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M Ramesh

Tuticorin, Aug. 31 Sterlite Industries expects its profits from copper business to surge from three key value drivers – a pick-up in smelting and refining margins, lower cost of power and “exceptional focus on by-products”.

In 2007-08, the EBIDTA margins of the company’s copper business dipped (see Table). This was because of dropping smelting and refining margins, or ‘treatment charges and refining charges’ (TcRc), due to production cutback in a large copper mine and aggressive buying of concentrates by China.

Indeed, what saved the day for the company was the surge in margins in the by-products – phosphoric acid, sulphuric acid and gypsum. Sulphuric acid sales fetched Rs 237 crore compared with Rs 64 crore in the previous year. Gypsum fetched Rs 58 crore, against Rs 4 crore.

However, the company expects a U-turn in its fortunes, thanks to the three value drivers.

TcRc has since dropped further about 8 cents, but Sterlite believes the worst is over and a pick-up could happen from now, thanks to opening up of copper mines. When and by how much are still open questions, but Mr R. Kishore Kumar, CEO of Sterlite’s copper business, believes that TcRc will improve.

Alongside, Sterlite expects increase in production. The company’s Tuticorin smelter has a capacity to produce 400,000 tonnes a year, but it produced only 339,294 tonnes of copper cathodes last year. However, Mr Kishore Kumar expects current year’s production to be around 370,000 tonnes.

Savings in energy costs is where maximum upsides are evident. Today, Sterlite needs about 55 MW of electricity. A fifth of this comes from a waste heat recovery boiler which produces electricity at practically zero cost. But for the rest, Sterlite uses fuel-oil fired captive power plants, where the generation costs are close to Rs 8 a unit. It does not buy the cheaper grid electricity because the supply is not reliable.

However, Sterlite’s group company, The Madras Aluminium Company (MALCO), is adding another 30 MW of capacity to its existing 90 MW at Mettur. The power will be available to Sterlite’s Tuticorin plant.

Mr Kishore Kumar told Business Line on Sunday that Sterlite would also encourage biomass companies to put up plants near Tuticorin, pick up equity stakes in the projects and access the power. In fact, Sterlite itself wants to put up a 6 MW power plant that would be fired by biomass briquettes from nearby sugar industries.

Over time, electricity availability in the southern districts of Tamil Nadu is expected to improve, thanks to the number of power plants coming up. About 7,000 MW of capacity is expected to come up near Tuticorin itself, sufficient to cater to the needs of Sterlite, even after a likely expansion of the smelter capacity.

As the plant process more ore, it will produce more sulphur and consequently more sulphuric and phosphoric acids and gypsum. However, Sterlite intends to mine more value from each tonne of earth it puts into the furnace.

Accordingly, a Rs 100-crore programme is under way that would extract several minor metals – bismuth, selenium and tellurium –and ‘dore’, which is precious metals intermediate. Bismuth and selenium extraction plants have just been commissioned, while the rest are happening. Payback is less than three years and thereafter, these metals would add between Rs 30 crore and Rs 50 crore annually to the bottomline.

More Stories on : Metals | Outlook | Sterlite Industries (India) Ltd

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