Hindustan Zinc poised to become world number 5 silver producer

Hindustan Zinc Ltd (HZL), a group company under Anil Agarwal-controlled Vedanta Resources is planning to increase its silver production by 180%, or close to a threefold increase, in the next one year.

This is expected to augur well for the company as analysts feel that since silver is a by product obtained from lead refining, the company accrues no cost in the production of the metal and hence any growth in the production reflects directly in the profits.
Besides, with silver ruling at an all-time high for the last few months, it has become a much sought after commodity by investors and households alike.

HZL, which is one of the biggest producers of lead and zinc in the country, is in the process of increasing the capacity of its silver-rich Sindesar Khurd lead mine by one million tonnes in the next fiscal.

“The new 1.50 mtpa mill at our Sindesar Khurd mine commenced trial run towards the end of the last quarter. With our accelerated capacity ramp-up there, we are poised to exit the next fiscal with silver production capacity of 500 tonnes,” said a press release issued by the company.

Silver is traditionally found in ore forms in non ferrous metals such as copper, lead and silver. Therefore, it is obtained as a by product in the process of refining of these metals and hence does not involve any major cost of production.

A company source said the production of silver will not only add to the company’s revenues but will also help in unlocking the value of the metal, which is largely used for industrial and household purposes, especially an investment option.

“The 500 tonnes mark will make the company world’s fifth-largest producer of silver in the world,” he said.

The increase in production of silver is a part of the company’s third phase of expansion under which it has already increased the output of lead and zinc ore from its Rampura Aguche mine from 5 million tonnes per annum to 6 million tonnes and setting up a 160 mw captive power plant.

“The remaining work left under phase III is production increase from the Sidesar Khurd mine by one million tonnes, setting up of a lead smelter of one lakh tonnes and production of 0.3 million tonne from a new mine in the next fiscal,” the source said, and added that this will accrue an investment of Rs3,600 crore.
All its mines are present in Rajasthan.

Though analysts are positive about the development, they also have questions about the quantum of its contribution to the company’s overall revenues. “Since it is obtained as a by-product, whatever increase in production happens, it comes directly to Ebidta (or operating profit) level. But, silver’s contribution to revenues of the company is minimal,” said Ruchita Maheshwari, an analyst with Nirmal Bang Securities.

Another analyst with a leading domestic brokerage house said that HZL’s major revenue churner are lead and zinc and that is what impacts the company’s earnings.