Hindustan copper - play on rising copper prices

Stock Opportunities Special Situations
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First a bit about the copper industry -
Total global copper production from mines amounted to an estimated 20 million metric tons in 2019.
Chile is the largest producer (5.6 million tonnes) followed by Peru (2.4 MT), China (1.6 MT), DRC (1.3 MT) USA (1.3 MT) and so on.

World copper mine production declined by 0.7% during the CY 2019.
Production in chile the world leader declined by about 1% due to lower copper grade and a few disruptions.
Production in Indonesia declined by 45% due to transition of two major mines to different zones.
Production in DRC and zambia declined by about 3% as a consequence of shutdown of SX-EW mines.

World refined copper production declined by 0.6% during CY 2019.
India saw a decline of production by more then 50% due to shutdown of Vedanta’s Tuticorin plant.

Now lets take a look at the demand side -

The world consumption of refined copper declined by 0.8% to 24.28 million tonnes.

Demand of refined copper is expected to be robust as more progress is made towards renewable energy and electric vehicles.

According to reports an EV uses approximately 60Kg of copper as compared to an ICE which uses about 23Kg or a hybrid which uses which uses about 40Kg.

Now lets look at the scenario in India -

Copper demand is expected to grow nearly 7-8% in India as govt lays thrust to renewable energy and increased demand for consumer durables.
The average per capita consumption of copper is the world is about 3.2Kg whereas in India it is still around 0.5Kg. This is expected to increase to 1 Kg by 2025.

Now lets look at the production facilities of Hind Copper -

  1. Malanjkhand Copper project - expansion proposed from 2MTPA to 5MTPA. There was a delay in the completion of the project as the contractual agency went into liquidation. They have awarded the contract to another agency and work is expected to be completed by 2021.

  2. Khetri, Kolihan and Banwas mine -

  • Khetri - expansion was proposed to increase production from 0.5MTPA to 1.5MTPA in 2011-2012 but work was disrupted due to extremely bad ground / fault zone encountered while making approach cross below the existing production shaft area. A detailed study was done to modify the design and now tendering is going on.

  • Kolihan mine - Drilling in progress to expand production to 1.5MTPA.

  • Banwas mine - 0.6MPTA production already running.

  1. Surda mine - Increasing production from 0.4 to 0.9MTPA.

  2. Indian Copper Complex(ICC) -The company initiated action to re-open the closed mines and development of new mines at Singhbhum Copper Belt.

  • Kendadih mine - The mind was re-opened in December 2017. Equipments were mobilized in a phased manner and in 2019-20 it produced 43200 MT of ore.

  • Chapri Sideshwer and Rekha mine - It was planned to augment production to 1.5 MTPA by reopening of closed Rekha mine.

The company plans to expand the production in 1st phase to 12.2MTPA by 2028-29 and then expand it to 20.2MTPA in 2nd phase.

Below is a 20 year snapshot of the spot prices in USD and the 10 year P&L of the company

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hind copper financial
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From the above it can be understood that leaving 2020 aside by far FY2009 was their worst year in which prices crashed to around 5200$ but then prices revived and inched higher but again crashed in 2016 to 4800$ levels but that time the company managed to stay in black.
So on an average when the prices crash the company is able to manage OPM of around 10-15% and on an upside the company is able to maintain around 30-35%.

What i understand from the whole scenario is that if there remains a shortfall for some years to come and the price manages to stay in the range of 7000-7500$ the company would be able to make around 25% OPM and add to that the new capacities coming up would give the bottomline a nice kick.

hind copper balance sheet
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The company was having nil debt till 2015 but since then the debt started increasing and is presently at around 1500 crs. This may have increased to fund the ongoing expansion project the company is undertaking. But it is surely something to keep a watch on.

Risks -

  • If we look at the 20 year chart of copper it can be easily said that copper has remained quite volatile and that will affect the stock price directly.

  • The expansion plan of some of the mines started in the 2012-2015 periods but it has not been finished till date with the company facing hinderances in some and the awardee in some. I am no expert in this field and have very little knowledge regarding the same. So i would like seniors or people with knowledge in this area help me out with it.

  • The company in its annual report mentioned that the equipment which they are using is very old hence the efficiency and reliability is a big question mark.

  • Being a psu is the biggest risk of all. We will never know when the govt. will leave the company cash starved or do something else which might not be in favor of minority shareholders.

Disclosure - Invested 2% of my portfolio from lower levels and may look to add more. Am invested in the company so views may be biased. I am not a SEBI registered advisor.

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Goldman says copper bull run ‘fully underway,’ sees potential for record high https://cnb.cx/37nzycm

This is a 6 months old article, which talks about the bad financial condition of Hindustan Copper, hence be careful while investing in Hindustan copper.

disclosure: tracking position bought recently

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From the article:
Take copper, for example. The metal, widely used for electric cables, will be indispensable for electric vehicles and renewable energy generators such as solar panels. Electric vehicles are said to use around 90 kilograms of copper per unit compared to 15 kilograms for gas-fueled vehicles.

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For more details click on link below

Disclosure: tracking position

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Time to be cautious: From the article

“We believe the price of copper–and indeed of other metals–is also being driven up by a high level of speculative buying interest. From a technical perspective, copper is now overbought-the RSI (relative strength index) is at 80,” said Daniel Briesemann, an analyst at Commerzbank AG.

Disclosure: tracking position

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Hi @prabhakar. He might be right but what i understand in technicals is that in a bull phase most of the indicators remains overbought for majority of the time. That being said i have not seen the technical chart of copper, i am just giving a broad view of what i understand.

Disclosure: Am invested so my view may be biased.

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https://www.cleanenergywire.org/news/e-car-boom-boosts-sales-europes-largest-copper-producer-aurubis

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Even with expansions at existing mines and the ramp-up of the relatively few new copper mines like Cobre Panama, Radomiro Tomic and Toquepalain, it will not be enough to meet the onslaught of demand that is coming from China as it continues to modernize and urbanize, and electric vehicles, which use three times as much copper as regular ones. In 2016 Chinese automakers sold 28 million cars. If China follows through on its promise to go 100% electric, that would mean 2,380,000,000 kilograms of copper. At the current production rate of 20 million tonnes a year, that’s 119 years worth of copper! Just to produce enough copper for electric cars in China.

More details:

Disclosure : Invested and hence views could be biased.

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any other option to participate in Copper rally through listed entity?

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Even if this amount is needed,all of this doesn’t have to be newly mined copper,right?I believe copper is often reused many times

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Recycling, an essential component but one that is limited by structural factors

While the secondary production of refined copper increased between 1998 and 2015, both in terms of volume and percentage (Graph 7), it grew less quickly than the waste stock. Theoretically, however, 100% of copper can be recycled.

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There are two reasons for this: in sectors with the highest levels of recycling (construction and infrastructure), much of the associated copper is immobilized for several decades due to the lifespan of the buildings/infrastructures in question.
In contrast, consumer goods, which have a much shorter lifespan, are only recycled at rates of between 25 and 40%. Moreover, the dispersive usages of copper make it more expensive and less attractive to recycle. The growth potential for copper recycling thus appears to be limited in the absence of a government incentive policy for the sector.

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There is no question about high copper demand during next decade or even more. The only question about the execution capabilities of Hindustan Copper. Does Hindalco also mine copper? How do their mining capabilities compare…

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There is no other listed player which have license to mine copper apart from hind copper as per my knowledge.

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Vedanta has a subsidiary in africa that mines copper. But in India, HCL is the only listed entity I believe.

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Found this article where in Hindalco signs MOU for copper concentrate with Hindustan copper.

Vedanta is the 2nd largest Copper producer in the country following Hindalco and followed by Hindustan Copper.
Hindalco Capacity : 5 lakh tones
Hindustan Copper : 1 lakh tones.
Vedanta Copper : 4 lakh tones.

Annual consumption of refined Copper in recent years has been around 6-7 lakh tones.

In FY17 imports of Copper & its articles stood at US$ 941.4 mn and that surged to US$ 1712.37 mn in FY19.

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Bullish view :

“This rally hasn’t even started yet,” Sadrian said. “The market’s looking like it did in ’04 and ’05, and the world didn’t get the memo.”

Bearish View

The rally that has unfolded has been so powerful that investors have gone from bearish to super-bullish just as Copper prices reach the top of a 7-year trading range at (1). By super-bullish I mean 90% are bulls, the highest in 9 years for Doc Copper!

Disclosure : Invested from lower levels

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As we understand importance of copper and rising prices of commodities, we need to understand the demand & supply so that the prices stay intact… if there is good demand for copper we expect prices to stay relatively low however that can change overtime when supply ratio is low.

Now in India we expect to import more than 30% copper due to Vedanta factory closed due to pollution norms and next set of industry making these are Hindalco & Hind Copper.

If you want to know when will India have next gen set of EV’s - we are still in phase that we have limited skill set to kick start EV - mostly this will be in 2024.

What opportunities that can be foreseen is use of copper for pre production of EV batteries, radiators, semi conductors, electric wiring etc.