New Delhi/Mumbai: Two key judgements passed by the Supreme Court on Thursday bode well for India’s troubled natural resources sector, keeping alive Vedanta Resources Plc’s hopes of mining bauxite in Orissa and promising an alleviation of raw material shortages at steel makers by partly lifting a ban on iron ore mining in Karnataka.

The country’s top court ruled that Vedanta can mine bauxite, the basic raw material for aluminium, in the Niyamgiri hills of Orissa if the local gram sabhas (village councils) favour it. A ban on mining in the area will, however, remain until the councils make a decision, the court said. The ruling came in a case pitting Orissa Mining Corp. Ltd (OMC), a joint venture partner of Vedanta, against the ministry of environment and forests (MoEF).

In a separate case, the Supreme Court ruled that the so-called A and B categories of iron ore mines in Karnataka, which had violated environmental and mining rules to a lesser extent than those grouped in the C category, could reopen. The verdict, which will allow more than 100 mines to resume production, came in a case involving Samaj Parivartana Samudaya, a non-governmental organization that works on environmental and human rights issues, against the Karnataka government.

“Both the judgements are a small step forward because they give more clarity on the way ahead," said Chirag Shah, director of research at Barclays Capital. “However, worries remain on how things will pan out on the ground."

The twin rulings provide relief for India’s natural resources sector, which has been hit hard by the iron ore mining ban in Karnataka and controversies over land acquisition and tribal rights surrounding projects such as Vedanta’s.

In its final order, a bench of justices Aftab Alam, K.S. Radhakrishnan and Ranjan Gogoi said the gram sabha should consider whether the scheduled tribes and traditional forest dwellers in the area had any religious rights or rights of worship over the Niyamgiri hills, and to examine whether the proposed mining area would affect the abode of the local deity.

The bench gave the gram sabhas of Rayagada and Kalahandi districts of Orissa three months to prepare the report on whether bauxite mining can be allowed, and directed the state government and tribal affairs ministry to assist the councils in settling individual and community claims.

The Supreme Court said a ban on OMC’s bauxite mining project in the Niyamgiri hills in Orissa will remain, but said the process for its removal can only start after the local gram sabhas conduct a study and file a report.

OMC has a joint venture with Vedanta to develop the proposed bauxite mine in the Niyamgiri hills and supply it to the latter’s alumina refinery in the same state. Currently, the refinery is closed because of a shortage of bauxite.

“The gram sabha is also free to consider all the community, individual as well as cultural and religious claims, over and above the claims which have already been received from Rayagada and Kalahandi districts. Any such fresh claims be filed before the gram sabha within six weeks from the date of this judgment," the Supreme Court bench said.

“On the conclusion of the proceeding before the gram sabha determining the claims submitted before it, the MoEF shall take a final decision on the grant of stage II clearance for the bauxite mining project in the light of the decisions of the gram sabha within two months thereafter," the order added.

Vedanta declined to comment on the judgement.

“This is a positive for Vedanta in that it hasn’t banned mining outright—it has left a door open for the possibility of the mine," said one executive in the metals industry who did not want to be named. “Another good thing is that it has given the gram sabha a time frame."

Tushar Dash, a researcher at Vasundhara, a non-governmental organization that fights for the rights of the tribals, said it was a landmark judgement whereby the Supreme Court had taken a clear stand about the authority of gram sabha under the Forest Rights Act (FRA) and Panchayat (Extension to Scheduled Areas) Act.

“The rights of the local communities over resources have been very clearly explained. This judgement will send out a very clear message to executives, including the ministries, about how they should interpret FRA and how it is a statutory requirement to protect rights of tribals," he said.

In Karnataka, a total of 115 mines in the A and B categories can “technically resume mining", said R.K. Sharma, secretary general of the Federation of Indian Mineral Industries. “But I don’t think more than 50-60 can actually resume."

A total ban on mining in the state came into force in 2011 because of environmental concerns. In September, the Supreme Court allowed 18 mines in Karnataka to resume operations, while state-run miner NMDC Ltd was cleared to produce 1 million tonnes (mt) a month in August 2011.

India used to produce about 200 mt a year of iron ore and exported about half of that, mostly to top buyer China. But a clampdown on illegal mining and exports from Karnataka have slashed output and shipments.

Both Shah and Sharma are pessimistic about how quickly mining can resume. They doubt the state’s production could go back to the original levels of about 45 mt a year.

“The best case output projection I get for FY15 (fiscal 2015) is 25 mt, whereas the state’s requirement from steel plants is about 35 mt," Shah said.  

Yet, prices of iron ore are seen correcting with the sentiment for iron ore availability improving.

“The mines production might slow down due to the seasonal (monsoon) impact, and iron ore prices will remain the same for next four-five months after which there could be a small fall of 200-400," said Prakash Duvvuri, head of research at Oreteam, an information portal on the metals and mining sector. “But if production doesn’t catch up, then there might not be any fall."

Iron ore lumps of 63/64 grade are currently priced at around 4,400 a tonne in Karnataka, according to Oreteam.

Reuters contributed to this story.

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