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Edited Transcript of HINDZINC.NSE earnings conference call or presentation 20-Apr-17 10:30am GMT

Thomson Reuters StreetEvents

Q4 2017 Hindustan Zinc Ltd Earnings Call

Udaipur May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of Hindustan Zinc Ltd earnings conference call or presentation Thursday, April 20, 2017 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Amitabh Gupta

Hindustan Zinc Limited - CFO

* Ekta Singh

* Sunil Duggal

Hindustan Zinc Limited - CEO and Whole-Time Director

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Conference Call Participants

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* Abhishek Poddar

Kotak Securities Limited, Research Division - Research Analyst

* Anshuman Atri

Haitong International Research Limited - Research Analyst

* Ansuman Deb

ICICI Securities Limited, Research Division - Research Analyst

* Dhawal Doshi

PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst

* Pinakin M. Parekh

JP Morgan Chase & Co, Research Division - Associate

* Ravi Shankar

Crédit Suisse AG, Research Division - Analyst

* Ritesh Shah

Investec Bank plc, Research Division - Analyst

* Sanjay Jain

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Saumil Mehta

BNP Paribas Asset Management India Private Limited - Research Analyst of Equities

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Hindustan Zinc Q4 FY 2017 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Ms. Ekta Singh from Investor Relations, Hindustan Zinc. Thank you and over to you, Ms. Singh.

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Ekta Singh, [2]

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Thank you. Good afternoon, and thank you for joining us for Hindustan Zinc's fourth quarter and full year FY 2017 results call. For our call today, we have with us Mr. Sunil Duggal, CEO of Hindustan Zinc; and Mr. Amitabh Gupta, our CFO. Mr. Duggal will present an update on business performance, while Mr. Gupta will present financial performance, after which we'll be happy to take your questions. Over to you, Mr. Duggal.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [3]

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Thank you, Ekta, and a very warm welcome to all of you. I'm pleased to inform that Hindustan Zinc has surpassed its previous records and achieved new performance levels.

On 22nd March 2017, the board declared a special interim dividend of 1375% or INR 27.50 per share on equity share of INR 2 each. This, together with the interim dividend, paid in October 2016 and the Golden Jubilee dividend paid in April 2016 is the highest dividend payout in a financial year in Indian corporate history.

Now to give you an update on the progress of expansion projects during the quarter. Total mine development across all mines increased by 3% sequentially and 19% Y-O-Y to 19,159 meters during the quarter. During the year, the total mine development was 67 kilometer, up 15% from a year ago. At Rampura Agucha, underground mine, after 4 successive quarter low over 4,000 meters of mine development, we finally crossed the 5,000-meter mark. It was gratifying to see Rampura Agucha ramp up, with ore production reaching 1.4 million tonnes this year compared to 0.2 million tonnes a year ago.

While the main shaft reached its ultimate depth of 955 meters in the previous quarter, the south ventilation shaft sinking has also been completed now. Further, coal commissioning of both production and service winder was completed. And shaft equipping work continues to progress satisfactorily.

The new 1.5 million tonne per annum mill at Sindesar Khurd mine was commissioned in January in a required time of 14 months. As reported in our last earnings call, we had an unfortunate accident at our project site where a rare crane collapsed caused 4 fatalities of our contract employees. Sindesar Khurd achieved a record ore production of 3.57 million tonne during the year against 3 million tonne last year. The winder foundation work of the shaft has been completed. And head gear erection is nearing completion now. We expect Sindesar Khurd mine to reach its targeted capacity of 4.5 million tonne ahead of schedule in the current year. As our mine also achieved record ore production of 1.8 million tonne during the year an increase of 31% from a year ago. Environment clearance of 4 million tonnes ore production and beneficiation was received in January, following which, consent to establish and operate has also been achieved.

Zawar mill expansion to 2.5 million tonnes an associated up-gradation project is at advanced stage now with completion planned in June 2017.

The recently announced fumer project, which have been undertaken to further improve silver and other recoveries from our hydro plants, is progressing well with scheduled completion in mid-FY 2019. This is also one of our key sustainability initiatives, which will favorably impact our land and risk footprint.

During the quarter, we successfully commissioned 16-megawatt captive solar farm on our wasteland at our Dariba and Debari sites. With a CapEx of INR 82 crores, it will help us partially meet our renewable power obligation while utilizing the wasteland like the (inaudible) site farm at Debari and (inaudible) them at Dariba.

On our reserves and resources now, taking forward our successful track record of adding more to R&R then depletion, our exploration effort resulted in gross additional 26.4 million tonnes to R&R prior to depletion of 11.9 million tonnes. Total R&R at March 31st was 404.4 million tonne containing 36.1 million tonne of zinc lead metal and 1,032 million ounces of silver. Overall mine life continues to be 25-plus years.

Coming to the operational performance now, we achieved an all-time high mined metal production of 312 kt during the quarter, up 13% from previous quarter and 66% Y-o-Y. The increase was on account of high volumes from Rampura Agucha open cast, in accordance with the guidance of substantially high production in second half of the year. Mined metal production during the year was at 907 kt, up 2% Y-o-Y, in line with guidance. Production from underground mine ramped up significantly during the year to achieve a substantial 44% Y-o-Y increase in ore production and 32% Y-o-Y increase in mined metal production.

During the quarter, our smelter operated at full throttle with close to 100% utilization. Integrated zinc metal production during the quarter was 215 kt, up 5% from previous quarter and 40% Y-o-Y. Integrated saleable lead metal production during the quarter was highest ever at 45 kt, up 15% sequentially and 18% Y-o-Y. The increase was in line with availability of mined metal supported by enhanced smelter efficiencies. Total integrated zinc lead metal production was at all-time high of 260 kt. Integrated saleable silver production during the quarter was also a record at 139 tonne, up 18% Q-o-Q and 14% Y-o-Y due to higher grades and volume from Sindesar Khurd mine.

From the full year, integrated zinc metal production was lower by 12% at 670 kt, and integrated lead metal production was flat at 139 kt. This was on account of low availability of mined metal in H1 due to cyclic pattern of Rampura Agucha open cast mine. Highest ever integrated silver production was achieved during the year at 453 tonne, up 7% from a year ago driven by higher volumes from Sindesar Khurd mine. Substantially, higher-mined metal production in H2 resulted in accretion to inventory of which 26 kt was sold during this quarter. Leaving 80kt closing stock at year-end, which will get converted into refined metal in the coming quarters.

On outlook for FY 2018, I'm happy to share our successful transition journey to underground mining with 52% of total mined metal production during the year coming from underground mines as compared to just 15% in the year 2013 when the expansion was announced. We plan to take this figure to 80% in the current year before coming completely underground in FY 2019.

Both the Rampura Agucha and Sindesar Khurd shafts are on track for completion in 2019 as we continue our journey towards achieving 1.2 million tonne mined metal capacity in FY 2020. During these 4 years, since expansion projects were undertaken, we have ensured stable COP, which is a testimony to the company's increasing progress in underground mining and its successful transition. Our guidance for FY 2018 is 950 kt of zinc lead metal production, which will be evenly spread out from quarter-to-quarter over the year. Silver production will be over 500 tonne. Our dollar COP is expected to be marginally higher. But of course, it will be based on coal and input commodity prices.

To give you an update on the market, zinc has been amongst the best-performing metals during the year. The LMEs start to get attributed mainly to building global mine supplies with end-user demand remaining firm. In Q4, spark thesis dipped to 5 years low, prompting many smelting capacities to go on care and maintenance as margins begin [unrivaled].

Zinc benchmark thesis for 2017 has been negotiated at 15% lower level than the previous benchmarks and with no price participation element. The quarter also witnessed major downward inventory levels, driving both concentrate and refined metal stock levels at multiyear low. The supply shortage that has propelled zinc to top peak of 2016 still continues. It is widely believed that the deficit in the concentrate market will persist in the near future and with continued increase in demand, the deficit in finished metal will only increase.

Now, our CFO, Mr. Amitabh Gupta, will take you through financials in detail.

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Amitabh Gupta, Hindustan Zinc Limited - CFO [4]

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Good afternoon to all. Gross revenues during the quarter were INR 6,699 crores, an increase of 97% year-on-year. This increase is primarily on account of strong zinc lead and silver prices, which had a positive impact of almost 2,000 crores; secondly, higher volumes driven by a 40% increase in zinc production volume and sale of 26 kt mined metal together contributing about 1,350 crores increase in revenues.

For the full year, revenues were up by 22% at INR 18,642 crores, primarily for the same reasons and which was partly offset by lower zinc volume. The zinc metal cost of production per tonne before royalty, or COP, was INR 53,226 for the quarter or $1.794, which is lower by 8% year-on-year, 7% in dollar terms. Sequentially also, the COP was 8% lower. The year-on-year decrease was due to higher average grades on account of higher production volumes from Rampura Agucha open cast mine in accordance with the mine plan, better smelter efficiencies and reversal of some ore liabilities. This was partly offset by higher input commodity prices, mainly coal, coke and diesel, lower acid realizations and higher mine development.

For the full year, zinc COP was INR 55,679 or $1.830, up 6%, 3% in dollar terms from a year ago on account of higher coal and input commodity prices as well as strong -- due to lower integrated production, lower average grades and lower asset realization. The increase in revenue and lower cost of production resulted in a 190% increase in EBITDA during the quarter to INR 3,770 crores. For the full year, EBITDA increased by 46% to INR 9,734 crores.

Net profit for the quarter increased by 42% year-on-year to INR 3,057 on the back of higher EBITDA. Those impact was partly offset by higher tax depreciation, as well as lower mark-to-market gains on a smaller investment caucus. If you recollect the provision for tax during Q4 of FY 2016 was negative largely on account of substantial liquidation of investments at year-end for payment of special Golden Jubilee dividend. The corresponding realized profits were set off by carryforward tax losses, thus significantly lowering the tax for the previous year.

For the full year 2017, net profit increased by 2% to INR 8,361 crores, again due to the impact of higher EBITDA, which was offset by higher tax, higher depreciation and lower investment income.

Our gross investment as of 31st March 2017 were at INR 23,972 crores invested in high-quality debt instruments, including INR 19,336 in mutual funds, INR 4,446 crores in bonds and the balance in back. The gross investment figure includes INR 7,908 crores of short-term commercial paper raised to meet the special interim dividend fund requirement due to tax efficiencies. The net cash and equivalents as at March 31, 2017 was INR 16,065 crores after accounting for the special interim dividend outlook.

The CapEx plan for FY 2018 involves an outlook about $350 million to $360 million. This includes mine expansion projects, smelter debottlenecking and fumer project.

Coming to the treasury income and tax outlook, our treasury income is expected to be lower in the current year due to reduction in the investment compass and currently softening in the rates. Tax rate for the financial year 2018 is expected to be slightly higher than MAT.

I will now request our CEO to sum up today's discussion.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [5]

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So to sum up, it was a robust quarter, highest ever mined metal and integrated lead and silver production. The fiscal 2017 ended with new production benchmarks. And we express -- expect to surpass these in FY 2018. We are on track to increase our mining capacity to 1.2 million tonne per annum of mined metal in FY 2020 and expect both the shafts to get commissioned in next year, that is FY 2019. We remain focused on asset optimization and operational efficiencies to maintain our cost leadership. We have been consistently adding to our resource base and continue to maintain mine life of over 25 years.

With this, I open the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have the first question from the line of Anshuman Atri from Haitong Securities.

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Anshuman Atri, Haitong International Research Limited - Research Analyst [2]

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My question is regarding the refined output over the next 3 years. We've seen -- we will see1.2 million tonnes of capacity by FY '20. So how do you see on an annual basis the ramp? Is it fair to assume 50 to 100 kt of additional mine '19 and '20 going forward? And how will the smelter expansion take this along with this mine expansion? A second question is regarding silver, how will the volumes increase with the mined metal expansion to 1.2?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [3]

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So to come to the first question, as you rightly said, that we'll be ramping up our mines. And you must have also seen if you independently see the underground mines, so these are all ramping up as you see it here at around 35%, 36%. So which gives us the confidence that even if the open cast will close in the current year, we'll be able to achieve that volume. So that confidence is there. So the finished gold or the finished metal is a resultant of what we will get from the mine. So this year, we said that we are giving the guidance that we'll be making over 950 kt, so which is a substantial jump of maybe around 20%, 25% from what we have produced this year. And as the (inaudible) now mines will ramp up, the volume will also ramp up. Similarly, the silver is also ramping up. In the current year, we are doing the guidance of more than 450 -- more than 500 tonnes. So that means 950 tonne -- kt of finished good both zinc and lead and 500 tonne of silver. As you are seeing that's how we are trying to prepare ourself to have increased quantity of the finished good as we'll ramp up our mines. And as we also said in our (inaudible) and we have also previously said that we have taken up the debottlenecking in all our smelters together. And along with that, we are also putting up the fumer. The fumer also gives us the additional quantity of around 25 tonne of silver from each of the hydro plants. So around 75 tonne of total silver can come out from the smelters. And some quantity of zinc and also lead comes up. But principally, we are doing the debottlenecking of all our hydro smelters. And we are also doing the debottlenecking of the lead smelter. So we add it up as the mines will ramp up, this additional volume will come. What was your second question?

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Anshuman Atri, Haitong International Research Limited - Research Analyst [4]

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So what would be the silver volumes ahead when we get 1.2? When silver move to 700 tonnes?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [5]

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It could be around somewhere between 700 to 750. It should be like that because if the -- in the current year, you see the 3.7 million tonne of the production we had from the SK mine. Next year, we are planning 4.5 million tonnes. So as the underground volume ramps up, the silver will go up. And some quantity will also be added from the additional recoveries from the smelter. As I said, we'll put up all the 3 fumers and it will also contribute somewhere between 75 to 100 tonnes. So the total volume [putra] is to 700 to 750 tonnes in the year FY '20 as the mines volume will ramp up.

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Anshuman Atri, Haitong International Research Limited - Research Analyst [6]

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Last question, can you say net revenue number?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [7]

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Sorry, say that again?

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Anshuman Atri, Haitong International Research Limited - Research Analyst [8]

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Net revenue, the gross number is given. The net number, net revenues?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [9]

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Okay, you'll have to take that offline from Ekta. I just need to figure out what the excise duty number is.

Just hold on, just give me a second. Excise duty will be about INR 496 crores in the current quarter. Which quarter do you need this for, just for the current quarter or for the full year?

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Anshuman Atri, Haitong International Research Limited - Research Analyst [10]

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Only the current quarter.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [11]

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So about INR 496 crores is the excise duty so you can reduce that.

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Operator [12]

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The next question is from the line of Saumil Mehta from BNP Paribas Mutual Fund.

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Saumil Mehta, BNP Paribas Asset Management India Private Limited - Research Analyst of Equities [13]

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So my first question is were there any concentrate sales for this quarter? And going forward, what is the view on -- in terms of any mismatch, in terms of concentrate production, vis-a-vis this (inaudible) ?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [14]

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So in the last quarter, the concentrate sale was 26 kt because even after selling this concentrate of 26 kt, we had the closing stock of 30 kt, opening stock of 30 kt. So going forward if we are taking our volume on 950 kt plus, we do not have a plan to sell the concentrate because the FT plan is very evenly spread quarter-to-quarter unlike last year in which we have the -- coming in the first half and [fused] in the second half.

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Saumil Mehta, BNP Paribas Asset Management India Private Limited - Research Analyst of Equities [15]

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Okay, for Q4, what about 26 kt of concentrate?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [16]

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Yes, that's right, that's right.

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Saumil Mehta, BNP Paribas Asset Management India Private Limited - Research Analyst of Equities [17]

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And so my second question is in terms of when we do the final 1.2 million tonnes of final production, what will be the utilization rate? We were looking at a FY '20 forming. Will the exact rate in FY '19 be 1.2 and the utilization for utilized come in FY '20? Or it will be a year down the line FY '20 and '21?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [18]

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So we have always maintained that we will set up a total capacity of 1.2 million tonne in the FY '20. So after the plan -- setting up a capacity of 1.2 million tonne. The capacity utilization could be reduced a little lesser. And as the year will progress, the capacity utilization may slightly go up.

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Saumil Mehta, BNP Paribas Asset Management India Private Limited - Research Analyst of Equities [19]

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Sure. And the last question is with respect to cost of production, now obviously, the underground portion of the total company has been going up. But you also see significant volume growth in this year FY '18. So on a full year basis, should we expect cost of (inaudible) to come down or are they likely to be flattish?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [20]

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It could be, it could be slightly going up. But it all depends on the commodity price. As of now, the commodity, in the call, you can see it is somewhere between $75 to $80. And (inaudible) will also add it as we speak. So it will depend on that.

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Operator [21]

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The next question is from the line of Dhawal Doshi from PhillipCapital.

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Dhawal Doshi, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [22]

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Sir, just wanted to clarify one thing. You mentioned 950 kt of zinc and lead in FY '18. Is this the integrated refined metal or the mined metal?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [23]

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It is integrated mined metal. The integrated finished good.

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Dhawal Doshi, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [24]

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Integrated finished good. So okay, so the mined metal could be a little lower? Given we're carrying 80,000 tonnes of inventory here.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [25]

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No, it could be almost the same because it is always comfortable. We are well -- We are now fairly staffed to carry this type of inventory, gives a breathing space to the smelter. And the running efficiency also become higher.

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Dhawal Doshi, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [26]

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Okay. Secondly, was just wanting to have your view on the world zinc prices. So when the zinc prices was up at almost $2,900 plus, did we see some risk of tremendous supply coming in? Or have you seen some Chinese mines restarting?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [27]

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Yes, there are a lot of news coming up. Of course, this is an individual view. Last year, if you have heard, we had the concentrate deficit of around 0.7400 million tonnes. There in -- the collection was more than the smelting capacity. And the concentrate supply, the stocks of the concentrate from '15 to '16, it has come down from 49 days to 29 days. So people are saying some of the mines are coming up. Of course, some mines will come up. But over the last 2 years, there is a depletion of both the finished good from the warehouses and the concentrate. So that means the depletion has come at both the levels. So even if the supplies comes up, how much supply will come up? If at a visitor's, 0.8 million tonnes. And somebody adds maybe 0.3, 0.4, 0.5 million tonnes. If deficit could come down, which we -- our silver we're estimating maybe around 0.2 million tonnes of the -- once the deficit comes up. In the worst case, when all these supplies come up. And we also see on the finished goods also, even if the smelter operation go up, they come on stream. Still the stock, the number of days of stock will come down from 51 days to 38 days. So the vacuum, which has been created in the market both on the concentrate and the finished goods, cannot be made up even if the supply comes up. So with the continued deficit and even if the margin of the deficit year-on-year goes down, still, it cannot fill the vacuum. So my own personal feeling is that the LME should still go up.

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Dhawal Doshi, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [28]

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And so when you said that supply to come up, you were not factoring in the Glencore mine, right?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [29]

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Oh in the worst case they are factored.

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Dhawal Doshi, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [30]

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So in the worst case, even if Glencore starts, you'll still perceive a 0.2 million tonne deficit.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [31]

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Yes, that's right.

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Dhawal Doshi, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [32]

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So somehow, the recent premium are still not indicating that bullishness. So is the inventory outside the exchanges still at an elevated level or any sense on that?

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Amitabh Gupta, Hindustan Zinc Limited - CFO [33]

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Premiums are not looking up. We're also a bit confused that why the premiums are not looking up because if the deficit of supply is really in the market -- put 2 things together. So the LME has grown -- gone up. The derived premium also goes up. So if the premium goes up and the new development is also over and above that, so the derived premium, that means the total premium which the consumer has to pay gets a double hit. So I think with the stabilization of the LME at a certain level, the next thing which would happen is that the premium will go up.

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Dhawal Doshi, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [34]

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So where do you really expect the LME to stabilize at?

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Amitabh Gupta, Hindustan Zinc Limited - CFO [35]

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I think anybody's guess, but I would personally say it should stabilize somewhere between 2,800 to 3,000.

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Operator [36]

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Next question is from the line of Ansuman Deb from ICICI Securities.

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Ansuman Deb, ICICI Securities Limited, Research Division - Research Analyst [37]

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Quickly on the volume guidance that you have given out for FY '18, which is almost 17% to 18% increase over current year, so just want to understand what kind of middle volumes you are considering for the Rampura Agucha? And what kind of grades you're factoring in for the same.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [38]

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It may not be possible for me to give the exact equation as of now. But the ramping up is coming in all the mines. So what we are looking at is that a combination -- I mean overall, a combination of the lowering of the grade and the increase of the volume because if the overall volume from the -- because the current year will be the last year of the open cast. We have considered the ramping up of the underground mine. So put together, we will put together -- may have the same volume what it was last year. But apart from that, the volume from the other mines will ramp up. So a combination of that, that is why we have predicted that both the MIC and LME should be more than 950 kt in the current year.

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Operator [39]

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The next question is from the line of Ritesh Shah Investec Capital.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [40]

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(inaudible) instead of (inaudible) . My first question is you made an investment remark that incremented you on PCRC, you don't have any price participation fraud. So sir my question is can you explain what the executive PCRC is? And in that you are making, what sort of money are we making on concentrates versus selling actual metal?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [41]

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See, selling of metal will always be more profitable for an integrated company like us, where we have the mine also and we have the smelter also. So inherently, we always smelt together. We sell only finished metal. We generally avoid selling any concentrate. It is only when we have too much of surplus that we get tempted to sell concentrate. And in the first -- in the last quarter, we sold a little bit of concentrate because the TCs were very attractive. Spot TCs we were able to get less than $30 per DMT. And we had some surplus concentrate, so we took -- and the levers were also very nice, so we took opportunities. It was more an opportunistic sale than an inherent business model.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [42]

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And sir we have seen that there was no price participation clause, is it that 10%, 12% table of metal, is it the same thing?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [43]

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No, it is like in the international market, when the LME goes beyond a certain level, there's -- the increase in LME is normally shared within the mine and the smelter. But because of the special situation now, the mines are in where the shortage is much more than the smelter, so they have taken a call that they will not participate in the price sharing. They will not have the smelter's participate now in the price.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [44]

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You said spot is $30. And how much has it been in contracted for next year?

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Amitabh Gupta, Hindustan Zinc Limited - CFO [45]

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No, we don't contract any...

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [46]

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We have not done -- but what report we have is that it is about 15% to 20% lower than last year.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [47]

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Sir, my second question is you have indicated 1.2 million tonnes of mined metal production. I understand the prior question, you indicated that you won't give mine breakup. But sir, would it be possible if you could quantify what is the content of ore mine that we are looking at? Will it be around 14, 15 million tonnes?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [48]

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No, it was only 14 million tonne or something like that. In the current year, it was around 11.8 million tonne. The next year could be around 13 million tonne.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [49]

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How much it will be?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [50]

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Could be around 13 million tonne.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [51]

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Around 13 million tonnes. And just a follow-up on this, sir, how do we -- how should one look at it as an output from the shafts? So is it something that's also included in the 13 million tonnes?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [52]

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No, no, no, these shafts are not getting commissioned in this year. The shafts will get commissioned in '18, '19, and the actual contribution, the '18, '19 will get commissioned and stabilized, some ore will be produced during this year from the shaft but the actual -- the contribution will come in '19, '20. And that is why the step jump we are anticipating in '19, '20, and because of which we are saying that the '19, '20 we should be able to produce 1.2 million tonne.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [53]

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Okay. Sir, just 2 follow-up questions, so does this 1.2 million tonnes include full-blown output from both the shafts?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [54]

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Yes, that's right.

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Amitabh Gupta, Hindustan Zinc Limited - CFO [55]

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That's right.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [56]

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Okay. And sir, this will be factoring the EC limit for SK at 4.2 million tonnes, 4.5 million tonnes?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [57]

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That is not a problem for us because the SK we have been taking EC clearance every year, so the latest -- last year we got 2 clearances, one was 3.75 million tonne and then we got 4.5 million tonne. But now we are also going ahead with the increased EC clearance for SK mine, even in the current year.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [58]

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Okay. Sir, this 4.5 million tonnes, to what level can it go to? Can it be 9 million tonnes?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [59]

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You can guess anything you like, but 4.5 million tonnes -- the initial plan was 3.75 million tonnes. We increased the plan to 4.5 million tonne, and now we have taken the increased EC clearance. And we'll see what we'll be able to do with the -- going forward because we will have to create a mine plan, we have to take the IBM clearance and all those clearances are also important. We have to convince them that this mine is capable of producing the volume in it, which is anything more than 4.5 million tonne.

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Amitabh Gupta, Hindustan Zinc Limited - CFO [60]

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And if I may add, if I may just add to Mr. Duggal, the mining industry now has a rating system, a star rating system, where they have 3 star, 4 star, 5 star mines. Three of Hindustan Zinc mines are 5-star rated, and that is only company with 3 5-star mines -- mine rating. Now what that means is when you have this many 5-star rated mine, clearances in every aspect, whether it's environment clearance, whether it's forest clearance, everything becomes much simpler for a 5-star rated mine. So we have not experienced problems about clearances and increased EC limits nor with 3 5-star mines in our pocket, nor do we expect any issues in that respect.

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Ritesh Shah, Investec Bank plc, Research Division - Analyst [61]

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Sir, sorry to just dig into this, but I think the 1.2 million tonne number, what we're doing probably is -- that could be an upside risk because if you're assuming a higher EC limit for SK, given the shaft is also coming through, then this number should look a bit higher, a lot higher than 1.2 million tonne. So is it fair to assume that our number is conservative? Factoring the current EC limit that we have for SK mine?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [62]

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You remain satisfied about -- with what you're saying.

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Ekta Singh, [63]

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Ritesh, please join back the queue since we have limited time.

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Operator [64]

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Next question is from the line of Ravi Shankar from Credit Suisse.

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Ravi Shankar, Crédit Suisse AG, Research Division - Analyst [65]

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Sir, two questions. One is a clarification on the 26 kt of concentrate sales. So did that lead to INR 13.50 crore of increase in the top line?

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Amitabh Gupta, Hindustan Zinc Limited - CFO [66]

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That -- no, no. How did you arrive at INR 13.50 crore? That will be about INR 400 crores.

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Ravi Shankar, Crédit Suisse AG, Research Division - Analyst [67]

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About INR 400 crores? No, during the earlier remarks, I think I picked up this INR 13.50 crore number. So INR 400 crores is the incremental sales number -- sales sum from this concentrate sales, okay?

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Amitabh Gupta, Hindustan Zinc Limited - CFO [68]

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Right.

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Ravi Shankar, Crédit Suisse AG, Research Division - Analyst [69]

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And secondly, on the COP front without royalty, the dip that we see sequentially from $861 per tonne to $794, is that all because of higher volume? Or there's a sense of some cheaper mining costs/power-fuel costs as well?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [70]

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A combination of everything, you see. The combination of grade because we have the higher volume from Rampura Agucha open cast. So the overall weighted average grade went up and the higher volume is also there. But the commodity prices, these were also highest ever. For the coal price, what we used was more than $80 in quarter 4. The net coal price was more than INR 28,000. So the...

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Ravi Shankar, Crédit Suisse AG, Research Division - Analyst [71]

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So you expect higher operational cost then?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [72]

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Combination of all these factors.

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Ravi Shankar, Crédit Suisse AG, Research Division - Analyst [73]

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Right. So then it is on a fuel cost front there was a rise, but despite that the overall COP is down.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [74]

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COP is done primarily because of the higher grade and the volume -- and the volume.

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Operator [75]

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Next question is from the line of Pinakin Parekh from JPMorgan.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [76]

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Sir, sort of couple of questions. You replied on that the ore production should go from 11.8 million tonnes to roughly 13 million tonnes, and mined metal should go from roughly 907 kt to 950 kt. So that implies a 10% increase in ore production, but only a 5% increase in mined metals. So is this -- this should primarily be given that the grades are mostly coming from the SK mines and the Kayad mines where the grades are lower. And this is a trend which should continue as we move from 900 kt to 1.2 million tonnes over the next 3 years.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [77]

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Not -- but this will be the trend. To what extent this will get impacted, it will all depend on which mine will contribute what. But primarily, it will all depend on how shall we be able to ramp up our Rampura Agucha underground mine. Like you see the confidence was very high this year and last year when we ramped up the mine from 0.2 million tonne to 1.4 million tonne.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [78]

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Sure. And sir, regarding the R&R addition that we have seen, broadly, sir, which mines would we have seen the bulk of the net addition of 14.5 million tonnes of ore that we have seen? Where would you have seen those additions and which mines?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [79]

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Mine wise, I may not be able to tell you exactly but the lot of addition is coming from Zawar mine. So Zawar mine is going -- giving us a very high confidence because the resources, which is being added and the drilling, which we have taken in the coming quarters is also very aggressive target we have taken for Zawar.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [80]

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Sure, sir. And just to clarify this question further. On the -- you've mentioned that the overall mine life continues to be 25-plus years. It would be fair to assume that Rampura Agucha's life should be materially lower than this overall 25-years number?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [81]

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No, not exactly. Not exactly. So Rampura it will not-- the overall -- yes, we see -- we are giving you an overall figure. Okay?

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [82]

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Okay.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [83]

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So this Rampura Agucha life is 35-years plus. So it's a combination of everything. So average life was for the total company as such looking at the present capacity or increased with capacity is what we are seeing. We've -- the life from mine to mine maybe different, but we've also seen that while we're doing a brownfield drilling in various mines, the resources keep adding. So it gives -- it's some kind of gut feel and a security to the mind of the people that overall the company life is more than 25 years.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [84]

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Understood. And sir, lastly, if I were to look at FY '18 versus FY '17, silver production would be materially higher versus what -- with was in FY '17, 500 kt versus 453 kt. The defined metal production -- refined metal production in 950 kt versus 811 kt, that's as much of an 18%, 20% hike. So if I were to put this 2 together and given that there is an 80 kt inventory that we are carrying at constant LME prices, it will be fair to assume that there should be a very large step-up in EBITDA in FY '18 versus '17? Would it be a fair assumption or are there any -- some other cost of which we can see increasing from here?

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Amitabh Gupta, Hindustan Zinc Limited - CFO [85]

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I think that's a fair assumption. The -- we've already given guidance of our cost that the cost will be very marginally higher in FY '18 relative to FY '17. Now, it also depends very much on LME and so many other factors, the commodity prices, the LMEs, et cetera.

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Operator [86]

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The next question is from the line of Sanjay Jain from Motilal Oswal Securities.

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Sanjay Jain, Motilal Oswal Securities Limited, Research Division - Research Analyst [87]

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Just one question it's on balance sheet. This is about net debt calculations. So on the press release you're talking about INR 16,000 crore of net debt...

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Amitabh Gupta, Hindustan Zinc Limited - CFO [88]

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Net cash.

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Sanjay Jain, Motilal Oswal Securities Limited, Research Division - Research Analyst [89]

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Sorry, net cash, yes. But if I look at the reported balance sheet, then this numbers -- I am not able to reconcile that number because in the investment you're talking about 20 of -- sorry...

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Amitabh Gupta, Hindustan Zinc Limited - CFO [90]

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It's very simple. You just take the figure of investment, which is INR 23,783, and cash and cash equivalents of INR 190, that will give you INR 23,972. From INR 23,972, you reduce the figure of liabilities, short-term borrowing, INR 7,907.75.

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Sanjay Jain, Motilal Oswal Securities Limited, Research Division - Research Analyst [91]

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Right.

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Amitabh Gupta, Hindustan Zinc Limited - CFO [92]

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Which is the commercial paper we have raised.

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Sanjay Jain, Motilal Oswal Securities Limited, Research Division - Research Analyst [93]

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Right.

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Amitabh Gupta, Hindustan Zinc Limited - CFO [94]

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That will give you the net '16 you are looking for.

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Sanjay Jain, Motilal Oswal Securities Limited, Research Division - Research Analyst [95]

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Then what is this INR 8,190.97?

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Amitabh Gupta, Hindustan Zinc Limited - CFO [96]

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That's the balance in the dividend account, which theoretically is in our books but doesn't belong to us.

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Operator [97]

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We'll be taking the last question from the line of Abhishek Poddar from Kotak Securities.

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [98]

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Two questions from my side. First one is regarding this RA open cast mine production, you said that this will be the last year of production FY '18. And FY '19, you've said that 100% of production would be from underground mines. So how should we see this in the context that shaft sinking will only be coming in FY '19? And you said that full benefit of that will be coming in FY '20. So FY '19, how the volumes will be shaping up and which are the mines that should be contributing to the volumes?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [99]

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So you see, the -- in the current year also, there is not a very huge contribution. The 80% plus metal will come from the underground mines. So -- and we also said that we have been ramping up the underground mine at this year at the rate of 38% -- 35% to 38%. So if there is a 20% contribution from the open cast mines which comes and next year, I fill up a gap of another 30% also, so still, my volume will rise from the current year to the next year.

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [100]

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Okay. So the production would be more mainly 2 ramps and because the shaft will not be there.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [101]

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Yes. Mostly from ramp. The -- some contribution may also come through the shaft.

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [102]

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Okay, now. Sir, -- and the last question is on the fumer plant. Could you give us the -- what is the CapEx you're doing on this round? Then what is the production or incremental volume that you're going to generate or what is the cost economics or business case for this?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [103]

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So the -- as I said, the total CapEx is around INR 550 crores. And the current year CapEx could be around $50 million and the recoveries I said that the 1 fumer, that will be the 1 we are setting up now, will contribute the silver to the extent of 25 tonnes to 30 tonnes, and the recovery -- the zinc recoveries could improve to 97.5% to 98%, and around 8,000 tonnes of the lead will be contributed through this. Plus some power generation benefit and some other benefits will also come.

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [104]

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Sir, I didn't get it. 8,000 tonnes of lead and any zinc also will be recovered or...

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [105]

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Zinc will be recovered. The current recovery of 96.5% could go to 98%.

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [106]

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Okay. And that will be for the -- all these smelters combined or just a...

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [107]

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Of course, all these smelters you will put up.

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [108]

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Okay. So again this 550 crores of investment, how much extra metal would we be getting combined of all smelters?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [109]

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So you see 1.5% of, let's suppose 200,000. So how much is it? 2,500 tonnes?

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [110]

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Yes, sir.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [111]

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2,500 and 8,000 tonnes of lead. So around 10,000 tonnes, 10 kt of the metal will be contributed, and you can say around -- between the silver will be contributed between 25 tonnes to 30 tonnes.

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [112]

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25 tonnes to 30 tonnes?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [113]

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Yes.

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [114]

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And obviously that will not be at any incremental cost, so the cost will remain...

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [115]

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That is not at any incremental cost, so that is -- directly contributes to the bottom line, plus some power generation is also there, so it's a double-digit IRR. Power generation is there, then you don't require the land to dump your yellow site -- yellow fish and you also don't require some other additives you -- we feed in that like cement and lime and all that. So there is -- there are also the cost that is involved to the extent of INR 650 per tonne of metal, so that also goes up. So there are various benefits. It's a very positive environment-impact project.

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [116]

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Fair enough. Sir, -- and you've bumped up the overall CapEx guidance from INR 250 million to INR 350 million to INR 360 million. So that is mostly because of fumer plant and then should we expect CapEx to come down in FY '19?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [117]

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Yes, it will definitely come down. It is on 2 accounts. One is the fumer CapEx, and other is the debottlenecking CapEx of smelters. So we've said our guidance is about $250 million per annum for mining projects and that continues.

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [118]

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Okay. So just last thing, could you just give us some sort of light on the debottlenecking project on smelter? And how much volume can that generate?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [119]

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We are wishing that we should get a total volume, that means the total mined metal of 1.2 million tonnes should get converted from the existing smelters because that will improve our productivity and debt control over the cost.

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Abhishek Poddar, Kotak Securities Limited, Research Division - Research Analyst [120]

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Yes, so the current capacity is 1.064 million tonnes, so that should go to 1.2 million tonnes because of this project?

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [121]

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Yes, that's right.

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Operator [122]

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I would now like to hand the conference over to Ms. Ekta Singh for the closing comments.

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Ekta Singh, [123]

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Thank you, all, for joining us in our call today. If you have any further questions, please feel free to reach out to me. Thank you.

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Operator [124]

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Thank you very much members of management.

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Sunil Duggal, Hindustan Zinc Limited - CEO and Whole-Time Director [125]

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Thank you, everyone.

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Operator [126]

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Ladies and gentlemen, on behalf of Hindustan Zinc, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.