Vedanta prunes alumina-making cost by 14% in Q3

Diversified metals and mining conglomerate Vedanta has achieved a 14 per cent quarter-on-quarter (QoQ) reduction in its alumina-making cost to $308 a tonne in the third quarter (Q3) of this financial year, down from $358 a tonne in Q2.

The company, in an investor presentation, ascribed this reduction to higher sourcing of bauxite from government-controlled Odisha Mining Corporation (OMC), and larger availability of linked-coal supplies during the quarter.

Vedanta has a long-term linkage arrangement with OMC to source 70 per cent of the extracted bauxite at the latter's Kodingamali mines in southern Odisha.

In Q1 FY19, it got eight per cent of its bauxite requirement from the OMC mine, which went up to 17 per cent in Q2 and 40 per cent in Q3. The OMC is expected to cater to a third of Vedanta's bauxite requirement for its Lanjigarh alumina refinery in FY19.

Linked- coal supplies also improved for Vedanta during the quarter. As opposed to Q1 and Q2, when the company fulfilled 49 per cent of its need from coal linkage, the figure sharply rose to 72 per cent in Q3. Vedanta receives an incremental 3.2 million tonnes (mt) of coal through the fourth tranche, which helps it to reach a coal security of 72 per cent.

Ajay Dixit, chief executive officer (alumina & power), Vedanta, was not available for his comments.

The company is also mining coal at Chotia through its arm Bharat Aluminium Company (Balco) in Chhattisgarh.

Balco had won the mine after it emerged as the highest bidder at the inaugural phase of the competitive coal auctions in 2015. Operations at Balco's mine are poised to strengthen Vedanta's coal security.

Currently, Vedanta's Lanjigarh refinery has de-bottlenecked capacity of 2 million tonnes per annum (mtpa). It produced 1.2 mt of alumina in the last financial year. In a revised guidance, Vedanta has pegged its alumina production in FY19 at 2 mt. The company has already pledged ~6,400 crore to scale up the refinery's nameplate capacity to 6 mtpa. The first phase of the ramp-up will see the refinery attaining a capacity of 4 mtpa.

Greater availability of alumina from its captive refinery is expected to help Vedanta achieve volume growth in production. Vedanta emerged as the largest aluminium producer in the last financial year, upstaging Aditya Birla Group-owned Hindalco Industries.

Subdued aluminium prices on the London Metal Exchange (LME) have guided Vedanta to work on trimming its aluminium cost of production (CoP).

LME prices are around $1,800 a tonne, which Vedanta considers a pressure point. For FY19, Vedanta foresees its average aluminium CoP in the range of $1,950-$2,000 a tonne.