We see an opportunity in Hindcopper which is the only Company mining copper ore in India. Hindcopper is holding mining lease of more than 80% of country’s copper reserves. Let us go through some publically available data to understand how big is is the opportunity ahead for investors, provided they can patiently wait and commodity cycle supports.
Indian Copper Scenario
Compared with global markets, India has limited copper ore reserve/resources contributing about 1.5 % of world copper reserves. Mining production is just 0.2% of world’s production, whereas refined copper production capacity is about 4% of world’s production. The size of Indian Copper Industry (consumption of refined copper per annum) is around 6.6 lakh tones, which is only 3% of world copper market.
There are three major players which dominate the copper industry in Indian markets. Hindustan Copper Ltd (HCL) in Public sector, Hindalco Industries and Vedanta in Private Sector. Production in India has declined significantly due to the permanent closure order issued to Vedanta Smelter/ refinery plant by Tamilnadu government in May, 2018.
HCL is the only vertically integrated copper producer in the country which produces refined copper from mined ore, while Hindalco Industries at Dahej in Gujarat and Vedanta Industries Ltd at Tuticorin in Tamil Nadu have set up port based smelting and refining plants. However, there are few installations to produce Electro-won copper but their capacities are still
very low and production is inconsistent.
There are more than 1000 SMEs, MSMEs and unorganized sector working in the downstream and secondary recycling of copper Industries in India.In the fiscal year 2019-20, the copper ore production in India was 3.97 million tonnes.
With the completion of the expansion projects by 2024-25, copper availability will be suffice to meet 30% of India’s demand against the present 5%. Consequently, concentrate import will decline by 25%. It will help HCL to enhance its profitability (even if LME prices drop sharply). This is because of a huge cost reduction due to the economies of scale.Santosh Sharma CMD, Hindustan Copper
HCL has plans to increase its mining capacity from its current level ore production to 12.2 MTPA in phase-I in next 9 years and will take necessary action for further capacity enhancement of mine to 20.2 MTPA in phase -II. Metal in concentrate production of HCL in FY 2019-20
was 26,502 tonnes.
• Only Company mining copper ore in India.
• Fully developed infrastructure facilities
• Holding mining lease of more than 80% of country’s copper reserves
• Vertically integrated operations greater business certainty
• Skilled and well-trained workforce
• Established brand value
• Wide distribution network and established customer base
• Smaller size mine deposits except Malanjkhand
• Aged equipment & old technology for value addition
• Low process efficiency
• High cost of logistics due to multi location units
• Low utilization of two plants, TCP & GCP resulting in cross subsidization
• Aged workforce
• Growing copper demand within country
• Ready market for copper concentrate in India due to large smelting/refining capacity
• Buoyancy in world copper prices
• Scope for expansion of mine capacity
• Opportunity to explore new deposits
• Volatility in LME Copper price affecting turnover/profitability
• Increasing cost of inputs
• Attrition of skilled manpower
• Regulatory risks in mining increasing
• Risk in existing non-profitable business
• Non-availability of competent underground Metal mining contractor / Outsourcing agency in India
Copper demand is expected to grow at 7% -8% in India. Growing demand from power sector in view of Government layingthrust on renewable energy and increasing demand from the households for consumer durables will increase demand for copper in India. Manufacturing of electric vehicles (EV) will also augment consumption of copper as EV use four times more copper than traditional internal combustion engines.
Copper is essential to EV technology and its supporting infrastructure and the evolving market will have a substantial impact on copper demand.
The per capita copper consumption in India is expected to increase from the current level of 0.5 Kg to 1 kg by 2025. The average per capita copper consumption in the world is 3.2 kg.
5X Capacity Expansion Plan of Hindcopper by 2025
Once Rakha mine in Jharkhand starts full scale operations at an expected investment of Rs 900 crore over a 3-4 year timeframe, the production from this mine will stand at 2.5 MT. It is also expecting the Kendadih mine to commence operations which it reopened in 2017. To reach its ambitious target of 20 MT by 2025, Hindustan Copper is relying on new projects as well as focusing on scaling up production from its existing mines.
The world will need to produce 5 million metric tonnes of copper per month by 2030 –more than twice the production in 2019 – in order to meet the projected demand from the electric-vehicle industry. As an example, the latest electric vehicle from Tesla Motors requires at least 163 kilograms of copper.Matt Badiali, senior research analyst at Banyan Hill Research
Malanjkhand project in Madhya Pradesh holds proven reserves of 245.66 MT and estimated resources of 331.59 MT. Hindcopper is expanding the production capacity of this project from the present 2 MT to 8 MT by developing an underground mine below the existing open cast mine at an investment of Rs 2,900 crore. It is the copper producer’s largest project. Khetri and Kolihan mines in Rajasthan, the production is expected to go up to 3.5 MT from the current 1 MT while for the Surda mine in Jharkhand, production from copper ores will be more than doubled to 1 MT.
We see a great story unfolding if Hindcopper gets proper Government support and market support. What is your take on this? Can it break the previous all time high of Rs 600+ by 2025?
NB: All data from public domain