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Birla’s Hindalco Aims for Full Production at Mahan by 2015

Hindalco Industries Ltd., India’s second-biggest aluminum producer owned by billionaire Kumar Mangalam Birla, expects to achieve full output at its new factory in the central state of Madhya Pradesh by March 2015.

“The way Mahan is ramping up augurs very well,” Managing Director Debnarayan Bhattacharya said in an interview last week. “We should we able to use full capacity at our new smelter by end of financial year 2015.”

The plant will add 359,000 metric tons of metal-making capacity and raise Hindalco’s total capacity to more than 900,000 tons. While that represents a 64 percent increase, the costs of running the factory remain uncertain. The company is powering the unit with coal sourced from other suppliers as its own mine nearby faces delays in approvals and opposition from groups including Greenpeace.

World demand for the light-weight metal, used to make beverage cans and aircraft, increased 6 percent in 2013 and is expected to continue to grow this year, Bhattacharya said. Aluminum consumption may rise 7 percent this year, led by China, Alcoa Inc., the largest U.S. producer, forecast in January.

Mahan Coal Ltd., an equal venture between Hindalco and Essar Power Ltd., cleared a key hurdle when it got environmental approval from the government. It now needs to sign a mining-lease agreement with Madhya Pradesh, Essar Energy Plc, which owns Essar Power, said on Feb. 12.

Hindalco and Essar have invested about $3.8 billion in building the smelter and power plants at Mahan. Loss of the mine will starve the projects of cheaper fuel.

Share Performance

Hindalco shares fell 1.5 percent to 97.35 rupees, the lowest in six months, at close in Mumbai. The benchmark S&P BSE Sensex declined 0.9 percent. Of the 44 analysts who track the stock, 18 recommend buying and an equal number favor selling, according to data compiled by Bloomberg.

Mahan Coal may still face hurdles in signing the contract and the delay could be worsened by possible litigation or local opposition to the project, said Sandeep Kumar Mohanty, a senior energy industry consultant at PwC India.

“There’s certainly some way to go before one can make money out of the Mahan coal block,” Mohanty said in a phone interview from Gurgaon, near New Delhi. “Given the ongoing court cases on country-wide coal block allocations and possible litigation, it may still take more time before Mahan coal can be tapped.”

The allocation of coal mines without auctions caused the national exchequer a loss of 1.86 trillion rupees ($29.8 billion), the Comptroller and Auditor General of India said in Aug. 2012. The report triggered a Supreme-court monitored probe into mines given to companies, including Hindalco, Jindal Steel & Power Ltd. and Tata Steel Ltd. The companies have denied any wrongdoing.

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