Deutsche Bank cuts Vedanta Resources' target price

Vedanta Resources shares dropped after Deutsche Bank cuts its target price for the mining company from 200p to 185p on lower than expected iron ore sales and higher power costs.

The bank said Vedanta now expects to sell 3.5mt from the Goa mine, down from between 5mt and 5.5mt.

“[The company] is engaged on multiple fronts to resolve issues plaguing the high-cost mine: (i) with the state governments to lift mining caps, (ii) with the Government to remove the export duty on low grade Goan ore, (iii) with unions to settle transport tariff disputes, and (iv) with the Supreme Court to resolve duplication of taxes.”

Deutsche Bank also signalled power costs are increasing which will impact profitability from this month.

“The state electricity provider increased tariffs by 25% from 1 January 2016, which will apply to 70% of the electricity used by Vedanta, and take power from 20% of C1 costs to 25%, or add USc9/lb on our estimates.

"As a result we forecast Copper Zambia C1 costs to be USc176/lb in 4Q16 and average USc189/lb for the year.”

Shares in Vedanta Resources were down 14.9p (6.10%) to 229.2p at 1554 GMT.