MUMBAI, Aug. 25 -- Vedanta Resources Plc, seeking to mine bauxite in India's Orissa state, said the regional government is studying alternative sources of the mineral after the company's development plan was rejected.

Vedanta, controlled by billionaire Anil Agarwal, has been awaiting permission to mine bauxite, used to make aluminum, for more than four years as it seeks feedstock for its Lanjigarh alumina refinery. The Environment Ministry today dismissed Vedanta's plan for a project in the Niyamgiri hills on concern it would affect tribes and wildlife.

"The Government of Orissa is actively considering allocation of an alternate source of bauxite to Vedanta's alumina refinery," Vedanta said today in an e-mailed statement. "Vedanta remains committed to working with the local communities to ensure sustainable development."

The company's 1 million-metric-ton refinery at Lanjigarh may already be getting bauxite from mines without environmental approval and must show its operating permit is valid, Minister for Environment and Forests Jairam Ramesh said today in New Delhi. Withdrawal of the permit would threaten a planned $8 billion expansion of the complex.

"There are very serious violations," Ramesh said. "There is no emotion, no politics, no prejudice in the decision. It is purely based on a legal approach."

Shares Slide

Vedanta slumped 7.6 percent to 1,882 pence in London at the 4:30 p.m. close of trading, the lowest price in 10 months. Sterlite Industries Ltd., which owns about 30 percent of Vedanta Aluminium Ltd., fell 4 percent to 152.15 rupees at the close of trade in Mumbai.

"There have been no regulatory violations of any kind at the Lanjigarh alumina refinery," Vedanta's Kaushik said in the statement.

The rejection of Vedanta's mining plan is a further setback after India requested that a state-owned company make a counterbid to its offer for Cairn India Ltd. Following Vedanta's proposal last week to buy as much as 60 percent of Cairn India for $9.6 billion, India asked Oil & Natural Gas Corp. to study a bid, a person familiar with the matter said. GAIL India Ltd. may join ONGC, another person said.

Vedanta Aluminium's plan to mine bauxite in Orissa would help it cut raw-material costs at its refinery. It produced 762,000 tons of alumina in the year through March and on Aug. 10 won state approval for a 375 billion-rupee ($8 billion) expansion to increase smelting and refining capacity sixfold.

Bauxite Supply

"Vedanta will need its own source of bauxite to successfully implement the project," said Giriraj Daga, an analyst at Khandwala Securities Ltd. in Mumbai. "If not Niyamgiri, it will have to seek some other sources."

The four-member panel assessing Vedanta's proposal said "allowing mining in the proposed lease area by depriving two primitive tribal groups of their rights over the proposed mining sites in order to benefit a private company would shake the faith of tribal people in the laws of the land," according to an Aug. 16 report. The company has breached laws including the Forest Conservation Act and the Environment Protection Act, the panel said.

Vedanta said last month it may begin mining at the site in the Niyamgiri mountains as early as the end of the year. "All is going well," Chief Executive Officer Mahendra Singh Mehta said in London on July 30. "It shouldn't take more than three weeks for the government to decide" on approvals after receiving an Environment Ministry report due this month.

Posco Plan

Separately, India will take a decision on a planned $12 billion iron ore mine and steel mill, proposed by South Korea's Posco, after a government panel submits a report by the end of September, Ramesh said.

"Posco is a different proposition than Vedanta, they can't be equated," he said.

"Posco is closely observing the situation there," Chung Jae Woong, a spokesman for the Pohang, South Korea-based company, said today by phone from Seoul. "We hope to see a good result."