Hindustan Zinc increases production to maintain margins

Hindustan Zinc Ltd (HZL), after posting a record profit of Rs 5,526 crore in 2011-12, now faces pressure on its margins, with prices having fallen sharply in the first quarter.

“Like any other zinc producer globally, operating margins are impacted by the prices (at London Metal Exchange),” Akhilesh Joshi, chief executive officer, told Business Standard. “The company is implementing a multi-pronged strategy of increasing production and upping its lead and, consequently, silver production by improving recovery of metals from the ore and de-bottlenecking the production process. This will help in cost optimisation, and take pressure off operating margins.”

HZL has begun an additional smelting plant for lead, which is in short supply. Most of the benefit will accrue in the current financial year. Production capacity will go up to 185,000 tonnes this year from 85,000 tonnes. Silver production will rise to 350 tonnes this year and 500 tonnes next year.

It has initiated and sharpened the focus on de-bottlenecking plants to improve productivity, increase capacity use and also help improve the recovery of metals from the ore. Last year, lead production was 55,000 tonnes out of a capacity of 85,000 tonnes. In zinc, capacity was 880,000 tonnes and output was 570,000 tonnes.

Three-month zinc prices on the LME have declined 5.4 per cent since March 31, while spot prices on the Bombay Metal Exchange have gone up by 4.7 per cent in the same period, in rupee terms. According to Emkay Global, the company obtained six prospecting licences in the past year, while applying for three mining leases. Joshi confirmed the company “plans to continuously engage in exploration, cost optimisation and increase its volumes to meet the fluctuations at the LME and domestic zinc prices”.

Hindustan Zinc’s Rampura Agucha mine is the world’s largest zinc producing mine and smelting complex, at Chanderiya in Rajasthan. It is the world’s largest single location zinc smelting complex. The cumulative reserves and resources was 143.7 million tonnes in 2002, which is now 333 mt.

The company expects global demand for zinc to increase at three to four per cent per year. Demand for metals in India is expected to grow at 8-10 per cent per annum. HZL’s mines and smelters are consistently ranked by Brookhunt, a leading industry consultant, as amongst the lowest cost operations globally.