Bucking Price Forecast, Hindustan Copper Ltd Bets on Mining

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Indian copper, like other base metals, may not really be “hot” for the moment domestically, but that has not stopped state-owned Hindustan Copper Ltd (HCL) from embarking on an expansion plan with a re-alignment of business focus.

Just after its recent annual general body meeting, the copper major announced in a written statement that it had proposed a plan outlay of approximately US $109 million for mine expansion, development and greenfield exploration in the current fiscal year.

This has made Indian analysts sit up and take note. Why not? Last year, Hindustan Copper had a planned expenditure of about US $41 million, so what exactly had made the company so bullish this fiscal year?

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One view is that HCL was expanding its mining part of the business because of the slowdown in the copper metal business. The company is India’s only copper miner that also produces copper metal. Now with demand being low and the profit margins not that high, this copper major producer decided to pump more money into its mining operations.

According to a report in the Live Mint, the company had rolled out eight mining projects to enhance its mining production from the present 3.4 million tons per year to 12.4 mtpa in the next five years. Work had already started on four of these projects.

Just a few days ago, Hindustan Copper received crucial environmental clearance for the expansion of its flagship underground mine at Malanjkhand in the eastern state of Odisha, where it already has an open cast mine. This project alone would help the copper major scale up production at this mine from 2 mtpa to 5 mtpa per year. A major portion of its expansion budget is going into boosting its copper ore output capacity mines expansion. In addition, the company has also applied for more mining licenses in the states of Rajasthan, Jharkhand, MP and Haryana.

Give Hindustan Copper Some Credit (Ratings)

The company obviously seems to be doing things right because well-known ratings agency ICRA recently reaffirmed the AA+ rating of the working capital facilities of HCL. The outlook on the rating is stable. ICRA also reaffirmed the A1+ rating of the non-fund-based working capital facilities of HCL. The reaffirmation of the ratings take into account the status of the company as the only integrated copper producer in India, with access to large reserves of copper ore in the country, the healthy financial position of the company characterized by healthy profitability and cash accruals, its debt-free status, among others.

All this has also boosted investor confidence in HCL, whose shares in the past few trading sessions have seen a climb.

Prices of Copper Any Help?

The company’s shares, say some analysts, also got a boost from the positive sentiments in the Indian markets on copper. The spot price of this metal, in keeping with international sentiments, had in August shown a bounce-back after an overall dull 2013. The same was the story in copper futures.

But come September, India’s copper prices were back to the familiar pre-August story. Reflecting the international trend, the copper spot price was down despite positive data from China.

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Copper futures for February and November deliveries, too, were down overall. The reasons were profit booking, the weak rupee and the weak global trend in copper demand seen lately.

FREE Download: The Monthly MMI® Report – covering the Copper market.

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