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UPDATE 2-Vedanta buys Anglo zinc assets for $1.34 billion

By Eric Onstad and Prashant Mehra LONDON/MUMBAI, May 10 (Reuters) - India-focused mining group Vedanta Resources Plc bought Anglo American Plc's zinc assets for $1.34 billion on Monday to boost its exposure to the metal and expand its presence in Europe and Africa. Vedanta will become the world's largest zinc producer with 11 percent of the global market after buying the assets, including the Skorpion mine in Namibia, Lisheen in Ireland and Black Mountain in South Africa. Investors in both firms applauded the deal, with Vedanta shares surging more than 11 percent and Anglo American up more than 9 percent. Vedanta becomes the latest in a string of Indian companies buying access to resources, beating several global contenders for the assets as zinc -- used in the construction, carmaking and white goods industries as a protective coating for steel and iron -- experiences a surge in spot prices this year. "The deal clearly signals Vedanta's bullish view on the future of the zinc market," Liberum Capital said in a client note, calling the deal a good strategic fit. Vedanta, with about about 1.46 ktpa (kilo tonnes per annum) of mined production, will overtake rivals Xstrata and Teck Resources in the metal. Xstrata, its biggest shareholder Glencore and a Chinese bidder were believed to have been vying for Anglo American's zinc assets, sources have said. Vedanta will acquire the assets through Indian unit Hindustan Zinc Ltd, which houses the group's zinc business and whose shares gained 3.6 percent. Vedanta said it will fund the deal from about $2.3 billion of cash reserves that the Indian unit has accumulated. The deal values the assets at an enterprise value of 3.0 to 3.5 times EBIDTA (earnings before interest, tax, depreciation and amortisation) and was made on the basis of long-term zinc prices, which are lower than spot prices, Vedanta said. "It should be value-accretive because global demand for both zinc and steel will remain strong," said Shraddha Shroff, metals analyst at Mumbai-brokerage KR Choksey Shares. LME zinc has risen more than a third from the $1,595 a tonne it averaged last year. Analysts had earlier estimated Anglo American's assets could fetch between $1.1 billion to $1.5 billion. Lazard & Co acted as financial adviser to Vedanta. HUNT FOR RESOURCES Vedanta joins a growing list of Indian firms hunting for deals in natural resources, with an eye on rising domestic demand in Asia's third-largest economy. Reliance Industries, India's largest listed company, last month agreed to pay $1.7 billion to form a joint venture with Atlas Energy at one of the most promising natural gas deposit regions in the United States, and said it was evaluating further opportunities in shale gas. Coal India, the world's largest coal miner, also aims to firm up deals with overseas groups, including U.S. miner Peabody Energy, which could give it access to supplies from the United States, Australia and Indonesia. The Anglo American acquisition would raise Vedanta's total reserves and resources by 76 percent, Vedanta Vice Chairman Navin Agarwal told analysts in a conference call. He said it was too early to talk about lowering the cost of production at Anglo-American assets, but Vedanta believed it had an opportunity to use its expertise to bolster efficiency. Hindustan Zinc currently operates at a cost of production of $850 a tonne, less than half the global average, analysts said. "We think Hindustan Zinc will be the right vehicle because it is in the same business and holds substantial cash," Agarwal said. The company expects to close transactions for all three assets within 12 months. (Additional reporting by Quentin Webb in London; Editing by Tony Munroe and David Holmes) Keywords: VEDANTA ANGLOAMERICAN/ (eric.onstad@thomsonreuters.com; +44 20 7542 7093; Reuters Messaging: eric.onstad.reuters.com@reuters.net; ) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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