Hindustan Zinc bets big on the silver

With silver seeing stronger gains than gold and analysts expecting it to keep outperforming its costlier counterpart in future, Anil Agarwal-controlled Hindustan Zinc is betting big on the precious metal. The company is investing Rs 3,200 crore to enhance its smelters, captive thermal power plants and mines. Once the expansion is completed in 2013, it will catapult the company to the position of the top Asian silver producer, with a capacity of over 500 tonnes.

Hindustan Zinc COO Akhilesh Joshi said, "We are increasing the silver production capacity to 500 tonnes by 2013, which would boost the company's revenues. Also, the revenues from silver would also be significant in the future.'' Currently, UK-listed miner Kazakhmys, whose main assets are located in Kazakhstan, holds the top position in Asia.

Hindustan Zinc's mines are located in Rajasthan, from where it extracts zinc and lead. And from further processing of lead comes silver, whose capacity as of now stands at 100 tonnes. Currently, according to World Silver Survey, the world's largest primary silver producer is Mexico's Fresnillo, followed by Vancouver-based Pan American Silver Corp. In 2013, Hindustan Zinc will be among the world's top six.

Along with this, the revenue mix at Hindustan Zinc too will change. While Zinc will continue to be the largest contributor, the gap between lead and silver will narrow, if silver prices were anything to go by. In 2005-06, revenue from silver stood at Rs 30 crore, while that from zinc and lead stood at Rs 3,246 crore and Rs 176 crore respectively. In 2007-08, Zinc clocked a turnover of Rs 6,074 crore, lead at Rs 833 crore and silver at Rs 158 crore.

The annual demand in India for silver is about 3,200 tonnes, of which over 75% is met through imports, around 20% from secondary silver, 2.5% from Hindustan Zinc and 1.7% from Hindalco Industries.

Silver--50% demand for which comes from industries--is used in electronic equipments, medical and solar energy equipments, among others. However, like gold, silver too is attracting investors, with the metal being regarded as a safe-haven. With investment opportunities in stock markets and real estate waning due to the ongoing slowdown, interest in gold and silver has risen. According to industry body Assocham, gold prices are likely to touch Rs 17,000 per 10gm by August and silver to Rs 24,000 per kg.