London Calling dissects a distinctly dodgy deal

London Calling dissects a distinctly dodgy deal

by Nostromo Research

24th June 2006

Anil Agarwal of Vedanta continues to pile on dubious - if not dangerous and damaging - exploits to his already conscience-less plunder.

In 2002 his Toronto-registered Sterlite Gold acquired the Ararat Gold Recovery Company (AGRC), until then a joint venture of the Armenian government and First Dynasty Mines - a vehicle for the notorious Robert Friedland. This brought Armenia's largest gold ore-processing plant and gold mines, Zod and Meghradzor, into Agarwal's domain.

Then, last November, charges of criminal fraud were laid against Sterlite Gold. The Armenians accused it of criminal breaches of fiduciary and accounting rules, deliberately underestimating its mineable reserves, illegally practising underground mining, violation of its land tenancy agreement and jeopardising workers' safety and health. Earlier in the year Sterlite had sacked several hundred workers after they demanded safer working conditions and higher wages.

The Armenian environment minister also vowed that Sterlite would never be allowed to relocate its cyanide processing plant from the town of Ararat to an area close to the country's vital Lake Sevan – a move urgently required in order to cut Sterlite's operating costs. When the proposal was first made it received a chorus of outrage from Armenian environmentalists and local residents.

London Digging

All in all, this amounted to quite a hefty negative response to an outfit which few "Vedanta-watchers" were even aware of until then - except, that is, for London Calling.

In early 2004, following the transmogrification of Agarwal's Sterlite Industries of India into Vedanta Resources plc (courtesy of the UK Financial Services Authority), we commented as follows:

"At the root of [Vedanta's] 'complicated structure' is an outfit called Twin Star Holdings, located in the tax haven of Mauritius. Up until [2003], this was widely assumed to be Agarwal's own holding company with a majority ownership of Sterlite Industries. In 1998 Twin Star made its first major move towards an offshore company when it agreed a major equity investment in Canada's First Dynasty Mines, founded by that illustrious mining renegade, Robert "Toxic Bob" Friedland.

Through Twin Star, Sterlite agreed to invest US$7.5 million in First Dynasty, entitling the Indian company to appoint three of its own directors and eventually ending up with about 43% of the Canadian-based company. Agarwal's main objective was to ease Sterlite into First Dynasty's Zod gold project in Armenia (fortuitously named as the "country of the year" at the 2003 World Congress on Mines and Money held in London). In February 1999, Agarwal and two of his colleagues did indeed join First Dynasty's board whose top dog was Marcus Randolph, hot foot from a stint as one of Rio Tinto's senior managers. Soon after, Twin Star's investment in First Dynasty was completed."

We also pointed out that, until 2000, Sterlite Gold had an exploration venture in Burma, where Agarwal's pal, Friedland, was reaping ill-gotten gains from Ivanhoe’s Monywa copper mine, in collaboration with the despicable military regime.

All that glisters is certainly not Agarwal

Now, with the recent price of the yellow stuff at an all-time high, Agarwal has bought up Sterlite Gold for his UK-listed Vedanta Resources plc. This has happened with the consent of both UK and Canadian listing authorities, even as the Armenian government still ponders whether to revoke the licence for Sterlite Gold. Although the government settled out of court with Sterlite when it sued over last November's allegations, the authorities could still stop the company in its tracks. For, in order to break even, Sterlite will almost certainly need to re-site its refinery close to the protected area of Lake Sevan. And, for many Armenians, that would be like putting a Macdonald’s atop Mount Ararat.

Given how Agarwal has operated for more than three decades, he'll doubtless act as he always has - by waving money in the faces of officialdom. After all, in India he sails on regardless despite official accusations that Vedanta’s subsidiary, BALCO, unlawfully appropriated government land and ejected local villagers in order to expand the Korba smelter. The Tuticorin copper smelter in Tamil Nadu was also doubled in capacity, even though it had no legal permit to do so.

Whether Agarwal will get away with the same tactics in Armenia is open to question. However, he might be encouraged by the fact that fellow London-domiciled NRI (Non-resident Indian) Lakshmi Mittal, five years ago bought Romania's state-owned steel company for a penny and a farthing with hardly a squeak of protest from within the country. Mind you, it was a different matter back in the UK, when Tony Bliar's office was exposed as having directly backed the bid, following New Labour’s receipt of a generous £125,000 donation from the steel king. It caused a storm. But political lackies get their reward on earth rather than heaven: last year Mittal coughed up another two million quid to Bliar’s cabal, making him the party's single biggest donor.

Heads I win, tails you lose

Meanwhile, Vedanta shareholders haven't been given any opportunity to question the Armenian deal, let alone its implications for the people of Armenia.

Underwriting the Vedanta-Sterlite Gold takeover are PriceWaterhouseCoopers and UK accountancy firm, Ernst & Young. According to the company, they "provided Vedanta with written confirmation that the terms of the...acquisition and Sterlite Gold Offer are fair and reasonable as far as the shareholders of Vedanta are concerned."

Give us a break, Anil! For, as John Helmer of Mineweb pithily put it last week: [I]t is obvious that Vedanta is paying Agarwal handsomely to take the asset off his hands."

Even if the Armenians do manage to hold out against his blandishments and bring Sterlite Gold to a halt, Vedanta's executive chairman is now sitting comfortably on a £1,689,000,000 million nest-egg which makes him Britain's fourth richest Asian.

That’s a bitter pill for Sterlite’s impecunious workers to have to swallow: after being sacked last year, they were taken back on the same demeaning wages as before.

Sources: Indian Firm Accused Of Misusing Armenia's Gold Reserves: www.armenialiberty.org/armeniareport/report/en/2005/11/EBF4DC49-B1D1-4095-BC1E-87AB1F221FEB.ASP, 18 November 2005 ; “Zod off Vedanta: Agarwal's Aremenia trouble”, Mineweb November 17 1005; London Calling on Sterlite/First Dynasty: Mines and Communities website, January 10 2004;”Vedanta buys gold licence troubles”: John Helmer, Mineweb, June 20 2006; VEDANTA RESOURCES PLC ANNOUNCES ACQUISITION OF STERLITE GOLD LTD, June 13 2006; Mittal and Bliar: The Business (London) February 24-25 2002; Mittal underwrites New Labour: Guardian July 14 2005.

[London Calling is published by Nostromo Research, London. Opinions expressed do not necessarily represent those of any other group, including editors of the MAC website. Reproduction is welcomed provided full acknowledgment of authorship is given.]