Bangalore: India’s only primary gold producer, the Hutti Gold Mines Co. Ltd(HGML), is set to report record profit this fiscal, thanks to a nearly 14% increase in retail gold prices since April as well as increased production from its mines.
Given the buoyancy in commodity markets, HGML is also looking at mining copper at Ajjanahalli in Chitradurga district, where it currently mines for gold.
The company has also applied for mining permits in other parts of Karnataka such as Gulbarga, Mangalore, Gadag and even the Krishna belt in Andhra Pradesh.
“These are at various stages of consideration. Once we obtain permission, we will start preliminary, exploratory work,” says Rakesh Singh, managing director, HGML.
The firm might also seek to raise funds in the capital markets, through an initial public offering, or IPO, for the expansion. “It is too early to comment, but, yes, given that we are a profitable company, we could look to raise funds through (an IPO),” says Singh.
Singh says the company is likely to earn Rs100 crore in profit on sales of nearly Rs300 crore in the year ending March 2008. This compares with a profit before tax of Rs85 crore on sales of Rs233 crore in the year ended March.
The firm expects to produce 3,000kg of the yellow metal compared with 2,800kg the year before. Located in Raichur district of Karnataka, some 480km north of Bangalore, HGML is owned by the state government.
After the closure of the Kolar gold fields, HGML is the only producer of gold in India. According to industry estimates, India consumes around 810 tonnes of gold, mostly for personal ornaments, of which nearly 550 tonnes are imported. A little more than 250 tonnes are recycled.
“While HGML produces just a fraction of the country’s requirements, we are proud that we are the only producers of gold in the country,” says Singh. The record profit projections are a far cry from just five years ago when HGML was looking at shutting operations because its cost of production was more than the price of gold in the market. However, with gold prices rising rapidly, the company has turned profitable since 2005.
“All our accumulated losses have been wiped out and we do not have any debts now,” says Singh. While the 40% rise in gold prices over the last two years has contributed largely to the turnaround, HGML’s cost of production has come down from Rs551 per gram to Rs490 per gram during the same period.
Singh says that this has been possible because of better efficiencies introduced in the production process. The workforce of the company has also come down from a peak of 4,300 in 2005 to 3,981 now.
Every Monday, HGML, on an average, sells 60kg of gold at prevailing market prices.
The firm has also diversified into windmills.
It currently has 4.8MW of windmill capacity in Chitradurga. According to Singh, in 2008, HGML will add another 6MW in such capacity at a total investment of Rs32 crore.
The firm is in talks with Suzlon Energy Ltd, which will install, run and maintain the windmills.
HGML was set up in 1947, though gold mining in the region began in 1902, and has produced over 66 tonnes of gold and mined around 10 million tonnes of ore in all these years. “We are presently mining at 2,600ft in the Hutti mine,” said the company’s senior marketing manager, Fahim Khan.