By Bizodisha Bureau, Bhubaneswar, January 2, 2019: Metals and mining giant Vedanta Ltd plans capital expenditure (capex) of $250-300 million in the next fiscal to up the capacity of its Lanjigarh alumina refinery in Odisha from the present two million tonne per annum to six million tonne per annum (MTPA) gradually.

“Every tonne of aluminium produced with the Odisha sourced bauxite which can be used in expanding refinery capacity, will give us Ebitda (earnings before interest, taxes, depreciation and amortisation) advantage of $400 per tonne. So, if you are able to 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 on a permanent basis because reserves will last easily for 15 years and more mines will come up”, Arun Kumar, chief financial officer of Vedanta Ltd at the company’s recent results conference call.

The company is now banking on locally sourced bauxite to trim logistics costs and hopes to recover the invested sum within two years.

Vedanta has entered into a long-term linkage pact with state owned PSU, Odisha Mining Corporation (OMC) which makes 70 per cent of bauxite extracted by OMC from its captive Kodingamali mine available to Lanjigarh refinery. As the mine ramps up, Vedanta expects to source 250,000 tonnes bauxite each month.

Initially, in the first phase, the Lanjigarh refinery would see the unit scaling capacity of four mtpa. Since Vedanta’s cost of alumina production is lower than the current import prices, it plans to expand the alumina capacity by investing Rs 64.83 billion.

Once expanded, Vedanta’s dependence on imported alumina will drastically come and ensure drastic fall in aluminium making costs. Besides, a sharp fall in alumina imports will make Vedanta’s aluminium cost competitive.

Incidentally, Vedanta’s aluminium smelting costs hover around $2000 per tonne at par with the production costs Maharatna PSU, National Aluminium Company (Nalco) and Aditya Birla group owned Hindalco Industries.

However, Vedanta is does not have captive bauxite mines unlike Nalco and Hindalco, posing a challenge to contain its metal costs.

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

To stave off vagaries of fluctuating input costs, Vedanta is aiming at upstream integration. It has proposed to install a caustic soda production unit at Dhamra with an estimated investment of Rs 65 billion. This proposal, too, has got the seal of approval from the Odisha government.

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