hindustan copper ltd Management discussions

I. Industry Structure and Development

Copper, a malleable and ductile metallic element, is an excellent conductor of heat and electricity as well as being corrosion resistant and antimicrobial. Copper occurs naturally in the Earths crust in a variety of forms. It can be found in sulfide deposits (as chalcopyrite, bornite, chalcocite, covellite), in carbonate deposits (as azurite and malachite), in silicate deposits (as chrysycolla and dioptase) and as pure "native" copper.

The global demand for copper continues to grow: world refined usage has more than tripled in the last 50 years, thanks to expanding sectors such as electrical and electronic products, building construction, industrial machinery and equipment, transportation equipment, and consumer and general products.

Demand of copper is increasing due to progress of implementation of electric vehicle worldwide with associated charging infrastructure, decarbonization policy push by US and EU and more and more emphasis on green energy to mitigate climate change. The antimicrobial properties of copper are finding newer application after CoVID 19 pandemic. Copper being the green metal has been considered as a core driver for moving the global economy toward net zero emissions. Copper has been termed as new oil.

The global copper mine production and primary copper production remain flat during last three years and hence the secondary market for scrap copper will play an increasingly important role in meeting future growing demand. Virtually all products made from copper can be recycled and recycled copper loses none of its physical and chemical properties. Although copper recycling rates are already significant, with over a third of the worlds copper currently produced via secondary markets.

Global Business Scenario

World copper mine production increased by about 3.3% in Calendar Year (CY) 2022. The concentrate production increased by around 3% and solvent extraction-electrowinning (SX-EW) by about 5%. World refined copper production increased by about 3.5% in CY 2022 with primary production (electrolytic and electrowinning from ores) up by about 4% and secondary production (from scrap) up by 1.4%. World apparent refined copper usage grew by about 3% in CY 2022. In 2022, the world refined copper balance, indicated an apparent deficit of about 376,000 tonnes due to Chinese apparent usage (excluding changes in bonded/unreported stocks).

ICSG has reported that, World copper mine production in 2022, although continuing to increase, has underperformed vis-?vis ICSGs April 2022 expectations, leading to a downward revision in growth rates from 5% to 3.9%. Operational and geotechnical issues, strikes, water restrictions in Chile, lower than expected head grades and community actions in Peru have constrained mine output at a number of operations this year. However, world mine production in CY 2023 is benefiting from additional output from new and expanded mines, mainly in the D.R. Congo and Indonesia.

During last four-year period (2017- 2020) where only two major copper mines were commissioned, the pipeline of copper mine projects is improving. Major projects starting in CY 2021 to CY 2023 include Kamoa Kakula and Tenke (expansion) in the D.R Congo, Quellaveco in Peru and Spence-SGO and Quebrada Blanca QB2 in Chile. A number of medium and small projects, as well as expansions, have also started, or are expected to start in CY 2023. Most of the projects starting in this period are concentrate producing mines.

Globally, refined copper production growth was limited in CY 2022 by a series of planned and unplanned smelter shutdowns, mainly in the EU and Chile. However, refined copper production continued to significantly rise in China and D.R. Congo due to expanded capacity and this resulted in an overall global increase of 3.5%. World refined production growth in 2023 will sustain mainly by the continued expansion of Chinese electrolytic capacity and new and expanded SX-EW operations in the D.R. Congo (electrowinning capacity).

Both primary (from concentrates) and secondary (from scrap) refined output are expected to present higher growth rates in CY 2023. Primary production will benefit from the increased supply of concentrates and secondary output from additions to secondary refinery capacity. SX-EW output growth is projected to be slightly lower in CY 2023 than in CY 2022 due to continued decline in Chilean output.

World apparent refined copper usage is expected to increase by about 1.4% in CY 2023.

The global economic outlook is challenging, manufacturing activity is expected to show sustained growth in most of the key copper end-use sectors. Copper is essential to economic activity and the modern technological society. Additionally, infrastructure developments in

27 major countries and the global trend towards cleaner energy and electric cars will continue to support copper demand in the longer term.

Indian Copper Scenario

Compared with global markets, India has very limited copper ore reserve contributing about 0.31 % of world copper reserves. Mining production is just 0.2% of worlds production, whereas refined copper production capacity is about 4% of worlds production. HCL hold around two-fifths of the copper ore reserves and resources in India with an average grade 1.32%. As on 1.4.2022, HCL has reserves (proved & probable) of about 2.73 million tonnes in terms of copper metal and total reserves and resource of 6.18 million tonnes in terms of copper metal (i e., 631.85 million tonnes of ore with average grade of 0.99% based on UNFC system).

Total copper resources in India is 12.16 million tonnes of which 2.73 million tonnes constitutes reserves, both in terms of copper metal as on 1.4.2015 as per NMI database (As per Indian Minerals Year Book 2019, 58th Edition, October, 2020). There are three major players which dominate the copper industry in Indian markets. HCL in Public sector, M/s Hindalco Industries Ltd and M/s Sterlite Industries in Private Sector. It is reported that M/s Adani Group is installing custom copper smelter and refinery complex named as Kutch Copper Ltd of capacity of 1 million tonne in a phased manner. Refined copper production in India has declined significantly due to permanent closure order issued to M/s Sterlite Industries for their Smelter/ refinery plant at Tuticorin by Tamilnadu government in May, 2018.

HCL is the only vertically integrated copper producer in the country which produces refined copper from its own mined ore, while M/s Hindalco Industries at Dahej in Gujarat and M/s Sterlite Industries (Vedanta) at Tuticorin in Tamil Nadu have set up port based smelting and refining plants. However, there are few installations to produce Electro-won copper but their capacities are still very low and production is inconsistent. There are several SMEs, MSMEs and unorganized sector working in the downstream and secondary recycling of copper in India.

In the fiscal year 2022-23, the copper ore production in India was 3.34 million tonnes. HCL has plans to increase its mining capacity from its current level of around 4.0 million tons per annum to 12.2 million tons per annum in phase –I (under implementation) and from 12.2 million tons per annum to 20.2 million tons per annum in phase-II through expansion of existing mines, re-opening of closed mines and opening of new mines. HCL carried out surface exploration drilling & underground definition drilling from April, 2022 till March, 2023 of 17,249 meters & 12,600 meter for enhancing copper ore reserve and resources within its mining leases. Metal in concentrate production of HCL in FY 2022-23 was 24,760 tonnes. Refined copper production in India during FY 2022-23 (April-22 to Feb-23) was approx. 5.08 lakh tonnes (Vedanta- 1.37 lakh tonnes, HCL- 7.32 tonnes and Hindalco- 3.71 lakh tonnes), as compared to 4.42 lakh tonnes in FY 2021-22 (April-21 to Feb-22).

II. SWO T analysis

Strength

Only Company mining copper ore in India.

Fully developed infrastructure facilities

Holding mining lease of more than 80% of countrys copper reserves

Vertically integrated operations greater business certainty

Skilled and well-trained workforce

Established brand value

Wide distribution network and established customer base

Weakness

Smaller size mine deposits except Malanjkhand

Aged equipment & old technology for value addition

Low process efficiency

High cost of logistics due to multi location units

Low utilization of three plants, ICC, TCP & GCP resulting in cross subsidization

Aged workforce

Opportunity

Growing copper demand within country

Ready market for copper concentrate in India due to large smelting/refining capacity

Buoyancy in world copper prices

Scope for expansion of mine capacity

Opportunity to explore new deposits

Threat

Volatility in LME Copper price affecting turnover/profitability

Increasing cost of inputs

Attrition of skilled manpower

Risk in existing non-profitable business

Limited availability of competent underground Metal mining contractor / Outsourcing agency in India

III. Segment-wise or product-wise performance

Covered in the main report.

IV. Outlook

Copper demand is expected to grow in tandem with growth in Indian economy. The growing demand from the power sector in view of Government laying thrust on renewable energy and increasing demand from the households for consumer durables will increase the demand for copper in India. Manufacturers of hybrid and electric vehicle (EV) will also augment the consumption of copper as EVs use four times more copper than traditional internal combustion engines.

The market for EV is rapidly changing as leading manufacturers debut new products, battery prices drop and Government incentives continue around the world. Copper is essential to EV technology and its supporting infrastructure. The evolving EV market will have a substantial impact on copper demand. The increase in the EV market will significantly impact copper demand. The projected demand for copper due to EVs is expected to increase by around 1.7 million tonnes by 2027. Copper demand is also expected to increase further in health sector due to its biocidal properties.

The per capita copper consumption in India is expected to increase from the current level of 0.6 Kg to 1 kg in coming years. The average per capita copper consumption of world is 3.2 kg.

V. Risks and concerns

The Company has laid down risk management framework keeping the Companys objectives, growth strategy and process complexities arising out of its business operations. Risk management in HCL is a continuous process of identifying, assessing and managing all the opportunities, threats and risks faced by the Company to achieve its goals.

VI. Internal control systems and their adequacy

HCL has internal control system and internal audit is being carried out on half yearly basis in order to achieve operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.

VII. Discussion on financial performance with respect to operational performance

The financial performance for FY 2022-23 vis-?-vis FY 2021-22 is summarized below:

Particulars	2022-23	2021-22
Turnover	1660.63	1812.21
Value of Production	1781.12	1812.88
Cost of production excluding depreciation, amortization and Finance Cost	1194.60	1252.00
Profit /(Loss) before depreciation, amortization and Finance Cost	586.51	560.88
Depreciation, Amortisation	174.92	149.87
Finance Cost	15.93	28.94
Profit/ (Loss) Before Tax from Continuing Operation	395.66	382.07
Profit/ (Loss) Before Tax from Discontinuing Operation	-	(0.35)
Profit/(Loss) Before Tax from continuing & discontinuing operation	395.66	381.72
Provision for taxation -Current	86.15	21.58
-Deferred	14.20	(13.64)
Profit/ (Loss) After Tax from Continuing & Discontinuing Operation	295.31	373.78

Capital Expenditure

During the year, the expenditure on account of Mine expansion, Mine development, Replacements & Renewals (R&R) of plant & machinery & green field exploration stood at 381.28 crore which was funded partially through internal resources of the Company and fund raised through QIP. No Government support for capital expenditure was asked for.

Contribution to Exchequer

During 2022-23, the Company contributed a sum of 397.10 crore to the exchequer by way of taxes and royalties, as against Rs 489.98 crore in 2022-23, as detailed below:

	in crore
Particulars	2022-23	2021-22
Sales Tax /GST Including GST TDS	126.99	33.11
Royalty and Cess	132.33	150.31
Income Tax	124.84	290.80
Others	13.04	15.76
Total	397.10	489.98

VIII. Material developments in Human Resources / Industrial Relations front including number of people employed i. Manpower As on 31.3.2023, the manpower of the Company was 1351. Category-wise break-up is tabulated below:

Employee		Category (No.)
Group	Gen	SC	ST	OBC	Total
A	297	79	22	114	512*
B	9	1	0	2	12
C	309	110	107	129	655
D	64	67	22	19	172
Total	679	257	151	264	1351

 

Employee	Special Categories (No.)
Group	ESM	PwD	LDP	Minorities
A	0	14	0	27
B	0	0	0	2
C	1	6	76	59
D	12	7	25	9
Total	13	27	101	97

*Including 2 Deputationists.

Legends: Group A & B: Executives; Group C & D: Non-Executives; Gen: General; SC: Scheduled Caste; ST: Scheduled Tribe; OBC: Other Backward Class; ESM: Ex-Servicemen; PwD: Persons with Disabilities; LDP: Land Displaced Person. (ii) Employment of SC/ST/OBC Community and PwD candidates The Company adheres to the prescribed Government guidelines on reservation for SC/ST/OBC/PwD categories in its recruitment activities. The representation of SC, ST, OBC and PwD employees in the total manpower of 1351 as on 31.3.2023 was 19.02%, 11.18%, 19.54% and 1.99% respectively.

(iii) Employment of Women

The Group-wise strength of women employees as on 31.3.2023 vis-?-vis the total employee strength of the Company is given below:

	No. of Employees
Group	Total	Women	Women Employees as % of total Employee
A	512	39	7.62
B	12	4	33.3
C	655	29	4.43
D	172	29	16.86
Total	1,351	101	7.48

iv. Employee Relations

During FY 2022-23, the Employee Relations continued to be harmonious and peaceful in all Units of the Company. The successful operation of various Bi-partite fora at the Apex, Unit and Shop-floor levels have contributed immensely towards smooth functioning of the Company.

During FY 2022-23, four meetings of the apex level Bi-partite Forum NJCC were held on 20.5.2022, 21.5.2022, 23.9.2022 and 2.1.2023. Major issues were discussed and some were resolved including finalization of 8th Wage Settlement of workers effective from 1.11.2017 for a period of 10 years up to 31.10.2027. The tripartite agreement was signed before Smt. Roopa Bharat, Deputy Chief Labour Commissioner (Central), Kolkata, on 3.1.2023.

v. Human Resource Development Training and Development, based on identified needs, was given due priority by the Company for all levels of employees to increase employee effectiveness, utilization and productivity as well as to usher in a culture of innovation and creativity with emphasis on deciphering problem-solving skills. In FY 2022-23, 4483 mandays of training were achieved against a target of 2956 mandays. The Company selectively nominated employees for specialized training Programmes / Workshops / Seminars / Conferences / Webinars organized by reputed professional organizations and Institutes.

vi. Communal Harmony and National Integration In the townships of the Company located at Khetri, Malanjkhand and Ghatsila as well as in other places of work, the employees of different caste, creed, region and religion live together in harmony and celebrate all religious festivals with pomp and gaiety.

vii. Status of implementation of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 has been implemented across all the Units / Office of the Company. The constituted Internal Committees at Units / Offices are amended in accordance with the provisions contained in the Act. The details of the Internal Committees across HCL have been put up in the Companys website for wider circulation and easy access. A provision in this regard has also been incorporated in the Conduct, Discipline and Appeal Rules of HCL. HCL has a Board approved Policy known as Hindustan Copper Ltd (Prevention, Prohibition and Redressal of Sexual Harassment of Women at Workplace) Policy and Rules, 2021. During the year, one complaint was received and resolved by the Internal Committee. SheBox portal is also regularly monitored.

viii. Status of implementation of The Persons with Disability Act, 1995 The number of employees belonging to Persons with Disabilities (PwD) category employed in the Company as on 31.3.2023 was 14 (fourteen) in Group A, 6 (Six) in Group C and 7 (Seven) in Group D, aggregating to 27 (twenty-seven).

a) Recruitment: In recruitment matters the reservation for PwD was adhered to as per Government of India directives and duly incorporated in advertisement published, wherever applicable.

b) Scholarship: HCL grants scholarship to employees children under a special scheme. Particular care and wide publicity is given to the scheme. It has specific provision for PwD category children with relaxed eligibility criteria.

c) Ramp: Ramps constructed at Hospitals, Works and General / Administrative Offices to enable easy access to elevated areas in buildings and ease of mobility. Provision of wheelchairs in Hospital/main administrative offices in Units / Projects is also available.

xi. Apprenticeship Training

HCL imparted apprenticeship training to 145 persons in FY 2022-23 in various trades. x. Digital Payments

Payments of wages to all Contract Labour through digital mode has been ensured. To maximize cashless transactions by the Internal and External customers of HCL, 14 PoS machines have been installed at Guest House, Directors Bungalow, Hospitals, Town and General Administration, Finance Department, Cash Sections, etc. in the three mining Units of HCL.. xi. Swachh Bharat Mission In accordance with the Swachh Bharat Abhiyan launched by Govt. of India, intensive Swachhata Pakhwada was organized from 16th-30th November, 2022. Cleanliness activities were undertaken in all Units and Offices of HCL. Details of major activities undertaken are given below. a. Upkeep and cleaning at i. Offices including common area premises, Plant and Mines. ii. Residential complexes, pathways and common areas of the Units. iii. Neighboring market, roads and parks surrounding Mines. b. Conducted awareness campaign on cleanliness, distribution of hygiene kits, and sanitization in the neighborhood community. Also, many special campaigns were also organized in the year in the Units and Offices of HCL on Swachhata as part of Special Campaign 2.0. xii. Promotion of micro-enterprises HCL has launched a platform on 15.7.2022 in Kuilisuta village, Jharkhand to promote micro-enterprises for craftsmen in various user segments of copper especially with a mission to revive Dokra craft, one of the earliest known methods of metal casting using lost-wax casting technique, reflecting the beauty of life in its various forms, in observance of the iconic week of Azadi Ka Amrit Mahotsav from 11.7.2022 to 17.7.2022.

IX. Key financial ratios and details of significant changes therein (i.e. change of 25% or more as compared to the immediately previous financial year) along with detailed explanations thereof:

Sr. No. Key Financial Ratio	FY 2022-23	FY 2021-22	Difference	Reason for significant changes (i.e. change of 25% or more)
A Current Ratio – (Current Assets / Current Liabilities)	0.84	1.08	22.39%	NA
B Debt Equity Ratio- (Total Borrowings / Net Worth)	0.18	0.50	63.73%	Higher profit reported during the current year and repayment of loans.
C Debt Service Coverage Ratio (DSCR) - (EBITDA/Current Borrowings)	4.21	2.60	61.78%	Higher profit reported during the current year and repayment of loans.
D Return on Investment/Equity- (Annualised)-(PAT/Net worth)*100	34.49	46.10	25.17%	Less profit after tax reported during the current year as compared to previous year.
E Inventory Turnover (times)- (Net sales/ Inventory of Finished Goods & Semi-finished in process)	23.60	29.01	18.66%	NA
F Trade Receivables Turnover Ratio (times)- (Net Sales / Trades Receivables)	25.11	22.62	10.97%	NA
G Trade Payables Turnover Ratio (times) - (Net sales / Trades Payable)	7.87	8.94	11.97%	NA
H Net Capital Turnover Ratio – (Net Sales / Capital Employed)	1.17	1.24	-5.69%	NA
I Net Profit Ratio Margin- (PAT/ Net Sales)*100	17.78	20.63	13.78%	NA
J Return on Capital Employed – (EBIT/ Capital Employed)*100	29.07	28.19	3.15%	NA
K Operating Profit Margin – (EBIT- Other Income)/Net Sales*100	19.01	19.89	4.401%	NA
L Interest Coverage Ratio - (EBIT/ Interest)	25.84	14.19	82.07%	Higher profit reported during the current year, less interest paid due to repayment of loans as compared to previous year.

[EBIT = Earning Before Interest & Tax; EBITDA = Earning before Interest, Tax, Depreciation & Amortisation; Net Worth = Equity (+) Other Equity (-) Capital Reserve (-) Currency Fluctuation Reserve (-) Mine Development Expenses; Capital Employed = Total Assets (-) Capital work In Progress (-) Current Liabilities] X. Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof.

Return on Net Worth for FY 2022-23 is 34.49% as against 46.10% for FY 2021-22. The increase in Return on Net Worth is mainly due to increase in profit on account of higher sales realization.