Sterlite Industries (India) Limited - Sterlite Industries India Ltd.

We currently expect capital expenditures of approximately Rs. 27,410 million ($538.8 million) over the next year by HZL to complete
brownfield expansion projects to increase HZL’s zinc production capacity by 210,000 tpa and lead production capacity by 100,000 tpa, to add a
160 MW captive power plant and increase mining output, which would increase HZL’s zinc-lead production capacity to 1,065,000 tpa with
fully integrated mining and captive power generation capacities. These projects are being undertaken at HZL’s Rajpura Dariba complex which
is expected to be completed by mid-2010, and at the Rampura Agucha, Sindesar Khurd and Kayar mines in the State of Rajasthan in Northwest
India at an estimated cost for the entire project of Rs. 28,800 million ($566.1 million). The expansion of ore production capacity at the
Rampura Agucha mine is scheduled for completion in mid-2010. The expansion at the Sindesar Kurd mine is scheduled to be progressively
completed from mid-2010. The Kayar mine is expected to start mining activity progressively from mid-2010.
In October 2006, BALCO entered into a memorandum of understanding with the Government of Chhattisgarh, India, and the CSEB to build
a thermal coal-based 1,200 MW power facility, along with an integrated coal mine, in the State of Chhattisgarh. In September 2008, BALCO
entered into an implementation agreement with the Government of Chhattisgarh, India, setting forth the details for the implementation of the
project. The estimated cost of this project is Rs. 46,500 million ($914.1 million). The first phase of this project is expected to be commissioned
by June 2010, with the second phase being completed by September 2011. The capital expenditures made on this project as March 31, 2009 are
Rs. 12,830 million.
On August 8, 2007, BALCO entered into a memorandum of understanding with the State Government of Chhattisgarh for a potential
investment to build an aluminum smelter with a capacity of 650,000 tpa at Chhattisgarh at an estimated cost of Rs. 81,000 million
($1,592.3 million). The completion of this project would increase BALCO’s total production capacity to 1.0 million tpa. The first of two phases
of this project has been commenced by BALCO with the setting up of a 325,000 tpa aluminum smelter, which uses pre-baked GAMI
technology. BALCO has received environmental clearance for both phases of the project. Construction has commenced and the first production
stream from the 325,000 tpa aluminum smelter is expected in October 2010. The first phase is expected to be completed by September 2011.
The estimated cost of building the 325,000 tpa aluminum smelter and 1,200 MW captive power facility is Rs. 76,900 million
($1,511.7 million). As of March 31, 2009, Rs. 12,918 million ($253.9 million) has been spent.
In fiscal 2010 and 2011, we have scheduled loan repayment obligations, denominated in a mix of Indian Rupees and US dollars of
Rs. 13,171 million ($258.9 million) and Rs. 2,557 million ($50.3 million), respectively, for various outstanding long-term loans. We plan to
finance our capital expenditures and our loan repayment obligations out of our cash flows from operations and financing activities. Our failure
to make planned expenditures could adversely affect our ability to maintain or enhance our competitive position and develop higher margin
products.
Consistent with our strategy to consolidate our ownership interests in our key subsidiaries, we intend to exercise our call option to acquire
the Government of India’s 29.5% ownership interest in HZL (or 26.0% if the Government of India exercises in full its right to sell 3.5% of
HZL to HZL employees), which is exercisable so long as the Government of India has not sold its remaining interest pursuant to a public offer
of its shares. See “Item 4. Information on the Company — B. Business Overview — Our Business — Options to Increase Interests in HZL and
BALCO” for more information. The option value will be the fair market value determined by an independent appraiser, and will entail
significant capital requirements. Based solely on the market price of HZL’s shares on the NSE on July 3, 2009 of Rs. 602.75 ($11.85) per
share, and not including the other factors that the independent appraiser may consider, one possible estimation of the exercise price to acquire
all of the Government of India’s 124,795,059 shares of HZL would be Rs. 112,830 million ($2,218.0 million). If the Government of India sells
its remaining ownership interest in HZL through a public offer, we may look into alternative means of increasing our ownership interest in
HZL.
In addition, we have exercised our option to acquire the Government of India’s remaining 49.0% ownership interest in BALCO, though the
exercise of this option has been contested by the Government of India and the Government of India retains the right and has expressed an
intention to sell 5.0% of BALCO to BALCO employees. See “Item 4. Information on the Company — B. Business Overview — Our Business
— Options to Increase Interests in HZL and BALCO” for more information.
We may in the future make acquisitions of mines, plants or minerals and metals businesses that complement or enhance our existing
businesses. For example, on March 6, 2009, we announced that we had signed a definitive agreement to purchase substantially all of the
operating assets of Asarco, a Tucson based mining, smelting and refining company, for $1.7 billion. On June 12, 2009, we agreed to increase
the purchase consideration to $1.87 billion, mostly related to an expected increase in working capital on the closing date. Asarco, currently the
third largest copper producer in the United States, produced 241,000 tons of refined copper in 2008 and had total revenue of approximately
$1.9 billion for the year ended December 31, 2008. Asarco’s mines currently have estimated reserves of 5.2 million tons of contained copper.
We will finance the asset acquisition through a mix of debt and existing cash resources. The asset acquisition is on a cash free and debt free
basis. We will assume operating liabilities but not legacy liabilities for asbestos and environmental claims for ceased operations. The integrated
assets to be acquired include three open-pit copper mines and a copper smelter in Arizona and a copper refinery, rod and cake plant and
precious metals plant in Texas. The agreement is subject to the approval of the US Bankruptcy Court for the Southern District of Texas, Corpus
Christi Division before which Asarco has been in reorganization proceedings under Chapter 11 of the US Bankruptcy Code. There can,
however, be no assurance that court approval will be obtained or that the proposed sale will be concluded. See “—Recent Developments.”
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