Vedanta Group stocks tumble over mining ban

Mumbai: With the ministry of environment and forest withdrawing permission to Orissa Mining Corporation (OMC) to extract bauxite ore in Kalahandi and Rayagada districts of Orissa, Vedanta Aluminium will have to continue sourcing raw materials from outside the state to run its plant. According to the earlier plan, OMC, a government of Orissa undertaking, was to exclusively supply bauxite ore to Vedanta's alumina plant, a subsidiary of London-listed Vedanta Resources. Now with Vedanta's Orissa plant continuing to source raw materials from outside, it will have to shell out an additional Rs 1,200-1,700 per tonne of raw material on account of logistics cost, a senior company official said.
    As a reaction to the development, the Vedanta Resources stock on the London Stock Exchange tanked nearly 8% in intra-day trade and at 2030 IST was trading at £18.83.
    Earlier in the day, stocks of companies from the same group, four in total, also showed a weak trend in Tuesday's bearish market. While Sterlite Industries, the group's flagship within India and a sensex stock, lost 4% to Rs 152, Hindustan Zinc too was down 4% at Rs 1,081. Among others, Sesa Goa was down nearly 1% at Rs 325 and Sterlite Technologies was off 1.4% at Rs 103.
    The government decision will also result in Vedanta not being able to use the superiorquality bauxite that is available around its plant in these two districts in Orissa. At present, the company's alumina plant uses bauxite from Chhattisgarh and other states which add up to its costs. Mukesh Kumar, chief operating officer, Vedanta Aluminium, however, told The Time Of India that "raw material is not an issue''.
    It will request the central government to reconsider its ban on transferring forest lands for mining to OMC, from which Vedanta has an exclusive arrangement to buy bauxite for its Kalahandi plant. "We are waiting for the final report. We will look at the concerns and address them,'' he said. Since the plant was set up with assurances from the Orissa government for supply of bauxite, the company expects the state government to look at alternate arrangements for raw materials.
    Analysts were not too impressed either. Global broking major Merrill Lynch (ML) feels that the government decision against Vedanta is negative for the stock in the short term "since the ability to supply own bauxite to the Lanjigarh alumina refinery is necessary to achieve the company's previous cash cost guidance''. While the decision is negative for the company in the short term since this would lead to higher raw material costs for its alumina plant, ML analysts said, it has already accounted for some higher operating costs in its model than what the company had projected. The broking major maintained its 'buy' rating on the stock with the potential for a "25% EPS (earnings per share) accretion'' if the proposed Cairn India transaction is completed.