In Short:

Hindustan Zinc is pushing its demerger plan to create separate companies for zinc and silver. CEO Arun Misra believes this will enhance value for shareholders as silver prices surge due to industrial demand. The demerger still requires approval from the Mines Ministry. Meanwhile, the company aims to reduce production costs through increased renewable energy use and sees strong demand for zinc in India.

Hindustan Zinc’s Demerger Plans Amid Rising Silver Prices

October 26: The quest for growth continues at Hindustan Zinc, India’s premier producer of zinc, as they push their demerger proposal forward with the Mines Ministry. In an exciting move, CEO and Wholetime Director, Arun Misra, revealed plans to create two independent entities—one focusing on zinc and the other on silver.

Seizing the Silver Surge

Following a remarkable surge in silver prices which recently reached an all-time high in India, Arun Misra expressed optimism that separating the precious metals segment would indeed create value for everyone involved.

In an insightful interview with Businessline, Misra elaborated on the details of the ongoing demerger proposals, the Central government’s long-pending divestment plans, and strategies for cutting production costs through renewable energy, alongside trends in silver and zinc pricing and demand outlook.

Silver Prices and Hindustan Zinc’s Position

How do you see the current climb in silver prices impacting Hindustan Zinc’s push to expand its precious metals segment?

The strong uptick in silver prices is largely fueled by industrial demand, particularly within photovoltaic applications and the jewelry market. As India’s sole silver producer—and the world’s third-largest—we are perfectly situated to meet this burgeoning demand with our top-tier asset, the Sindesar Khurd Mine in Rajasthan, which ranks as the second-largest silver-producing mine globally. Our positivity surrounding silver is rooted in its significant contribution to our profits.

Does this give weight to the demerger plans?

Absolutely! We firmly believe that establishing a dedicated silver company through a demerger will unlock substantial value for all stakeholders and foster sustainable growth. This separate silver vertical will be primarily positioned to leverage market opportunities, bolstered by our unique status as the only producer drawing from primary sources. This concentrated focus will enable the new silver entity to optimize its strengths and boost shareholder value.

The proposal is pending approval from the Mines Ministry, which is a minority shareholder. What’s the status?

Correct. We are actively engaged in discussions with the Ministry concerning our proposed two-company structure—zinc and silver—although we are still awaiting their official approval. We’re currently addressing several aspects of the proposal through ongoing dialogues.

Are you confident this is a value-accretive proposition?

Undoubtedly, we see this as a value-generating opportunity for shareholders. When the initial three-company structure proposal was considered, Hindustan Zinc‘s market cap was around $16 billion. Today, it has surpassed $25 billion, with numerous brokerage reports projecting even more value to be realized in the near future. If we can create two successful companies—one specializing in precious metals—the cumulative market capitalization will be far greater. This scenario truly represents a win-win for shareholders, while also presenting the government with stakes in two highly profitable metal companies.

The Centre has been contemplating divesting its stake in Hindustan Zinc. Has this affected the demerger process?

Not necessarily. The discussions around demergers and divestments are operating in parallel paths and remain independent of each other. Logically, however, divestment should precede the demerger. The government has planned international roadshows regarding disinvestment, in which we, as the majority shareholder, are actively participating. Significant action is long-awaited, and we expect progress soon.

What’s your outlook on zinc prices for the remainder of the fiscal year?

Previously, I had forecasted that zinc prices would reach around $3,000 per ton by December. With October upon us, prices are already flirting with that figure, and I believe we are settling around this mark now. The average pricing could continue to hover around $3,000, especially if macroeconomic conditions improve following the upcoming US election results.

Will geopolitical crises in West Asia or economic slowdowns in Europe affect you?

We don’t export to Europe, though we are observing some sluggishness in that market. Our operations extend primarily to Southeast Asian nations like Malaysia and Vietnam. While we have experienced some effects due to increased freight costs related to container availability, the impact remains minimal.

Your production costs decreased in Q2. What are your plans moving forward?

Hindustan Zinc achieved its lowest cost of production in four years during Q2, clocking in at $1,071 per ton. We expect to maintain an average closer to $1,050 per ton for H2. This decline is largely attributed to our increasing reliance on renewable energy—from 8% in Q1 to a projected 20% by Q4—allowing for reduced costs overall.

Regarding silver production, how has the zinc fumer installation impacted operations?

We did face challenges with visa applications for Chinese experts, meaning installations had to be carried out remotely. Now that we are in the process of revamping and debottlenecking the plant, we aim to resume operations by November, with full ramp-up expected by early 2024.

Published on October 26, 2024