National Aluminium Company (Nalco) has obtained the mining lease (ML) to develop its captive Utkal-D coal block.

The ML for the block has been granted by Odisha government’s steel & mines department through a notification dated April 16.

The ML for the coal block straddles an area of 301.28 hectares across Kosala, Nandichod, Similisahi and Raijharan villages under Chhendipada tehsil of Angul district.

Sridhar Patra, chairman & managing director (CMD) of Nalco said, “For a power-intensive industry like aluminium, it is very essential to have a secure supply of coal. I hope with the mining lease in place, it will usher in a new era of development for the company”.

This is an important milestone for Nalco as captive coal production can cut aluminium smelting costs by 25 per cent.

Indian aluminium producers have been struggling to contain the cost of aluminium making as costly coal used as power input escalates manufacturing cost. This is opposed to smelters in West Asia where ample availability of natural gas or in Nordic countries where abundant supply of cheap hydro power keeps their aluminium smelters competitive.

The Covid-19 pandemic had adverse repercussions on global aluminium demand and prices. Aluminium prices on the London Metal Exchange (LME) have tumbled to $1,482.50 per tonne for the cash buyer (as on April 17), the lowest since June 2016. Depressed international prices and flagging domestic consumption has posed a challenge for the Indian primary aluminium companies to stay profitable.

Nalco, though, has been able to overcome the business headwinds with its integrated business model. It ranks amongst the most cost competitive producers of bauxite and alumina. Notwithstanding its cost advantage, Nalco bled rare back-to-back quarterly losses in Q2 and Q3 of FY20 as coal supplies turned truant, forcing the navratna company to source expensive power from the Odisha grid. Nalco has announced its physical performance for Q4 while the financial results are still awaited. Production from Utkal-D coal block could assuage coal supply woes for the government controlled aluminium maker.

It may be recalled that the Utkal-D coal block was allocated to Nalco in May 2016. The lease deed for this block has been granted for 30 years. Separately, Nalco is in the process of obtaining ML grant for Utkal-E, a coal block granted concomitantly with Utkal-D. The combined coal production from the two coal blocks is envisaged at four million tonnes per annum.