Hindustan Zinc sees firm metal prices despite rising cost of production
- The company reported an 8% y-o-y growth in revenues despite lower volumes
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Business News/ Markets / Mark To Market/ Hindustan Zinc sees firm metal prices despite rising cost of production
NEW DELHI :Hindustan Zinc Ltd's (HZL's) September quarter performance was lifted by firm base metals prices. The prices of zinc on the London Metal Exchange (LME), at $2,991 a tonne, averaged 29% higher year-on-year (y-o-y) and 3% sequentially. This was supported well by lead LME that averaged 25% higher y-o-y and 10% sequentially.
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The company reported an 8% y-o-y growth in revenues despite lower volumes. The refined metal production volumes as anticipated declined due to the maintenance shutdowns taken by the company. Higher production from Rampura Agucha, Zawar and Rajpura Dariba mines were partially offset by lower production at Kayad mines, said analysts.
The positive is that most maintenance shutdowns have been taken during the first half. The second half thereby will see much higher metal production. The company expects both mined metal and finished metal production in FY22 to be 1,025,000-1,050,000 tonnes each respectively.
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Rising costs, however, impacted the company's operating performance. The cost of production (COP) was affected by rising coal and diesel cost and higher mine development expense. These were partially offset by operational efficiencies and better recoveries, though.
With costs on the rise, the company’s COP came at $1,096 per tonne. The company had earlier guided for COP to be below $1,000 a tonne levels; however, it has now revised its guidance upwards. Zinc's COP is expected to remain below $1,075 per MT (though up from $1,000 per MT earlier) for FY22, said the company.
However, the company’s COP is still among the lowest compared with global peers. Analysts at JM Financial said they “remain positive on HZL given its presence in the lower end of the global cost curve facilitated by high-grade captive mines sufficient to meet requirements for decades, 100% captive power plants, the sizeable scale of 1.2 million tonnes, diversified revenue stream with increasing contribution from silver sales and strong balance sheet / high dividend payout: The strong dividend payout has always attracted the investors' attention. Meanwhile, firm base metal price outlook and volume growth are to support the earnings even if COP is on the rise.
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Analysts at Antique Stock Broking Ltd said that zinc and lead outlook would be supported by the smelter shutdowns caused by higher energy costs, mine supply cut-backs and relatively lower inventory levels. Firm silver prices and higher metal volumes post 1.2MTPA capacity expansion would support earnings, they added.
The stock prices that are up 35% year-to-date, added 1.5% to gains in morning trades on Monday.
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