The Veerappa Moily-led (pictured, inset, left) environment ministry’s rejection of bauxite mining activity in Lanjigarh, Odisha, may not spell the end of road for the LSE-listed Vedanta Resources’s 1 million tonne per year (mtpa) alumina refinery (pictured) located there.
On January 8, the ministry rejected the proposal to provide stage-II forest clearance to Orissa Mining Corporation (OMC, which has an agreement to supply bauxite to Vedanta Aluminium) for mining ore in the Lanjigarh reserve in Kalaihandi and Rayagadha districts.
The order said that 12 Palli Sabhas (sort of local referendums) of these districts had unanimously decided not to allow any mining activity on the Niyama Dangars.
However, industry experts say the ministry’s rejection should not be seen as the worst-case scenario for the Anil Agarwal-led (pictured, inset, right) Vedanta Aluminium’s Rs 50,000-crore investments in Lanjigarh.
For, despite bauxite ore being scarce, the Lanjigarh alumina refinery continues to operate at 60% capacity, though it had to shut for around seven months last year.
Vedanta declined comment for this report, but a source close to the company said that the company will continue to run the alumina refinery till it has supplies of bauxite from Balco’s mines and a few other sources. It is also hopeful of getting bauxite from alternative sources as Odisha is working towards this objective.
The refinery requires nearly 2-2.5 mt of bauxite ore, out of which nearly 1.5 mt is sourced from Balco’s mines and 1 mt from other states like Gujarat and Andhra Pradesh.
A source close to Vedanta said cost of production will turn a challenge. The project, he said, was set up in Odisha in the belief that bauxite would be sourced from Niyamgiri. Agreed Giriraj Daga, senior research analyst with Nirmal Bang, a brokerage in Mumbai. “This would have brought down the cost of production from $330/tonne to $180. Now, dependence on alumina imports would increase.”
The current cost of importing alumina would be around $360-$370 per tonne.
Alumina produced at the Lanjigarh refinery is mainly used by Jharsugda I and Korba II smelters owned by Balco.
In the first half of this fiscal, Vedanta managed to keep its overall aluminium cost of production significantly low despite running its smelters with third-party alumina feed. This happened after suspension of Lanjigarh alumina refinery operations.
Its aluminium cost of production was $1,675 in the first quarter and $1,651 in the second as compared to $1,845 earlier. This was driven by significant improvements in specific power consumption and other operational parameters, and the rupee depreciation.
In November, Agarwal was assured by Odisha chief minister Naveen Patnaik that his refinery project would get bauxite from L&T reserves at Sijimali and Kutrumali mines in Kalaihandi and Rayagadha districts.
However, analysts now believe that it may take at least 2-3 years to get bauxite from these mines as they still do not have a mining licence.