Jharkhand shuts Hindalco's five bauxite mines

Sudden blip

Hindalco has around 2.23 mt of bauxite production in Jharkhand, of which 1.01 mt will be impacted due to the ban

Another 0.6 mt of bauxite output will be impacted due to closure of Maliparbat mine in Odisha

Production at Hindalco's Maliparbat bauxite mine has come to halt as the district administration has imposed a prohibitory order

The Jharkhand government has ordered closure of five bauxite mines of aluminium major Hindalco Industries in the state as these mines have been operating under second deemed renewal.

The state government had issued similar closure notice to 12 iron ore mines of Tata Steel and Steel Authority of India along with Hindalco on September 8.

"Five of Hindalco's bauxite mines have been closed since September 10. Hindalco has nine mines in the state. Two of these mines have exhausted resources, five have been served closure notice, so only two are currently operating," D N Singh, district mining officer, Lohardaga, Jharkhand, told dna.

Hindalco spokesperson Pragya Ram declined to comment.

Singh said the state is just following central government's order that came in July demanding closure of all mineral mine leases which fall under second deemed renewal. The shutdown is similar to Odisha and Goa iron ore mining ban that saw cancellation of licence of all leases operating under deemed second or subsequent renewal.

Three of these mines are located in Lohardaga and two in Gumla districts of Jharkhand. Over 50,000 families of the twin districts are dependent on bauxite mining, transport and related activities.

Five bauxite mines of Hindalco include Pakhar, Hisri, Hisri (New), Bagru and Bhushar. "These mines cumulatively accounted for 45% of Hindalco's bauxite production from Jharkhand (at 2.23 million tonne). In addition, production at Hindalco's Maliparbat bauxite mine (Odisha) has come to halt as the district administration has imposed a prohibitory order," Ritesh Shah, materials analyst at Espirito Santo Securities, said.

When asked if Jharkhand government will work on resuming mine operations in the state expeditiously taking cues from Odisha, Singh said, "This is a state matter and state will only decide further course of action, we have to just execute orders." Odisha government had given express orders to Tata Steel and SAIL to start mining within a month of the ban so that the operations of these companies are not heavily impacted.

Espirito Santo Securities estimated that Aditya Birla Group company has around 2.23 mt of bauxite production in Jharkhand, of which around 1.01 mt will be impacted due to this ban. Another 0.6 mt of bauxite output will be impacted due to closure of Maliparbat mine in Odisha.

"Factoring differential in bauxite costing between captive and imported sources, we see a dent of Rs 225 crore, implying a hit of Rs 7.1/share on face value if it has to rely on imported bauxite to run existing refinery," Shah said in a report.

Hindalco is also likely to face further stress if the Supreme Court decides to cancel Mahan coal block in which it holds 40% off-take rights. The court under an ongoing case on coal block allocation scam has reserved the verdict on cancellation blocks until September 27. Mahan Coal, which is a JV between Essar Power and Hindalco in Madhya Pradesh, hangs in limbo as this block has not featured on the list of 46 coal mines the government has requested the court to not cancel.

"In first quarter of this fiscal, alumina production was adversely impacted due to constraints posed by bauxite availability. Alumina production (excluding Utkal) declined by 17% year on year to 290 kilo tonne in Q1FY15. The recent closure of bauxite mines in Jharkhand and Odisha will further hurt Q2FY15 margins and production. Aditya Aluminium and Hirakud smelting operations were impacted by torrential rains in July/August, which will lead to lower aluminium volumes in Q2FY15," Shah said in a report.