Vedanta shelves India bauxite plan pending local approval

(Adds details, background, analyst and activist quotes)

By Karen Rebelo

May 9 (Reuters) - Vedanta Resources Plc (Other OTC: VDNRF - news) said on Friday it would not mine bauxite at a controversial project in eastern India until it can win over local communities opposed to its plan.

India's Environment Ministry had already rejected Vedanta's request to mine in the Niyamgiri hills of Odisha state following persistent protests from local communities that consider the region sacred..

While Vedanta stopped short of saying it had abandoned the project, its decision to await the consent of local communities will require it to look elsewhere for the raw material to feed its alumina refinery in the same state.

Analysts said Vedanta's announcement is an early hint of plans by Tom Albanese, the former Rio Tinto (Xetra: 855018 - news) head who became Vedanta's chief executive last month, to make the London-listed company a more attractive sell to international investors.

Vedanta, a company with a market capitalisation of $4.2 billion and base metal mines in several countries, relies on aluminium production - exclusively in India - for about 12 percent of its revenue.

Alumina (NYSE: AWC - news) , produced from bauxite, is used in turn to produce aluminium.

But Vedanta's 1 million-tonne-per-year Lanjigarh alumina refinery in Odisha has struggled to source bauxite ever since it was commissioned in August 2007. The company has incurred high costs bringing in the raw material from elsewhere.

The refinery operated at only 91 percent of its capacity in the quarter ended March 31, producing 227,000 tonnes of alumina.

"I would imagine they would try and look elsewhere to source their bauxite as it's quite important, to make the business viable, to have their own local sourcing," said Ben Davis, a mining and metals analyst at Liberum.

Vedanta said it was working with the Odisha state government to find alternative sources. An agreement with the state government guarantees the miner 150 million tonnes of bauxite, Vedanta said in a statement.

The company's proposal to mine bauxite in the Niyamgiri hills has angered rights groups globally after the indigenous Dongria Kondh tribe said the region is home to their deity Niyam Raja.

"If Vedanta thinks it will be able to motivate the local communities, it is impossible," said Prafulla Samantray, a local activist who has petitioned against the project. "People have protested, revolted against it. They will never allow mining."

In April 2013, India's top court ordered the state of Odisha to submit a report based on the views of local villagers. Residents of all 12 villages surveyed voted unanimously against mining in the region.

Vedanta, controlled by one-time scrap metal dealer Anil Agarwal, was one of three miners to drop out of the FTSE-100 index last year.

It has faced - and overcome - regulatory problems before in India. After grappling alongside other miners with bans on iron ore extraction in two states, Vedanta restarted mining in Karnataka in December and plans to resume mining in Goa.

Vedanta's shares closed down 1.6 percent at 907 pence on the London Stock Exchange (Other OTC: LDNXF - news) on Friday. (Additional reporting by Jatindra Dash in Bhubaneswar; Editing by Robin Paxton)