BackHindustan Zinc CEO Arun Misra shares future expansion plans, factors behind four consecutive cost reductions and more
In a recent interview with Livemint, Arun Misra, CEO of Hindustan Zinc Limited and Executive Director of Vedanta Group, opened up on future expansion, corporate restructuring, Red Sea crisis impact, silver demand outlook, factors driving cost reduction and zinc's role in green energy.
PremiumThe demand for silver has increased in various industries, as well as its role as a hedge against inflation, said Arun Misra, CEO of Hindustan Zinc Limited and Executive Director of Vedanta Group, while speaking with Livemint. Hindustan Zinc recorded a fourth consecutive quarter of cost reduction in Q3 results for 2024. Misra provided a comprehensive analysis of the factors driving the cost reduction, including lower import coal prices, smart investments in power plant upgrades, and an increase in ore grade. He also talked about the impact of the Red Sea attacks, the company's restructuring and its plan for possible expansion in the semiconductor industry.
Edited Excerpts:
Is the company planning on expanding in the semiconductor industry as a supplier of critical metals?
From the metal purview, Hindustan Zinc is a leading miner with best-in-class facilities and innovative minds. We, as a business, are open to bid for any upcoming auctions of critical minerals block. Hindustan Zinc is in the play for resource to metal, and if something that caters to the specific segments of the business or adds value to the overall business proposition, we will bid accordingly. Currently, we are not actively looking out for auction, but as and when the government puts the mines for auction, be it nickel or lithium, Hindustan Zinc may participate as per business growth demands.
As we’ve seen, there’s a spike in silver imports in India; what is the reason behind it?
One key factor for the increase in silver imports is the rising demand for silver as a precious metal. Silver is becoming increasingly popular as a less expensive alternative to gold, especially among younger generations. The demand for silver in India is governed by the jewellery industry and followed by its use in silverware and the pharmaceutical industry. Furthermore, demand for silver has grown in a variety of industrial uses, including electronics and solar panels, contributing to the overall increase in imports.
Silver’s utility as an industrial metal adds to its attractiveness, and with inflation fears, some investors have turned to silver as a hedge, hoping that it will keep value better than other assets.
Hindustan Zinc announced a fourth consecutive quarter of cost reduction in Q3, achieving its lowest zinc production costs during this period. What are the factors driving this cost reduction, and will this trend continue in the medium term based on the Company’s guidance?
Production costs for Zinc (excluding royalty) reached $1,095/tonne, representing a 15.3% year-over-year (YoY) and 3.7% quarter-over-quarter (QoQ) improvement. Several significant variables contributed to this result, which is consistent with the company’s yearly cost estimates. First, lower import coal prices were critical in driving down expenses. Second, smart investments in power plant upgrades over the previous two years have increased flexibility, allowing for the use of imported coal, domestic coal, or biomass based on cost considerations.
Another key contributor to cost reduction is an increase in ore grade, which has risen from 7% to 7.4% over the previous year.
Can you shed some light on the company’s restructuring plans?
The company is currently undergoing a strategic restructuring initiative driven by the decision of the Board of Directors. This comprehensive review of the corporate structure aims to unlock potential value by creating separate legal entities for the zinc and lead, silver, and recycling business verticals.
By establishing separate legal entities, we aim to offer distinct investment profiles tailored to attract deeper and broader investor bases.
In the ongoing commodity cycle, how will the company secure the supply and provide for the demand? Is the company investing in further decreasing the cost of zinc production and procurement of zinc from new mines?
In response to the ongoing challenges in the global commodities cycle, Hindustan Zinc has adopted a comprehensive strategy to secure supply and meet demand for zinc. Ongoing efforts are being made to improve overall competitiveness through cost optimisation. The strategic market focus entails a shift toward local markets, with export involvement confined to profitable categories and dependent on material availability monthly.
Despite swings in zinc prices, which are currently between $2,500 and $2,600 per ton, Hindustan Zinc remains resilient, with a strong cost position. The company anticipates pricing changes of up to $50 but is well-prepared to handle them. Hindustan Zinc, operating at the lowest cost decile, is confident in its capacity to weather market headwinds. Looking ahead, the business is optimistic about the longer-term zinc price forecast, with the base case set at roughly $2,800 based on London Metal Exchange projections, bolstering its strategic position in the global zinc market.
The current ore production capacity stands at 16.34 million tonnes per annum, and the company aims to expand mining capacities, implementing six ongoing major mining projects. Is there an expected timeline to achieve this target?
By extending our capacities, we aim to fulfil our vision of 1.2 MTPA, which will be followed by incremental ramp-up to 1.25 Mtpa and eventually to 1.5 Mtpa.
For Rampura Agucha Mine, which is the world’s largest underground zinc mining operation, we are conducting a study on an alternate access to the portal. For our silver-rich Sindesar Khurd Mine, which is also India’s highly mechanised mine, we aim to commission a vertical conveyor system to mine high-grade shaft pillar areas.
What is the impact of the Red Sea attacks on the Hindustan Zinc exports?
The impact of the Red Sea attacks on Hindustan Zinc's exports is expected to be minimal due to several mitigating factors. Our primary export destinations include South Asia, Southeast Asia, and the Middle East, with a limited reliance on Red Sea routes.
Even within the Middle East, we have alternative routes, and our exports are majorly on the eastern ports. To be fair, for our customers in Saudi Arabia, we do anticipate certain fluctuations due to the ongoing conflict, but it won’t have a volume impact and other routes of safe passage will be figured out.
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