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Governance crisis erupts at Africa-focused miner Vedanta

By Christophe Le Bec
Posted on Monday, 13 April 2020 13:07

The logo of Vedanta installed on the facade of its headquarters in Mumbai, India. REUTERS/Danish Siddiqui

Very active in Southern Africa, the Indian copper and zinc producer lost its chief executive officer just 18 months after he took up the post, while mining markets are in the midst of a free-fall.

Although in all likelihood it was hastened by the current COVID-19 pandemic, the departure of Srinivasan Venkatakrishnan – or ‘Venkat’, as he likes to be called – from his position as CEO of Vedanta Resources Limited on 27 March, just over a year and a half after his appointment, comes as no surprise.

It had become difficult for this South African mining industry figure to impose his views in a family-owned company run with an iron hand from London and Mumbai by its patriarch and founder, Anil Agarwal, known for his risk-taking and abrupt decisions.

The mining company’s official explanation is that he resigned for “personal reasons”.

Venkat moved back to South Africa to be with his family.

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Late to expand abroad and hurt by tax and environmental disputes

Founded in Mumbai in 1976 and operating at the outset as a scrap-metal dealer, Vedanta gradually became an extractive and metallurgical company and began expanding outside India in the later stages of its development, in the early 2000s.

It chose Africa as its primary target, focusing on countries with large Indian communities.

Active in Southern Africa – mainly in South Africa, Namibia and Zambia – in the copper and zinc sectors, in recent years the company has run into difficulties with authorities and local communities, with a number of tax, labour and environmental disputes hindering its activities.

In 2018, Vedanta reported revenue of $15.4bn and operating profit of $4.1bn. That same year, it ranked as the second-largest global producer of zinc (1.2m tonnes, in India and Africa), behind the top producer, Glencore. Its copper production was smaller, coming in at under 300,000tn.

Venkat, a formidable cost-cutter

During his tenure from 2013 to 2018 as chief executive of AngloGold Ashanti, the top Johannesburg-based and listed mining company and the world’s third-largest gold producer, Venkat earned a reputation as a formidable cost-cutter. Born in Chennai but familiar with Africa, he moved to the continent in 2000, first to Ghana, where he worked as finance director of Ashanti Goldfields, and then later to Johannesburg after the company’s 2004 merger with AngloGold, South Africa’s leading gold mining company, a spin-off of Anglo American.

Under the leadership of a businessman who had started his career as a chartered accountant, in June 2017 AngloGold Ashanti launched a massive restructuring plan of its activities in the ‘Rainbow Nation’, leading to the elimination of 8,500 of the company’s 28,000 South African jobs.

Appointed as boss of Vedanta in October 2018, he took over for Tom Albanese, a US citizen and former CEO of Rio Tinto, who also stepped down for “personal reasons” and had tried to further expand the Indian company’s international reach.

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Erratic declarations and a controversial $500m capital gain

During his brief stint at the helm of Vedanta, Venkat had his work cut out for him, as he was responsible for reassuring the company’s shareholders and partners (chiefly made up of African governments) as the share price of Vedanta Resources Limited – the international holding company – and Vedanta Limited – its Indian subsidiary – fluctuated over the past two years on the London, New York and Bombay stock exchanges, depending on the latest market transactions or declarations made by Agarwal, a volatile-tempered self-made man.

In September 2017, the Indian tycoon surprised the markets when he increased his stake in Anglo American to 20% through his family trust, Volcan Investments, with his stated ambition being to merge Anglo American’s South African arm with Vedanta’s subsidiaries in Southern Africa.

However, this game plan hardly appealed to the various stakeholders. To date, Anglo American has yet to offload its South African assets and is waiting for the right moment to sell them. As for investors, they were critical of Vedanta’s heavy debt burden and sceptical about the proposed merger.

Investors were even less impressed when, in July 2019, Agarwal had India-based Vedanta Limited acquire the stake purchased by Volcan Investments in Anglo American. The transaction caused Vedanta’s share price to plunge 21% on the Bombay Stock Exchange, with markets unable to grasp the business logic behind the acquisition, while Volcan Investments pocketed a capital gain of some $500m.

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Power struggle in Lusaka

Nevertheless, the real reason behind Venkat’s ouster is that, despite the breadth of his experience in Africa, he was unable to calm tensions with Zambia, where disputes with authorities had deteriorated. In May 2019, the Zambian High Court appointed a provisional liquidator to run Konkola Copper Mines (KCM), a subsidiary of Vedanta Resources with an annual output of up to 200,000tn of copper.

Vedanta has tried to stop the wind-up proceedings from going forward by taking legal action through the Zambian and South African courts, but so far to no avail. Since then, Vedanta’s executives and Lusaka seem to have broken off contact.

During that same time period, another court case was initiated, this time by Zambian villagers living near KCM’s mining operations. On 10 April 2019, the UK Supreme Court ruled that the case against Vedanta Resources, whose registered office is located in London, could be heard in English courts. The villagers say that the company’s Zambian subsidiary has caused environmental damage to their community.

On top of these legal, financial and governance issues, prices for Vedanta Resources’ two key minerals, copper and zinc – which have each lost more than 20% of their value since the start of the year – have fallen due to the coronavirus pandemic, bringing down the company’s share price in London, which has plunged 59% since 1 January.

The bottom line: Venkat appears to have left a sinking ship. To get the company back on track, Agarwal appointed himself non-executive chairman of Vedanta’s board of directors. His brother, Navin Agarwal, is now executive vice chairman of the board, after previously serving as non-executive chairman.

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