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Wednesday, November 29, 2006

The secret behind Vedanta's success

After having acquired Balco and listing on the London Stock Exchange and coming out with the second most expensive IPO ever, you would think Anil Agarwal was done. But the chairman of Vedanta Resources, is ambitious and wants to put his company up there - right alongside the top two companies of the world. His being the first among equals.

His journey began in 1986, when his company made a turnover of a million dollars making cables, which is not the most exciting product in the world. He knew that he had to make the most out of it and grow his business to the maximum possible.

So, that is when he decided to take the business abroad. He told CNBC-TV18, "There were two aspects. One was that the metal business is no longer a regional business. All the wealth is in the First World and all the natural resources are in Third World. We took over the first two Australian copper mines about nine years back and it was very difficult but we managed it very well because we need the copper concentrate for our Tuticorin plant."

"In the last 15 years, we are the only company who has done a greenfield and a brownfield, project. We did a large Indian privatisation successfully. We bought a sick company (Balco) and turned it around. We took the company abroad. We took the company to Zambia, where it contributes to 26 per cent of the GDP of the country."

After making such drastic moves, he couldn't afford to take it easy and he was constantly benchmarking his company against other international players. He's borrowed BHP's successful formula, where they go to a Third World country to see the geology and get the funding and equity from the First World.

He agrees, "It was my model and I always thought that India has a tremendous opportunity because of the geology."

He feels that in this age, the theory of 'boundaryless' - a Jack Welch concept of sharing resources, ideas and strategies - works for maximum benefit. This works across a vast organisation but in this case, it could also be about sourcing and making use of the elements that is best for a company's future growth prospects.

Agarwal says, "I did realise that probably if I went to the London market, they understood mining better and I would get better value."

Agarwal's looking to improve his odds by being the lowest cost producer of every business he is in. He explains, "If you look at each of our business, in copper, we are the lower cost producer in India as well as in Zambia. In aluminum, we are also going to be a low cost producer. If you look at Balco, we have created another Nalco. When we took over Balco, it was producing 100,000 tonnes, now it's producing 350,000 tonnes of aluminum."

"Going forward, we will be expanding more because we find that we have the expertise. So we are definitely hungry to acquire more mines in any part of the world and are also looking at some greenfield or brownfield businesses in India."

Managing a global enterprise with different infrastructure levels was a challeging task and India was then, not on anyone's map! But Agarwal can take satisfaction in having done just that. He's put India on the global mining map and also made itself known to the international financial world in London and New York.

His second priority is shareholder value. He elaborates, "We are very conscious about our shareholder value. When we listed on the LSE, people realized the shareholder value and then they found out that we were basically an Indian company who were giving them better multiples."

He believes his team is a bunch of motivated people with risk-taking ability and a lot of credibility. He has put in a de-centralised management model in place. All his businesses are run by independent CEOs with the best people working in these divisions. Agarwal wanted the world to take Vedanta Resources seriously and he's hired the best to get the recognition he deserves.

He brought Brian Gilbertson, who was CEO of BHP Billiton on board as the non-executive director and chairman because he states, 'those are the people who will not come to you until and unless they believe that your product is right and you are right.' With Gilbertson having propelled Vedanta Resources into the limelight with the $876 million IPO, he has stepped down to make way for Michael Fowle.

But Agarwal concludes, "Vedanta has definitely shown to the world how cost can come down. When we took over Balco and when we took over Hindustan Zinc, the cost was $1100 a tonne. We brought it down to around $500 a tonne. We increased production from 100,000 tonnes to 400,000 tonnes."

He is conscious of his company's responsibilities towards the community and the environment they mine in. Keeping corporate governance on par with making profits, any new development including extensions to existing abstraction or operating licences undergoes an impact assessment, which includes a review of environmental and social impacts.

Opening new mines entails liaison with the elected local community representative. Compensation is given for any loss of land and this includes the provision of replacement land for relocated families and the opportunity for employment with the group for a member of each family who has been adversely impacted.

Agrawal's company also looks at building of infrastructure such as roads, making provision for water and healthcare facilities, wherever they operate. Apart from this, remediation measures are taken by businesses when mines shut down for good. This includes back filling and replanting, wherever it is required.

Written for www.moneycontrol.com

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