Plan for $300 million CAPEX on Lanjigarh alumina refinery in FY20: Vedanta

The giant in metals and mining, Vedanta Ltd has planned a capital expenditure of $250-300 million in the next fiscal on the ramp-up of its Lanjigarh alumina refinery in Odisha.

Vedanta, in an astonishing manner, has proposed to expand the capacity of the refinery to 6 mtpa. The refinery's present gridlock capacity is 2 mtpa.

The company aims to recover the invested sum within two years by banking on locally sourced bauxite to trim logistics costs.

Arun Kumar, Chief Financial Officer of Vedanta Ltd at the company's recent results conference said “Every tonne of aluminium produced with the Odisha sourced bauxite which can be used in expanding refinery capacity, will give us Ebitda advantage of $400 per tonne. So, if we can cover 50 per cent or 60 per cent of our requirement, then to that extent, $200 to $250 straight away goes up in the Ebitda margin permanently because reserves will last easily for 15 years and more mines will come up”.

Vedanta has a long-term relationship with state-run miner Odisha Mining Corporation (OMC).  As per the terms of this agreement, 70% of bauxite extracted by OMC from its captive Kodingamali mine would be supplied to Vedanta's Lanjigarh refinery. As the mine ramps up, Vedanta expects to source 250,000 tonnes bauxite every month.

 The Lanjigarh refinery would see the unit scaling capacity of 4 mtpa during the first phase and by the end of this fiscal year, Vedanta expects an exit run rate of 2 mtpa at the refinery. Since Vedanta's cost of alumina production is significantly lower than the current import prices, the company sees value in unlatching possibilities by expanding the alumina capacity.

Vedanta is investing Rs 64.83 billion on the refinery ramp-up. The refinery scale-up is expected to reduce Vedanta's reliance on imported alumina and thus, lessens its aluminium making costs. An extreme reduction in alumina imports will make Vedanta's aluminium cost-competitive, he reasoned. Presently, Vedanta's aluminium smelting costs are drifted around $2000 per tonne in line with the production costs of its peers – National Aluminium Company (NALCO) and Hindalco Industries. But unlike the other primary producers, Vedanta is not fed by captive bauxite mines, posing a challenge to contain its metal costs.

By the end of FY18, Vedanta surfaced as the biggest producer of primary aluminium with an output of 1.7 million tonnes and FY21, the Anil Agarwal controlled Group is eyeing production of 4 to 4.5 million tonnes of aluminium.

To preclude off the unpredictable fluctuating input costs, Vedanta is aiming at upstream blending. It has proposed to install a caustic soda production unit at Dhamra with an estimated investment of INR 65 billion. The proposal has already got the seal of approval from the Odisha government.

Vedanta plans to contain its alumina production cost which escalated to $358 per tonne in Q2 led by a cost-push factor of ingredients like coal and caustic soda.