Hindustan Copper Ltd.

Hindustan Copper Ltd - Company Overview

Hindustan Copper Ltd. (HCL) is a Category Mini Ratna Central Public sector undertaking under the administrative control of the Ministry of Mines, Government of India having five decades of experience in mining of copper. The Company was incorporated on 09.11.1967 under the Companies Act, 1956. The President of India is holding 82.5% of the total paid up equity capital of Rs.462.69 crore and the remaining 17.5% is held by the Public. Major activities of Hindustan Copper Limited (HCL) are Exploration, Mining, Ore Beneficiation, Smelting, Refining and Casting of refined copper metal into downstream products. It is the only company in India engaged in mining of copper ore and owns all the operating mining lease of Copper are in the country. The company has access to over two-third of the India's copper are reserves and owns all the operating mining leases of copper are. The company has reserves of 411.53 Mn tonnes and resources of 623.31 Mn tonnes. Hindustan Copper Ltd (HCL) is also the only integrated producer of refined copper in the country. Hindustan Copper Ltd (HCL) has five units - one each in the States of Rajasthan, Jharkhand, Madhya Pradesh, Maharashtra and Gujarat.

Hindustan Copper Ltd - Investment Rationales:

• Copper consumption to improve

• Vertical integration will help reduction in cost and risk

• Expanding capacity to drive volumes

• Pick up in copper demand and price to drive margins

• Positive global growth forecast

The revenues have come down ~35% from Rs.1641.44 crore in FY12 to Rs.1074.22 FY16 and the margins came down from 19.6% to 3.9% in the same period. This is mainly due to the closure of mines and not using the capacity of scale and the fall of the international copper prices. Hindustan Copper Ltd (HCL) is a dominant player in the Indian copper industry with more than two-third of the ores at its disposal. With the increase in copper mining capacities from approximately 3.21 MTPA to approximately 12.41 MTPA by the end of fiscal 2017, improvement in domestic consumption, rise in global copper prices, and restarting its full-scale production, we expect the company to outperform the industry in both medium-term and long term future.

Hindustan Copper Ltd - Industry Overview

Copper, historically known as “Dr Copper,” was traditionally used as a barometer to track the health of the global economy. The red metal was referred by this moniker because of its versatility in applications. Copper, the third-most abundantly produced metal, is extensively used in electronics, plumbing, wiring, heating, ventilation, etc. The meltdown in prices of metals is primarily on account of supply glut and muted demand from China. While copper prices are falling in a hurry, the global economy has stayed relatively put. Contrary to tradition, since the global financial crisis, the correlation between copper prices and global economic growth has got diluted.

World market scenario

Copper is the second-most-important base metal by value accounting for roughly a $150 billion industry annually and China consumes almost half of the world’s refined copper. Chile is the largest producer, followed by China and Peru. A few companies are involved in copper production, Chile’s Codelco is the largest among them. Copper prices have behaved more transparently than those of iron ore because of the fact that copper futures markets and London Metal Exchange settlements are used as benchmarks.

The worldwide demand for copper is expected to witness a 4.7% surge every year totting up to 37.2 million metric tonnes in 2019 and the global refined copper production is expected to rise at a rate of 4.6% per year reaching 29.1 million metric tonnes by 2019. As far as demand scenario is concerned, Asia-Pacific region will be experiencing the fastest annual gains, primarily led by increased output from India and China. The fall in copper prices that we saw from the end of 2013 to the beginning of 2016 was primarily due to a slowdown in demand from the largest consumer China. Due to the uncertainty surrounding China’s economic growth, the global copper market, at present is waiting for India’s demand to pick up. In order to meet the shortfall in demand due to slowdown in China, India’s copper demand need to grow at 6% or more annually. A recovery in the end-user industries like industrial construction, civic infrastructure, power, automobiles, industrial machinery, and consumer goods, among others are required to boost up the domestic copper demand.

World copper usage breakup

Hindustan Copper Ltd - Indian markets

Copper is an 8 billion US dollar industry in India having created 50,000 direct and indirect jobs and growing at a CAGR 5-7% per annum. According to the ministry of mines, the size of India’s copper industry is estimated at around 500,000 tonne per year, which as percentage of the world copper market is only 3%. In India, the production of the metal is undertaken by state-run Hindustan Copper Ltd and private sector companies such as Hindalco Industries Ltd and Sterlite Industries (India) Ltd.

India imports about 94% of copper concentrate to be supplied to its smelters. India’s copper concentrates imports are so much so that there is a massive disparity noticed between the surplus in the country’s refining capacity and the deficit in its domestic mining capacity. With limited ore reserves and growing consumption of refined copper, there is enough reason to be worried. Another threat remains in the long term could be the restriction on – situation might arise in the future when obtaining copper concentrates from the international market would be restricted. This might create a serious problem for the domestic copper industry. Therefore, the domestic industry needs to increase the resources base of the red metal immediately by increased investment in exploration and in other countries for acquisition of mining assets. The MMDR Act by the Indian government will lead to an increased investment in mining and renewed focus on exploration and will also offer mining concession for exploration based on transparent auction. Further, this act will make licensing and permits more transparent and speedy. India’s metallic mineral production in FY’16 witnessed a 21% increase; amounting to 190.74 MT. Production of raw copper was up by 31% from the previous fiscal.

The biggest challenge faced by the domestic copper industry is its inadequate copper mining capacity. The country is amongst top ten exporters for refined copper. At the same time, the country is one of the world’s biggest importers of raw copper. India lacks extensive copper reserves and accounts for only 1.9 percent of the world’s copper reserve and resource. India’s total copper reserves are estimated to be around 712.5 MT, equivalent to 9.4 MT of metal content. Major ore deposits are located in the states of Jharkhand, Madhya Pradesh, and Rajasthan along with small deposits in Gujarat, Karnataka, Andhra Pradesh, Uttar Pradesh, Sikkim, Meghalaya, Maharashtra and West Bengal. Copper ore production accounts for less than an alarming 5% of the country’s demand. Against the global average of metal content (in the ore) of 2.5%, copper ore grade in India averages less than 1%. As per some analysts, at least 100 MT of copper ore is required for meeting installed smelting/refining capacity against annual production of 3 MT.

India copper usage breakup

Business Overview

Revenue mix (FY16)

Products and applications

Copper manufacturing process

Hindustan Copper Ltd - Financials

Profit and Loss Account