PERFORMANCE: COPPER
Our Copper business comprises three major operations – Sterlite’s custom smelting operations in India, CMT’s mining operations in Australia and the KCM operations in Zambia. Sterlite is the leading copper producer in India.
Business Overview
Our Copper business comprises three major operations – Sterlite’s custom smelting operations in India, CMT’s mining operations in Australia and the KCM operations in Zambia. Sterlite is the leading copper producer in India. Sterlite’s copper operations include a smelter, refinery, phosphoric acid plant, sulphuric acid plant and copper rod plant at Tuticorin in southern India, a refinery and two copper rod plants at Silvassa in western India. In addition, we own the Mt. Lyell copper mine at Tasmania in Australia, which provides 7–8.0% of our copper concentrate requirements at Sterlite. KCM is largely an integrated copper producer operating three copper mines, a smelter, a refinery and a tailings leach plant in Zambia.
Copper – India/Australia
The performance of our Copper – India/Australia business in FY 2008 is set out below.
| (in $ million, except as stated) | FY 2008 | FY 2007 | % change |
| Production volumes (kt) | |||
| – Mined metal content | 28 | 28 | – |
| – Cathode | 339 | 313 | 8.3 |
| – Rod | 225 | 178 | 26.4 |
| Average LME cash settlement prices ($ per tonne) | 7,588 | 6,984 | 8.6 |
| Average exchange rate (INR per $) | 40.2413 | 45.2857 | (11.1) |
| Unit conversion costs | |||
| – US cents per lb | 1.8 | 6.1 | (70.5) |
| – INR per tonne | 1,563 | 6,090 | (74.3) |
| Realised TC/RCs (US cents per lb) | 15.7 | 31.1 | (49.5) |
| Revenue | 3,118.8 | 2,553.4 | 22.1 |
| EBITDA | 327.2 | 365.6 | (10.5) |
| EBITDA margin | 10.5% | 14.3% | – |
| Operating profit | 284.9 | 333.3 | (14.5) |
Production Performance
Production of cathodes at our Copper-India/Australia business was 339,000 tonnes in FY 2008, our highest ever and an increase of 8.3% compared with FY 2007. Average copper recovery in FY 2008 was significantly improved by 0.6% to 98.1%. During the year, we recorded our best quarterly production of 91,000 tonnes. We expect to improve on this in a consistent manner as a result of various initiatives.
Our Tuticorin smelter will remain under planned maintenance shutdown from 22 May 2008 for a period of 22 days. Post this shutdown, the current campaign life of 24 months will be increased to 30 months.
The production of copper rods increased to 225,000 tonnes in FY 2008, an increase of 26.4% compared with FY 2007, in view of increased demand.
Mined metal production at our Australian mines was consistent at 28,000 tonnes in FY 2008. CMT supplies approximately 7–8.0% of our total concentrate requirements of the Indian copper smelting operations.
Unit Costs
The net unit conversion costs which comprise costs of smelting and refining have reduced significantly to 1.8 US cents per lb in FY 2008 from 6.1 US cents per lb in FY 2007. While gross costs of production were under pressure primarily due to higher power costs incurred at the liquid fuel based captive power plant, net costs of production were significantly lower due to improved recovery of copper and contribution from by-products including sulphuric acid.
TR/RCs
TC/RCs for the year were 15.7 US cents per lb, in line with the market trend and our earlier projections. We were largely insulated from volatility in the spot market since a large part of our total concentrate requirement was sourced through long-term contracts with mines as well as captive supplies from our CMT operations. Based on long-term settlements at lower terms compared with the previous year and current market conditions, we expect TC/RCs to be lower in FY 2009.
Sales
Sales in the domestic market increased substantially to 157,000 tonnes in FY 2008, an increase of 34.2% compared with FY 2007, giving us better contribution vis-à-vis exports. This increase was primarily due to growth in the domestic electrical and power sector. Exports fell to 180,000 tonnes due to an increase in volumes sold in the domestic market.
Financial Performance
A strong operating performance – an 8.3% increase in production volumes and lower unit costs of production as a result of improved recoveries, better by-product management and contribution from the phosphoric acid and precious metal business – was more than offset by weaker TC/RCs and the appreciation of the Indian rupee against the US dollar by more than 11.0%. Consequently EBITDA for FY 2008 was $327.2 million, lower by 10.5% compared with FY 2007.