Transaction Documents executed in or brought into India, and except for the filing of any Transaction Documents with the SEBI, the Registrar of Companies or the Sub Registrars office or the Stock Exchange, as may be necessary under Applicable Law.
7. | No default |
7.1 | No Default is continuing or might reasonably be expected to result from the entering into or performance by the Guarantor of this Deed. |
7.2 | No other event or circumstance is outstanding which constitutes an event of default under any other agreement or instrument which is binding on an Obligor or to which its assets are subject which might have a Material Adverse Effect. |
7.3 | No litigation, arbitration, administrative or other proceedings are pending or threatened against the Obligors or their assets, which, if adversely determined, will have a Material Adverse Effect. |
8. | No misleading information |
8.1 | Any factual information provided by or on behalf of any Obligor in connection with the issue of the Debentures is true and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is stated. |
8.2 | Any financial projections provided by or on behalf of any Obligor in connection with the issue of the Debentures were prepared on the basis of recent historical information and on the basis of reasonable assumptions. |
8.3 | Nothing has occurred or been omitted from the information so provided and no information has been given or withheld that results in the information provided by or on behalf of any Obligor being untrue or misleading in any material respect. |
9. | No immunity |
The Obligors assets are not entitled to immunity from suit, execution, attachment or other legal process India. The execution of this Deed constitutes, and the exercise of its rights and performance of and compliance with its obligations under this Deed will
21
constitute, private and commercial acts done and performed for private and commercial purposes.
10. | Solvency |
10.1 | The Obligors are able to, and has not admitted their inability to, pay their debts as they mature and have not suspended making payment on any of their debts. |
10.2 | The Obligors, by reason of actual or anticipated financial difficulties, have not commenced, and do not intend to commence, negotiations with one or more of their creditors with a view to rescheduling any of their indebtedness. |
10.3 | The value of the assets of the Obligors is more than its liabilities (taking into account contingent and prospective liabilities) and they have sufficient capital to carry on their business. |
10.4 | No moratorium has been, or may, in the reasonably foreseeable future be, declared in respect of any indebtedness of the Obligors. |
11. | Commercial Activity: |
The Guarantor is subject to civil and commercial law with respect to its obligations under the Guarantee. The execution and delivery of the Guarantee constitute, and the Guarantors performance of and compliance with its obligations under the Guarantee will constitute private and commercial acts done and performed for private and commercial purposes rather than public or governmental acts.
12. | Authorised Signatories |
Each person specified as an authorized signatory of the Guarantor in any documents delivered to the Trustee pursuant to this Deed, is subject to any notice to the contrary delivered to the Trustee, authorized to sign all documents and notices on behalf of the Guarantor.
13. | Approvals |
Except for any approvals to be taken during the course of the Project, the Guarantor hereby confirms that all approvals necessary under Applicable Law with respect to the business of the Company, have been taken by the Company and the same are valid and subsisting as on the date hereof.
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SCHEDULE 3: COVENANTS AND UNDERTAKINGS
1. | INFORMATION UNDERTAKINGS |
1.1. | The Guarantor shall supply to the Trustee (if the Trustee so requests): |
(a) | all documents dispatched by it to its shareholders (or any class of them) or its creditors generally at the same time as they are dispatched; |
(b) | promptly upon becoming aware of them, the details of any litigation, arbitration, investigative or administrative proceedings which are current, threatened or pending against it, and which might, if adversely determined, have a Material Adverse Effect; |
(c) | promptly, such further information regarding its financial condition, business and operations as any Debentureholder (through the Trustee) may reasonably request; |
(d) | promptly, notice of any change in its authorised signatories, signed by one of its director or its company secretary, whose specimen signature has previously been provided to the Trustee, accompanied (where relevant) by a specimen signature of each new signatory; and |
(e) | all documents filed with any Governmental Authority in connection with the Guarantee. |
1.2. | Notification of Default |
The Guarantor shall notify the Trustee of any Event of Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence (unless such entity is aware that a notification has already been provided by any other entity mentioned, in this paragraph).
1.3. | Books and records |
(a) | The Guarantor shall keep proper books of account as required by Applicable Law and therein make true and proper entries of all dealings and transactions of and in relation to the business of the Guarantor and keep the said books of account and all other books, registers and other documents relating to the affairs of the Guarantor at its registered office or, where permitted by Applicable Law, or at any other place or places where the books of account and documents of a similar nature may be kept and the Guarantor shall ensure that all entries in the said documents of the Guarantor shall at all reasonable times be open for inspection of the Trustee and such person or persons as the Trustee shall, from time to time, in writing for that purpose, appoint. |
(b) | Upon the request of the Trustee, the Guarantor shall provide the Trustee and any of |
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its representatives, professional advisers and contractors with access to and permit inspection by them of its assets, premises, books and records in each case at reasonable times and upon reasonable notice. |
2. | GENERAL UNDERTAKINGS |
2.1 | Authorisations |
(a) | The Guarantor shall promptly. |
(i) | obtain, comply with and do all that is necessary to maintain in full force and effect; and |
(ii) | supply certified copies to the Trustee of, |
any authorisation required under Applicable Law to enable it to perform its obligations under the Guarantee (including, without limitation, in connection with any payment to be made thereunder) and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of the Guarantee or (in the case of paragraph (i) above only).
2.2 | Compliance with laws |
The Guarantor shall comply in all respects with all laws and regulations to which it may be subject, if failure so to comply would materially impair its ability to perform its obligations under the Guarantee.
2.3 | Disclosure of information |
The Guarantor hereby agrees, confirms and undertakes that in the event the Guarantor is in breach of any of its obligations hereunder:
(A) | the Trustee shall, as the Trustee may deem appropriate and necessary, be entitled to disclose all or any: (i) information and data relating to the Guarantor, (ii) information or data relating to this Guarantee (iii) default committed by the Guarantors in discharge of the aforesaid obligations, to Credit Information Bureau (India) Limited (CIBIL) and any other agency authorised in this behalf by Reserve Bank of India (RBI); |
(B) | CIBIL and/or any other agency so authorised may use, process the aforesaid information and data disclosed by the Trustee in the manner as deemed fit by them; |
(C) | CIBIL and / or any other agency so authorised may furnish for consideration, the processed information and data or products thereof prepared by them, to the |
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Trustee, and other credit grantors or registered users, as may be specified by RBI in this behalf; |
(D) | the Trustee and/or RBI will have an unqualified right to disclose or publish the details of the default and the name of the Guarantor (including its directors) as the case may be, as defaulters, in such manner and through such medium as the Trustee or RBI in their absolute discretion may think fit. |
2.4 | Merger |
The Guarantor shall ensure that the Company does not undertake or permit any merger, consolidation, reorganisation, scheme of arrangement or compromise with its creditors or shareholders or effect any scheme of amalgamation or reconstruction if as a result of such merger, consolidation, reorganisation, scheme of arrangement or compromise with creditors or shareholders or scheme of amalgamation the Company ceases to be a subsidiary of the Guarantor.
2.5 | Taxes |
The Guarantor shall pay and discharge all taxes, rates, rents and governmental charges upon the Guarantor and its assets before penalties become attached thereto and shall establish adequate reserves for the payment of any taxes, rates, rents and governmental charges becoming due unless such taxes, rates, rent and governmental charges are being contested in good faith by appropriate proceedings.
2.6 | Compliance by the Company |
The Guarantor shall ensure that the Company complies with and duly discharges all its obligations under the Transaction Documents to which it is or will be a party to.
Further, the Guarantor also undertakes that the Company shall at all times:
(a) | maintain all the approvals necessary under Applicable Law with respect to its business. |
(b) | procure any other approvals which may be mandated under Applicable Law with respect to its business. |
3. | NEGATIVE COVENANTS |
3.1 | The Guarantor shall not, so long as the Debentures are outstanding, without the prior written approval of the Trustee: |
3.1.1 | voluntarily suffer any act, which has a Material Adverse Effect on its business profits, production or sales; |
3.1.2 | permit or cause to be done any act or thing whereby its right to transact business |
25
could be terminated or whereby payment of any principal or interest on the Debentures may be hindered or delayed; or |
3.1.3 | assign or otherwise transfer all or any part of their rights and obligations under this Guarantee |
26
SCHEDULE 4: EVENTS OF DEFAULT
The occurrence of any one of the following events shall constitute an Event of Default by the Company:
(a) | Non-payment |
Any Obligor does not pay on the due date any amount payable pursuant to any Transaction Documental at the place at and in the currency in which it is expressed to be payable.
(b) | Other obligations |
Any Obligor does not comply with any provision of the Transaction Documents (other than those referred to in paragraph (a) (Non-payment)) above; except where the Trustee certifies that such default is, in its opinion, incapable of remedy (in which case no notice shall be required), such default continues for 7 Business Days after written notice thereof has been given by the Trustee to the Company requiring the same to be remedied;
(c) | Misrepresentation |
Any information provided or representation or statement made or deemed to be made by any Obligor in the Transaction Documents to which it is a party or any other document delivered by or on behalf of any Obligor under or in connection with any Transaction Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made;
(d) | Insolvency proceedings |
Any corporate action, legal proceedings or other procedure or step is taken in relation to:
(i) | the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration, provisional supervision or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of any Obligor other than a solvent liquidation or reorganisation of any Obligor; |
(ii) | the appointment of a liquidator (other than in respect of a solvent liquidation of an Obligor), receiver, administrative receiver, administrator, compulsory manager, provisional supervisor or other similar officer in respect of an Obligor or any of its assets; or |
(iii) | enforcement of any Security over any assets of any Obligor, or any analogous procedure or step is taken in any jurisdiction. |
27
(e) | Attachment of Mortgaged Premises |
If an attachment or distress has been levied on the Mortgaged Premises or any part thereof and/or certificate proceedings have been taken or commenced for recovery of any dues from an Obligor which may have a Material Adverse Effect or if in the reasonable opinion of the Trustee, the security created under the Security Documents is in jeopardy;
(f) | Cessation of Business |
If any Obligor ceases or threatens to cease or gives a notice of its intention to cease its business;
(g) | Unlawfulness |
It is or becomes unlawful for any Obligor to perform any of its obligations under any Transaction Document.
(h) | Repudiation |
An Obligor repudiates a Transaction Document to which it is a party or evidences an intention to repudiate any Transaction Document to which it is a party.
(i) | Security and guarantee |
Any Security Document is not (once entered into) in full force and effect or any Security Document does not (once entered into) create in favour of the Trustee for the benefit of the Debentureholders which it is expressed to create fully perfected with the ranking and priority it is expressed to have or the Security Interest created pursuant to the Security Documents (once entered into) is, in the opinion of the Trustee, in jeopardy.
(j) | Cross-Default |
Any other Financial Indebtedness of the Company is not discharged when due nor within any originally applicable grace period.
Provided however, no Event of Default will occur under this clause if the aggregate amount of Financial Indebtedness is less than USD. 50,00,000.00 (United States Dollars Fifty million only) or such Financial Indebtedness is owed to any of the Vendors of the Company.
(k) | Material Adverse Change |
Any material adverse effect on or material adverse change, in the reasonable opinion of the Trustee, in:
(i) | the business activities, financial condition and credit standing of the Company or the Guarantor from the date of their respective last |
28
published financial statements; or |
(ii) | the Companys right to possess and use all or any material portion of the Project Site or the Project, and |
such changes prejudicially affect the ability of the Obligors to discharge the Debt.
(l) | Clearances, Approvals and Proceedings |
(i) | if the Company fails to obtain, renew, maintain or comply in all respects with any clearance or approval necessary under Applicable Law for the execution, delivery, performance and enforcement of the Transaction Documents, which in the opinion of the Trustee can have a Material Adverse Effect; or |
(ii) | if any clearance or approval necessary required in connection with the Project under Applicable Law, is rescinded, terminated, suspended, modified or withheld or is determined to be invalid or ceases to be in full force and the same continues unremedied for a period of 3 months, which in the opinion of the Trustee will have a Material Adverse Effect and; or |
(iii) | if any proceedings is commenced by or before any governmental authority for the purpose of rescinding, terminating, suspending, modifying or withholding any clearance or approval required in connection with the Project under Applicable Law, and the same is not stayed or dismissed and continues for a period of 3 months, which in the opinion of the Trustee may have to a Material Adverse Effect. |
29
SCHEDULE 5: REDEMPTION DATES
Sr. No. |
Amount |
Redemption Dates | ||
1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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9. |
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10. |
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11. |
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12. |
30
Exhibit 4.63
DATED 16 DECEMBER 2010
ANGLO OPERATIONS LIMITED
TAURUS INTERNATIONAL S.A.
ANGLO SOUTH AFRICA CAPITAL (PTY) LTD
ANGLO AMERICAN SERVICES (UK) LIMITED
WELTER TRADING LIMITED
THL ZINC LIMITED
LABAUME B.V.
PECVEST 17 (PROPRIETARY) LIMITED
and
VEDANTA RESOURCES PLC
SECOND DEED OF AMENDMENT
TO THE
SHARE PURCHASE AGREEMENT DATED 9 MAY 2010
relating to the sale of the companies comprising
the Anglo American zinc division
DEED OF AMENDMENT
THIS DEED OF AMENDMENT is made on 16 December 2010 between:
(1) | ANGLO OPERATIONS LIMITED, a company incorporated in South Africa with registration number 1921/006730/06, whose registered office is at 44 Main Street, Johannesburg, 2001, South Africa (the BMM Seller); |
(2) | TAURUS INTERNATIONAL S.A., a company incorporated in Luxembourg with registration number B.53603, whose registered office is at 48 Rue de Bragance, L-1255 Luxembourg, Grand Duchy of Luxembourg (the Lisheen Seller); |
(3) | ANGLO SOUTH AFRICA CAPITAL (PTY) LTD, a company incorporated in South Africa with registration number 1999/002391/07, whose registered office is at 44 Main Street, Johannesburg, 2001, South Africa (the Namibian Seller and together with the BMM Seller and the Lisheen Seller, the Sellers and any one a Seller); |
(4) | ANGLO AMERICAN SERVICES (UK) LIMITED, a company incorporated in England whose registered office is at 20 Carlton House Terrace, London SWIY 5AN (the Sellers Guarantor); |
(5) | WELTER TRADING LIMITED, a company incorporated in Cyprus whose registered office is at 205, 28th Oktovriou Avenue, Louloupis Court, 1st Floor, P.C. 3035, Limassol, Cyprus (the Welter); |
(6) | THL Zinc Ltd (formerly known as Twin Star Energy Ventures Limited), a company incorporated in Mauritius with registration number C079554 Cl/GBL whose registered office is at Rogers House, 5 President John Kennedy Street, Port Louis, Mauritius (THL Zinc); |
(7) | LABAUME B.V., a company incorporated in the Netherlands with registration number 34272466 whose registered office is at c/o NC Trust BV, Leliegracht 10, 1015 DE, Amsterdam (Labaume); |
(8) | PECVEST 17 (PROPRIETARY LIMITED), a company incorporated in the Republic of South Africa with registration number 2010/018500/07 whose registered office is at Houghton Estate Office Park, 2nd Floor Palm Grove, 2 Osborne Road, Houghton, Johannesburg, 21 (Pecvest and together with THL Zinc and Labaume, the Purchasers Assignees and any one a Purchasers Assignee); and |
(9) | VEDANTA RESOURCES PLC, a company incorporated in England and Wales whose registered office is at 16 Berkeley Street, London, W1J 8DZ (the Purchasers Guarantor). |
RECITALS:
(A) | The Sellers, the Sellers Guarantor, Welter and the Purchasers Guarantor the (Original Parties) entered into a share purchase agreement relating to the sale of the companies comprising the Anglo American zinc division (the Anglo Zinc Assets) to Welter dated 9 May 2010 (the Original Share Purchase Agreement). |
(B) | On 20 November 2010, the Original Parties entered into a Deed of Amendment amending the Original Share Purchase Agreement (the Original Share Purchase Agreement as amended by such Deed of Amendment being the Share Purchase Agreement). |
(C) | Pursuant to the provisions of Clause 17.8.3 of the Share Purchase Agreement, Welter has effected a Designation of (i) THL Zinc as the purchaser of the Namibia Shares, (ii) Labaume as the purchaser of the Lisheen Shares and (iii) Pecvest as the purchaser of the BMM Shares and BMM Claims (the Designations) and, in connection with such Designations on 3 December 2010 the Purchasers Assignees entered into a Deed of Adherence between the Purchasers Assignees and the Original Parties. |
(D) | The Parties now wish to make certain further amendments to the Share Purchase Agreement as set out in this Deed. |
IT IS AGREED:
1. | DEFINITIONS AND INTERPRETATION |
1.1 | Definitions |
In this Deed:
Deed means this deed of amendment.
1.2 | Incorporation of Defined Terms |
(a) | Unless indicated otherwise, terms used in this Deed have the same meaning as given to them in the Share Purchase Agreement. |
(b) | The principles of construction set out in the Share Purchase Agreement shall have effect as if set out in this Deed. |
1.3 | Clauses |
(a) | In this Deed any reference to a Clause is, unless the context otherwise requires, a reference to a Clause of this Deed. |
(b) | Clause headings are for ease of reference only. |
2. | AMENDMENT |
2.1 | With effect from the date hereof, the Share Purchase Agreement shall be amended so that it shall be read and construed for all purposes as set out in this Clause 2. |
2.2 | Clause 17.8.3 of the Share Purchase Agreement shall be deleted in its entirety and replaced by the following new Clause 17.8.3: |
17.8.3 The parties acknowledge and agree that, at any time during the period commencing on the date of this Agreement and ending on the Designation Time, the Purchaser shall have the right to designate by notice in writing to the Sellers, Hindustan Zinc Limited or an entity controlled by the Purchasers Guarantor (the Purchasers Assignee) in the Purchasers place as the purchaser of the Namibia Shares and/or the Lisheen Shares and/or the BMM Shares under this Agreement and in respect of all other documents required for the Transaction to be delivered to or by the Purchaser (a Designation) and provided that (i) in the case of a Designation in respect of the Namibia Shares or the Lisheen Shares, such Purchasers Assignee enters into a deed of adherence in a form satisfactory to the Sellers acting reasonably; or (ii) in the case of a Designation in respect of the BMM Shares and the BMM Claims, the Purchasers Assignee enters into the Deed of Adherence Amendment Deed.
For the purposes of this Clause 17.8.3 and Clause 17.8.4, the Designation Time shall mean: (i) in the case of a Designation of a person as the purchaser of the Namibia Shares and/or the Lisheen Shares, 14:00 (Delhi time) on 3 December 2010; and (ii) in the case of a Designation of a person as the purchaser of the BMM Shares, the earlier of (x) 11:00 (Delhi time) on 17 December 2010 and (y) the date which is six (6) Business Days prior to the tenth (10th) BMM Business Day following fulfillment of the BMM Conditions.
2.3 | Clause 17.8.4 of the Share Purchase Agreement shall be deleted in its entirety. |
2.4 | Clause 17.8.5 shall be deleted in its entirety and replaced by the following new Clause 17.8.5: |
17.8.5 Subject to Clause 17.8.8, once made, any Designation shall be irrevocable and incapable of being withdrawn, and any purported withdrawal or revocation of such Designation shall be invalid, unless otherwise agreed in writing by the Parties.
2.5 | A new Clause 17.8.8 shall be added to the Share Purchase Agreement as follows: |
17.8.8 The parties acknowledge and agree that the Designation of Pecvest (17) Proprietary Limited, a company incorporated in the Republic of South Africa with registered number 2010/018500/07 whose registered office is at Houghton Estate Office Park 2nd Floor Palm Grove, 2 Osborne Road, Houghton, Johannesburg, 21 (Pecvest), as the Purchaser of the BMM Shares by Notice dated 1 December 2010 (the Designation Notice) shall, with
effect from BMM Designation Substitution, be revoked and be of no further effect. For the avoidance of doubt, such revocation shall not affect the Designations of the relevant Purchasers Assignees in respect of the Namibia Shares and the Lisheen Shares, respectively, provided for in the Designation Notice.
2.6 | A new Clause 17.8.10 shall be added to the Share Purchase Agreement as follows: |
17.8.9 For the purposes of this Clause 17.8:
BMM Designation Substitution means the later of:
(i) receipt by the BMM Seller of a BMM Designation Substitution Notice; and
(ii) execution and delivery by each of the persons named as parties thereto of the Deed of Adherence Amendment Deed;
BMM Designation/Substitution Notice has the meaning given to it in clause 3.1.1 of the Second Amendment Agreement;
Deed of Adherence Amendment Deed has the meaning given to it in clause 3.1.2 of the Second Amendment Agreement; and
Second Amendment Agreement means the Second Deed of Amendment amending this Agreement made between the Parties and dated 16 December 2010.
2.7 | A new sub-Clause 17.18A shall be added to the Share Purchase Agreement as follows: |
17.18A | Further provisions in respect of Notices |
17.18A.1 | This Clause shall apply in any circumstances where the Purchaser (which expression shall, for all purposes of this Clause 17.18A, include Welter Trading Limited as the Purchaser before giving effect to any Designation) has given or sent, or purported to have given or sent, any Notice to a Seller and such Notice has not been timely received by such Seller (subject to Clause 17.18A.2, a Relevant Notice). |
17.18A.2 | Relevant Notice shall not include a Notice which is deemed to have been received, in accordance with Clause 17.17.6, prior to any latest date and/or time specified in this Agreement for the giving, sending or receiving of such Notice, as the case may be. |
17.18A.3 | If a Seller or any member of the Sellers Group (each a Relevant Person) takes any action, or omits to take any action, on the assumption or basis of a Relevant Notice having been timely delivered or which is consistent with a Relevant Notice having been timely delivered: |
(i) | each of the Purchaser and the Purchasers Guarantor severally agrees to the fullest extent permitted by law not to, and to procure that any persons asserting claims on behalf of or in right of it, shall not, assert or make any claim that such Relevant Notice has not been timely delivered or make or pursue any claim against any Relevant Person arising out of, directly or indirectly, any failure by a Seller to perform or satisfy, in whole or in part, any obligation or liability imposed on a Seller under this Agreement or any breach by a Seller of any provision of this Agreement (including any Sellers Warranty) which obligation or liability would have been capable of being performed or satisfied by such Seller, as and when arising and in accordance with this Agreement, or which breach would not have occurred, had such Relevant Notice been timely received or which obligation, liability or breach would not have arisen or would be less onerous or the consequences thereof would be less material had such Relevant Notice been timely received. |
(ii) | the Purchasers Guarantor hereby undertakes with each Relevant Person to the fullest extent permitted by law, to indemnify and hold each Relevant Person harmless from and against: |
(a) | all and any claims, actions, proceedings, investigations or demands made by a person other than a Relevant Person and judgments and awards to a person other than a Relevant Person (each a Claim) which are made against any Relevant Person; and |
(b) | all losses, liabilities, damages, costs, charges and/or expenses, including (without limitation) legal expenses and Taxation (together Losses) incurred by any Relevant Person arising as a result of a Claim, |
in connection with or arising, directly or indirectly, out of any action taken or omitted to be taken by a Relevant Person on the assumption or basis that a Relevant Notice had been timely delivered or which is consistent with a Relevant Notice having been timely received, in each case, to the extent that such Losses would not have been incurred or would have been less if such Relevant Notice had been timely delivered, including, but not limited to, all expenses incurred in investigating, preparing for or disputing or defending or providing evidence in connection with any Claim (whether or not a Relevant Person is an actual or potential party to such Claim) or in establishing its right to be indemnified pursuant to this Clause 17.18A or mitigating any Losses or in seeking advice regarding any Claim and without prejudice to any rights any Relevant Person may have at common law or otherwise;
(iii) | the indemnity set out in this Clause 17.18A shall further extend (but shall not be limited) to all Claims made against any Relevant Person and to all Losses incurred by such Relevant Person in connection with a Claim based upon or attributable to, directly or indirectly: |
(a) | a Relevant Person failing to perform, satisfy or comply with any obligation which obligation would not have arisen had such Relevant Notice been timely received; or |
(b) | a Relevant Person waiving, or being deemed to have waived, or not enforcing any right, benefit or entitlement which a Relevant Person would have, or would have had, under this Agreement if such Relevant Notice had not been treated as timely delivered. |
17.18A.4 | References in this Clause 17.18A to a Notice being timely received or timely delivered means received or delivered in accordance with this Agreement and prior to any latest date and/or time specified in this Agreement for the giving, sending or receiving of such Notice, as the case may be, but nothing in this Clause 17.18A shall constitute any acknowledgement, confirmation or admission on the part of any Party that a Notice has or has not been timely delivered or timely received. |
17.18A.6 | The indemnity contained in Clause 17.18A.3(ii) and (iii) shall not extend to any Losses suffered by any Relevant Person if: |
(i) it is not permitted by law or statute from time to time in force; or
(iii) notification of a claim to be indemnified pursuant to Clause 17.18A.3(ii) and/or (iii) (a Notice Indemnity Claim) setting out reasonable information in relation to the legal and factual basis of the claim has not been received by the Purchasers Guarantor on or before the date falling 4 years from the BMM Completion Date.
17.18A.7 | The Sellers will, no later than 20 Business Days of the date on which the Sellers become aware of a Notice Indemnity Claim or any fact, matter or circumstance which may give rise to a Notice Indemnity Claim, notify the Purchasers Guarantor in writing of such fact, matter or circumstance setting out such information as is available to the Sellers so as to enable the Purchasers Guarantor to assess the merits of the claim, to act to preserve evidence and to make such provision as the Purchasers Guarantor may consider necessary, provided that failure in notifying in accordance with this Clause 17.18A.7 shall not prevent the Sellers from bringing a claim under the indemnity contained in Clause 17.18A.3(ii) and/or (iii) except that the Purchasers Guarantor shall not be liable in respect of the relevant claim to the extent that the Purchasers Guarantor has been prejudiced by such failure. |
17.18A.8 | The Sellers shall procure that no admissions in relation to a Notice Indemnity Claim shall be made by or on behalf of the Sellers or any other Relevant Person and the Notice Indemnity Claim shall not be compromised, disposed of or settled by any Relevant Person without the written consent of the Purchasers Guarantor. |
17.18A.9 | The Sellers shall consult with the Purchasers Guarantor in relation to the conduct of a Notice Indemnity Claim and take reasonable account |
of the views of the Purchasers Guarantor before taking any action in relation to such Notice Indemnity Claim. |
l7.18A.10 | The Purchasers Guarantor shall be entitled at its own expense and in its absolute discretion, by notice in writing to the Sellers, to take such action as it shall deem necessary to avoid, dispute, deny, defend, resist, appeal, compromise or contest a Notice Indemnity Claim (including, without limitation, making counterclaims or other claims against third parties) in the name of and on behalf of any Relevant Person concerned and to have the conduct of any related proceedings, negotiations or appeals provided that nothing in this Clause 17.8A.10 shall entitle the Purchasers Guarantor to compromise or settle any Notice Indemnity Claim for an amount in excess of the amount referred to in Clause 17.18A.16. |
17.18A.11 | The Sellers shall, or the Sellers shall procure that any Relevant Person shall, take such action as the Purchasers Guarantor may reasonably request to avoid, dispute, deny, defend, resist, appeal, compromise or contest a Notice Indemnity Claim provided that the Sellers shall not be required to take any action to avoid, dispute, deny, defend, resist, appeal, compromise or contest such claim against any national, provincial or local government or regulatory authority or body in South Africa, if, in the reasonable opinion of the Sellers, the taking of such action would materially and adversely affect the relationship of the Sellers or any Relevant Person with such government, authority or body to the material detriment of the business of such Relevant Person as carried on in that jurisdiction but if the Sellers decline to take any such action as aforesaid the Purchasers Guarantor shall be entitled at its own expense and in its absolute discretion, by notice in writing to the Sellers, to take such action as it shall deem necessary to enforce such recovery (including without limitation, making counterclaims or other claims against such government, authority or body) in the name of and on behalf of any Relevant Person concerned and to have the conduct of any related proceedings, negotiations or appeals subject to, if required by the Sellers, disclosing to such government, authority or body that such claim is being conducted by the Purchasers Guarantor and the provisions of this Clause 17.18A.11 shall, in such circumstances and for the avoidance of doubt, apply. |
17.18A.12 | The Sellers shall, and the Sellers shall procure that any Relevant Person shall give, subject to their being paid all costs and expenses in accordance with Clause 17.18A.13, all such information and assistance including access to premises and personnel and the right to examine and copy or photograph any assets, accounts, documents and records, as the Purchasers Guarantor may reasonably request, including instructing such professional or legal advisers as the Purchasers Guarantor may nominate to act on behalf of the Sellers or any Relevant Person concerned, but in accordance with the Purchasers Guarantors instructions. |
17.18A.13 | The Purchasers Guarantor shall indemnify and reimburse the Sellers |
(or any Relevant Person) against any costs or expenses in respect of taking any such action as is referred to in Clauses 17.18A.10 to 17.18A.12 and any Losses incurred by such persons as a result of taking any such action. |
17.18A.14 | The Purchasers Guarantor shall not be liable under the indemnity contained in Clause 17.18A.3(ii) and (iii) to the extent that the Sellers failure to comply with its obligations under Clauses 17.18A.7 to 17.18A.13 in any material respect or to give consent under Clause 17.18A.10 has created or increased any Losses in respect of the relevant Notice Indemnity Claim. |
17.18A.15 | The Sellers shall not be entitled to make any claim in connection with a Notice Indemnity Claim otherwise than under the terms of this Clause 17.18A. |
17.18A.16 | The maximum aggregate liability of the Purchasers Guarantor under the indemnity contained in Clause 17.18A.3(ii) and (iii)shall not under any circumstances exceed USD 40 million. |
3. | PROVISIONS WITH RESPECT TO BMM DESIGNATION |
3.1 | Delivery of BMM Designation Revocation/Substitution Notice and Deed of Adherence Amendment |
Not later than the second Business Day following the date of this Deed, the Purchasers Guarantor shall procure that:
3.1.1 there is delivered to the BMM Seller a Notice in form reasonably satisfactory to the BMM Seller and signed by or on behalf of each of the Welter, Pecvest and the Purchasers Guarantor (a BMM Designation Substitution Notice) revoking the Designation of Pecvest as the Purchaser of the BMM Shares and the BMM Claims and containing a Designation of THL Zinc Ltd (formerly known as Twin Star Energy Ventures Limited), a company incorporated in Mauritius with registration number C079554 C1/GBL whose registered office is at Rogers House, 5 President John Kennedy Street, Port Louis, Mauritius ( THL Zinc) as the Purchasers Assignee in respect of the BMM Shares and BMM Claims under this Agreement; and
3.1.2 each of Welter and the Purchasers Assignees shall execute and deliver, and the Purchasers Guarantor shall execute and deliver, to the BMM Seller and the Sellers Guarantor the Deed of Adherence Amendment Deed in the Agreed Terms (the Deed of Adherence Amendment Deed).
3.2 | Sellers Execution of Deed of Adherence Amendment |
Not later than the second Business Day following the date of this Deed, the Sellers Guarantor shall procure that each of the Sellers shall execute and deliver, and the Sellers Guarantor shall execute and deliver, to Welter, Pecvest, THL and the Purchasers Guarantor, the Deed of Adherence
Amendment Deed.
4. | CONTINUITY AND FURTHER ASSURANCE |
4.1 | Continuing Obligations |
The provisions of the Share Purchase Agreement shall, save as amended by this Deed, continue in full force and effect.
4.2 | Further Assurance |
The Parties shall, at the request of another, do all such acts and things necessary or desirable to give effect to the amendments effected or to be effected pursuant to this Deed.
5. | FEES, COSTS AND EXPENSES |
The Parties shall each pay their own costs and expenses in relation to the negotiations leading up to and the preparation, execution and carrying into effect of this Deed and all other documents executed pursuant hereto and any transactions contemplated by this Deed.
6. | MISCELLANEOUS |
6.1 | Governing Law |
This Deed and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with English law.
6.2 | Counterparts |
This Deed may be entered into in any number of counterparts, all of which taken together shall constitute one and the same instrument. Any Party may enter into this Deed by executing such a counterpart.
AS WITNESS WHEREOF this Deed has been executed and delivered as deed by the Parties on the day and year first above written.
EXECUTED as a DEED | ) | |||||
by ANGLO OPERATIONS | ) | |||||
LIMITED | ) | |||||
acting by | ) | |||||
DUNCAN GRAHAM WANBLAD | ) | |||||
/s/ Duncan Graham Wanblad | ||||||
Authorised signatory | ||||||
EXECUTED as a DEED | ) | |||||
by TAURUS INTERNATIONAL | ) | |||||
S.A. acting by | ) | |||||
DUNCAN GRAHAM WANBLAD | ) | |||||
/s/ Duncan Graham Wanblad | ||||||
Authorised signatory | ||||||
EXECUTED as a DEED | ) | |||||
by ANGLO SOUTH AFRICA | ) | |||||
CAPITAL (PTY) LTD. | ) | |||||
acting by | ) | |||||
DUNCAN GRAHAM WANBLAD | ) | |||||
/s/ Duncan Graham Wanblad | ||||||
Authorised signatory |
EXECUTED as a DEED | ) | |||||
by ANGLO AMERICAN | ) | |||||
SERVICES (UK) LIMITED | ) | |||||
acting by | ) | /s/ Duncan Graham Wanblad | ||||
Duncan Wanblad | ) | |||||
in the presence of | ) | |||||
) |
/s/ Amanda Jane Wanblad |
Witness signature |
AMANDA JANE WANBLAD |
Witness name |
1 RICHMOND PLACE |
GERRARDS CROSS, UK |
Witness address |
HOUSE WIFE |
Witness occupation |
EXECUTED as a DEED | ) | |||||
by WELTER TRADING | ) | |||||
LIMITED | ) | |||||
acting by its duly authorized attorneys | ) | |||||
) | ||||||
in the presence of | ) | |||||
) | /s/ Kishore Kumar |
/s/ Simwanza Saviour |
Witness signature |
SIMWANZA SAVIOUR |
Witness name |
H/NO 2504 K/EAST, KITWE |
ZAMBIA |
Witness address |
EXECUTIVE ASSISTANT TO THE CEO |
Witness occupation |
EXECUTED as a DEED | ) | |||||
by THL ZINC LIMITED | ) | |||||
acting by its duly authorized attorneys | ) | |||||
) | ||||||
in the presence of | ) | |||||
) |
|
|
Witness signature |
|
Witness name |
|
|
Witness address |
|
Witness occupation |
EXECUTED as a DEED | ) | |||||
by WELTER TRADING | ) | |||||
LIMITED | ) | |||||
acting by its duly authorized attorneys | ) | |||||
) | ||||||
in the presence of | ) | |||||
) | /s/ Deepak Kumar |
|
Witness signature |
/s/ S. Hanif |
Witness name |
S. Hanif |
Satvinder Hanif |
Witness address |
8 Kennedy Close Relts wood BR5 1HP |
Witness occupation |
EXECUTED as a DEED | ) | |||||
by THL ZINC LIMITED | ) | |||||
acting by its duly authorized attorneys | ) | |||||
) | ||||||
in the presence of | ) | |||||
) |
|
|
Witness signature |
|
Witness name |
|
|
Witness address |
|
Witness occupation |
EXECUTED as a DEED | ) | |||||
by WELTER TRADING | ) | |||||
LIMITED | ) | |||||
acting by its duly authorized attorneys | ) | |||||
) | ||||||
) | ||||||
in the presence of | ) |
|
|
Witness signature |
|
Witness name |
|
Witness address |
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Witness occupation |
EXECUTED as a DEED | ) | |||||
by THL ZINC LIMITED | ) | |||||
acting by its duly authorized attorneys | ) | |||||
TARUN JAIN | ) | |||||
in the presence of | ) | |||||
) | /s/ Tarun Jain |
/s/ Pooja Somani |
Witness signature |
POOJA SOMANI |
Witness name |
1805, SILVEROAK, RAHEJA |
WILLOWS, KANDIVALI (E), MUMBAI |
Witness address |
SERVICE |
Witness occupation |
EXECUTED as a DEED by WELTER TRADING LIMITED |
) ) ) |
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acting by its duly authorized attorneys | ) | |||||
) | ||||||
in the presence of | ) | |||||
) |
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Witness signature |
Witness name |
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Witness address |
Witness occupation |
EXECUTED as a DEED by THL ZINC LIMITED acting by its duly authorized attorneys |
) ) ) |
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D.D. Jalan | ) | |||||
in the presence of | ) | |||||
) | /s/ D.D. Jalan |
/s/ Sonil Bohra Witness signature |
SONIL BOHRA |
Witness name |
YASHAD BHAWAN |
UDAIPUR - 313004, RAJASTHAN, INDIA |
Witness address |
SERVICE |
Witness occupation |
EXECUTED as a DEED | ) | |||||
by LABAUME B.V. |
) | |||||
acting by its duly authorized attorneys | ) | |||||
TARUN JAIN | ) | |||||
in the presence of | ) | |||||
) | /s/ Tarun Jain |
/s/ Pooja Somani |
Witness signature |
POOJA SOMANI |
Witness name |
1805, SILVEROAK, RAHEJA |
WILLOWS, KANDIVALI (E) MUMBAI |
Witness address |
SERVICE |
Witness occupation |
EXECUTED as a DEED | ) | |||||
by PECVEST 17 | ) | |||||
(PROPRIETARY) LIMITED | ) | |||||
acting by its duly authorized attorneys | ) | |||||
) | ||||||
in the presence of | ) | |||||
) |
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Witness signature |
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Witness name |
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Witness address |
EXECUTED as a DEED | ) | |||||
by LABAUME B.V. | ) | |||||
acting by its duly authorized attorneys | ) | |||||
) | ||||||
in the presence of | ) | |||||
) | /s/ Deepak Kumar |
/s/ S.Hanif |
Witness signature |
S.Hanif |
Witness name |
Satvinder Hanif |
|
Witness address |
8 Kennedy Close Relts wood BR5 1HP |
Witness occupation
PA |
EXECUTED as a DEED | ) | |||||
by PECVEST 17 | ) | |||||
(PROPRIETARY) LIMITED acting by its duly authorized attorneys |
) ) |
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) | ||||||
in the presence of | ) | |||||
) | /s/ Deepak Kumar |
/s/ S.Hanif |
Witness signature |
S.Hanif |
Witness name |
Satvinder Hanif |
8 Kennedy Close Relts wood BR5 1HP |
Witness address
PA |
EXECUTED as a DEED | ) | |||||
by LABAUME B.V. | ) | |||||
acting by its duly authorized attorneys | ) | |||||
) | ||||||
in the presence of | ) | |||||
) |
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Witness signature |
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Witness name |
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Witness address |
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Witness occupation |
EXECUTED as a DEED | ) | |||||
by PECVEST 17 | ) | |||||
(PROPRIETARY) LIMITED | ) | |||||
acting by its duly authorized attorneys | ) | |||||
D.D. Jalan | ) | |||||
in the presence of | ) | |||||
) | /s/ D.D. Jalan |
/s/ Sonil Bohra |
Witness signature |
SONIL BOHRA |
Witness name |
YASHAD BHAWAN |
UDAIPUR 313004, RAJASTHAN INDIA |
Witness address |
SERVICE |
Witness occupation |
EXECUTED as a DEED | ) | |||||||
by VEDANTA RESOURCES PLC | ) | |||||||
acting by its duly authorized attorneys | ) | |||||||
) | ||||||||
in the presence of | ) | |||||||
) |
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Witness name |
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Witness address |
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Witness occupation |
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Witness occupation |
EXECUTED as a DEED | ) | |||||
by VEDANTA RESOURCES PLC | ) | |||||
acting by its duly authorized attorneys | ) | |||||
) | ||||||
in the presence of | ) | |||||
) | /s/ Deepak Kumar |
/s/ S. Hanif |
Witness signature |
S. Hanif |
Witness name |
Satvinder Hanif |
|
Witness address |
8 Kennedy Close Relts wood BR5 1HP |
Witness occupation |
PA |
|
Witness occupation |
EXECUTED as a DEED | ) | |||||
by VEDANTA RESOURCES PLC | ) | |||||
acting by its duly authorized attorneys | ) | |||||
) | ||||||
in the presence of | ) | |||||
) | /s/ Kishore Kumar |
/s/ Simwanza Saviour |
Witness signature |
SIMWANZA SAVIOUR |
Witness name |
H/No 2504 K/EAST, KITWE |
ZAMBIA |
Witness address |
EXECUTIVE ASSISTANT TO THE CEO |
Witness occupation |
Exhibit 4.64
LETTER OF CREDIT FACILITY AGREEMENT
THIS FACILITY AGREEMENT made this 18 day of December Two Thousand and Ten BETWEEN Bharat Aluminium Company Limited a public limited company within the meaning of the Companies Act, 1956 and having its Registered Office at Aluminium Sadan, Core 6-Scope Office Complex, 7 Lodhi Road, New Delhi-1l0003__and Plant and Works at Balco Nagar, Korba in the State of Chhattisgarh-495684, India (the Company, which expression shall, unless it be repugnant to the subject or context thereof, include its successors and permitted assigns) of the ONE PART
AND
ICICI Bank LIMITED, a public company within the meaning of the Companies Act, 1956 and a banking company within the meaning of the Banking Regulation Act, 1949 and having its Registered Office at Landmark, Race Course Circle, Vadodara 390 007 and its Corporate Office at ICICI Bank Towers, Bandra Kurla Complex, Mumbai 400051 and its Zonal/Regional/Branch Office at Korba (ICICI Bank, which expression shall, unless it be repugnant to the subject or context thereof, include its successors and assigns) of the OTHER PART.
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ARTICLE I
DEFINITIONS
In the Facility Agreement and the General Conditions, unless there is anything repugnant to the subject or context thereof, the expressions listed below shall have the following meanings viz:
(a) | Applicable Rate means the rate specified as Applicable Rate of Interest in the Schedule I hereto. |
(b) | Applicable Rate of Exchange means - |
i) in case a forward exchange contract /swap has not been booked by the Company with ICICI Bank, the applicable foreign currency bill selling rate of ICICI Bank prevailing on the Date of Crystalisation. Provided however, that if the relevant rate of exchange not quoted or not available for any reason on such days, then the rate prevailing on the immediately next Business Day when such rate shall be quoted or be available shall be the applicable rate of exchange;
ii) the forward exchange contract /swap rate in case a forward exchange contract /swap has been booked by the Company with ICICI Bank.
(c) | Bills Outstanding means the sum of the payments due from the Company under the LCs for which the Documents have been presented to ICICI Bank but reimbursement/payment has not yet been made by the Company to ICICI Bank. |
(d) | Bills means bills of exchange drawn under LCs. |
(e) | Business Day means a day on which the Corporate office of ICICI Bank or such other office as may be notified by ICICI Bank to the Company, is open for normal business transactions. |
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(f) | Commitment means the period between the date of LC opening and the last date for presentation of documents as mentioned in the LC. |
(g) | Bank under the LC in the case of a Sight LC, or the date of maturity in the case of a Usance LC. |
(h) | Credit Arrangement Letter (CAL) means the letter number CBG/2010/CMOG No. 01/W01MUM/28117 dated 08.09.2010 and CBG/2010/CMOG No. 01/W01MUM/29705 dated 24.11.2010 issued in connection with sanction of the Facilities. The CAL shall be read in conjunction with the provisions of this Agreement and shall form an integral part of this Agreement. All references to this Agreement shall include the reference to CAL wherever applicable. To the extent of any inconsistency or repugnancy, the contents of this Agreement shall prevail to all intents and purposes. The expression CAL shall include all amendments to the CAL. |
(i) | Defaulted Amounts -shall have the meaning ascribed thereto in Section 2.3(e) hereof. |
(j) | Date of Crystalisation means the 10th day after the date of receipt of Documents by ICICI |
(k) | Documentary Credit Application/(s) means the Companys application/(s) to ICICI Bank for opening LC and all supporting documents furnished by the Company in respect thereof to ICICI Bank. |
(l) | Documents mean the documents as specified under LC (including the Bills) and drawn up in accordance with the terms of the LC opened under the Facility. |
(m) | Due Date means, in respect of any amount payable under the Facility Agreement, the date on which such amount falls due in terms of the Facility Agreement. |
(n) | Facility shall have the meaning ascribed thereto in Section 2.1 hereof. |
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(o) | FEDAI means Foreign Exchange Dealers Association of India. |
(p) | General Conditions means the General ConditionsLC applicable to Letter of Credit Facilities provided by ICICI Bank. The Facility hereby agreed to be provided by ICICI Bank shall be subject to the Company complying with the terms and conditions set out herein and also in the General Conditions, which is annexed hereto. The General Conditions shall be deemed to form part of the Facility Agreement and shall be read as if they are specifically incorporated herein. |
(q) | Goods mean goods described in the Documentary Credit Application. |
(r) | ICICI Bank Base Rate means the percentage rate per annum decided by the Bank from time to time and announced / notified by the Bank from time to time as its Base rate. |
(s) | LC outstanding means the sum of the value of all the LCs opened by ICICI Bank on behalf of the Company for which the Documents have hot been presented to ICICI Bank. |
(t) | Letter of Credit or LC means the Letter of Credit issued/opened by ICICI Bank as per the Documentary Credit Application under the Facility. |
(u) | Project means the aluminum smelter plant of a capacity of 325,000 tonnes per annum being set up by the Borrower at Korba in Chhattisgarh, India and also the setting up of the captive power plant of 1200 mega watt being set up by the Borrower. |
(v) | RBI means Reserve Bank of India. |
(w) | Sight LC means the LC which provides for payment by ICICI Bank to the negotiating bank on presentation of Documents drawn under the LC. |
(x) | Suppliers means the suppliers of Goods as per the terms of the LC. |
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(y) | SWIFT means Society for World Wide International Financial Telecommunications |
(z) | Usance LC means the LC which provides for payment on maturity as per the terms of the L.C. |
All capitalised terms used but not defined in the Facility Agreement shall have the respective meanings assigned to them under the General Conditions.
ARTICLE II
AMOUNT AND TERMS Of FACILITY
2.1 | AMOUNT |
At the request of the Company, ICICI Bank has agreed to open Letters of Credit in foreign currencies in favour of the Suppliers for amounts equivalent in the aggregate to Rs. 2.50 billion (the Facility) from time to time, on the terms and conditions contained herein as also in the General Conditions and Documentary Credit Application(s).
Provided that the sum total of LC Outstanding and Bills Outstanding under the Facility shall not at any point of time exceed the amount of the Facility.
2.2 | COMMISSION/CHARGES |
a) The Company shall pay to ICICI Bank non-refundable commissions/charges in respect of the LCs at the rate and on the dates specified in the Schedule I hereto.
(b) The Company shall also pay to ICICI Bank on demand the charges that may be levied as per FEDAI rules in force from time to time for any early/late delivery of the relevant foreign exchange/currency under the forward exchange contract, if any, booked by the Company.
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2.3 | PAYMENTS AND INTEREST |
(a) | The Company shall accept and /or pay all Bills drawn pursuant to the terms of the LCs and pay for all the Documents negotiated thereunder in accordance with the terms thereof, as also any payment made or liability incurred by IClCI Bank under the LC and/or the Facility on behalf of the Company, together with interest, costs, charges and expenses due to ICICI Bank in respect thereof as hereinafter mentioned. |
(b) | The Company shall make due payment/reimbursement to ICICI Bank of the amount payable/paid by ICICI Bank in respect of the Companys liability under the- |
(i) | Sight LC, on presentation of Documents; and |
(ii) | Usance LC, on the date of its maturity. |
(c) | The Company shall pay to ICICI Bank interest on amounts paid by ICICI Bank in respect of the Companys liability under the Sight LC at the Applicable Rate for the period from the date of payment by ICICI Bank under the Sight LC upto the date of payment/reimbursement by the Company or the Date of Crystalisation, whichever is earlier and such interest shall be payable on the date of payment/reimbursement by the Company of the amounts payable under the LC or the Date of Crystalisation, as the case may be. |
(d) | If, on default by the Company in paying / reimbursing amounts paid/payable by ICICI Bank in respect of the Companys liability under the LCs on the Date of Crystalisation, ICICI Bank is called upon/required to pay or paid, all or any of the monies in pursuance of the LCs, the Company shall forthwith pay to ICICI Bank, all amounts payable or as the case may be, paid by ICICI Bank under the LCs. |
(e) | Notwithstanding the above and without prejudice to ICICI Banks rights under the Facility Agreement, ICICI Bank shall be at liberty to crystalise on the Date of Crystalisation, the Companys outstanding liability in respect of the LCs by converting the foreign currency amount into Rupees, whereupon the Company shall be liable to pay ICICI Bank the Indian Rupee equivalent of such foreign currency amount as calculated at the Applicable Rate of Exchange (the Defaulted Amounts) and until such payment by the Company, the same shall unless otherwise agreed to by ICICI Bank in writing be deemed to be on demand loan to the Company. |
(f) | The Company shall pay to ICICI Bank interest on the Defaulted Amounts at the |
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Applicable Rate + 10% over the 1CICI Bank Base Rate. Such interest shall be paid on demand. |
(g) | The crystalisation of the Companys liability and charging of interest at a higher rate as above shall not be deemed to create any right in the Company to default in making payments when due. |
(h) | The Company shall pay to ICICI Bank interest on all other monies payable to ICICI Bank under the Facility Agreement, at the Applicable Rate + 10% over the ICICI Bank Base Rate. Such interest shall be payable on the dates specified in Sub-clause (f) above. |
(i) | All interest on all monies accruing due under the Facility Agreement shall, in case the same be not paid on the respective Due Dates, carry further interest at the Applicable rate + 10% over the ICICI Bank Base Rate. Such interest will be computed from the respective Due Dates and shall become payable upon the footing of compound interest with quarterly rests and shall be payable on the dates specified in Sub-clause (f) above. |
(j) | The interest rates mentioned in Sub-clauses (f), (h) and (i) above shall until creation of full and final security for the Facility as specified in Article IV hereof in favour of ICICI Bank be increased by the same percentage as specified in Section2.2 (b) hereof. |
(k) | All provisions in the Facility Agreement shall apply to all payments made by ICICI Bank in pursuance of the LCs. |
2.5 | COMPUTATION OF INTEREST AND OTHER CHARGES |
Interest and all other charges shall accrue from day to day and shall be computed on the basis of 365 days year and the actual number of days elapsed.
2.5 | LAST DATE OF UTILISATION |
Unless ICICI Bank otherwise agrees, the Borrower can request ICICI Bank for issuance of LCs upto August 24, 2010. The tenor of such LCs shall have a maximum usance period of 3 years from the date of shipment/ dispatch of goods under the LCs.
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After August 24, 2010 only amendments to LCs issued within the validity period will be permitted till August 24, 2014.
Maximum commitment period i.e, the period between the date of LC opening and the last date for presentation of documents as mentioned in the LC shall not be more than 720 days. Notwithstanding the above, the total of the maximum commitment period and usance period cannot be beyond August 24, 2014.
2.6 | IMPOSTS, COSTS AND CHARGES |
a) | The Company shall, bear all interest tax as may be levied from time to time under the Interest Tax Act, 1974 and all other imposts, duties and taxes (of any description whatsoever) as may be levied from time to time by the Government or other authority pertaining to or in connection with the Facility. |
b) | The Company shall pay all costs, charges (including legal fees, cost of investigation of title to the Companys assets and protection of ICICI Banks interest), and expenses in any way incurred by ICICI Bank and such stamp duty, other duties, taxes, charges and penalties if and when the Company is required to pay according to the laws for the time being in force. |
c) | In the event of the Company failing to pay the monies referred to in sub-clause (a) and (b) above, ICICI Bank will be at liberty (but shall not be obliged) to pay the same. The Company shall reimburse all sums paid by ICICI Bank in accordance with the provisions contained herein. |
d) | All payments and reimbursements by the Company under the Facility Agreement shall be made free and clear of and without any deduction, except to the extent that the Company is required by law to make payment subject to any taxes. If any tax or amounts in respect of tax must be deducted, or any other deductions must be made, from any amounts payable or paid by the Company, the Company shall pay such additional amounts as may be necessary to ensure that ICICI Bank receives a net amount equal to the full amount which it would have received had payment not been made subject to tax or other deduction. Provided that, all taxes required by law to be deducted by the Company from any amounts of interest paid or payable under the Facility Agreement shall be paid by the Company when due and |
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the Company shall, within 30 days of the payment being made, deliver to ICICI Bank evidence satisfactory to ICICI Bank (including all relevant tax receipts in originals) that the payment has been duly remitted to the appropriate authority.
2.7 | DUE DATE OF PAYMENT |
If the Due Date in respect of any amounts including Defaulted Amounts, commission, charges and interest falls on a day which is not a Business Day at the place where the payment is to be made, the immediately preceding Business Day shall be the Due Date for such payment.
2.8 | LIQUIDATED DAMAGES ON DEFAULTED AMOUNTS |
In case of default in payment of any monies (except liquidated damages) including Defaulted Amounts, commission, charges and interest on their respective Due Dates, the Company shall pay on the defaulted amounts, liquidated damages at the rate of % per annum for the period of default. Liquidated damages shall be payable in the manner, and on the dates specified in Section 2.3(f) hereof.
2.9 | REIMBURSEMENT OF EXPENSES |
(a) | The Company shall reimburse all expenses incurred by ICICI Bank under the Facility Agreement within 20 Business Days from the date of notice of demand from ICICI Bank. All such sums shall be debited to the Companys Facility account and shall carry interest from the date of payment till such reimbursement at the Applicable Rate + 10% over the ICICI Bank Base Rate. |
(b) | In case of default in making such reimbursement in accordance with Sub-clause (i) above within 20 Business Days from the date of notice of demand, the Company shall also pay on the defaulted amounts, liquidated damages at the rate of 10% per annum in the expiry of 20 Business Days from the date of notice of demand till reimbursement, in accordance with the provisions of Section 2.8 hereof. |
2.10 | APPROPRIATION OF PAYMENTS |
The Company agrees and confirms that ICICI Bank may at its absolute, appropriate any payments made by the Company under the Facility Agreement, towards the dues payable
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by the Company to ICICI Bank under the Facility Agreement and/or other financing agreements entered into between the Company and ICICI Bank with respect to this facility, and such appropriation by ICICI Bank shall be final and binding on the Company in all respects.
2.11 | PLACE AND MODE OF PAYMENTS AND CREDIT THEREFOR |
Notwithstanding anything contained in the Facility Agreement, all monies payable by the Company under the Facility Agreement shall be payable in equivalent rupees in lieu of foreign currencies. For the purpose of this Section the following conditions shall apply:
a) | The Rupee sum shall be the Rupee equivalent of the foreign currencies to be remitted on the Due Dates Inclusive of all commissions or other bank charges and out of pocket expenses as determined by ICICI Bank. |
b) | The Rupee sum shall be so paid by the Company as to enable ICICI Bank to realise the amounts at par on the Due Dates. |
c) | The Rupee sum shall be paid by the Company to ICICI Bank at their office in Mumbai or to such other places as may be specified by them by telegraphic, telex or mail transfer to the account of such offices or by cheque /bank draft drawn in favour of ICICI Bank on a Scheduled Bank at Mumbai or such other places or to such other accounts as ICICI Bank may notify to the Company and shall be so paid as to enable ICICI Bank to realise the amounts at par. |
d) | Credit for all payments by local cheque /bank draft will be given on the immediately next Business Day after the date of receipt of the instrument or the relative Due Date, whichever is later. Credit for all payments by outstation cheque/bank draft will be given only on realisation or on the relative Due Date, whichever is later. |
e) | For the purpose of Sub-clause (a) above a statement signed by a designated officer of ICICI Bank shall be sufficient evidence of the Rupee equivalent of the foreign currencies, costs, commission, charges and expenses. |
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f) | Any difference on account of exchange fluctuations in the rates of foreign currencies involved between the payment made by the Company to ICICI Bank and the actual amounts incurred by ICICI Bank as referred to in Sub-clause (a) above shall be borne by or be given credit to the Company. |
2.12 | SALE OF PLEDGED GOODS |
(a) | On the happening of any of the Events of Default, ICICI Bank shall be entitled without prejudice to any of its other rights contained in the Facility Agreement or under the law and without notice to the Company (which the Company hereby expressly waives), to sell the Goods whether before or after their arrival either by public auction or tender or by private contract and subject to such conditions as ICICI Bank may deem fit to impose, or otherwise dispose of or deal with the Goods or any part thereof and/or with the relative documents of title to Goods in any manner whatsoever, without being bound to exercise any of these powers or liable for any loss in the exercise or non-exercise thereof. The proceeds realised from sale of the Goods or transfer or any document of title, remaining after deducting therefrom the costs and expense of and incidental to such sale or transfer, shall be applied in or towards payment or satisfaction of the amount(s) due to ICICI Bank in respect of any payment made by ICICI Bank under the Facility for the account of the Company, and interest thereon and all costs charges and expenses as hereinabove mentioned. The Company shall accept ICICI Banks account of sale or realisation as conclusive evidence both in and out of court as to the amount(s) realised and expenses incurred, and shall pay forthwith any shortfall or deficiency remaining after such application. ICICI Bank shall not be liable to the Company for any loss which may occur pending sale or disposal of the Goods and/or document of title of goods, whether by reason of theft, damage, deterioration or decay of the Goods or depreciation in the value thereof or otherwise whatsoever be the cause. |
(b) | The Company agrees and undertakes to sign, execute and deliver to ICICI Bank from time to time on demand made by ICICI Bank, such further or other deeds, documents and writings and do all such acts, matters and things as may be required by ICICI Bank for better perfecting the title of ICICI Bank to the Goods and the Documents covered under the Facility and/or to render the same readily saleable or transferable by ICICI Bank to any purchaser(s) at all time. |
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2.13 | INSURANCE OF THE GOODS |
The Company shall keep the Goods further insured from the time of expiry of Insurance cover under the initial policy, or policies of insurance, against all risks which are normally covered for goods of the nature purchased under the Facility as also against such other risk(s) as may be required by ICICI Bank, and in the event of the Company failing to do so, ICICI Bank shall be at liberty to insure the Goods at the cost and expenses of the Company without prejudice to the rights of ICICI Bank hereunder. Until all the dues in respect of the Facility are paid in full, the Company shall forthwith pay ICICI Bank all moneys if received by the Company under any policy or policies of insurance and until payment to ICICI Bank of moneys received by the Company under any policy or policies of Insurance, the Company shall hold the same in trust for ICICI Bank.
2.14 | UNDERTAKING BY COMPANY |
a) | The Company shall make adequate arrangement for retiring the Documents under the Facility and does not contemplate to seek any financial assistance from ICICI Bank for such purpose. |
b) | The Company shall furnish to ICICI Bank at the time of submitting the Documentary Credit Application, the following, duly completed: |
i) | Order together with the order confirmation of Supplier, or |
ii) | Proforma Invoice of Supplier duly countersigned by the Company; or |
iii) | Indent/Offer from Supplier or his authorised agent together with the exchange control copy of the relative Import licence. |
c) | The Company undertakes to submit to ICICI Bank the exchange control copy of the relative Customs Bills of Entry within the time limit stipulated by RBI. |
2.15 | CONFIRMATION BY COMPANY |
The | Company agrees, confirms and declares that- |
(a) | the Documentary Credit Application shall be deemed to have been accepted when advice thereof has been sent to the beneficiary through SWIFT / Tested Telex / Airmail. |
(b) | the date of receipt of Documents by ICICI Bank under the Facility as registered in the records of ICICI Bank shall be conclusive and binding on the Company. |
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(c) | the negotiations of the Documents drawn under the Facility shall be confined to ICICI Bank. |
(d) | the import of Goods is/are not in contravention of Trade Policy/Exim Policy guidelines prescribed by the Government of India from time to time. |
(e) | it has a valid Import Export code number assigned by the Director General of Foreign Trade and is authorised to undertake imports of the Goods. |
(f) | the transaction covered under the Facility does not Involve and is not designed for the purpose of any contravention or evasion of the provisions of Foreign Exchange Management Act, 1999 or of any rule, regulations, notifications direction or order made thereunder or of any other law, rule, regulation or direction. |
(g) | the LC may be amended and/or modified for an increased limit on the Company giving ICICI Bank written instruction for the same and in such an event, such amendment/ modification will be deemed to form part of the Documentary Credit Application and will be governed by the terms hereof and the Company agrees, covenants, records and confirms that it shall be bound by the same as if such amendment/modification including the increased limit had originally constituted the term of the LC. |
(h) | the Facility shall be utilised only for the purpose as has been disclosed to ICICI Bank in Documentary Credit Application, unless otherwise previously permitted by ICICI Bank in writing. |
2.16 | NO LIABILITY |
The Company agrees that the transmission of all instructions and communications under the LC and the shipping of Documents and the Goods thereunder is entirely at its risk. ICICI Bank or its correspondents or agents shall not be responsible for any error or delay in such transmission or loss or delay in delivery of the Documents or the Goods.
2.17 | INDEMNITY |
a. | The Company hereby agrees to pay to ICICI Bank on demand, all costs (including legal costs on full indemnity basis) customs duty, penalty, demurrage, storage charges, clearing and forwarding charges and all other charges and expenses which ICICI Bank may be put to or suffer or incur in connection with the Goods and/or the documents of to Goods covered by the LC including for re-shipment thereof for any reason whatsoever, or in the exercise or enforcement of any right or power hereby conferred or otherwise howsoever, and further agrees and undertakes to hold ICICI Bank safe and harmless and keep it Indemnified against any claim, action or proceedings made or |
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brought against ICICI Bank, its correspondents or agents, as also against any liability or loss incurred or suffered by it, its correspondents or agents by reason of it having established the LC.
b. | The Company hereby agrees to indemnify and keep ICICI Bank indemnified against any liability, loss, damages, costs and expenses (including legal expenses) awarded against or incurred or paid by ICICI Bank as a result of or in connection with ICICI Bank making payment outside India to the Supplier, under the LC, without deducting tax in India whether or not such payment attracts withholding tax in India or requires due certification by a qualified accountant. |
2.18 | DISCLOSURE |
The | Company hereby agrees, confirms and undertakes that: |
(1) | ICICI Bank shall, as it may deem appropriate and necessary, be entitled to disclose all or any: |
(i) | information and data relating to the Company; |
(ii) | information or data relating to the facility or any other credit facility availed / to be availed by the Company from ICICI Bank; |
(iii) | obligations assumed / to be assumed by the Company in relation to the Facility; |
(iv) | default, if any, committed by the Company in discharge of the aforesaid obligations, |
to any agency/credit bureau (the Agency) authorised in this behalf by Reserve Bank of India {RBI);
(2) | The Agency so authorised may use, process the aforesaid information and data disclosed by ICICI Bank in the manner as deemed fit by them; |
(3) | The Agency so authorised may furnish for consideration, the processed information and data or products thereof prepared by them, to banks / financial institutions and other credit grantors or registered users, as may be specified by RBI in this behalf; |
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(4) | The information and data furnished by the Company to ICICI Bank from time to time shall be true and correct. |
2.19 | GENERAL |
(a) | The Company acknowledges that the rates of further interest hereof are genuine and reasonably charged to them. |
(b) | The Company acknowledges that the Facility provided under the Facility Agreement is for a commercial transaction and waives any defence available under usury or other laws relating to the charging of interest. |
ARTICLE III
SECURITY
3.1 | SECURITY FOR THE FACILITY |
The Facility together with all interest, Defaulted Amounts, LC Outstanding, Bills Outstanding, commissions, costs, charges, expenses and other monies whatsoever stipulated in or payable under the Facility Agreement shall be secured by:
1. An exclusive charge by way of hypothecation in favour of ICICI Bank of the Companys all movable properties, including movable machinery, machinery spares, tools and accessories, imported under the LCs provided to the Borrower under this Agreement.
Exclusive Hypothecation of Goods:
The Company agrees that the Goods shall be deemed to have been hypothecated to ICICI Bank upon delivery of Documents to ICICI Bank or its agents by the Company or by any person on Companys behalf
3.2 | CREATION OF ADDITIONAL SECURITY |
If, at any time during the subsistence of the Facility Agreement, ICICI Bank is of the opinion that the security provided for the Facility has become inadequate to cover the Facility then outstanding, then, on ICICI Bank advising the Company to that effect, the Company shall procure, provide and furnish to ICICI Bank, to the satisfaction of ICICI Bank
15
such additional security as may be acceptable to ICICI Bank to cover such deficiency.
3.3 | MARGINS |
The Company shall during the currency of the facility Agreement, maintain such margin(s) in respect of the Facility as set out in ScheduleI hereto (Margin Money). In the event of default by the Company in payment of any monies due and payable under the Facility Agreement, ICICI Bank shall have the right to appropriate the Margin Money towards such dues.
ARTICLE IV
SPECIAL CONDITIONS
The Facility hereby granted shall also be subject to the Company complying with the special conditions set out in Schedule II hereto.
16
ARTICLE V
EFFECTIVE DATE OF FACILITY AGREEMENT
The Facility Agreement shall become binding on the Company and ICICI Bank on and from the date first above written. It shall be in full force and effect till all the monies due and payable by the Company under the Facility Agreement and or the LC Outstanding and/or the Bills Outstanding are fully paid off to the satisfaction of ICICI Bank.
17
SCHEDULEI
Due Date | ||||
Opening Charges | 0.35% | | ||
Retirement Charges | | | ||
Other Charges | Amendment charges: Rs. 500/- per LC amended
In case of foreign currency Letters of Credit, the following charges will be additional:
SWIFT/communication charges Rs.500 per LC
Correspondent bank charges including finance charges, if any, shall be charged on actuals.
Service tax and other taxes as applicable |
| ||
Applicable Rate of Interest | Nil |
MARGIN MONEYNil
18
SCHEDULEII
SPECIAL CONDITIONS
| The Borrower shall get this Facility rated by an external Rating Agency before December 31, 2010 as AA (or equivalent). If the rating is A+, A or A- (or equivalent), the LC commission shall be revised to 0.75% p.a. with retrospective effect. If the facility is unrated or if the rating is BBB+ (or equivalent) or below, the LC commission shall be revised to 1.00% p.a. with retrospective effect. |
| Financial arrangement for the project to be in place by March 31, 2011 or any other mutually acceptable date to the satisfaction of the Lender failing which |
| The Sponsor would undertake to bring in adequate support towards the repayment of the Facility or the Borrower would create a debt service reserve account (DSRA) of Rs. 1.00 billion per quarter till the amount in the DSRA is equal to the outstanding under the Facility. |
| As the Borrower is able to achieve financial closure it will earmark an amount equal to the Facility in favor of the Lender to retire the Facility as and when due and payable. On completion of the above to the satisfaction of the Lender the Lender will issue an NOC for ceding exclusive charge on the assets created as Security for the Facility. |
19
IN WITNESS WHEREOF the Company and ICICI Bank have caused the Facility Agreement to be executed in duplicate on the day, month and year first hereinabove written as hereinafter appearing.
* | In accordance with Articles of Association of the Company. |
20
Exhibit 4.65
AGREEMENT
This Agreement made the 25th day of January, 2011 between STERLITE INDUSTRIES (INDIA) LIMITED, a Company incorporated and registered under the Companies Act, 1956 and having its Registered Office at SIPCOT Industrial Complex, Madurai Bypass Road, T V Puram PO, Tuticorin 628 002, Tamil Nadu and Corporate Office at Vedanta, 75 Nehru Road, Vile Parle (East), Mumbai 400 099 (hereinafter referred to as the Company) of the One Part and MR. DIN DAYAL JALAN (also referred to as Mr.D.D.Jalan) Indian inhabitant residing at Flat No.24, 2nd floor, Falcons Crest, Tata Col. Parel Tank Rd. 73. G.D. Ambedkar Marg, Parel Village, Mumbai 400 012 (hereinafter referred to as Whole Time Director) of the Other Part.
WHEREAS:
The Board of Directors at their meeting held on January 25, 2011 have appointed Mr.Din Dayal Jalan as a Whole Time Director of the Company for a period of 2 (two) years with effect from December 24, 2010 to December 23, 2012 and Mr. Din Dayal Jalan has agreed to the said appointment upon the terms and conditions hereinafter contained.
1
The appointment and remuneration of Mr.Din Dayal Jalan, as Whole Time Director is subject to the approval of the Members at the General Meeting of the Company
NOW THIS AGREEMENT WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS:
1. |
The Company hereby approves the appointment of Mr.Din Dayal Jalan as a Whole-time Director from the December 24, 2010 to December 23, 2012 subject to such appointment being determined earlier in accordance with the provisions of this Agreement. | |||||
2. |
Subject to the superintendence, direction and control of the Board of Directors, Mr.Din Dayal Jalan will exercise such powers and duties as may be entrusted to him from time to time. | |||||
3. |
The Whole-time Director shall in consideration of his services to the Company be entitled to receive remuneration by way of salary, allowances, commission and perquisites as set out below:- | |||||
I |
Period of re-appointment | : | For a period of 2 years i.e. December 24, 2010 to December 23, 2012 | |||
II |
Designation | : | Whole-time Director | |||
III |
Powers and Responsibilities | : | Mr.Din Dayal Jalan will exercise such powers and duties as may be entrusted by the Board from time to time. | |||
IV |
: | In the range of Rs. 5 lacs Rs. 8 lacs per month. | ||||
(a) |
Basic Salary | : | (With such annual/special increments within the aforesaid range as may be decided by the Board or any Committee thereof, in its absolute discretion from time to time). | |||
(b) |
House Rent Allowance | : | 40% of the Basic Salary | |||
(b) |
Performance Incentive | : | As may be determined by the Board or its Committee thereof in each year. | |||
(c) |
Personal Allowance | : | In the range of Rs. 4 lacs Rs. 6 lacs per month (As may be determined by the Board or its Committee thereof in each year) | |||
(d) |
Bonus | : | 20% of the Basic salary in accordance with the rules of the Company. | |||
(e) |
Perquisites | : | In addition to Basic salary, Bonus and performance incentives payable, Mr.Din Dayal Jalan shall also be entitled to perquisites including furnished accommodation in lieu of House Rent Allowance if it not availed, medical and insurance reimbursement, leave travel concession for self and family, club fees and personal accident insurance in accordance with the rules of the Company or as may be agreed to by the Board of Directors or its Committee thereof. | |||
(f) |
Stock Option | : | Stock Option of Vedanta Resources Plc. under the Long Term Incentive Plan (LTIP) or Short Term Incentive Plan (STIP) or any other plan which may be in vogue as per policy of the Group, provided the amount of benefit is limited to an amount not exceeding 100% of the total Annual Remuneration. |
Explanation:
i) | Perquisites shall be evaluated as per Income Tax Rules, wherever applicable and in the absence of any such rule, perquisites shall be evaluated at actual cost to the Company. |
ii) | For the purpose of perquisites stated hereinabove, family means the spouse, dependent children and dependent parents of the appointee. |
2
V) Provident Fund and Superannuation Fund or Annuity Fund.
Mr. Din Dayal Jalan will also be entitled to the following as per rules of the Company or as approved by the Board of Directors which will not be included in the computation of the ceiling on remuneration above:
i) | Contribution to Provident Fund and Superannuation Fund or Annuity Fund to the extent these, either singly or put together are not taxable under the Income Tax Act, 1961. |
ii) | Gratuity payable as per rules of the Company. |
iii) | Encashment of leave as per rules of the Company. |
VI) Other Benefits:
i) | The Company shall provide him with car, expenses relating to fuel, maintenance and driver will be reimbursed on actuals. Further the Company shall also provide telephones and other communication facility (for official business). |
ii) | Such other benefits as may be decided by the Board or its Committee from time to time. |
The amount of Perquisites payable to Mr. Din Dayal Jalan may be decided / varied by the Board of directors or its Committee, from time to time as it may deem fit in its absolute discretion; provided that the total remuneration consisting of Salary, Perquisites and other benefits paid to Mr. Din Dayal Jalan as whole-time director shall not exceed the limit stipulated in section 309 of the Act, i.e. five percent of the net profits of the Company computed in the manner laid down in section 349 of the Act,.
VII) Minimum Remuneration
In the event of any loss or inadequacy of profits in any financial year during his tenure the Company shall remunerate by way of salary, perquisites or any other allowance as specified above or within the applicable limit stipulated in Section II, Part II, Schedule XIII, whichever is higher.
VIII) Other Terms and Conditions
(i) | The Board of Directors of the Company may alter the terms and conditions of the said appointment from time to time at its discretion so as not to exceed the limits specified in Schedule XIII to the Companies Act, 1956 (including any statutory modification or re-enactment thereof, for the time being in force) or any amendments made thereto. |
(ii) | Mr. Din Dayal Jalan shall not be paid any sitting fees for attending the meetings of the Board of Directors or Committee thereof so long as he holds the office of whole-time director. |
(iii) | He shall not, so long as he functions as whole-time director, become interested or otherwise concerned directly or through his wife and/or children in any selling agency of the Company in future without prior approval of the Central Government. |
(iv) | The agreement may be terminated by either party to the agreement by giving at least 90 days prior notice in writing in that behalf to the other party or 90 days salary in lieu thereof and on the expiry of the period of such notice this Agreement/s shall stand terminated |
(v) | The Whole-time Director shall throughout the term of this Agreement devote his full time and attention to the business of the Company, and shall in all respects conform to and comply with the directions and regulations made by the Board of Directors and rules of the Company and shall well and faithfully serve the Company and use his utmost endeavor to promote the interests thereof. |
3
(vi) | The Whole-time Director shall during the term of this Agreement and at all times thereafter keep strictly confidential and shall not divulge, disclose, make known or communicate to any person or persons, firm, Company or concerns (unless required by the Board or except in the ordinary course of business and/or to those of the officials of the Company whose province it is to know the same) or himself make use of any and all information relating to the Company or any of its holding company, subsidiary or affiliate including its business activities, technologies, designs, processes and related matters which he may acquire, receive or obtain or which may come to his knowledge in the course of or by reason of his appointment hereunder. |
(vii) | Notwithstanding anything contrary herein contained or implied, the Company shall be entitled to terminate the employment of the Whole-time Director under this Agreement forthwith by notice in writing:- |
4
i) | If he becomes insolvent or make any composition or arrangement with his creditors; |
ii) | If he commits a material breach of any of the terms, provisions or conditions herein; or |
iii) | If he shall become disqualified to act as a director for any reason, other than an inadvertent breach of Section 283 of the Companies Act, 1956. |
IN WITNESS WHEREOF the Company has caused its Common Seal to be hereunto affixed and the Mr.Din Dayal Jalan, Whole Time Director has hereunto set his hand and seal the day and year first herein above written.
The Common Seal of the above named STERLITE INDUSTRIES (INDIA) LIMITED has been affixed hereunto pursuant to a Resolution passed by its Board of Directors in that behalf at their meeting held on January 25, 2011 in the presence of Mr.Tarun Jain, Group Director Finance of the Company who in token thereof has set and subscribed his signatures hereto in the presence of: | /s/ Tarun Jain | |
Mr. Rajiv Kumar Choubey, Company Secretary | /s/ Rajiv Kumar Choubey | |
Signed and delivered by the above named Whole-time Director, Mr. DIN DAYAL JALAN in the presence of: | /s/ Din Dayal Jalan | |
Mr. C.Prabhakaran, Chief Financial Officer | /s/ C. Prabhakaran |
5
Exhibit 8.1
Subsidiaries of Sterlite Industries (India) Limited
S. No |
Name of the Company |
Country of Incorporation | ||
1 |
Copper Mines of Tasmania Pty Limited | Australia | ||
2 |
Thalanga Copper Mines Pty Limited | Australia | ||
3 |
Monte Cello B.V. | Netherland | ||
4 |
Bharat Aluminium Company Limited | India | ||
5 |
Sterlite Infra Limited | India | ||
6 |
Talwandi Sabo Power Limited | India | ||
7 |
Sterlite Opportunities and Ventures Limited | India | ||
8 |
Sterlite (USA) Inc. | USA | ||
9 |
Hindustan Zinc Limited | India | ||
10 |
Sterlite Energy Limited | India | ||
11 |
Fujairah Gold FZE | UAE | ||
12 |
THL Zinc Ventures Ltd | Mauritius | ||
13 |
THL Zinc Ltd | Mauritius | ||
14 |
THL Zinc Holding B.V. | Netherland | ||
15 |
THL Zinc Namibia Holdings (Proprietary) Limited | Namibia | ||
16 |
Skorpion Zinc (Proprietary) Limited | Namibia | ||
17 |
Skorpion Mining Company (Proprietary) Limited | Namibia | ||
18 |
Namzinc (Proprietary) Limited | Namibia | ||
19 |
Amica Guesthouse (Proprietary) Limited | Namibia | ||
20 |
Rosh Pinah Health Care (Proprietary) Limited | Namibia | ||
21 |
Black Mountain Mining (Proprietary) Limited | South Africa | ||
22 |
Vedanta Lisheen Finance Limited | Ireland | ||
23 |
Vedanta Base Metals (Ireland) Limited | Ireland | ||
24 |
Vedanta Lisheen Mining Limited | Ireland | ||
25 |
Killoran Lisheen Mining Limited | Ireland | ||
26 |
Killoran Lisheen Finance Limited | Ireland | ||
27 |
Lisheen Milling Limited | Ireland | ||
28 |
Killoran Concentrates Limited | Ireland | ||
29 |
Killoran Lisheen Limited | Ireland | ||
30 |
Azela Limited | Ireland | ||
31 |
Killoran Lisheen Holdings Limited | Ireland | ||
32 |
Malco Power Company Limited | India | ||
33 |
Malco Industries Limited | India | ||
34 |
Vizag General Cargo Berth Private Limited | India | ||
35 |
Paradip Multi Cargo Berth Private Limited | India | ||
36 |
Pecvest 17 Proprietary Limited | South Africa |
Exhibit 12.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mahendra Singh Mehta, certify that:
1. | I have reviewed this annual report on Form 20-F of Sterlite Industries (India) Limited; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
4. | The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and |
5. | The companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting. |
Date: September 26, 2011
By: |
/s/ Mahendra Singh Mehta | |
Name: Mahendra Singh Mehta | ||
Title: Chief Executive Officer |
Exhibit 12.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Din Dayal Jalan, certify that:
1. | I have reviewed this annual report on Form 20-F of Sterlite Industries (India) Limited; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
4. | The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting; and |
5. | The companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting. |
Date: September 26, 2011
By: |
/s/ Din Dayal Jalan | |
Name: Din Dayal Jalan | ||
Title: Chief Financial Officer |
Exhibit 13.1
Certification of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Sterlite Industries (India) Limited (the Company) hereby certifies, to such officers knowledge, that:
(i) | the accompanying annual report on Form 20-F of the Company for the year ended March 31, 2011 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: September 26, 2011
/s/ Mahendra Singh Mehta |
Name: Mahendra Singh Mehta |
Title: Chief Executive Officer |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed either as part of the Report or as a separate disclosure statement, and is not to be incorporated by reference into the Report or any other filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. The foregoing certification shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of Section 18 or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.
Exhibit 13.2
Certification of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Sterlite Industries (India) Limited (the Company) hereby certifies, to such officers knowledge, that:
(i) | the accompanying annual report on Form 20-F of the Company for the year ended March 31, 2011 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: September 26, 2011
/s/ Din Dayal Jalan |
Name: Din Dayal Jalan |
Title: Chief Financial Officer |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed either as part of the Report or as a separate disclosure statement, and is not to be incorporated by reference into the Report or any other filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. The foregoing certification shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of Section 18 or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.
Exhibit 15.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statement (No. 333-160580) on Form F-3 of our reports dated September 26, 2011, relating to the consolidated financial statements of Sterlite Industries (India) Limited and subsidiaries (the Company) (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the convenience translation of the Indian Rupee into United States dollar amounts) and the effectiveness of the Companys internal control over financial reporting, appearing in this Annual Report on Form 20-F of Sterlite Industries (India) Limited for the year ended March 31, 2011. We also consent to the reference to us in Item 3A. Selected Consolidated Financial Data.
/s/ Deloitte Haskins & Sells
Deloitte Haskins & Sells
Mumbai, Maharashtra, India
September 26, 2011
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