Vedanta Resources to restart alumina refinery

Vedanta Resources Plc, controlled by billionaire Anil Agarwal, may soon restart a mothballed alumina refinery after a change in mining rules helps resume supply of raw materials to the plant.

Vedanta Aluminium Ltd. had to shut its factory in December at Lanjigarh in the eastern state of Odisha after permits held by bauxite miners in the neighboring states of Jharkhand and Chhattisgarh expired. The environment ministry said March 13 that they don’t need fresh approvals to renew those licenses, clarifying an earlier court order and paving the way for replenishments of the ore.

“The move has provided an opportunity to us,” Sushil Kumar Roongta, managing director of Vedanta Aluminium, said in an interview. “We’re working to see how soon we can get raw material commitment needed to restart the factory.”

Vedanta Resources needs to fire up its alumina refinery to help boost cash flow and cap interest expenses that have quadrupled in the last two years after it was forced to idle its copper smelter and iron ore mines by India’s environmental rules. Standard & Poor’s placed the nation’s most indebted metals producer’s credit rating on “watch with negative implications on April 3, saying the company’s ability to refinance will be ‘‘tested’’ in the coming quarters.

‘‘Any move to reopen the alumina refinery will be a big positive for the company as it would help save as much as $120- $150 a ton on expensive alumina imports,’’ said Giriraj Daga, an analyst with Nirmal Bang Equities Pvt. in Mumbai. ‘‘The key to starting the factory will be bauxite supplies.’’

Restarting the refinery would help Vedanta narrow losses by cutting high-cost alumina imports, while also ensuring a regular raw material supply for its smelter. Vedanta deferred a plan to expand its smelting capacity to 1.75 million tons and subsequently to 2.6 million tons from 500,000 tons and refining capacity fivefold to 5 million tons, pending approval to mine bauxite.

Deferring the expansion may stretch the payback period and delay returns, Standard & Poor’s Indian unit said in an April 15 report. The total cost of Vedanta Aluminium’s projects is $8.05 billion, of which the company has spent $6.6 billion as of Sept. 30, according to the report.

“Niyamgiri bauxite reserves were central to Vedanta’s aggressive expansion plans in aluminum,” Abhishek Shukla, analyst at Societe Generale, said in a March 22 report. “Vedanta’s management was overly confident and committed too much capital without getting all the relevant clearances.”

While the refinery was shut, Vedanta Aluminium continued to operate its alumina smelter in nearby Jharsuguda district to produce the lightweight metal using imported alumina, the key raw material. About 4 metric tons to 5 tons of bauxite ore are needed to extract 2 tons of alumina, from which 1 ton of aluminum can be produced, according to the European Aluminium Association. Importing the metal ore was unviable for Vedanta Aluminium because of the high cost of freight.