Profile: Sterlite Industries (India) Ltd (SLT)

Sterlite Industries (India) Limited (Sterlite), incorporated on September 8, 1975, is a non-ferrous metals and mining company. The Company operates in three segments: Copper, Phosphoric Acid and other business segment. Copper consists of manufacturing of copper cathode, continuous cast copper rod, anode slime and dore. The other business segment consists of Aluminium Foils. The Company’s commercial power generation business also includes the wind power plants. The Company’s principal operations are located in India, Australia, the United Arab Emirates, Namibia, South Africa and Ireland. Sterlite is the principal subsidiary of Vedanta Resources plc. On November 28, 2011, THLZBV, a subsidiary of the Company acquired Lakomasko BV.

Sterlite’s principal companies consists of Hindustan Zinc Limited (HZL) for its fully integrated zinc and lead operations; Sterlite Copper - Tuticorin & Silvassa and Copper Mines of Tasmania Pty Limited (CMT) for its copper operations in India/ Australia, and Bharat Aluminium Company (BALCO) for its aluminium and alumina operations and Sterlite Energy Limited (SEL) for its commercial power generation business. It has started two 600 megawatt units of the 2,400 megawatt power plant at Jharsuguda and also announced the addition of a fourth 660 megawatt unit at the Talwandi Sabo Power Limited (TSPL) project in Punjab, taking the total capacity of Talwandi Sabo Power Limited (TSPL) to 2640 megawatt.

Copper

The principal business of the Company is that of copper smelting and includes a smelter, refinery, phosphoric acid plant, sulphuric acid plant and copper rod plant at Tuticorin in southern India and a refinery and two copper rod plants at Silvassa in western India. In addition, it owns the mt. Lyell copper mine in Tasmania, Australia, which provides a small percentage of its copper concentrate requirements. Copper concentrate is purchased from global suppliers and its own mine at Australia at lme-linked prices and refined copper is sold on the same basis in the domestic and international market. The Company’s business includes a smelter, refinery, phosphoric acid plant, sulphuric acid plant and copper rod plant at Tuticorin in southern India and a refinery and two copper rod plants at Silvassa in western India.

Copper concentrate is the principal raw material of its copper smelter. Copper concentrate is purchased at the lme price less a Tc/Rc that it negotiate with its suppliers but which is influenced by the prevailing market rate for the Tc/Rc. In general, its long-term agreements run for a period of three to five years, and are renewable at the end of the period. The quantity of supply for each contract year is fixed at the beginning of the year and terms like Tc/Rc and freight differential are negotiated each year depending upon market conditions. The Company’s rock phosphate is sourced from Jordan, Egypt, Nauru and Algeria pursuant to contracts renewed on an annual basis, with pricing fixed for the year. These contracts provide for minimum supply quantities with an option to increase if required. The electricity requirements of its copper smelter and refinery at Tuticorin are primarily met by the on-site captive power plants. Its captive power plants at Tuticorin operate on low sulphur heavy stock that is procured through long-term contracts with various oil companies. Its Silvassa facility relies on the state power grid for its power requirements.

Copper cathode is used as a starting material for copper rods. Copper cathodes are also used for making alloys like brass, bronze and alloy steel, with applications in defense and construction. The Company’s copper continuous cast rods meet all the requirements of international standards. Its copper rods are used primarily for power and communication cables, transformers and magnet wires. Sulphuric acid is used as a starting material for phosphoric acid. Most of it is used in its phosphoric acid plant while the rest is sold to fertilizer manufacturers and other industries. Phosphoric acid is produced at its plant by chemical reaction of sulphuric acid and rock phosphate, which it imports. Phosphoric acid is sold to fertilizer manufacturers and other industries. Other by-products of its copper smelting operations are gypsum and anode slimes, which are sold to third parties.

Zinc and Lead

The Company’s zinc business is owned and operated by HZL. It has a 64.9% ownership interest in HZL, with the remainder owned by the government of india (29.5%) and institutional and public shareholders (5.6%). HZL’s three lead-zinc mines supply all of its concentrate requirements and allow HZL to also export surplus zinc and lead concentrates. HZL’s fully-integrated zinc operations include three lead-zinc mines, two zinc smelters, one lead smelter and one lead-zinc smelter in the State of Rajasthan in Northwest India and one zinc smelter in the State of Andhra Pradesh in Southeast India.

Zinc and lead concentrates are the principal raw material of HZL’s smelters. HZL’s lead-zinc mines have provided all of its requirements for zinc and lead concentrates in the past. With the recent expansion of the Rampura Agucha mine, it expect HZL’s mines to continue to provide all of its zinc and lead concentrate requirements for the foreseeable future. Most of HZL’s operations are powered by the coal-based captive power plant at Chanderiya, for which HZL imports the necessary thermal coal from a number of third party suppliers. In addition, HZL, as a part of a consortium with five other partners, recently secured the award of a coal block from the Ministry of Coal of the Government of India, which helps to meet the requirements of HZL’s captive power plants in the future. HZL’s remaining operations source their required power from liquid fuel-based captive power plants or from local power companies. The liquid fuel is sourced from third party suppliers on yearly contracts. In addition, HZL’s pyrometallurgical smelter at Chanderiya requires metcoke that is used in the smelting process. HZL sources its metcoke requirements from third parties under long-term contracts and the open market.

The Company produces and sells zinc ingots in all three international standard grades: Special High Grade (SHG), High Grade (HG) and Prime Western (PW). It sells most of its zinc ingots to Indian steel producers for galvanizing steel to improve its durability. Some of its zinc is also sold to alloy, dry cell battery, die casting and chemical manufacturers. It produces and sells lead ingots of 99.99% purity primarily to battery manufacturers and to a small extent to chemical manufacturers. It produces and sells silver ingots primarily to industrial users of silver.

Aluminium

The Company’s aluminium business is primarily owned and operated by Balco. Balco’s partially integrated aluminium operations are comprised of two bauxite mines and the korba facility, which includes one alumina refinery, two aluminium smelters, two captive power plants and a fabrication facility, all of which are located in the state of Chhattisgarh in central India.

Bauxite is the primary raw material used in the production of aluminium. Balco sources the bauxite required for its alumina refinery from its own mines. Alumina is the primary raw material used in the production of aluminum. Balco sources in excess of 60% of its alumina from third party suppliers on both the indian and international markets, with the remainder provided by its alumina refinery. The alumina sourced externally is metallurgical grade calcined alumina with a minimum alumina content of 98.60% on a dry basis. Power is a key input at balco’s korba facility, where it is provided by two coal-based captive power plants of 270 mw and 540 mw, respectively. On-site diesel generators provide power for balco’s mines.

Balco produces primary aluminum in the form of ingots and wire rods for sale. Ingots are used for aluminum castings and fabrication in the construction and transportation industries. Wire rods are used in various electrical applications especially in the form of electrical conductors and cables. Rolled products, namely coils and sheets, are value-added products that balco produces from primary aluminum. Rolled products are used for a variety of purposes in different industries, including aluminum foil manufacturing, printing, transportation, consumer durables, building and architecture, electrical and communications, packaging and general engineering industries. Vanadium sludge is a by-product of the alumina refining process and primarily used in the manufacture of vanadium-based ferro alloys.