Alumina prices have hardened by 200% due to acute shortage

Updated: Nov 13 2005, 05:30am hrs
Ashapura Minechem is in the business of mining. In 2004, Ashapura Minechem entered a 50 : 50 JV with China's Sichuan Aostar Aluminum corp, to construct a 1 mtpy Alumina Refinery in the Kutch district, in Gujarat. Chetan Shah, managing director, spoke to Jitendra Kumar Gupta about the company and its future plans. Excerpts:

What factors have contributed to the growth of the company over the last one year Sales growth for Ashapura Minechem Ltd (AML) has moved up by 89% over the last FY year

The sales growth of last 2 years is a result of the initiatives we have taken over the last 5 years. We have consolidated our position as market leader and a significant international player in both bauxite and bentonite business. There is no doubt that the upturn in global and commodity cycles has helped us. Apart from the growth in bulk minerals, value-added products like bleaching clay and calcined bauxite have also helped the sales growth.

Ashapura has formed a JV with Sichuan Aostar Aluminum Corp (SAAL) of China.What kind of benefits is the company looking forward from this JV

In 2004, AML entered into a 50:50 JV with China's SAAL, to construct a 1 mtpy alumina refinery in the Kutch district, in Gujarat. SAAL is a subsidiary of Sichuan Electric Power Corporation, which generates and distributes 23000 MW of power, with assets base over $9 billion. They won and operate an Aluminium smelter with a capacity of 3,00,000 tonnes under expansion to 5,00,000 tonnes. Their annual requirement of Alumina is likely to be million tonnes. The project is structure with a 75% buy-back of the end product by them. AML, as one of the chief promoters of this project, is ideally placed to reap the benefits as the prices of Alumina in the international market is expected to rule every firm in the near future and the demand from China would continue to rule every firm over the next few years. The project is estimated to generate revenues to the tune of $250 million.

AML is one of the major players in bentonite. What are the export advantages of this product for India and how do you expect this segment to grow in the domestic market

Very good quality bentonite deposits, low clay overburden ratio, natural sun drying and proximity to all weather ports are some of the competitive advantages that we have in bentonite export business. Our experience of last 40 years, the R&D capabilities and support from our partners AMCOL also contribute significantly to the growth in this business.The domestic market for bentonite consisting of metal casting; iron-ore pelletisation, civil engineering and petroleum-drilling sector is growing much faster than the international markets. Considering the economic momentum that India has gathered we expect these markets to keep growing at double-digit rates.

What are the capacity additions with respect to bauxite and bentonite

There are no serious capacity constraints in bulk mineral export business of betonite and bauxite. In value added products, we are doubling our capacity for bleaching clay. We have recently added an additional 50% capacity to our calcined bauxite plant.

Can you elaborate on the ceramic business of the company and how much it contributes to the total turnover of the company

We have very recently entered into the kaolin business. We are in the process of setting up mining and processing infrastructure in this business. At full capacity this business is likely to contribute Rs 100 - 125 crores to the total turnover of the company.

What are the reasons behind the company's venture into Alumina

It has been AML's philosophy to constantly strive to move up the value chain. Having established ourselves as a leading player in freely traded global bauxite business, Alumina is the next logical step. The world is facing an acute shortage of Alumina and the alumina prices have hardened by nearly 200% in the last few years. We are trying to exploit the natural competitive advantage in terms of low cost quality bauxite to capture this growth opportunity.

What is your outlook on the operating margins, which have comedown in the last 2-3 years

You would have noticed a significant improvement in the operating margins for the current year. We expect the operating margins to continue at current level or improve in next 2 years.

For the quarter ended Sept 2005, the company has achieved a sales growth of 21.5%. Are you in a position to maintain your growth rate for FY 06

We expect to record a good growth in the top line and even a better growth rate in the bottomline for FY06.