Hindustan Zinc to maximize silver production amid record rally

Silver prices have shot up 15% in the past one month, and 30% in the past year. Zinc prices, on the other hand, have remained flat in the past year and shown a slight rise since April.

“We have decided that we'll change our operating regime in our Chanderiya smelter to focus more and more on lead and silver production," Arun Misra, the company's chief executive said in an interview on Thursday. Silver is a by-product of lead production.

The company plans to increase silver production by 10 tonnes per month starting June, according to Misra. But the company has retained its FY25 guidance of 750-775 tonnes silver production.

This could add up to ₹100 crore to the company's top line each month if the current rally in silver prices persists. It could also improve the company’s margins as silver is a high-margin commodity.

With 817,000 tonnes produced in FY24, Zinc had nearly 80% share of the company's overall refined metal production by volume in the fiscal, and silver had less than 0.1%. Hindustan Zinc also produces lead.

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“Any commodity price rally is beneficial for Hindustan Zinc," said Kunal Kothari, Research Analyst at Centrum Broking. “In FY25, their profitability will see a significant improvement, especially when compared to FY24." 

Kothari added that Hindustan Zinc's Ebitda could reach ₹19,000 crore by FY26 from ₹13,677 crore in FY24 “despite conservative estimates at 10-15% lower to current zinc and silver prices".

“That’s over 18% CAGR," he said. Ebitda is short for earnings before interest, tax, depreciation and amortization.

Adjustable process

Hindustan Zinc’s Chanderiya Lead-Zinc smelter produces lead and zinc from ore. The lead thus extracted is further purified to remove impurities and silver is recovered as a by-product. The process can be adjusted to prioritize the production of either zinc or lead. Hindustan Zinc will prioritize lead production to maximize silver recovery.

The current cost-price matrix of lead and silver was more beneficial than zinc, prompting the decision, Misra said. Prices of silver have gone up by around 15% in just the past month to reach levels of ₹92,000 per kg, data from commodity exchange MCX shows. Many experts are expecting the price to breach the ₹1 lakh milestone. 

Also read | Hindustan Zinc's quarter net profit falls 26% to ₹2,038 cr amid low zinc prices

Meanwhile, zinc prices have been tepid for the better part of the past year to hover around the $2,500 mark per tonne on the London Metal Exchange (LME). Zinc prices have improved since April to reach $3,000 levels per tonne.  

Attributing the current surge in silver prices to a global demand shortfall, Misra said there was a 20% deficit between silver demand and production.

“There has been a sudden surge in consumption of silver in the western world, mostly for solar and other industrial applications, led by the green economy," Misra said.

Silver rallies not uncommon

In India specifically, silver rallies are not uncommon he said, with one such price surge event almost every alternate year.

“In our opinion, it will be maybe another two or three years till the time we have new mines, if at all they come up, to augment the supply," Misra said. "Till that time, this rally will continue. We always believe that the rally will continue, but the supply-demand gap looks like it is going to support our hypothesis." 

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The rally in silver has lifted the stock of Hindustan Zinc too, with the scrip more than doubling since the beginning of the year despite an 11% correction in the past five trading sessions.

Hindustan Zinc shares closed 2.9% higher at ₹687 on the BSE on Friday. Benchmark Sensex ended the session 0.1% higher.