VEDANTA RESOURCES PLC a nnual RE P ORT 2007 13 Al 29 30 WORLD CLASS RESOURCES + ACCELERATED GROWTH Cu Zn = DELIVERING VALUE Vedanta ResouRces plc 5th Floor 16 Berkeley Street london W1J 8dZ tel: +44 (0)20 7499 5900 VEDANTA RESOURCES PLC Fax: +44 (0)20 7491 8440 annual REPORT 2007 Vedanta is a FTSE 100 metals and mining company. Our principal operations are in India, Zambia and Australia. The major metals produced are aluminium, copper, zinc and lead. delivering VALUE Through eXCELLENCE our mission is to create a world-class metals and mining group and generate strong financial returns. CONTENTS COMPANY OVERVIEW FINANCIAL REVIEW financial statements 01 HIGHLIGHTS 26 FINANCIAL REVIEW 69 independent auditors’ report 02 VEDANTA AT A GLANCE 70 consolidated income statement 03 ROAD MAP TO 1 MILLION SUSTAINABLE DEVELOPMENT REport 71 consolidated balance sheet TPA CAPACITY 32 sustainable development REPORT 72 consolidated cash flow 04 YEAR IN REVIEW 49 auditors’ report statement 06 CHAIRMAN’S STATEMENT 50 CORE INDICATORS 73 consolidated statement of changes in Equity BUSINESS REVIEW corporate governance 75 notes to the consolidated 08 INTRODUCTION TO 52 board of directors and financial statements BUSINESS REVIEW executive committee 115 financial statements of the 10 MARKET OVERVIEW 54 corporate governance report parent company 12 KPIs 59 remuneration report 120 INDEPENDENT AUDITORS’ REPORT ON 14 PERFORMANCE 65 directors’ report THE INDIVIDUAL COMPANY FINANCIAL – ALUMINIUM 68 statement of directors’ statements – COPPER responsibilities – ZINC OTHER INFORMATION – OTHER BUSINESSES 121 FIVE YEAR SUMMARY 22 RISKS AND RELATIONSHIPS 125 production and reserves summary 128 glossary and definitions 133 shareholder information 2006-07: HIGHLIGHTS 01 REVENUES ($ MILLION) EBITDA ($ MILLION) co BASIC EPS (US CENTS) 7,000 2,800 m 350 pan 2,703 6,000 6,502.2 2,400 300 325.6 5,000 2,000 y 250 overv 4,000 % 1,600 % 200 3,000 3,701.8 1,200 8% CAGR 61 CAGR 86 150 1,101.5 i 2,000 800 CAGR 14 E 100 130.2 w 1,000 1,884.2 400 50 1,289.5 454 322.7 963.1 62.5 0 0 224.3 0 8.6 25.3 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 ROCE* (%) PRODUCTION (KT) LTIFR (HEALTH AND SAFETY) 80 350 6 78.5 351 348 300 313 5 5.5 60 250 284 273 4 200 3.8 40 210 3 37.5 150 164 32.0 2 2.5 100 142 20 24.1 1 14.6 50 0 0 0 ALUMINIUM COPPER COPPER ZINC 2004-05 2005-06 2006-07 2003 2004 2005 2006 2007 INDIA/ ZAMBIA * ROCE excludes capital work in progress AUSTRALIA Another year Of record Sector leadiNg financial performance organiC growTh n Group revenue up 75.6% to $6,502.2 n $7.5 billion investment programme million and Group EBITDA up 145.4% to n First phase of $2.2 billion completed on $2,703.0 million, driven by better prices time and within budget and strong volume growth n The next phase of $5.3 billion under n Underlying EPS up 151.2% at 327 US cents implementation and on schedule n Free cash flow increased by 137.0% to – Lanjigarh alumina refinery completed $1,504.2 million and ramping up in progress n ROCE (excluding project capital work in – Work progressing well on $2.1 billion progress) significantly higher at 78.5%, Jharsuguda aluminium project up from 37.9% – Expansion projects in HZL ahead of n Final dividend proposed at 20 US cents schedule and KCM on track per share bringing full year dividend to – Work on 2,400 MW independent power 35 US cents per share project commenced LeveragiNg estabLiShed Skills n $1.0 billion acquisition of Sesa Goa post year-end provides entry into very attractive iron ore business VEDANTA RESOURCES PLC Annual REPORT 2007 DELIVERING VALUE 02 VEDANTA AT A GLANCE gROUP STRUCTURE VEDANTA w E RESOURCES i PLC overv y 51% ▼ 72.3% ▼ 80% ▼ pan Konkola Copper Sterlite Madras 29.5% ▼ 4.6% m mines PLC Industries AlumiNiUm Ltd co (kCm) (IndiA) Ltd (mALCO) 70.5% ▼ ▼ 51% ▼ 64.9% ▼ 100% ▼ 100% ▼ Vedanta bharat hindustan STERLiTE COPPER MINES Alumina Ltd AluminIUm CO. Zinc Ltd ENERGY Of TASmANiA (VAL) (bALCO) (hZL) OUR OPERATiONS 6 7 1 10 2 9 8 1 3 4 12 1 4 4 3 INDIA 5 Aluminium 1 Korba complex (BALCO) 345 ktpa 2 2 Mettur (MALCO) 40 ktpa 3 Lanjigarh refinery (VAL) 11 1-1.4 mtpa 4 Jharsuguda project (VAL) 500 ktpa Commercial Engery 4 Sterlite Energy 2400 MW independent power project 6 7 1 6 7 10 1 6 Copper 2 10 7 8 9 2 9 1 1 8 1 10 11 3 3 2 9 Tuticorin (Sterlite) 400 ktpa 8 1 4 1 3 4 12 4 4 126 12 1 4 4 Silvassa refinery and 4 12 rod plant1 4 4 3 3 5 Zinc 3 5 Vizag (HZL) 56 ktpa 5 6 2 Rampura5 Agucha (HZL) 53.4m tonnes 11 7 Chanderiya complex 2 TASMANIA ZAMBIA 275 ktpa zinc 852 ktpa lead 1 1 3 Mt Lyell Mine Nchanga u/g mine Nkana smelter Copper 8 11 Debari (HZL) 80 ktpa zinc 2 smelter, refinery and Nchanga o/p mine 9 acid plant 11 Rajpura Dariba (HZL) Konkola u/g mine 9.4m tonnes 4 Nampundwe u/g mine on Tailing leach plant pyrite mine 10 Zawar mine 5.8m tonnes (HZL) Mine Refinery Smelter Rod plant VEDANTA RESOURCES PLC Annual REPORT 2007 ROADMAP TO 1 million tpa capacity 03 ALUMINIUM co m pan 500 KTPA 895 KTPA y ALUMINIUM overv ALUMINIUM – EXPANSION i E w In 2007, we made significant progress by: 245 KTPA 395 KTPA n Attaining full capacity at the new Korba smelter, now fully stabilised; and n Commissioning the first stream of 110 KTPA Lanjigarh aluminium refinery and began 40 KTPA charging bauxite. Currently engaged in the construction of MALCO BALCO I BALCO II FY2007 JHARSUGUDA 2010 500 ktpa Jharsuguda aluminium smelter PROJECT in two phases. COPPER 250 KTPA 450 KTPA 850 KTPA 200 KTPA In 2007, we made significant progress by: 100 KTPA 400 KTPA n Completing debottlenecking initiative at Tuticorin – increased capacity by 300 KTPA 100 ktpa; and n Currently engaged in construction of a smelter at Nchanga to set up additional capacity of 200 ktpa. INDIA ZAMBIA FY2006 DEBOTTLE- CURRENT FY2007 NCHANGA FY 2009 2009 NECKING CAPACITY SMELTER PROJECT FY 2009 ZINC AND LEAD ZINC LEAD ZINC – EXPANSION 754 KTPA 666 KTPA 88 KTPA 85 KTPA 170 KTPA 85 KTPA 669 KTPA 496 KTPA 581 KTPA Currently engaged in: 85 KTPA n Construction of a 170 ktpa smelter at 411 KTPA Chanderiya; and n Debottlenecking initiative for 88 ktpa at Chanderiya and Debari. FY 2007 CHANDERIYA FY 2008 FY 2009 FY 2009 EXPANSION ZINC PROJECT DEBOTTLENECKING VEDANTA RESOURCES PLC Annual REPORT 2007 DELIVERING VALUE 04 yEAR IN REVIEW AUgUST 2006 w E í i Mid Day meal July 2006 programme – Gangrar kitchen overv Disposal of conductor fully functional y division, a non-core business pan m co î ë OCTObER 2006 New Korba smelter october 2006 fully ramped-up Actively participated in Jimmy Carter’s ‘Habitat for Humanity’ work project î VEDANTA RESOURCES PLC Annual REPORT 2007 05 í co m pan november 2006 y Announce entry into overv commercial power generation i E w ë ì DECEmber 2006 JANUARy 2007 Successfully Shaft sinking in completed progress at KDMP debottlenecking at the Tuticorin smelter ì march 2007 Successfully march 2007 commissioned a 38.4 MW wind First stream of energy farm Lanjigarh alumina refinery successfully commissioned ë VEDANTA RESOURCES PLC Annual REPORT 2007 DELIVERING VALUE 06 CHAIRMAN’S STATEMENT ‘ Vedanta Resources is emerging as an w exceptional diversified mining company E i with a world class resource base. Our record of delivery continues with strong overv y financial results and project completions pan on time and within budget. The $2.2 billion m co of growth projects that we set out at the time of our IPO have essentially been completed and a further $5.3 billion of projects are well underway, taking us towards our goal of one million tonnes in each of our metals.’ Performance in 2007 Our project pipeline is unique in our I am delighted to report that our group has delivered another excellent year’s result. We reported revenues of industry as is our proven ability to $6.5 billion, up 76% over last year with a record EBITDA of $2.7 billion, up 145%. Return on capital employed deliver organic growth. Together (excluding project capital work in progress) more than ‘‘ with our successful diversification doubled to 78.5%. Our portfolio of existing assets and completed expansion projects continue to yield superior into iron ore and power, we are in a performance and we continue to make investments that will drive sustainable long-term growth. We are emerging strong position to deliver superior as an exceptional diversified mining company with world class resources. Our record of delivery continues with returns to our shareholders. project completions on time and within budget and strong financial results. Accelerating Organic growth Diversification Through Leveraging Established Skills We are implementing a $7.5 billion organic growth I am delighted to announce our 51% acquisition of Sesa programme. The $2.2 billion expansion programme Goa Ltd., a high quality iron ore company in India, for announced at the time of our IPO in December 2003 $1.0 billion, shortly after the year end. This acquisition is a in aluminium, zinc and copper pipeline is now almost natural fit for Vedanta and provides us with strong growth complete.