Indian courts close Vedanta copper smelter

Vedanta Resources, the Indian mining company that in recent years has been widely condemned for its human rights and environmental record, suffered another blow yesterday when the high court in Madras ordered a subsidiary of the group to close the world's ninth-biggest copper smelter on environmental grounds.

Sterlite Industries, in which FTSE 100-listed company has a 54 per cent stake, was told to close its Tuticorin smelter in southern India, sending Vedanta's share price down by 4.25 per cent. The smelter produced 334,000 tonnes of copper cathode in the 12 months to March, which accounted for nearly half of all India's copper output.

The court ordered Sterlite to shut the plant in a coastal area in southern Tamil Nadu state to protect "mother nature" from "unabated air and water pollution".

The comments echo a decision by the environment ministry last month, which blocked the group from building a bauxite mine in a tribal region of Orissa state. The planned mine led to international condemnation of Vedanta's business methods and its treatment of the local Dongria Kondh tribe. Pressure groups alleged the mine would have destroyed local forests, while the site itself is considered sacred by the tribe.

The protests led to a number of high profile investors, including the Church of England, withdrawing their investment in the group. Vedanta described the criticism as "lies and hoax". The company said it would challenge yesterday's decision. "Vedanta has been operating the smelter in line with the required regulations and standards using efficient technology, and will be appealing the decision in the Supreme Court," it said in a statement.

Analyst argued that while the decision would knock the Vedanta's share price in the short term, it would have little effect in the future.

"Under a worst-case scenario with the smelter suspended indefinitely we forecast a 2 per cent loss on long term Ebitda [underlying earnings], and do not currently model this in our numbers," said Liberum Capital in a note.

"This development is ill-timed, with the company having been under the spotlight following the environment minister's ruling on Niyamgiri bauxite."

The decision will nonetheless disappoint Vedanta. The three-month price for the metal climbed to $8,038-a-tonne in early trading on the London Metal Exchange yesterday, the highest level since April. It slipped back later in the day. Analysts believe that copper prices will increase steadily in the coming months, especially with supply restricted as miners reassess capital expenditure programmes as the global economy recovers.

"The copper market was already looking tight, this will only add to that sense of market tightness," said David Wilson, an analyst at Société Générale.

Yesterday's court decision is not the first time Sterlite has been called into question. A year ago, an accident at a Sterlite aluminium plant killed several workers when a chimney at the site collapsed. Initial reports blamed bad weather, but Rajeev Sharma, the South Asian head of the Building and Woodworkers' International union, said that the accident was bad, even by India's poor safety standards: "It is one of the worst accidents in India's recent construction history," he said. Vedanta is already the world's biggest zinc producer, but has sought to diversify into other resources. The planned bauxite mine in Orissa had been part of that plan.

The group is also trying to buy Cairn India, an oil producer, but may face competition from Indian state-owned ONGC, which may get Government backing to block the deal.