4 November 2015

Vedanta Resources plc

Interim Results for the Six Months ended 30 September 2015

Financial Highlights

n Revenue of US$5.7 billion and EBITDA(1)of US$1.3 billion, 12% and 39% lower than H1 FY2015 respectively, primarily due to lower commodity prices

n EBITDA margin (adjusted)(2)of 30% (H1 FY2015 : 43%)

n Underlying (Loss)/Earnings Per Share(3)of (57.6) US cents (H1 FY2015: 9.4 US cents)

n Basic (Loss)/Earnings Per Share of (117.7) US cents (H1 FY2015: (4.7) US cents), primarily due to lower commodity prices

n Free cash flow after growth capex of US$1.3 billion (H1 FY2015:US$0.2 billion)

n Gross debt reduced by US$0.2 billion to US$16.5 billion (US$0.7 billion over 1 year)

n Net debt reduced by US$0.9 billion to US$7.5 billion (US$1.5 billion over 1 year)

n No interim dividend in light of the current market volatility, board to review at year-end

Business Highlights

n Strong mined and refined metal production at Zinc India; integrated silver production increased 50%

n Oil & Gas: Q2 production up 6% on Q2 FY2015; H1 FY2016 production in line with guidance

n Aluminium: stable volumes from existing smelters with cost reduction initiatives in progress; further pots at Jharsuguda-II smelter to commence ramp-up in Q3 FY2016

n Copper India: stable operations with 96% capacity utilisation

n Iron Ore: approvals received for all major mines at Goa, and mining recommenced at 2 mines; export duty reduced from 30% to 10% for less than 58% Fe iron ore, effective from 1 June 2015

n Power: TSPL first unit achieved 71% availability during H1 FY2016; 86% in Q2 FY2016

Anil Agarwal, Chairman of Vedanta Resources Plc, commented: 'We have delivered a sound financial performance over the past six months and maximised free cash flow, while facing challenging commodity markets. This accomplishment is attributable to cost optimisation across our diversified asset portfolio. As India's only diversified natural resources company, Vedanta's exposure to meeting the country's future resources demands enhances our growth opportunities, in addition to our global prospects. I am confident that our talented team of professionals, who are committed to a sustainable future, will ensure that Vedanta continues to create significant value for all shareholders and benefit communities wherever we operate.'

(US$ million, except as stated)

(1) Earnings before interest, taxation, depreciation, amortisation /impairment and special items

(2) Excludes custom smelting revenue and EBITDA at Copper and Zinc India operations as custom smelting has different business economics

(3) Based on profit for the period, after adding back special items and other gains and losses, and their resultant tax and non-controlling interest effects (refer to note 4 of condensed financial statements). In the prior period, the underlying attributable profit included the net tax benefit from the Sesa Sterlite merger offset by a deferred tax charge due to the change in tax rates at Cairn India

There will be a conference call at 9:00a.m.UK time (2:30p.m.India time) on 4 November 2015, where senior management will discuss the results.

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About Vedanta Resources

Vedanta Resources Plc ('Vedanta') is a London-listed diversified global resources company. The group produces aluminium, copper, zinc, lead, silver, iron ore, oil & gas and commercial energy. Vedanta has operations in India, Zambia, Namibia, South Africa, Ireland, Liberia, Australia and Sri Lanka. With an empowered talent pool globally, Vedanta places strong emphasis on partnering with all its stakeholders, based on the core values of entrepreneurship, excellence, trust, inclusiveness and growth. For more information, please visit www.vedantaresources.com.

Disclaimer

This press release contains 'forward-looking statements' - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as 'expects,' 'anticipates,' 'intends,' 'plans,' 'believes,' 'seeks,' 'should' or 'will.' Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, uncertainties arise from the behaviour of financial and metals markets including the London Metal Exchange, fluctuations in interest and/or exchange rates and metal prices; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different that those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.

CHAIRMAN'S STATEMENT

Over the past six months, we delivered strong operational performance across our businesses. We achieved an EBITDA of $1.3 billion and a strong EBITDA margin (adjusted)(1)of 30%. Our financial performance however has been impacted by low commodity prices with revenues down 12% at $5.7 billion.

During the first half of this financial year we generated free cash flow post project capex of $1.3 billion driven by reduction in opex, capex and better working capital management. In line with our stated strategic priority of reducing debt and increasing cash flows, we have reduced gross debt by $200 million and net debt by $0.9 billion as compared to FY2015.

During this period we have witnessed continued volatility in commodity markets, creating challenging conditions for all resource companies. As a result of this market uncertainty, the Board has decided not to pay an interim dividend and the Board will review dividend payments in May 2016 when we deliver our FY2016 results.

From my perspective, though the global resource sector outlook is challenging over the short-to-medium term, I am optimistic about the longer-term future.

Following a disciplined approach to capital spending and efficiency in operations is key to managing this period of volatility. Our efforts over the past few quarters have been on driving efficiencies across our diversified portfolio of tier-one assets, optimising our operating expenditure and deploying capital in a disciplined manner, taking measured steps to drive positive free cash flow at each of our businesses.

As India's largest diversified natural resources company, we believe we have the right mix of commodities to benefit from future demand both domestically and globally. The IMF recently stated that India is the world's fastest-growing major economy, and the country's trajectory is set to continue, with declining inflation and interest rate cuts supporting the Government of India's growth agenda.

There have been a number of important operational developments during this period. Last month, we made our maiden shipment of iron ore from Goa after mining in the state resumed. We welcome the state Government's efforts to get the industry up and running, and we are in discussions with the Government to increase mining capacities and to remove other levies.

In July 2015, we broke ground at the $680 million Gamsberg project in South Africa, one of the world's largest underdeveloped deposits of zinc and where the overall capex has been reduced by $100 million. This exciting milestone comes at a time when demand for zinc is growing and supply is shrinking.

In Zambia, as we continue to work towards the turnaround of this asset, we have seen positives in terms of higher production and lower costs of production during the period.

Over the past six months we also pressed ahead with our stated strategic priority to simplify our corporate structure through the merger of Vedanta Limited and Cairn India, which I am confident will create significant value for our shareholders.

The Group's long-term success relies on the diversity of our people, from the ground up to the boardroom. I was delighted to welcome Cynthia Carroll as a key adviser in September, 2016. Cynthia will focus on Vedanta's long-term strategy.

Vedanta takes very seriously its responsibilities to all its people. When it comes to the safety, health and well-being of those who work for us, we are committed to reduce our lost-time injury frequency rate as we continue to work towards eliminating fatalities. We constantly educate and have the tools to ensure that safety is the priority for all at Vedanta every day. I am deeply saddened by seven fatalities during the first half of this year, and we work towards achieving Zero Harm. There remains a lot to do on our journey towards achieving this.

To help achieve a culture of Zero Harm across the organisation, and to drive the business forward, we are fostering a dynamic culture of innovation, encouraging our people to embrace and introduce new technology and advance their own learning. Our talented R&D experts are on the job to work towards applying disruptive technology, which can optimise the cost of sustainable production and minimise the impact to the environment.

Protecting and preserving our licence to operate has always been a key priority for Vedanta and we are aware that our actions influence the global view not only of Vedanta, but also of India. We are focused on developing the local economies and communities in which we operate through more than 120 partnerships with NGOs, local Governments, academic institutions and private hospitals. Our community programmes benefit approximately four million people each year.

As we continue to engage closely with all our stakeholders, I am delighted that we hosted the inaugural Sustainable Development Day in London. This was a platform for open dialogue with our stakeholders. It demonstrates our ongoing commitment to be transparent and to work towards fulfilling our obligation to our communities and environment as well as our stakeholders.

Earlier this year we published our first voluntary tax transparency report, showing the contributions we make to public finances in every country in which we operate. Publication of the report reflects our view that transparent financial reporting is critical to our reputation and licence to operate, and provides our stakeholders with detailed information about Vedanta's contribution to public finances globally.

On behalf of the board, I would like to thank Vedanta's employees for their efforts in achieving this set of results. Our success in navigating current industry pressures hinges on their commitment as well as our diversified portfolio of low-cost assets. With their efforts, Vedanta will continue to succeed in today's challenging environment and will be better positioned than ever to benefit from future growth in India and globally.

Anil Agrawal

04.11.2015

(1) Margin excluding custom smelting revenue and EBITDA at Copper and Zinc India operations
 

Consolidated group

                (In US$ million unless otherwise stated)

(1) Earnings before interest, taxation, depreciation, amortisation /impairment and special items

(2) After adding back special items and other gains and losses and their resultant tax and non-controlling interest effects

(3) Refer to calculation given on page no. 18

Highlights:

n Revenue down by 12% to US$5,699.3 million, primarily driven by lower LME prices, Brent prices and premia across metal businesses, which together reduced revenue by 16%

n The revenue reduction was partially offset by an increase in volumes; up 29% at Zinc India, up 9% in Aluminium and up 16% at Copper India, and with the commissioning of the first unit of the Talwandi Sabo power plant in November 2014

n EBITDA reduced 39% to US$1.3 billion on the back of weak commodity and Brent prices, which together impacted EBITDA by 49%. However, strong operational performances at Zinc India, cost and marketing savings of approximately US$170 million, together with currency movements of US$8 million, mitigated some of the downside

n EBITDA margin reduced to 30% (excluding custom smelting), driven down by low commodity prices

n Free cash flow increased to US$1.3 billion, due to cost savings initiatives including the rationalisation of capex and a reduction in working capital through temporary and sustainable initiatives

n Positive headroom on interest cover during this low commodity price environment has been driven by improved volumes, and lower costs (including lower interest payments due to refinancing)

n Net debt decreased by US$0.9 billion, resulting from cash flow initiatives

Strategic Overview

Production growth and operational excellence

We have delivered a strong operational performance in H1 FY2016, primarily due to record production at Zinc India, higher utilisation at Copper India, ramp-up at TSPL and a solid performance from our other well-invested businesses.

Zinc India delivered highest first half mined metal production of 472kt during H1 FY2016 (H1 FY2015: 376kt), primarily due to higher ore mined and better grades. We made good progress in the transitioning of Rampura Agucha underground mining and the Sindesar Khurd (SK) mine extension. Our mined and refined output from Zinc India in FY2016 is expected to increase in FY2015. At SK mine, silver production increased 50% over H1 FY2016. Production from Zinc International was in line with guidance, while production at Lisheen reduced as the mine nears its November 2015 closure date.

Oil & Gas production of 207.5 kboepd was in line with guidance as production from Ravva and Cambay increased 13% to 37.4 kboepd. Gas production from RDG field increased to 25 mmscfd, with peak production of 34 mmscfd. Rajasthan water flood opex remained at US$5.4/bbl in H1 and we expect to reduce this to an average US$5/bbl for H2 FY2016. We have reduced capex but continue to progress on our Rajasthan projects, particularly Aishwarya Infill, Barmer Hills and Bhagyam EOR, from where the next phase of growth is expected.

Aluminium production over the first half was stable, while ramp-up at the first line of 312 ktpa of Jharsuguda II smelter is expected in H2 FY2016. In response to low commodity prices, we have shut our high-cost rolled product facility at BALCO, and will continue to sell ingots and wire rods without any loss of production. We have also optimised production at the Lanjigarh refinery with a single-stream operation, and expect the lower associated costs to improve overall profitability.

The Jharsuguda 2,400 MW power plant is currently running at a low plant load factor but this is expected to increase, along with ramp-up of the Jharsuguda II aluminium smelter in H2 FY2016. We are in discussions with the Government authorities for using power from this power plant for the smelter, and the final hearing is scheduled for November 2015. TSPL and Korba power units will be in focus in H2 FY2016, as additional units are commissioned.

Iron ore mining re-commenced in Goa in H1 FY2016 with approved interim capacity of 5.5 mtpa. We took the lead and became the first miner in the state to re-start exports. We made the first shipment of iron ore in October 2015. Progressive ramp-up is anticipated in H2 FY2016, and we are working towards a further increase due to mining capacity enhancement initiatives.

Copper India continued to have strong utilisations, though production was marginally impacted due to the shutdown in H1 FY2016; utilisations are expected to exceed 90% going forward. We are benefiting from strong Treatment and Refining Charges (TC/RCs) and this is expected to continue in H2 FY2016. Copper Zambia progressed well in Q2 FY2016. We have worked towards increasing production, while simultaneously bringing down costs. We achieved a monthly production of 11.2kt, with C1 cash cost of USc161/lb in September 2015. Various cost saving initiatives have led to a 5% reduction in power consumption. We will continue to build on this momentum, and are aiming towards being cash flow positive in H2 at Copper Zambia.

Reduced gearing

In light of the volatile commodity prices, the Group has focused onmaximising volumes through operational efficiencies, commissioning well-invested facilities, cost optimisation and reducing capex, in order to maximise cash flows and de-lever the balance sheet. This has resulted in a US$0.9 billion reduction in net debt in H1 FY2016.

We reduced our FY2016 capex guidance from US$2 billion to US$1 billion at the beginning of the year, which has been further reduced to US$0.7 billion. Apart from reducing capex, we have also re-phased our ramp-up at Gamsberg in view of current soft commodity prices.

The higher free cash flows have been through a combination of both one-off and sustainable initiatives, we have generated cash savings through better working capital management. Vedanta plc's FY2016 maturities have already been refinanced. For our US$2 billion FY2017 maturities due in mid-2016, we are in advanced discussions with banks for term loan proposals of US$0.7 billion to US$0.9 billion, with the balance repayment expected to be made through part repayment of the US$2.6 billion inter-company loan by Vedanta Limited to Vedanta plc.

Sustainability

Our approach to achieving our long-term business goals places utmost importance on safeguarding the welfare of our people. We uphold safety as a core value in our operations to build a Zero-Harm culture, and we engage transparently with our communities to share the value we create.

We have continued to strengthen Vedanta's Sustainable Development Framework with updated guidance notes on safety, environment and community relations. We are using the Vedanta Sustainability Assurance Programme (VSAP) to ensure compliance with our Sustainable Development Framework, including a programme of audits.

Other key developments:

Merger - Vedanta Limited and Cairn India Update

The Board of Directors of the Company and Cairn India Limited at their respective meetings held on June 14, 2015 have approved the Scheme of Arrangement (the 'Scheme') between the Company and Cairn India Limited and their respective shareholders and creditors, subject to regulatory and other approvals. On September 10, 2015, BSE Limited and the National Stock Exchange of India Limited has issued the 'No adverse observation' letter to the Scheme. We continue to work towards completion of the transaction by Q2 2016.

Finance Review

Basics of presentation of financial information

Our interim financial report is prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union. Our reporting currency is US Dollar.

Executive summary

The challenging operating environment of low commodity prices (including premia) have had an impact of nearly US$1 billion on EBITDA/operating profit. In this environment, the company continues to focus on controllable factors such as cost initiatives, marketing initiatives and volume. As demonstrated in the consolidated operating profit variance analysis, higher volumes along with various initiatives have helped offset nearly US$380 million of the reduction in prices. Depreciation and amortisation expenses have trended lower given the revised useful life estimates and impairment at FY2015 year end. Refinancing of our loan portfolio, together with deleveraging, has reduced our net interest expense. As a result of these initiatives, profit before tax (without special items) reduced only by US$450 million despite the adverse price impact being much higher.

An increase in free cash flow after capital expenditure to US$1.3 billion has helped to significantly reduce net debt. The rise in free cash flow was driven by working capital initiatives, some of which are sustainable while others are on-off, together with lower levels of capital expenditure. Gross debt was marginally lower by US$200 million. Cash preservation and cost saving initiatives formed a significant part of our efforts to lower EBITDA (arising from lower commodity prices), thus helping to reduce debt.

Consolidated Group results

(in US$ million, except as stated)

(1) Includes port business &elimination of inter segment sales which were lower in the current period

(1) Earnings before interest, taxation, depreciation, amortisation/impairment and special items

(2) EBITDA of US$26 million and margin of 59%, excluding the impact of Kwacha depreciation on the VAT receivable net of local spends

(3) Includes port business & elimination of inter segment transactions

(1) Includes port business & elimination of inter segment transactions

Consolidated operating profit variance analysis

(In US$ million)

Prices

Operating profit before special items has been significantly impacted by the downturn in commodity prices across Vedanta's businesses:

Oil & Gas:Average Brent price was US$ 56/bbl, compared with US$ 106/bbl during H1 FY2015, reducing operating profit by US$513 million.

Zinc, Lead and Silver:Average zinc LME prices during H1 FY2016 were down 8% to US$2,013/tonne. Lead LME prices were down 15% to US$1,824/tonne, and silver was down 21% to US$15.6/ounce. Together these reduced operating profits by $142 million.

Aluminium:Average aluminium LME prices were down 12% to US$1,675/tonne in H1 FY2016, adversely affecting operating profit by US$85 million.

Copper:Average copper LME prices were down 18% to US$ 5,639/tonne in H1 FY2016, adversely affecting Zambian operating profit by US$71 million.

Iron Ore:Average Pig Iron realization were down 26% US$308/tonne in H1 FY2016, adversely affecting operating profit by US$30 million.

Power: Lower energy prices on the back of a weaker power market had an adverse effect of US$12 million.

These negative impacts totalled US$852 million, with a further US$180 million decrease due to lower premia across zinc, aluminium and copper, and a higher discount at the Oil & Gas business.

The combined fall in prices and premia resulted in an overall adverse net price hit of US$1,032 million.

Input commodity deflation

Input commodity prices including Import Alumina, Coal, Fuel, Iron Ore were softened during half year, contributing US$43 million to operating profits.

Foreign exchange fluctuation

Most of our operating currencies depreciated against the US$ during H1 FY2016. Weaker currencies are favourable to Vedanta, given the local cost base and US$-linked pricing in all our domestic markets. The average exchange rate for H1 FY2016 was 64.2 Indian rupees/US$, an increase of 7%, compared to the average of 60.2 Indian rupees/US$ during H1 FY2015. In Zinc International, local currency depreciation of 17% compared to H1 FY2015. These together increased operating profit by US$58 million.

However, the Zambian Kwacha (ZMW) depreciated sharply towards end of H1 FY2016, with an opening exchange rate of US$ 7.6/ZMW, a closing exchange rate of US$ 12.1/ZMW, and an average exchange rate of US$ 7.9/ZMW. The sharp depreciation of Kwacha adversely impacted operating profits by US$50 million, as our VAT receivable from Zambian Government is in local currency.

Net of all currency movement against US$, operating profits increased by US$8 million.

Exchange rates against US$:

Profit petroleum outflow

Profit petroleum outflow increased in H1 FY2016 to US$105 million, of which US$65 million was due to lower capex spend during the period, US$34 million due to provision against past costs on non-recovery from a JV partner, and US$6 million due to a 10% increase in the Government's share of profit petroleum in Rajasthan at DA2 block.

Regulatory

A Renewable Purchase Obligation (RPO) was introduced in 2010 by various State Electricity Regulation Commissions, making it mandatory for distribution companies, open access consumers and captive power producers to meet at least 5% of their total annual consumption of energy through renewable energy sources. Many companies in India have previously appealed against the order. Finally, the RPO Regulations were appealed in the Supreme Court and the Apex court, by its order dated 13 May 2015, has upheld the validity of RPO Regulations, including captive power producers. Consequently, a provision of US$64 million has been made for the period FY2013-FY2015 for Vedanta's Aluminium, Zinc India and Copper-India businesses.

Regulatory levies such as the increase in clean energy cess on coal, electricity duties on captive power, increases in royalty rates, contributions towards District Mineral Foundation (DMF), RPO and water cess, together impacted operating profit by US$138 million during H1 FY2016 compared to H1 FY2015.

Volumes

In India, higher volumes of zinc metal production, in line with mining plans improved smelter efficiency, and the liquidation of inventories increased operating profits by US$207 million. The commissioning of a new power plant at Talwandi Sabo, together with higher production at Copper Zambia and Copper India, helped to increase operating profit by US$47 million.

In our Zinc International business, production was affected by unplanned and planned maintenance shutdowns, as well as a decline in production from Lisheen as the mine nears the end of its life.

The above factors collectively impacted operating profit before special items by US$205 million.

Cost saving and marketing initiatives

Company-wide cost saving initiatives and realisation improvements have been launched over H1 FY2016, with the aim of creating immediately effective ideas that can generate cost savings. Examples of our initiatives include efficient procurement, production line optimisation, alternate supply sources, policy advocacy in selected areas, improving consumption rates, and developing marketing strategies around product/customers to improve realisation.

The reported savings are on Total Cost of Ownership ('TCO') methodology and do not include the benefits or extra spend due to input commodity inflation/deflation, regulatory or technology changes.

Unit costs across our businesses have been cut by various cost saving initiatives and contributed US$153 million. Various marketing initiatives to improve domestic market share, realisation of upcharges over benchmark premia and our product mix all increased operating profit by US$17 million.

Allied business

Improved performance at allied businesses including phosphuric acid, precious metal and surplus power sales contributed US$14 million to operating profit during H1 FY2016, compared to H1 FY2015.

Depreciation

Depreciation reduced by US$130 million during H1 FY2016 compared to H1 FY2015. Of the total reduction, US$80 million was primarily due to a change in the useful life of assets across Vedanta's businesses. This was in accordance with Group's accounting policy and was based on technical studies performed by an independent external agency, starting H2 FY2015. A lower depreciation charge in the oil & gas business is due to increase in entitlement reserves thereby lowering effective rate of depreciation during H1 2016.

The capitalisation of one unit of TSPL and 84 pots at Korba-II contributed to an increase in depreciation of US$14 million. The further commissioning of power plants at BALCO IPP and TSPL and pots in aluminium will increase depreciation charges in H2 FY2016.

Amortisation

Amortisation charges reduced by US$238 million during H1 FY2016 compared to H1 FY2015, driven by impairment of reserves in the oil & gas business in March FY2015.

Others

Others includes movement in costs due to change in stripping ratio, lower operation and maintenance costs by deferral of shutdowns, and one-off provisions, which net contributed US$81 million to operating profit.

Income Statement

 (in US$ million, except as stated)

Revenue

Revenue was down 12% to US$5,699 million compared to US$6,456 million H1 FY2015. The decrease was primarily driven by lower Brent prices, lower LME prices, and premia across metal businesses.

The decrease was partially offset by a 29% increase in volumes at Zinc India, Aluminium, Copper India, and the commissioning of a power unit at Talwandi Sabo during November 2014 and BALCO during August 2015.

EBITDA and Adjusted EBITDA Margin

EBITDA at US$1,286 million was down 39% compared to the previous period, due to the negative impact of commodity and Brent prices, lower premia across metal businesses and higher profit petroleum. Strong operational performances at Zinc India, together with cost and marketing saving initiatives of around US$170 million, and the depreciation of the Indian rupee against the US dollar, mitigated some of the downside (see 'Operating Profit Variance' for more details).

Adjusted EBITDA margin - excluding custom smelting operations - was 29.6% compared to 43.3% in H1 FY2015. The main margin contributors across key businesses were:

n Oil & Gas (72% to 49%) - the sharp decline in crude oil prices and the higher profit petroleum payment

n Zinc International (30% to 23%) - lower LME prices and lower volumes

n Copper Zambia (3% to -5%) - lower LME prices, local currency depreciation impacts on VAT receivable offset by improved volume and lower costs

n Aluminium (18% to 3%) - lower LME prices and premia

n Power (35% to 27%) - lower volumes and weaker power prices

n Zinc India (50% to 51%) - improved margin with higher volume and lower costs, partially offset by lower LME prices and premia, new regulatory levies and taxes such as Electricity Duty, water cess, Renewable Power Obligation and District Mineral Foundation

n Improvement in smelting margins in copper India with higher TC/RCs and reduced/tonne costs

Special items

The special item in H1 FY2016 related to tax. Consquent to the amendments to the Zambian Mining Tax regime, effective from 1 July 2015 the tax rate on mining operations has been restored from 0% to 30% and the tax rate on mineral processing has been increased to 35%.  Further, the set off of carried forward losses relating to mining operations has been restricted to a maximum of 50% of the income for the year. Moreover, the loss for the mining acitivty cannot be carried forward beyond ten subsequent years after the year in which the losses incurred. Accordingly, a total deferred tax charge of US$173.8 million resulting from the amendments has been recognised under 'Special tax items' during the six months ended 30 September 2015.

During H1 FY2015 a provision of US$36.9 million was created to reduce inventories to a net realisable value, in view of the Supreme Court ruling for Iron Ore mining at Goa. A US$7.6 million charge for expenditure incurred on coal blocks allotted to company's subsidiaries, subsequent to the cancellation of coal blocks by the Supreme Court of India, was written off.

Net interest

Finance costs decreased by 14% to US$639 million in H1 FY2016 (H1 FY2015: US$ 743 million). This is due to the benefits of lower cost refinancing of the Aluminium sector loans and using cash to repay convertible bonds in the Copper business during H2 FY2015.

Investment revenue in H1 FY2016 decreased to US$373 million (H1 FY2015: US$444 million), mainly at Zinc India and Cairn India, driven by lower treasury income on account of mark-to-market (MTM) gains accruing in a falling interest rate environment in India, where most of the Group's cash and investments reside.

The combination of lower finance costs, partly offset by lower investment revenues, led to a decrease of US$32 million in net interest expense during H1 FY2016.

Other gains and losses

Other gains and losses include the impact of mark-to-market (MTM) on foreign currency borrowings, primarily at Vedanta's Indian businesses and US Dollar-denominated cash deposits at the oil & gas business. Depreciation in the Indian rupee against the US Dollar during H1 FY2016 was 5% (62.59 to 65.74), against a 3% fall in H1 FY2015 (60.10 to 61.61).

Thus the MTM cost in H1 FY2016 was US$68 million (H1 FY2015: US$48 million).

Taxation

The Effective Tax Rate (ETR) in H1 FY2016 (excluding special items) was 92% compared to 23% during H1 FY2015. The higher tax rate is primarily due to higher tax expenses at Cairn India, due to deferred tax expenses in the current year against a credit in the previous year on a very low profit base, and higher tax rates at Hindustan Zinc.

The tax special items in H1 FY2016 of US$174 million charge arose in Copper Zambia on restoration of deferred tax liabilities on mining operations at 30%, mineral processing activities at 35% and changes in legislation restricting the use of past losses.

Attributable (loss)/profit

The attributable loss before special items was US$187 million compared to a US$4 million profit in H1 FY2015, mainly due to weak commodity prices and premia, which resulted in lower EBITDA.

Higher tax, partially offset by lower depreciation and amortisation, further deepened losses, despite a lower net interest expense. The attributable loss (including special items) of US$324.5 million during H1 FY2016 (H1 FY2015: US$(12.8) million) was significantly lower, largely due to the US$174 million special item tax charge at Copper Zambia.

Earnings per share

Basic EPS for the period was a loss of 117.7 US cents (H1 FY2015 : -4.7 US cents). Excluding the impact of special items and other gains and losses, the underlying EPS was a loss of 57.6 US cents per share (H1 FY2015 : a profit of 9.4 US cents).

Balance sheet

(In US$ million, except as stated)

Shareholder's equity was US$866 million at 30 September 2015, compared to US$1,603 million at 31 March 2015. This primarily reflected the negative impact of lower commodity prices and premia. It was also a result of adverse currency translation impacts due to currency depreciation at our operating entities against US$ (mainly the Indian Rupee) of US$295 million, and the FY2015 dividend payment of US$111 million by Vedanta Plc.

Non-controlling interests decreased to US$10,278 million at 30 September 2015 from US$10,654 million at 31 March 2015, despite the profit attributable to minority shareholders during the period, due to foreign currency movements and dividend payments to minorities.

Tangible fixed assets

During the first half of the year, we invested US$519 million in property, plant and equipment; comprising US$432 million on our expansion and improvement projects and US$87 million on sustaining capital expenditure. Expansion project expenses were US$211 million in our Oil & Gas business at Cairn India; US$102 million at Zinc India; US$46 million in the Power business, mainly at Talwandi Sabo, US$63 million in our Aluminium business and US$10 million at Zinc International.

Net Debt

Gross debt at 30 September 2015 was US$16,451 million (FY 2015: US$16,668 million). The average gross debt in H1 FY2016 was US$16.9 billion (H1 FY2015: US$17.2 billion).

In light of the current market conditions, we are focused on optimising our opex and capex, increasing free cash flow and reducing net debt. During H1 FY2016 several programmes to generate cash savings, including a reduction in working capital through temporary and sustainable initiatives, have been implemented across our businesses. These initiatives have already resulted in improved free cash flow and lower net debt, which reduced by US$924 million at 30 September 2015 to US$7,536 million (31 March 2015: US$8,460 million). Net gearing has been maintained at 40%. Cash and liquid investments were US$8,917 million at 30 September 2015 (FY 2015: US$8,210 million). Our cash and liquid investments portfolio continues to be conservatively invested in debt mutual funds, and in cash and fixed deposits with banks.

Of our total gross debt (excluding working capital loans of US$0.4 billion) of US$16.1 billion, debt at our subsidiaries is US$7.9 billion, with the balance in the holding company. The total undrawn credit limit was US$667 million at the end of H1 FY2016. The future maturity profile of debt (in US$ billion) of Vedanta Resources Plc is as follows:

(1) The debt at subsidiaries includes US$2.6 billion payable to Plc. On settlement, the Plc debt will reduced to US$ 5.6 billion

We have been successful in refinancing our maturing debt through rollovers, new debt and repayments from internal accruals during the year both at Vedanta Plc and its subsidiaries.

Of the FY16 maturity of US$1.6 billion, $0.5 billion has been tied up and for the balance, in-principle approvals have been obtained for $0.9 billion. We have successfully renegotiated the spreads on majority of our existing term loan portfolio and obtained an average reduction of around 22bps. Our refinancing plans for the rest of the year will focus on extension of the maturity profile of the debt. This will include refinancing of maturing debt for this year and also for future periods for long term loans and we expect to achieve a 0.5 year extension to the overall portfolio.

Going concern

The Directors have considered the Group's cash flow forecasts for the next twelve month period from the date of signing of the interim financial statements ending 30 September 2015. Net debt has decreased by US$924 million in the interim period to US$7,536 million, with US$667 million of undrawn facilities at the balance sheet date. Further analysis of net debt is set out in note 9 of the interim financial statements and details of borrowings and facilities are set out in the Financial Review on page 20. The Board is satisfied that the Group's forecasts and projections, taking into account reasonably possible changes in trading performance on cash flows and forecast covenant compliance, the limited transferability of cash within the Group, the flexibility the Group has over the timings of its capital expenditure and other uncertainties, show that the Group will be able to operate within the level of its current facilities for the foreseeable future. For these reasons the Group continues to adopt the going concern basis in preparing its condensed financial statements.

Credit rating

The downward pressure on metal and oil prices has impacted the Company's credit rating.

The rating agency S&P downgraded the company's rating to 'BB-' from 'BB ' in April 2015, with 'Negative' outlook. With the further drop in metal and oil prices, S&P recently downgraded the Company's rating to 'B+' from 'BB-' in October 2015 with 'Negative' outlook.

 Moody's has continued the company's rating at 'Ba1' with 'Negative' outlook.

Fund flows

The movement in fund flow in H1 FY2016 is set out below.

(in US$ million, except as stated)

(1) On an accrual basis

(2) Includes foreign exchange movements

Project capex

Operational Reviews

Oil & Gas

Production Performance

Operations

Average gross production for H1 FY2016 was 207,538 barrels of oil equivalent/day (boepd), slightly up by 1% over the corresponding period. The Rajasthan block crossed the cumulative production of 300 million barrels of oil equivalent (mmboe) in the period. Ravva and Cambay, both offshore assets, continue to be positive examples of good reservoir management and operational excellence, with production growth of over 13% during H1 FY2016. Though the fields are in natural decline, decline rates have been partly mitigated by employing prudent reservoir management practices, including sustained higher water injection rates and deeper gas lift injection. 

RDG field in DA-1 witnessed a ramp-up in gas production with the volumes rising by more than 100% over H1 FY2015. We achieved a record peak production of 34 mmscfd from RDG in August 2015, and expect to produce in excess of our guidance of an average production of 25 mmscfd of gas from existing RDG infrastructure in FY2016. We successfully completed a five-well hydro-frac campaign in the period and are planning to commence 15 more in H2 FY2016, which will sustain production.

(US$ per barrel)

Crude oil prices fell sharply late in 2015 and have been hovering around US$50/bbl recently. During H1 FY2016, the average Brent price was US$56/bbl, compared with US$106/bbl during H1 FY2015. A decline in benchmark Brent prices was followed by greater incentives for processing light grades, driving the demand for light crude. Oversupply of heavy crude has also suppressed prices.

Financial Performance

(in US$ million, except as stated)

Revenue during H1 FY2016 fell to US$755.3 million (after profit and royalty sharing with the Government of India), the decline driven by weaker crude prices. As a result, EBITDA for H1 FY2016 reduced by 63% to US$373.8 million. The water flood operating expense in Rajasthan remains low at US$5.4/bbl in H1 FY2016. An increase in polymer injection volumes lifted blended operating costs to US$6.1/bbl during H1 FY2016. EBITDA was affected by higher profit petroleum payments to the Government of India compared to H1 FY2015. Optimisation of opex and capex spend, driven by various initiatives, provision for past cost recovery and a change in tranche at DA2 block, impacted profit petroleum spend during H1 FY2016.

Development

Key development projects continued to see progress in H1 FY2016.

Mangala and Bhayam EOR

At Mangala injection has been increased to 200,000 polymer solution/day during H1 FY2016. The injection ramp-up plan is on track and the impact of polymer injection on production is in line with our expectations. More than 75% of the new wells are already drilled, and work on drilling and surface facilities is on schedule. Modifications to existing facilities for handling polymerised fluids are near completion. Some of the pre-producer wells have been converted into polymer injection wells as per the plan, which will eventually lead to ramp-up in production. Bhagyam EOR is at an advanced contracting stage.

Gas development at RDG field

Discussions on the pipeline are in an advanced stage with all stakeholders, including the Petroleum and Natural Gas Regulatory Board (PNGRB). In addition to optimising the existing infrastructure, we are also progressing on the tendering process for the new gas processing terminal. We expect first gas from the new terminal in H2 2017, subject to the pipeline approval.

Exploration

During H1 FY2016 we advanced exploration activities across Indian and International blocks, paving the way for long-term growth opportunities.

n KG Offshore (Block KG-OSN-2009/3)

Preliminary depth migrated preliminary seismic data have been interpreted for the maturation of prospects in the block, and preparations are ongoing for exploratory drilling. Drilling is anticipated to commence in H2 FY2017, subject to all statutory clearances.

n KG Onshore (Block KG-ON-2003/1)

Our joint venture (JV) partner and operator ONGC submitted an FDP to the Management Committee for approval in Q1 FY2016, initiating the JV approval process for the Block.

n South Africa (Block 1)

Additional prospects were high graded from identified lead clusters in the outboard oil play in order to enhance the prospect portfolio and provide additional drilling options. Evaluation of shallow in board prospect inventory was in progress for oil and gas during H1 FY2016 and is continuing. The geological data indicates that the block has several play types prospective for Oil & Gas, in line with our earlier expectation.

Outlook

Cairn India is committed to creating long-term shareholder value. Despite prevailing low oil prices and substantial cut in capex, the company will maintain Rajasthan production this year at FY2015 levels. Planned capital investment in FY2017 is for net capex of US$500 million: 45% in core MBA fields, 40% in growth projects of Barmer Hill, Satellite Fields and Gas, and 15% in exploration. Cairn India retains the flexibility to invest approximately US$1 billion as oil prices improve and costs bottom out. The company aims to have healthy cash flows post capex, in order to retain the ability to pay dividends subject to Board approval.

Zinc India

Production Performance

(1) Excluding captive consumption of 3,697 tonnes in H1 FY 2016 vs. 3,451 tonnes in H1 FY2015

(2) Excluding captive consumption of 613,000 ounces in H1 FY2016 vs. 574,000 ounces in H1 FY2015.

Operations

For the six-month period, mined metal production was 472,000 tonnes, 26% higher than corresponding period last year. Ore production was 5.2 million tonnes during H1 FY2016, compared to 4.1 million tonnes during H1 FY2015. This increase is in line with the mine plans for Rampura Agucha and Sindesar Khurd (SK).

Rampura Agucha underground mine focused on mine development for sustained production in coming quarters; mine development crossed a benchmark level of 1,000m in September 2015.

Integrated refined zinc, lead and silver metal production increased by 28%, 41% and 50% respectively over H1 FY2015. The increase was primarily due to higher availability of mined metal, higher smelter efficiency and conversion of WIP inventory. Silver production benefited from higher ore grades and volumes from SK mine.

 (US$ per tonne except where stated)

Zinc prices were influenced by expectations that a series of mine closures and a relatively empty project pipeline would push the refined market into structural deficit. However, after rising to US$2,400/tonne in May 2015, zinc prices then dropped to below US$1,600/tonne. LME zinc prices averaged US$2,013/tonne during H1 FY2016 compared to US$2,196/tonne during H1 FY2015, a decrease of 8%. Lead average prices weakened by 15% on the back of marginally higher supply and lower demand. Average silver prices reduced significantly by 21%, in line with the general weakness in precious metals on the backdrop of a stronger US dollar.

Unit Costs

(1) With IFRIC 20 impact

The unit cost of zinc production decreased by 4%, compared to H1 FY2015. The decrease in cost was driven by higher volumes, reduced fuel prices and cost reduction initiatives, partly offset by increased royalty rates, and statutory levies including Water Cess, Electricity Duty and Renewable Power Obligation.

In India, zinc and lead royalty rates increased from 8.4% to 10% and from 12.7% to 14.5% respectively, effective from 1 September 2014. In addition, an amount equal to 30% of this royalty was levied with effect from 12 January 2015 for contribution to the District Mineral Fund (DMF) for existing mines and 2% in royalty for the National Mineral Exploration Trust (NMET).

Financial Performance

(in US$ million, except as stated)

EBITDA in H1 FY2016 increased to US$582 million, compared with US$551 million during H1 FY2015. This increase was primarily driven by higher integrated volumes, lower cost of production, and currency depreciation, which were partially offset by a reduction in metal prices and statutory headwinds including Renewable Power Obligations, Electricity Duty, District Mineral Foundation and water cess.

Projects

Rampura Agucha open pit deepening projects, undertaken to de-risk the transition to underground mines, are on track. The underground mine project is progressing well. We achieved record mine development of 1000 metres/month in September 2015.The main shaft sinking is now progressing as per plan.

At Sindesar Khurd mine, the development of two auxiliary lenses as separate production centres is in full swing, which has helped in ramping-up the mine and will increase the production capacity from 2 million MT to 3 million MT by end FY2016.

The ramp-up of Kayad mine is progressing well and is expected to achieve 1 million MT production capacity by end FY2016.

Outlook

We reiterate our guidance for FY2016; mined metal production is expected to be higher than FY2015, while integrated refined metal production, including silver, will be significantly higher as the company will process the available mined metal inventory from previous year.

Zinc International

Production Performance

Mined metal output during H1 FY2016 was 12% lower at 91kt compared to H1 FY2015, primarily due to a reduction in production at Lisheen of 12,000 tonnes, which is near the end of its life and is expected to cease production in November 2015. Production at BMM was stable and in line with corresponding period at 31,000 tonnes.

At Skorpion, production reduced by 18,000 tonnes. This was primarily due to lower ore treatment due to equipment availability in milling and processing circuits, unplanned shutdown and a 30-day planned maintenance shutdown that commenced on 16 September 2015. We expect the operations to resume at normal levels post the refurbishment of equipment after the shutdown.

Unit costs

Unit cost of production increased to US$1,439/tonne, up from US$1,331/tonne in H1 FY2015. Currency benefits were more than offset by reduced volumes at Skorpion and Lisheen, unplanned disruptions, higher maintenance expenses due to shutdown work and higher treatment and refining charges.

Financial performance

(in US$ million, except as stated)

EBITDA reduced by 39% to US$57 million during H1 FY2016 due to lower metal prices, lower volumes and higher costs.

Projects

At the Gamsberg project, pre-stripping commenced in July 2015 as per the re-phased plan. The project is being developed using a modular approach, with project execution carried out in a phased manner that allows flexibility to manage the capital expenditure programme. The first ore production is planned for FY2019, and the ramp-up to full production will be in line with the revised capex profile. The overall capex has been reduced from $782 million to $682 million, mainly due to local currency depreciation and cost optimisation.

Outlook

We expect FY2016 production of 220kt - 230kt, primarily driven by lower volumes from Lisheen as per the mine plan.

IRON ORE

Production performance

Operations

At Goa, the remaining approvals for major mines were received for production of saleable ore of 5.5 mtpa and mining restarted at two mines during the period after suspension of three years. During H1 FY2016, we recorded production of 0.1 million tonnes. Production will be progressively ramped up in H2 FY2016. The first export shipment was made on 19 October 2015.

At Karnataka, production and sales were in line with expectations, with sales of 1.2 million tonnes and production of 1 million tonnes in H1 FY2016.

Production of pig iron was 320kt during H1 FY2016, an increase of 7% compared to the corresponding period.

In line with our continued discussion with the Government, export duty on low-grade iron ore (Goa in this cycle of depressed iron ore prices.

We continue to work with the Government to resolve matters, including the duplication of taxes (Goa Mineral Permanent Fund and District Mineral Foundation, removal of export duty and enhancing the limits of iron ore mining at Goa).

Iron ore prices remained range-bound during H1 FY2016, having fallen 41% compared to H1 in FY2015 as a result of increased supply from Australia and moderating demand growth in China. Iron ore spot prices averaged US$56 (CFR China) for 62% Fe grade a tonne over H1 FY2016 compared to US$96 in H1 FY2015.

Financial performance

(in US$ million, except as stated)

EBITDA during H1 FY2016 decreased to US$7 million, compared to US$28 million in the corresponding period, due to lower Iron Ore prices and lower margin from the pig iron business.

Outlook

Production at Goa is expected to ramp up during H2 FY2016. An aggressive cost-reduction agenda is being implemented to effectively counter the low price environment.

On the Liberia project the company expects to progress exploration and commission a feasibility study in early FY2017.

COPPER - INDIA/AUSTRALIA

Production performance

Operations

During H1 FY2016 copper cathode production at Tuticorin was 193,000 tonnes, despite the 20-day total outage due to planned and unplanned maintenance shutdown. The smelter is now producing at a normalised plant capacity level. The 160MW power plant at Tuticorin continued to operate at a Plant Load Factor (PLF) of 85%. This lower PLF was due to lower power off-take by the state electricity board during high wind power generation in the region.

Our copper mine in Australia remains under care and maintenance and we continue to evaluate various options for its restart.

Over H1 FY2015, average LME copper prices fell 18%, while treatment and refining charges (TCs/RCs) increased by 20%.

Unit costs

At the Tuticorin smelter, the cost of production decreased from 4.8 US cents/lb to 2.4 US cents/lb, mainly due to lower input costs (fuel and power) and higher by-product credits.

Recently, we have seen some pressure on copper prices, which are hovering around US$5,000 to US$5,200 per tonne. Treatment and refining charges are expected to remain relatively strong. Global TCs/RCs for 2016 have so far settled at higher levels compared to 2015, and we expect to realise over US cents 25/lb during H2 FY2016.

Financial performance

(in US$ million, except as stated)

EBITDA during H1 FY2016 was US$170 million, compared to US$110 million in the corresponding period. This increase was mainly driven by higher volumes, improved operational efficiencies, higher TCs/RCs, and lower costs of production. Operating profit was US$154 million in H1 FY2016, an improvement compared to US$84 million in the previous year.

Outlook

Production is expected to be stable around 390kt, with no planned maintenance activities scheduled in H2 FY2016.

COPPER - ZAMBIA

Production performance

Operations

During H1 FY2016, mined metal production was 5% higher at 62kt. Production at the Konkola mine increased by 19% compared to H1 FY2015. This was primarily on account of improvement in Cu grade (3.24% in H1 FY2016 : 3.16% in H1 FY2015), improvement in mobile equipment availability through the implementation of improved planned maintenance practices, and the roll-out of a rebuild programme.

At Nchanga, mined production reduced 18% over the corresponding period due to constraints at the mill and reduced availability of dump trucks. TLP primary copper production was at 28,000 tonnes, an increase of 5% over corresponding period, on account of higher equipment availability.

Production from the Upper Ore Body at the Nchanga underground was suspended in November 2014 and remains under care and maintenance.

Custom production increased by 51% compared with the corresponding period, although this was lower than the available capacity due to constraints of availability of concentrates in the local market.

From 1 July 2015, the Government of the Republic of Zambia has approved the revision of the mineral royalty rates from 20% to 9% for open pit operations, and from 8% to 6% for underground operations, together with the reintroduction of corporate income tax at 30% on mining activities and 35% on mineral processing activities.

Following the receipt of the 30% force majeure notice from Copperbelt Energy Corporation in July 2015, KCM embarked upon a major energy savings programme, including the reduction of refinery operations. It has produced approximately 80% of copper in the form of cathodes, with the balance being sold as anodes in H1 FY2016. We achieved an improvement of 4.6% in power consumption after the initiative. The price of imported power to replace the reduced supply is unsustainable in the long run and discussions with interested parties, including the Government of the Republic of Zambia, are underway.

Unit costs (integrated production)

The unit cost of production without royalty reduced by 23% to 210 US cents/lb during H1 FY2016 compared to 273 US cents/lb in the corresponding period. The reduction was mainly due to higher cobalt credit, better management of maximum power demand and the reversal of certain provisions, which was partly offset by local currency depreciation on VAT receivable.

Financial performance

(in US$ million, except as stated)

EBITDA in H1 FY2016 was a loss of US$24 million compared with a US$16 million profit in the previous period. The EBITDA was hit by US$68 million due to Kwacha depreciation impact on VAT receivable, which was partly offset by improved volumes and lower costs. Operating losses increased to US$119 million.

Outlook

Konkola mine

KCM is focusing on running the Konkola mining operations efficiently through its prioritisation strategy, which focuses on three key production areas, thereby resulting in improved equipment availability and productivity.

Smelter and refinery

Continuous efforts are being made to increase the production with increase in third-party purchase concentrates and higher concentrate from Konkola mine.

Nchanga operations

At Nchanga, we are focusing on sustaining and improving the operations at the Tailings Leach Plant by treating CRO stockpiles and old tailings.

Production is expected to ramp up further during H2 FY2016. We maintain our target production of 190kt - 210kt, with integrated production of 120kt - 130kt during FY2016.

ALUMINIUM

Production Performance

(1)Including trial run production of 38kt in H1FY2016

(2) Including trial run production of 24kt in H1FY2015

Operations

The Lanjigarh alumina refinery produced 541,000 tonnes in H1 FY2016, 18% higher than the corresponding prior period. Production was stable at the 500kt Jharsuguda-I and 245kt Korba-I smelters.

The 325kt Korba-II smelter produced 37,000 tonnes during H1 FY2016 with 83 pots operational. The high cost rolled product facility at BALCO, which produced approximately 46,000 tonnes in FY2015, has been temporarily closed and should result in cost savings. We will continue to sell ingots and wire rods from BALCO.

The 1.25 million tonnes Jharsuguda-II smelter produced 38,000 tonnes as a trial run production in H1 FY2016 with 80 pots operational.

Unit costs

(US$ per tonne)

During H1 FY2016, alumina cost of production (COP) was US$331/tonne, compared to US$366/tonne in the corresponding period. Due to the non-availability of captive bauxite and cost optimisation drives across the business, the alumina refinery has been reduced to a single stream and will now operate at an annual capacity of 800kt. The alumina COP for the month of September reduced to US$299/tonne.

The hot metal COPat500kt Jharsuguda-I was US$1,598/tonne, compared to US$1,688/tonne during H1 FY2015. The decrease was due to lower alumina prices, lower imported coal prices and currency depreciation.

The cost of production at the 245kt Korba-I reduced to US$ 1,722/tonne from US$1,964/tonne in H1 FY2015. This decrease was due to lower alumina, power costs and currency depreciation.

Average LME prices for aluminium during H1 FY2016 were US$1,675, a decrease of 12% from the average price in H1 FY2015. An all-in aluminium price, including premia, is at its lowest level since the crisis of FY2009, driven by the deteriorating Chinese economy and weaker currency.  

Financial performance

(in US$ million, except as stated)

EBITDA during H1 FY201 substantially reduced by 88% to US$22 million, compared to US$180 million in H1 FY2015. This was due to lower LME prices, premia on metals, and a US$37 million provision for Renewable Power Obligations (RPO) for previous years.

Projects

The company has prospecting licences for three laterite mines in Odisha and exploration is in progress. During H1 FY2016, progress was made in securing required approvals; we expect to start production in H2 FY2016 after receipt of Mining Leases (ML). The approval for expansion of the Lanjigarh Alumina refinery is in advanced stage and Environmental Clearance is expected in H2 FY2016.

At the 325kt Korba-II smelter, the ramp-up of further pots has been temporarily put on hold due to weaker LME and premia, and the ramp-up of captive power capacity. Of the two 300MW CPP units of the 1,200 MW Korba Power Plant, the first 300MW unit has been lighted up during early October 2015. We expect commissioning of both CPP units during H2 FY2016.

We are in discussions with  Government of India authorities for using power from the 2,400 MW power plant for further ramp-up of pots at the 1.25 million tonnes Jharsuguda-II, and expect this to commence in H2 FY2016.

We signed a mining lease agreement for Chotia coal block in early October 2015, and production is expected over the coming months. We are in discussion with the Government of India for approval to start mining on Gare Palma IV/1 block and the matter is sub-judice.

Outlook

Alumina: during H2 FY2016, the company will produce and consume 0.4 million tonnes of alumina from Lanjigarh refinery with single stream operation, with the balance of requirements to be imported (largely tied up with major alumina producers). For producing alumina, the main sources of bauxite will be 0.7mt from captive mines at BALCO, with sourcing from other domestic bauxite mines and imports.

Coal: we are taking numerous initiatives to meet our coal requirements. We have secured additional linkage coal of 1.3 million tonnes from MCL for Jharsuguda 1215 MW CPP for H2 FY2016. This will help us to replace a large part of our auction coal consumption. Import coal prices softened further by 20% during H1 FY2016 and we expect prices to remain at current levels during H2 FY2016. We have maintained our imported coal mix to 15% of overall coal consumption. 

POWER

Production performance

Operations

Power sales were higher at 5,789 million units compared to 4,627 million units in the corresponding period. The Jharsuguda 2,400MW power plant operated at a lower Plant Load Factor (PLF) of 40% during H1 FY2016, marginally higher than the corresponding period, due to weaker power market and power evacuation constraints for open access power sales.

At the Talwandi Sabo power plant, the first 660MW unit of TSPL operated at 71% availability during the half year and supplied 1,077 million units to the Punjab State Electricity Board (PSEB). TSPL's Power Purchase Agreement with PSEB compensates based on the availability of the plant. The remaining two units are expected to commence production in H2 FY2016.

Out of the two 300MW units of the 1,200 MW Korba Power Plant destined for commercial power: one 300MW unit has achieved commercial production during this period and was capitalised on 1 August 2015; the second commercial unit is expected to be commissioned during H2 FY2016.

Unit sales and costs

Average power sale prices were lower in H1 FY2016 at US cents 4.9/unit compared with US cents 5.6/unit in the previous year, primarily due to lower power realisation rates in open access sales at Jharsuguda.

During H1 FY2015, average power generation costs remained steady at 3.44 US cents/unit compared with 3.46 US cents/unit in the corresponding period.

Financial performance

(US$ million, except as stated)

EBITDA remained lower at US$93 million despite improved revenue, primarily due to weaker power markets.

Outlook

During H2 FY2016, we will continue to increase capacity utilisation at Jharsuguda and bring new capacity at Korba and Talwandi Sabo.

Port business

At the Vizag General Cargo Berth (VGCB), tonnage handled increased by 4% to 3.6 million tonnes in H1 FY2016, compared to 3.5 million tonnes in H1 FY2015, and generated EBITDA of US$7.2 million.

VGCB is one of the deepest coal terminals on the eastern coast of India, which enables docking of large Cape-size vessels.

Sustainability

Our Sustainable Development Model comprises four pillars: Responsible Stewardship, Building Strong Relationships, Adding and Sharing Value and Strategic Communications. These pillars found a sound base from which we can build a successful future for our business, while we reach for our strategic goals of growth, long-term value and sustainable development.

Responsible stewardship

Our Sustainable Development Model encapsulates Vedanta's approach to managing risk and how we conduct our business ethically. It also guides us in ensuring the health and safety of our workforce and minimising our environmental footprint.

Health and safety

The health, safety and well-being of all our workforce is of paramount importance. In H1 FY2016, we released six key safety standards for Group-wide implementation. We have also asked every employee for a personal commitment to act on any unsafe act or condition; to report any 'near miss' in order to correct the situation before it turns into a potential injury; and, most importantly, to be mindful in assessing job hazards, with risk mitigation plans before taking up any job.

During HI FY2016, our lost time injury frequency rate increased to 0.59 (FY2015 : 0.54), with seven fatalities (five in India and two in Africa). Each fatality is being investigated by the corporate team. Each subsidiary company's Chief Executive/Chief Operating Officer has presented a detailed appraisal of the root causes of each fatality to the Board's Sustainability Committee, with resulting action plans. The Corporate Safety team has initiated structured programmes to mitigate the 'high safety risk at work' areas through proper engineering and safety solutions, such as Experienced Based Risk Assessment and the mandatory implementation of performance standards. All employees and contractors have also received capacity building and safety training programmes.

Safety management procedures at Vedanta are improving and we remain focused on meeting our target of Zero fatalities.

The environment

Our continuous improvement projects in air, water and energy management have made good progress, but we have much more to do to meet our own challenging internal targets. Initiatives to achieve efficiency savings on water and energy, through the combination of new technology and advancing business processes, have gone well and in the first six months of this year we have already achieved 70% of our water and 30% of our energy conservation targets for FY2016.

During H1 FY2016 we recycled 37% of our overall non-hazardous waste. We also signed a MoU with TERI (Tata Energy Research Institute) to build and support Vedanta's subsidiary companies in preparing the roadmap for hazardous and non-hazardous waste utilisation. All group companies are progressing well towards implementing their biodiversity conservation efforts.

Building strong relationships

Identifying and actively managing all our stakeholder relationships - including our employees, our host communities and our shareholders and lenders - is important if we are to maintain our licence to operate. This year, we took another step to improve consistency across the Group, with subsidiary businesses now formally recording all stakeholder expectations and outcomes of their stakeholder engagements. Further, all our CSR projects dwells out of the community need base assessment exercise.

During H1 FY2016, around 800 stakeholder engagement meetings took place with community leaders, non-governmental organisations (NGOs), Governments and Government bodies and academic institutions. More than 120 partnerships are now in place.

Going forward, all Vedanta Group companies will implement action plans relating to the corporate assessment in the UN's guiding principles on Business and Human Rights.

We continued to implement the WBCSD - WASH pledge: Safe access to Water, Sanitation and Hygiene for the entire workforce. We fully support the UN -Women Empowerment Principles and Sustainable Development Goals. Over the past six months, we have also carried out further training and capacity building workshops on Human Rights and Codes of Conduct.

Adding and sharing value

We believe Vedanta's role is to create value for all stakeholders. We believe that the communities in and around the areas in which we operate should share that value. Only by working in partnership with communities will our business grow. Together with shared financial, economic and social values, this will help us maintain our licence to operate.

Vedanta makes significant contributions to partner with local Governments and to help them achieve their development goals; to strengthen national and local economies, and to build infrastructure and facilities for local education and healthcare.

We have rolled out Group-wide Anganwadi (childcare centre) projects during last six months, enabling and upgrading around 4,000 Anganwadis across Indian states. All have modern amenities and support India's commitment towards eliminating malnutrition, promoting gender equality and ensuring quality education to children in rural parts of India.

Strategic communications:

Last year, we added a fourth pillar to our Sustainability Model: Strategic Communications. This reflects our commitment to complete transparency and emphasises our principles of community dialogue and mutual respect, including free prior informed consent to access natural resources.

We report our economic, social and environmental performance in our Sustainable Development Report. We have aligned our Sustainability Reporting Calendar with our Financial Calendar and all reports continue to be published annually with the Annual Report.

We have released our seventh Sustainable Development Report, which is prepared based on Global Reporting Initiative (GRI) G4, in accordance with core guidelines and mapped to the United Nations Global Compact (UNGC) and Millennium Development Goals (MDGs). It reports our approach and disclosure towards triple bottom line principles - people, planet and profit - over FY2016.

http://sd.vedantaresources.com/SustainableDevelopment2014-15/index.html

In July 2015, we hosted our maiden Sustainable Development Day in London. The event was attended by diverse stakeholders including lenders, investors, analysts, industry bodies and sustainability consultants. We are pleased that we are starting to facilitate two-way engagement with our core stakeholders and building a deeper understanding of their material issues.

As part of our continual engagement with stakeholders, we are committed to responding effectively to all stakeholder feedback. Multiple channels are used to maintain contact and we have a dedicated email address [email protected].

In addition to above, we have also released our tax transparency report for the first time, which lays out our tax contribution to public finances for FY2015. This covers the contribution made to income tax, indirect revenue contributions (payroll taxes, value added taxes, green levies, social security contributions etc.), royalties and tax on capital gains. In summary, we have contributed US$5.7 billion to public finances for FY2015. As the first year of such reporting, the contents are not audited nor have they passed thorough external assurance process, which we intend for future reports.

Risks and uncertainties

Vedanta operates across the value chain, undertaking exploration, asset development, extraction, processing and value addition with a primary focus on upstream operations. Our vision is to be a world-class, diversified resources company, providing superior returns to our shareholders with high-quality assets, low-cost operations and sustainable development.

The natural resources sector is currently in the midst of a correction, with an extended period of lower and volatile commodity prices, impacting earnings, balance sheets and investor perceptions. Companies are grappling with unprecedented global supply restructuring in the wake of the super cycle.

Our risk management framework is designed to be simple, consistent and clear for managing and reporting risks from the Group's businesses to the board. Risk management is embedded in our critical business activities, functions and processes. Our management systems, organisational structures, processes, standards, code of conduct together form the system of internal control that govern how we conduct the Group's business and manage the associated risks.

We have a multi-layered risk management framework aimed at effectively mitigating the various risks which our businesses are exposed to in the course of their operations as well as in their strategic actions. We identify risk at the individual business level for existing operations as well as for ongoing projects through a consistently applied methodology.

Formal discussion on risk management happens in business level review meetings periodically. The respective businesses review the risks, change in the nature and extent of the major risks since the last assessment, control measures established for the risk and further action plans. The control measures stated in the risk matrix are also periodically reviewed by the business management teams to verify their effectiveness. These meetings are chaired by business CEOs and attended by CXOs, senior management and concern functional heads. Risk officers have been formally nominated at all operating businesses as well as Group level, whose role is to create awareness on risks at senior management level, and to develop and nurture a risk management culture within the businesses. Risk management forms an integral part of performance management process in the organisation. Risk management meetings also happen periodically at group level.

The Board of Directors has the ultimate responsibility for management of risks and for ensuring the effectiveness of internal control systems. The Audit Committee aids the Board in this process by identifying and assessing any changes in risk exposure, reviewing all risk control measures and approving remedial actions, where appropriate. The Audit Committee is supported by the Group Level Risk Management Committee, which helps evaluate the design and operating effectiveness of the risk mitigation programme and control systems.

In addition to the above structure, other key risk governance and oversight committees include following:

n CFO Committee- has an oversight on treasury-related risks. This committee comprises the Group CFO, business CFOs and Treasury Heads at respective businesses.

n Group Capex Sub-Committee- evaluates capex risks while reviewing any capital investment decisions, and institutes a risk management framework in all expansion projects.

n Vedanta Board Level Sustainability Committee- looks at sustainability related risks.

Principal risks and uncertainties and detailed information on the impact of these risks as well as the identification and mitigation measures adopted by management at the year end have been documented in Vedanta's Annual Report for FY2015 on pages 28 to 35 and have not changed significantly since. Manifestation of any or all of these risks could have a significant impact on the performance of our Group going forward.

Listing of significant risks:

n Delay in commencement of production facilities in aluminium business

n Fluctuations in commodity prices (including oil)

n Liquidity risk

n Health, safety and environment (HSE) risk

n Extension of Production Sharing Contract of Cairn beyond 2020 or extension at less favourable terms

n Operational turnaround at KCM

n Challenges in resumption, continuation and growth of commercially viable iron ore business

n Discovery risk

n Currency exchange rate fluctuation

n Political, legal and regulatory risk

n Tax related matters

n Breaches in IT/cybersecurity

n Reliability and predictability in operational performance

n Community related risk

n Talent/skill shortage risk

n Transitioning of zinc and lead mining operations from open pit to underground mining

n Loss of assets or profit due to natural calamities

n The Group's reported results could be adversely affected by the impairment of assets

It may be noted that the order in which these risks appear does not necessarily reflect the likelihood of their occurrence or the relative magnitude of their impact on our business.

A new risk identified during the period is Access to Capital. On Access to Capital, our immediate priority is debt refinancing. We are working on a refinancing plan for existing debt portfolio in order to reduce the cost of borrowing, extend the maturity profile and deleverage the balance sheet.

We remain focused around our operations, optimising our assets, maintaining positive free cash flow, reduction of working capital and delivery of strategic priorities. We have taken up a series of initiatives to reduce costs, maintain financial strength and mitigate the risk on account of access to capital. Our focus areas are aggressive cost reduction through operational efficiency, workforce reduction, product mix optimisation and deriving value out of procurement synergies across locations.

The group has launched a large-scale cost reduction and profit improvement programme called 'LEAP', aimed at delivering transformational improvements which will reset our cost base to the lowest possible level.

A manpower rationalisation programme is underway across various Group companies. In order to optimise our cash flows in this challenging environment, we have pruned down our capex plans. The entire aluminium team is focused on cost savings by way of achieving better sourcing rates, aggressive cost reduction drives, improving operational efficiencies, reducing financing costs and improvement in net sales realisation through product mix optimisation. We are taking a disciplined approach towards smelter ramp-up in light of current market volatility.

Responsibility Statement

We confirm that to the best of our knowledge:

n The condensed set of financial statements has been prepared in accordance with IAS 34, Interim Financial Reporting; and give a true and fair view of the assets, liabilities, financial position and profit of the undertakings included in the consolidation as a whole by DTR 4.2.4R.

n The interim management report includes a fair view of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

n The interim management report includes a fair view of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

Tom Albanese                                                                                                                        DD Jalan

Chief Executive Officer                                                                                  Chief Financial Officer

3 November 2015                                                                                                    3 November 2015

5. Other gains and (losses) [net]

 (US$ million)

6. Income tax expense

(US$ million)

7. Earnings per share

(a) Basic earnings per share amounts are calculated by dividing net profit/loss for the period/year attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the period/year.

Diluted earnings per share amounts are calculated by dividing the net profit/loss attributable to ordinary shareholders by the weighted average number of Ordinary Shares outstanding during the period/year (adjusted for the effects of dilutive options and convertible loan notes).

The following reflects the income and share data used in the basic and diluted earnings per share computations:

(US$ million)

(US$ million)

Basic loss per share on the loss for the period/year

(US$ million except as stated)

Diluted loss per share on the loss for the period/year

(US$ million except as stated)

The effect of 6.4 million (30 September 2014: 3.5 million, 31 March 2015: 4.0 million) potential ordinary shares, which relate to share option awards under the LTIP scheme, on the attributable loss for the period/year are anti-dilutive and thus these shares are not considered in determining diluted EPS. The loss for the period/year would be impacted if holders of the convertible bonds in Vedanta exercised their right to convert their bond holdings into Vedanta equity. The impact on profit/loss for the period/year of this conversion would lower interest payable on the convertible bond. The adjustment in respect of the convertible bonds has an anti-dilutive impact on the number of shares and earnings/loss and is thus not disclosed.

(b) Earnings per share based on underlying profit/ (loss) for the period/year (non-GAAP)

The Group's Underlying Profit/loss is the attributable profit for the period/year after adding back special items, other losses/ (gains) [net]¹ and their resultant tax and Non-controlling interest effects:

(US$ million)

(1)   Includes exchange losses/ (gains) on borrowings and capital creditors, change in fair value of financial liabilities and embedded derivatives and losses/ (gains) on qualifying and non-qualifying hedges

Basic earnings/(loss) per share on Underlying Profit/ (loss) for the period/year (non-GAAP)

(US$ million except as stated)

Diluted earnings/ (loss) per share on Underlying Profit/ (loss) for the period/year (non-GAAP)

(US$ million except as stated)

8. Dividends

(US$ million)

9. Movement in net debt⁽¹⁾

(US$ million)

(US$ million)

 (US$ million)

(1) Net debt being total debt after fair value adjustments under IAS 32 and 39 as reduced by cash and cash equivalents and liquid investments

(2) Debt-related derivatives exclude commodity-related derivative financial assets and liabilities

(3) Other non-cash changes comprises of mark to market of embedded derivatives, interest accretion on convertible bonds, amortisation of borrowing costs and reclassification between medium and long-term borrowings and short-term borrowings for which there is no cash movement. It also includes US$121.5 million (31 March 2015: US$250.8 million, 30 September 2014: US$211.9 million,) of fair value movement in investments

Debt securities issued during the period

In August 2015 Vedanta Limited (Jharsuguda Aluminium Division) issued NCD's of US$304 million to banks and financial institutions bearing an interest rate of 9.45% per annum. These debentures are secured by way of first pari-passu charge on the specified Fixed Assets with minimum asset coverage of 1.25 times of the aggregate face value amount of debentures outstanding at all times. The total principal is due for repayment in August 2020.

10. Other disclosures

Capital commitments

Contractual commitments to acquire fixed assets were US$1,758.5 million at 30 September 2015 (31 March 2015: US$1,973.7 million, 30 September 2014: US$2,773.2 million).

Contingent liabilities and guarantees

Significant legal cases have been discussed below; however for full disclosure please refer to the 31 March 2015 annual report.

Guarantees

As at 30 September 2015, US$305.7 million of guarantees had been issued to banks in the normal course of business (31 March 2015: US$365.4 million, 30 September 2014: US$298.2 million). The Group has also entered into guarantees advanced to the customs authorities in India of US$178.0 million (31 March 2015: US$228.9 million, 30 September 2014: US$667.7 million) related to payment of import duty.

Export Obligations

The Indian entities of the Group have export obligations of US$2,398.0 million (31 March 2015: US$2,688.0 million, 30 September 2014: US$3,576.3 million) on account of concessional rates of import duty paid on capital goods under the Export Promotion Capital Goods Scheme.

In the event of the Group's inability to meet its obligations, the Group's liability would be US$306.0 million (31 March 2015: US$339.0 million, 30 September 2014: US$451.7 million) reduced in proportion to actual exports, plus applicable interest.

Miscellaneous Disputes

The Indian excise and related indirect tax authorities have made several claims against the Group companies for additional excise and indirect duties. The claims mostly relate either to the assessable values of sales and purchases or to incomplete documentation supporting the companies' returns.

The approximate value of claims (excluding the items as set out separately below) against the Group total US$1,523.4 million (31 March 2015: US$1,370.7 million, 30 September 2014: US$1,266.1 million) of which US$47.6 million (31 March 2015: US$29.3 million, 30 September 2014: US$50.1 million) is included as a provision in the Statement of financial position as at 30 September 2015. In the view of the Directors, there are no significant unprovided liabilities arising from these claims.

Richter and Westglobe: Income Tax

The Group through its subsidiaries Richter Holdings Limited ('Richter') and Westglobe Limited ('Westglobe') in 2007 acquired the entire stake in Finsider International Company Limited based in the United Kingdom. Finsider at that point in time held 51% stake in Vedanta Limited. At that point of time there was no obligation to withhold tax from payments made to sellers. In October 2013, the Indian Tax Authorities ('Tax Authorities') have served an order on Richter and Westglobe for alleged failure to deduct withholding tax on capital gain on the indirect acquisition of shares in April 2007. The Tax Authorities held that Richter and Westglobe were 'assessee in default' for non-deduction of tax while making payment for acquiring the shares in 2007. The Tax Authorities determined the liability for such non-deduction of tax as US$133.2 million comprising of tax and interest in case of Richter and US$88.8 million in case of Westglobe. Being aggrieved, Richter and Westglobe filed appeals before first appellate authority. These Writs are pending for disposal. In the interim, the Tax Authorities disposed of the petition filed for stay for demand arising out of impugned orders. Consequent to an order received from the Tax Authorities in March 2015, any amounts payable from Vedanta Limited to Westglobe, including dividends as and when declared, must instead be paid to the Tax Authorities (up to the amount of tax assessment). Richter and Westglobe sought intervention by the High Court by filing an application. The next date of High Court hearing is scheduled for 17 November 2015. As regards the proceedings before First Appellate Authority, the next date is yet to be informed. Richter and Westglobe believe that they are not liable for such withholding tax and intend to defend the proceedings.

Cairn India: Income Tax

In March 2014, Cairn India received a show cause notice from the Indian Tax Authorities ('Tax Authorities') for not deducting withholding tax on the payments made to Cairn UK Holdings Limited ('CUHL') UK, for acquiring shares of Cairn India Holdings Limited ('CIHL'), as part of their internal reorganisation. Tax Authorities have stated in the said notice that a short-term capital gain has accrued to CUHL on transfer of the shares of CIHL to Cairn India, in financial year 2006-2007, on which tax should have been withheld by the Company. Pursuant to this various replies were filed with the tax authorities.

After hearings, the Income Tax Authority, during March 2015, have issued an order by holding Cairn India as 'assessee in default' and asked to pay such demand totalling US$3,117.5 million (including interest of US$1,558.7 million). The Company has filed a Notice of Claim by invoking Bilateral Investment Promotion Treaty between the UK and India. Cairn India has filed its appeal before the Appellate Authority CIT (Appeals) and filed a fresh Writ petition before Delhi High Court wherein it raised several points for assailing the aforementioned order. The hearing of the said Writ is due on 26 November 2015.

Vedanta Limited: Contractor claim

Shenzhen Shandong Nuclear Power Construction Co. Limited ('SSNP') subsequent to terminating the EPC contract invoked arbitration as per the contract alleging non-payment of their dues towards construction of a 210 MW co-generation power plant for 6 MTPA expansion project, and filed a claim of US$250.8 million. SSNP also filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 before the Bombay High Court praying for interim relief. The Bombay High Court initially dismissed their petition, but on a further appeal by SSNP, the Division Bench of the Bombay High Court directed Jharsuguda Aluminium to deposit a bank guarantee for an amount of US$29.2 million as a security, being a prima facie representation of the claim, until arbitration proceedings are completed. Jharsuguda Aluminium has deposited a bank guarantee of equivalent amount. SSNP had filed an application for interim award which has been disallowed at present as per Order dated 18 October 2014. The arbitration remains at an early stage. Management is of the opinion that this claim is not valid under the terms of the contract with SSNP and it is unlikely that SSNP can legally sustain the claim and accordingly, no provision is considered necessary.

11. Financial instruments

The accounting classification of each category of financial instruments, and their carrying amounts, are set out below:

 (US$ million)

(1)  Non-financial assets and liabilities have been excluded from the above disclosures

(2)  Includes amortised cost liability portion of convertible bonds US$1,117.3 million (31 March 2015: US$1,103.0 million, 30 September 2014: US$1,863.7 million)

IFRS 13 requires additional information regarding the methodologies employed to measure the fair value of financial instruments which are recognised or disclosed in the accounts. These methodologies are categorised per the standard as:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The below table summarises the categories of financial assets and liabilities measured at fair value:

(US$ million)

(US$ million)

(US$ million)

(1) Held for trading disclosures at 31 March 2015 and 30 September 2014 have been restated to appropriately disclose the bonds valued using inputs other than quoted prices as Level 2 rather than Level 1

No financial assets or liabilities that are measured at fair value were Level 3 fair value measurements.

The fair value of borrowings as on 30 September 2015 was US$16,384.7 million (31 March 2015: US$16,790.9 million, 30 September 2014: US$17,271.0 million). For all other financial instruments, the carrying amount is either the fair value, or approximates the fair value.

The fair value of financial asset investments represents the market value of the quoted investments and other traded instruments. For other financials assets the carrying value is considered to approximate fair value.

The fair value of financial liabilities is the market value of the traded instruments, where applicable. Otherwise fair value is calculated using a discounted cash flow model with market assumptions, unless the carrying value is considered to approximate fair value.

The fair value of the embedded derivative liability relating to the convertible bond has been calculated using the Black-Scholes model with market assumptions.

The Group has no financial instruments with fair values that are determined by reference to significant unobservable inputs.

12. Share Transactions

Call options

a. HZL

Pursuant to the Government of India's policy of divestment, the Company in April 2002 acquired 26% equity interest in HZL from the Government of India. Under the terms of the Shareholder's Agreement ('SHA'), the Group had two call options to purchase all of the Government of India's shares in HZL at fair market value. The Group exercised the first call option on 29 August 2003 and acquired an additional 18.9% of HZL's issued share capital. The Company also acquired an additional 20% of the equity capital in HZL through an open offer, increasing its shareholding to 64.9%. The second call option provides the Group the right to acquire the Government of India's remaining 29.5% share in HZL. This call option is subject to the right of the Government of India to sell 3.5% of HZL shares to HZL employees. The Group exercised the second call option on 21 July 2009. The Government of India disputed the validity of the call option and has refused to act upon the second call option. Consequently the Company invoked arbitration which is in the early stages. The next date of hearing is scheduled for 16 January 2016. Meanwhile, the Government of India without prejudice to the position on the Put/Call option issue has received approval from the Cabinet for divestment and the Government is looking to divest through the auction route.

b. BALCO

Pursuant to the Government of India's policy of divestment, the Company in March 2001 acquired 51% equity interest in BALCO from the Government of India. Under the terms of the SHA, the Group has a call option to purchase the Government of India's remaining ownership interest in BALCO at any point from 2 March 2004. The Group exercised this option on 19 March 2004. However, the Government of India has contested the valuation and validity of the option and contended that the clauses of the SHA violate the (Indian) Companies Act, 1956 by restricting the rights of the Government of India to transfer its shares and that as a result such provisions of the SHA were null and void. In the arbitration filed by the Group, the arbitral tribunal by a majority award rejected the claims of the Group on the grounds that the clauses relating to the call option, the right of first refusal, the 'tag-along' rights and the restriction on the transfer of shares violate the (Indian) Companies Act, 1956 and are not enforceable.

The Group has challenged the validity of the majority award in the High Court of Delhi and sought for setting aside the arbitration award to the extent that it holds these clauses ineffective and inoperative. The Government of India also filed an application before the High Court of Delhi to partially set aside the arbitral award in respect of certain matters involving valuation. The matter is currently scheduled for hearing by the Delhi High Court on 23 November 2015. Meanwhile, the Government of India without prejudice to its position on the Put/Call option issue has received approval from the Cabinet for divestment and the Government is looking to divest through the auction route.

On 9 January 2012, the Group offered to acquire the Government of India's interests in HZL and BALCO for the INR equivalent of US$2,356.5 million and US$271.1 million, respectively. This offer was separate from the contested exercise of the call options, and Group proposed to withdraw the ongoing litigations in relation to the contested exercise of the options should the offer be accepted. To date, the offer has not been accepted by the Government of India and therefore, there is no certainty that the acquisition will proceed.

The Group continue to include the shareholding in the two companies HZL and BALCO, in respect of which the Group has a call option as non-controlling interest.

13. Related party transactions

The tables below set out transactions with related parties that occurred in the normal course of trading.

Sterlite Technologies Limited ('STL')

(US$ million)

Sterlite Technologies Limited is related by virtue of having the same controlling party as the Group, namely Volcan.

Volcan Investments Limited

(US$ million)

Volcan Investments Limited is a related party of the Group by virtue of being ultimately controlled by members of the Agarwal family.

14. Konkola Copper Mines: Value Added Tax

An assessment of output tax amounting to US$600 million has been raised by the Zambia Revenue Authority ('ZRA') covering the years 2011, 2012 and the first quarter of 2013. The basis of assessment is that KCM has not provided all the documentary evidence that is required under Rule 18 of the Value Added Tax Rules to prove an export and as a consequence, all sales of product that were zero rated in the returns have been standard rated by assessment. KCM has withdrawn the judicial case it filed in the High Court and is positively engaging with ZRA over the matter. KCM has since applied to the Commissioner General for the reinstatement of the objection against VAT Rule 18 assessment. Consequent to this, KCM has been requested to submit documents in support of Rule 18 for any 9 months within the assessment period. The assessment covers a 27 month period from January 2011 to March 2013. The unpaid VAT for the period prior to March 2015 (August 2013 to February 2015), will only be processed after the VAT Rule 18 assessment matter is resolved. KCM has further applied to the Commissioner General of ZRA to reduce the period of 9 months to 3 months.

After legally analyzing the interpretation of Rule 18, management believes that KCM has got a reasonably strong defense in the case and the risk of material loss is considered remote.

15. Share capital

Share capital as at 30 September 2015 amounted to US$30.0 million. During the Six months ended 30 September 2015, the Company issued 312,529 shares to the employees pursuant to the LTIP scheme and Employee Share Option Plan. As a result of the shares issued, the number of Ordinary shares in issue have increased from 299,868,180 shares as on 31 March 2015 to 300,180,709 shares as on 30 September 2015.

16. Cairn merger update

The Board of Directors of the Company and Cairn India Limited at their respective meetings held on 14 June 2015 have approved the Scheme of Arrangement (the 'Scheme') between Cairn India Limited and Vedanta Limited and their respective shareholders and creditors subject to regulatory and other approvals. On 10 September 2015, BSE Limited and the National Stock Exchange of India Limited has issued a 'No adverse observation' letter to the Scheme.

17. Subsequent events

Subsequent to the balance sheet date of 30 September 2015, there are no significant events to report.

INDEPENDENT REVIEW REPORT TO VEDANTA RESOURCES PLC

We have been engaged by the Company to review the Condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2015 which comprises the income statement, the statement of comprehensive income, the statement of financial position, the statement of changes in equity, the cash flow statement and related notes 1 to 17. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the Condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The Condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting,' as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the Condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the Condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

3 November 2015