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India's strong potential


The potential for bauxite and alumina capacity growth in India remains strong, reports Kunal Bose

Utkal Alumina International, a wholly owned subsidiary of India’s leading aluminium maker Hindalco Industries, and the 60.20% Indian government owned National Aluminium Company (Nalco) have very large high-quality bauxite reserves in the country’s eastern state Orissa for their captive use. The possession of the prized mineral has encouraged both Utkal Alumina and Nalco to plan significant expansion of their alumina refining capacity.

Tapan Kumar Chand, chairman of Nalco, says: “The good working of the company over the years has got much to do with our alumina exports. We have been annually exporting over 1 million tonnes of alumina after meeting full requirements of our own smelter. With a view to sustaining alumina exports at that level over the long term, we have decided to create an additional 1 million tonne refining capacity at the present site at Damanjodi.”

The stimulus to build the 1 million tonne fifth-stream at Damanjodi, where Nalco is operating a 2.275 million tonne refinery, is to take care of the extra internal demand that will emerge once the proposed new 600,000 tonne per year smelter starts up at Angul. The company already owns a 460,000 tpy smelter there.

At the company’s last annual general meeting in September, Hindalco chairman Kumar Mangalam Birla said that exporting the growing quantities of extra alumina that Utkal would produce would be “an attractive proposition.”

The 1.5 million tpy Utkal refinery at Rayagada district feeds Hindalco’s 360,000 tpy Aditya Aluminium smelter at Sambalpur district. With exports in mind, the company is to double the capacity of the Utkal refinery to 3 million tpy in two phases, for which environment and other clearances have been sought. Once Utkal’s capacity is doubled, Hindalco may race past Nalco to become the country’s largest alumina exporter. The presence of two all-weather major ports in Orissa and two in nearby Andhra Pradesh facilitate the export of alumina and the import of caustic soda for use by refineries.

Debottlenecking will take Utkal capacity to 2 million tpy and then a new 1 million tpy stream will be added to the refinery. The company, which besides Utkal has three other refineries outside Orissa, produced 2.9 million tonnes of alumina in the year ended March 2017. In the first nine months of 2017-18, alumina production amounted to 2.170 million tonnes. Hindalco already has some surplus alumina for export, but this will be considerably enhanced when Utkal capacity is doubled at an investment of up to Rs50 billion ($782 million).

While Utkal will continue to draw bauxite from its two captive mines at Baphlimali and Maliparbat, with combined deposits of over 204 million tonnes, Nalco will open a mine at Pottangi with deposits of 76 million tonnes, for which it was granted a mining lease for 50 years to meet the raw material requirement of the expanded refinery capacity. For over 30 years, Nalco has been mining bauxite at Panchpatmali, which at the time of allotment in September 1982 had deposits of 314 million tonnes. Panchpatmali deposits are now down to about 200 million tonnes, which will be enough to meet bauxite requirements of the 2.275 million tonne Damanjodi refinery for about 30 years.

The success of refinery operation by Nalco and Utkal is underpinned by their access to high-quality bauxite with low traces of silica. “We are running our bauxite mine at Panchpatmali hills and the refinery at the foothills at full capacity and in a highly cost effective way. You know Wood Mackenzie found Nalco to be the world’s lowest cost producer of alumina in both 2016 and 2017,” says Chand. Satish Pai, managing director of Hindalco, also notes that Utkal is among the world’s lowest cost alumina producers.

An expert observer in the Indian aluminium industry says this is no surprise: “Look at the profile of Orissa, which with 1.81 billion tonnes has a 52% share of the country’s bauxite deposits. More importantly, the alumina content of Orissa’s gibbsite ore ranges from 42% to over 50%. As silica in it constitutes 1.5% to 3.5%, there is economy in the use of caustic soda in digester vessels for recovery of refined aluminium oxide. In the cost of production of alumina, the share of caustic soda is around 30%.” Caustic soda prices are rising due to global tightness in supply and strong Chinese demand. This is eating into the margins of alumina producers.

Buying raw materials
Vedanta Aluminium, which on the promise of the Orissa government arranging the supply of bauxite, built a 2 million tpy refinery at Lanjigarh. Unlike Nalco and Utkal, Vedanta does not have the benefit of a captive bauxite mine. Nor has the state government fulfilled its commitment to meet Vedanta’s full bauxite requirements through its Orissa Mining Corporation. This has left Vedanta with no option but to procure bauxite from multiple sources from within and outside the country.

The Lanjigarh refinery will end the current financial year, ending March 2018, with production of 1.3 million tonnes of alumina, by comparison with 1.208 million tonnes in 2016-17. A company official said: “Production of this order will be achieved by using 1.3 million tonnes of imported bauxite and 2.5 million tonnes bought from merchant miners in Andhra Pradesh, Gujarat and Chattisgarh. We have been importing the mineral from Guinea, Australia and Ghana. In 2018-19, the refinery will step up production to close to 2 million tonnes. Imports will, however, remain at the current year’s level. This is because we are hopeful of higher availability of bauxite from domestic sources, thanks to OMC opening a new mine in Orissa.” This hints at OMC emerging as a major supplier of the mineral to Lanjigarh from its about-to-be-commissioned Kodingamali mine with deposits of 81 million tonnes.

With the all-important “consent to operate” the mine has received from the state government and the mining plan approved by Indian Bureau of Mines, OMC will very soon start excavating bauxite at Kodingamali. In the first year, production at Kodingamali will be around 1 million tonnes, but OMC’s target to produce 3 million tpy should be reached in the second year. Equity demands that, along with Vedanta, traders should be allowed to bid for Kodingamali bauxite. As it does for other minerals, OMC will hold auctions for bauxite for price discovery. It is unlikely that, since they are already self-sufficient in bauxite, Nalco and Utkal will show interest in Kodingamali offerings.

When Vedanta started facing opposition to its plan to open a bauxite mine at Niyamgiri hills from Dongria Kondh tribal people, who were backed by local and foreign NGOs, Vedanta thought of trying to buy portions of Nalco’s surplus alumina that is exported. Vedanta’s efforts to do so have not been successful and Nalco’s Chand declines to discuss the subject.

Vedanta was hoping that leaseholder OMC opening a big bauxite mine at Karlapat, with deposits exceeding 207 million tonnes, would improve its chances of procuring “large quantities” of refinery feedstock from within Orissa. But the southern part of the lease area, with deposits of around 100 million tonnes, has been declared as a wildlife sanctuary and has therefore become a no-mining zone. Since north Karlapat is away from wildlife sanctuary, where elephant herds do not roam, attempts will be made by OMC to secure environment and forest clearances to open a mine there.

Expansion planned
The necessity of buying bauxite from multiple sources has not curbed Vedanta’s enthusiasm to plan for expansion of Lanjigarh refinery capacity from the present 2 million to 4 million tpy, and then finally to 6 million tpy, at which point it would require an input of 18 million tonnes of bauxite. Relief for Vedanta could still come if India’s leading engineering group Larsen & Toubro, which got a prospecting licence for the combined deposits of over 285 million tonnes at Kutrumali and Sijimali in 1992, is finally able to secure the mining licence. This is because Vedanta has 25% ownership of the special-purpose-vehicle Raykal Aluminium that L&T set up to implement the mining and alumina refinery project based on Kutrumali and Sijimali reserve. “The L&T project is compliant with the Mines & Minerals (Development & Regulation) Act of 2015 and the Orissa government is supportive of the venture,” says an official of the state mines ministry.

The issue that needs resolution is how much of L&T ore production could be earmarked for supply to Vedanta’s Lanjigarh refinery. This is because the allotment of deposits to L&T was made on the basis of a commitment that bauxite to be mined at Kutrumali and Sijimali would be used to feed a dedicated refinery downstream. The government will, therefore, have to vet a reworked plan that will allow L&T also to supply bauxite to Lanjigarh.

“Compared to Nalco and Hindalco, we have a major cost disadvantage in making alumina. This is because unlike our two peers having the benefit of captive mines, we buy bauxite from far and away, incurring big transportation costs. Moreover, we get bauxite of different grades, needing proper blending. We try to make good this handicap by running our Jharsuguda smelter at a very high level of efficiency. We should ideally have a captive mine,” says Vedanta Aluminium CEO Abhijit Pati.

With no sign of any major bauxite blocks to be sold at auction, the only near-term relief that Vedanta could get is to acquire some laterite deposits with alumina content of around 25% in Orissa and Andhra Pradesh. The new MMDR Act, like the one it replaced, confers on the government the right to “reserve” mineral deposits for the public sector. In Orissa, the allotted bauxite deposits are mostly with OMC and Nalco, and in Andhra Pradesh with the government-owned AP Mineral Development Corporation.

“Auctioning of mineral deposits, including bauxite, is welcome since it eliminates discretionary allotment power of ministers and bureaucrats. According to last count, India has bauxite deposits of 3.48 billion tonnes. By giving a thrust to exploration, we will find a lot more bauxite. From what is already discovered, it should not be difficult for the government to identify bauxite blocks for auction. This needs to be done to support the growth of the country’s aluminium industry,” says RK Sharma, director general of Federation of Indian Mineral Industries.

By: Kunal Bose

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