₹12,000 crore expansion to help Hindustan Zinc pare cost, more expansion soon: CEO Arun Misra

The company's board on Tuesday approved the investment to add a new smelter at its integrated zinc metal complex in Debari, Rajasthan. The investment also includes expanding production capacity at associated mines. 

The Vedanta Ltd subsidiary had earlier indicated that it will increase its capacity to 2 million tonnes per annum (mtpa) from 1.1 million tonnes at present.

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“You may expect in two-three months, a number of announcements, totalling 2 million tonnes. This is the first part of that," Arun Misra, chief executive officer (CEO) of Hindustan Zinc Ltd, said on Tuesday. 

The next phase of expansion is likely to come from the company’s Dariba Smelting Complex in Rajasthan, with increased silver and zinc ore supply from the Sindesar Khurd and Zawar underground mines in the state.

HZL expects production costs to fall by $50 per tonne in the near term from $1,052 last year to around $1,000 this fiscal year as part of its ongoing cost reduction efforts. Once the 250 ktpa expansion is completed over the coming 36 months, it expects the cost to fall further.

“With this project coming, after three years we are expecting the cost of production between $950 and $975 per tonne," said Sandeep Modi, the company’s chief financial officer.

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Analysts at brokerage Antique Stock Broking said in a note on Tuesday that doubling mining capacity to 2 mtpa would aid in cost reduction due to economies of scale.

“Capacity expansion, firm zinc and silver prices and lower costs would aid profitability," the analysts noted.

HZL shares fell 5.2% on Tuesday to ₹486.35.

The company attributed the fall to Tuesday being the record date for its ₹10 per share interim dividend, which was announced last week.

Interest in rare earths

Hindustan Zinc, which is India’s largest producer of zinc and silver, is keen to diversify into the production of rare earth elements. India is facing an acute shortage of rare earth materials after China, which controls most of the global supply, restricted exports.

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Presently, India's rare earth materials used for making magnets come from monazite, a reddish-brown mineral found in beach sand along the coasts of Kerala, Tamil Nadu, Odisha and Andhra Pradesh. The Atomic Energy Regulatory Board controls monazite production.

Misra said progress in this area will be limited unless the Union government allows private companies to access and use monazite. However, the government is discussing this and changes are expected soon.

Nehal Chaliawala in Mumbai contributed to this story.