Why 2026 is make or break for Vedanta’s aluminium raw material security

The company's first bauxite mine in Odisha, which has been facing intense opposition from local residents, just received stage 1 forest clearance (FC1) on 31 December, as per government records. While the mine still requires several additional approvals, including environmental clearance (EC) and Forest Clearance Stage 2 (FC2), this approval clears the path towards operationalizing the Sijimali mine.

This comes after New Delhi deferred the FC1 approval for the mine in August 2025, citing local opposition and other concerns.

Even as Vedanta rushes to secure its own mines, its supply deal with the state-run OMC (Odisha Mining Corporate Ltd) remains stuck in a legal battle, with a key hearing in the Orissa High Court set for 12 January. An adverse verdict in this case could sharply increase Vedanta's bauxite purchase bill.

These two developments could have a large impact on how profitably billionaire Anil Agarwal’s flagship company can produce aluminium. In the event that Vedanta loses these battles, its margins will face volatile bauxite prices. However, if it wins, it will remain a global leader in low-cost production.

The stakes are high for investors since the aluminium business accounts for 45% of Vedanta’s ₹22,358 crore first-half earnings before interest, tax, depreciation and amortization (Ebitda).

Analysts at Kotak Institutional equities said in a note on 16 December that they estimate the aluminium business's margins to increase to $1,210 per tonne by FY28 from $943 per tonne during the first half of FY26 due to increased captive raw material sourcing and higher production.

Vedanta did not offer a comment for this story.

Local protests

Vedanta won the rights to operate the Sijimali mine in early 2023, and the company had projected that it would operationalize the mine by Q3 FY25. However, a year behind that timeline, the company has guided for operationalizing the mine by the end of FY26. Analysts believe this, too, is unlikely to be achieved due to delays in clearances.

"We estimate a 3-6-month delay versus guidance across various coal/bauxite mines due to uncertainty on timing of regulatory approvals," the Kotak analysts noted.

The delays have been largely due to local protests against the mine and a court case that questioned the legitimacy of the public hearings held for local approval. The case has been disposed of by the Orissa High Court, but protests continue, as per local media reports.

The Sijimali mine has estimated reserves of 311 million tonnes and a projected production capacity of 9 million tonnes per annum (MTPA). This would help Vedanta significantly cut its reliance on third-party vendors for bauxite.

Bauxite is the ore from which aluminium is extracted. The ore is refined into alumina, an intermediate product.

Vedanta refines bauxite at its Lanjigarh refinery in Odisha, located near the Sijimali mine. Lanjigarh has historically operated on bauxite purchased from third-party vendors. Presently, the refinery gets the bulk of its bauxite from the nearby Kodingamalli mine of OMC. The company plans to purchase 5 million tonnes of its projected 9 million tonne bauxite requirement for FY26 from OMC. The remainder is met through imports.

The company is in the midst of a capacity expansion that would see the Lanjigarh refinery's production capacity increase to 6 MTPA by the end of FY28 from 5 MTPA at present. The refinery's capacity has already been expanded from 2 MTPA as of FY24.

Supply chain hit

The alumina produced at Lanjigarh is then sent to the smelter at Jharsuguda in Odisha and its Balco refinery in Chhattisgarh to be turned into aluminium. The two smelters have a combined capacity of 2.4 MTPA, which the company is working to increase to 3.1 MTPA by the end of FY28 through de-bottlenecking.

The industry thumb rule is that 4 tonnes of bauxite give 2 tonnes of alumina, which in turn gives 1 tonne of aluminium. This implies that at its full 9 MTPA capacity, the Sijimali mine would significantly cut Vedanta's reliance on the open market for bauxite.

Vedanta produced 2.4 million tonnes of aluminium in FY25 compared to 1.3 million tonnes produced by its closest rival, Hindalco Industries Ltd. The two companies estimate India's annual consumption to be around 5.5 million tonnes.

The operationalization of Sijimali mine is crucial to Vedanta's aluminium business as its significant import contract with Emirates Global Aluminium (EGA) to import around 3 million tonnes of bauxite per year from Guinea went for a toss after the local government suspended EGA's mining concession. This has left the company more exposed to the spot markets for its bauxite supply.

Vedanta signed a long-term contract with OMC in 2019 for the supply of bauxite at ₹673 per tonne. The price was discovered through an auction, and it was agreed that the company would pay the state-run miner any difference in price discovered at subsequent auctions.

OMC conducted an auction in August 2020 at a floor price of ₹1,707 per tonne. While there were no bidders in this auction, OMC sent a demand notice of ₹281 crore to Vedanta for the differential amount. The dispute was referred to the Orissa High Court, which issued an interim order allowing supplies to continue at a provisional price of ₹1,000 per tonne.

Meanwhile, OMC has discovered prices as high as ₹2,957 per tonne in subsequent auctions, as per Vedanta's disclosures.

The dispute is ongoing, and an adverse outcome could result in Vedanta having to reimburse OMC for the shortfall as well as procure bauxite at thrice the price at which it currently purchases.