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Edited Transcript of HINDZINC.NSE earnings conference call or presentation 19-Jul-19 10:30am GMT

Q1 2020 Hindustan Zinc Ltd Earnings Call

Udaipur Jul 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Hindustan Zinc Ltd earnings conference call or presentation Friday, July 19, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Preeti Dubey

Hindustan Zinc Limited - Head of IR

* Sunil Duggal

Hindustan Zinc Limited - CEO & Whole-time Director

* Swayam Saurabh

Hindustan Zinc Limited - Acting CFO

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Conference Call Participants

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* Abul Fateh

Geecee Investments Limited - Senior Equity Analyst

* Amit A. Dixit

Edelweiss Securities Ltd., Research Division - Financial Analyst

* Anuj Singla

BofA Merrill Lynch, Research Division - VP in Equity Research

* Pinakin M. Parekh

JP Morgan Chase & Co, Research Division - Associate

* Rajesh V. Lachhani

HSBC, Research Division - Analyst

* Sumangal Nevatia

Kotak Securities (Institutional Equities) - Analyst

* Vishal Chandak

Emkay Global Financial Services Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Hindustan Zinc Limited Q1 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Ms. Preeti Dubey from the Investor Relations team. Thank you, and over to you, ma'am.

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Preeti Dubey, Hindustan Zinc Limited - Head of IR [2]

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Thank you, Rio. Good evening, everyone, and thank you for joining us for Hindustan Zinc's First Quarter Fiscal 2020 Results Call. Today, we have with us our CEO, Mr. Sunil Duggal; and Mr. Swayam Saurabh, acting CFO. Mr. Duggal will begin with an update on business performance, and then Swayam 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 & Whole-time Director [3]

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Thank you, Preeti, and warm welcome to all of you. We have started FY '20 on a positive note, and I'm pleased to inform you that our mining projects are approaching completion, and we expect to achieve 1.2 million tonnes mined metal capacity in Q3. The debottlenecking of our smelters to 1.13 million tonnes will be completed in the current quarter and further debottlenecking to 1.2 million tonne is under way. These will enable us to secure higher production in the second half of this year as well as next year.

I'm very excited about the prospects for growth in our silver production, we have delivered 15% CAGR in silver production over the last 5 years, and our guidance of 750 to 800 tonnes of silver this year implies a double-digit growth this year, too.

The upward trajectory will continue as we are targeting over 1,000 tonnes of silver production in the next 2 to 3 years. This will put us among the top 3 global silver producers to a higher mining capacity as well as opportunity to mine the silver-rich Galena zone at Rampura Agucha will help us the opportunity beyond 1,000 tonne of silver.

Also, the Fumer plant is about to commence operation very soon, which will allow us to convert silver in smelter waste and produce additional 35 tonnes of silver every year. For the long-term growth of our business, we have an aggressive brownfield exploration program across all our mining leases to augment resources to dump and also add new resources on which advanced surface and geophysical technologies have been deployed.

Our R&R at the end of last year was 403 million tonnes, containing 34.6 million tonne of metal, which implies the limelight of our 25 years. This year, we are specifically focusing on upgrading resources at Zawar, Agucha Galena zone lengths, enhancing R&R of higher mining yields, new ore body at Bamnia Kalan and a new ore body below existing active deposits.

Our digital transformation of our business and to build mines of the future, we have entered into a partnership with leading global players to digitize our SK and Agucha mines through highly bandwidth WiFi underground network, real-time tracking of effects, system-driven path scheduling, data analytics for predictive maintenance and cycle time optimization. This will lead to improvement in overall equipment effectiveness by 30% and reduce mining costs by 10%. We expect this system to be in place by the end of current year.

We are also setting up a collaboration center to have visibility across the value chain, including mining, milling, smelting and CPPs to deliver data-driven decision making, operational data analytics and synergies across our operations. This will increase our ore to metal ratio by around 2%.

I would also like to talk about our dry tailing stack initiative, which can potentially change our sustainability profile. Our first dry tailing stack plant is expected to be commissioned in current quarter at Zawar. This plant will remove water fungi, making it available for reuse and consequently lead to water puring of around 3,000 meter cube per day as well as significantly lower land requirements. This will help improve structural stability also, and longevity of tailing dams. This technology is being used first time in India, and Zawar plant is one of a few getting adopted at all of our mines to drive our commitment to sustainability.

Now I'll give you a market update. Despite recent price declines, we are quite positive about zinc market fundamentals barred by low global exchange stocks, which are at 5 days of consumption now. A very low level, historically.

On the supply side, Chinese zinc production is falling short of market expectations. And the overall global metal supply is constrained due to production issues. There are no major capacity addition of smelters in pipeline, and we have seen supply on the mining side growing at a much smaller -- slower pace than expected.

The global market, therefore, continues to be in deficit, and we expect it to remain in deficit for at least 2 years now. It will take much longer for stocks to reach normal levels.

The demand outlook is finally balanced, with growth being driven by emerging economies, which are showing good appetite for zinc infrastructure and housing segment.

In this background, we believe the fundamental support from continued lowest cost points towards a stronger outlook for zinc prices. Thus, India has been the focus lower 80% market share in zinc market. India's zinc consumption is building and construction segment accounts for 58% of zinc consumption, continues to show strong growth. Furthermore, we are increasing share of value-added products, such as continuous galvanizing grade, electroplating drill and, of course, die-casting alloys. The share value-added business is targeted to increase from 16% last year to 25% this year to over 50% in the next 2 years, keeping us in good stead to deliver from the HZ story and lead to premium.

Turning to our operating performance now. Total overproduction for the quarter was up 10% from a year ago, with strong growth at Rampura Agucha, Zawar and Rajpura Dariba mines. On a sequential basis, ore production was down 5%, primarily due to lower production at Rampura Agucha, Sindesar Khurd caused by temporary geotech challenges and consequent changes in mine plan.

Mined metal production at 203 (sic) [213] kt grew slower than ore production on account of lower grades. Refined lead and silver production continue to show strong gains on a year-over-year basis, with double-digit growth. Integrated lead production was up 13% to 48 kt and silver production increased by 15% to 159 kt. Refined zinc production was flat from a year ago.

Sequentially, integrated metal production was down 3% on account of lower mined metal and annual maintenance shutdown at smelters, partly offset by WIP conversion.

Now to update you on expansion projects. You'll be happy to know that at Sindesar Khurd, ore hoisting has commenced as the shaft has been integrated with the mine. This will help in volume ramp-up in 6 million tonnes per annum, and we expect cost to progressively reduce due to volume growth going down.

Our shaft project at Rampura Agucha is now at an advanced stage and is expected to commission in early third quarter allowing for incremental volumes and lower project costs. We are also upgrading the shaft capacity at Rajpura Dariba mine from 0.7 million to 1.3 million tonnes per annum, which will be completed by the end of current financial year. The second paste fill plant registry has been commissioned, it will further aid in ramping up production through filter filling of voids. We already have sufficient paste fill capacity at Rampura Agucha.

The 2 paste fill plants at Zawar are expected to commission in quarter 3. One Zawar paste fill plant has commissioned. We will be using a majority of our tailing component of void management, resulting in improved mine stability and increase in life of our tailing dams. This air filling will allow us to recover the left out high grade ore from old pillars, improving our volume and rates.

Now an update on our next phase of expansion. We have commenced detailed exercise for the next phase of expansion to 1.35 million tonnes per annum. This will cover areas like reserves, production, grade, ore to metal ratio. Specifically, we are looking at potential of existing deposits at Bamnia Kalan, SK Deep, Zawar, Rampura Agucha Galena zone, et cetera. We are engaging a global partner for end-to-end project delivery, including scoping, feasibility, project implementation, delivery of targeted outcomes.

Now I request Swayam to provide you an update on the financial performance.

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Swayam Saurabh, Hindustan Zinc Limited - Acting CFO [4]

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Thank you, Mr. Duggal. Revenue for the quarter was impacted by lower zinc, lead and silver prices, which have declined in the range of 10% to 21% from a year ago. This was partly offset by double-digit growth in lead and silver volumes and rupee depreciation by 5%. Consequently, revenue for the quarter was lower by only 6% from a year ago to INR 4,987 crores.

On the cost side, imported coal prices continue to decline, and we also received higher linkage coal, up to 25% of our requirement. However, we produced less power during the quarter due to severe water scarcity caused by less rain last year and delayed pre monsoon. This led to significantly higher external power purchase, which more than offset the benefit from lower coal prices in the quarter. So far in July, there has been sufficient rainfall, and we do not foresee any water issues in Q2 or subsequent quarters.

Zinc cost of production, excluding royalty, increased by 2% Y-o-Y to $1,067 per tonne. On a year-over-year basis, our cost was negatively impacted by lower ore base, higher mine development and higher prices for commodities like cement, partly offset by higher metal volume and lower diesel prices. Sequentially, COP was higher on account of higher power cost, lower volume and lower grades.

EBITDA for the quarter declined by 11% Y-o-Y to INR 2,480 crores, primarily due to lower metal prices as higher volume and lower manpower costs offset increase in power, mine development and other expenses. The sequential 11% decline in EBITDA was driven primarily by lower volumes and higher power cost.

Net profit for the quarter was at INR 1,765 crores, down 8% Y-o-Y and 12% sequentially, in line with lower EBITDA and lower tax rate. Investment income during the quarter was higher on account of higher rate of return from a year ago, even if -- even as investment process was lower.

During the quarter, we paid off remaining INR 2,000 crores of outstanding commercial paper, and the ending net cash and equivalents were INR 18,258 crores. We generated INR 1,292 crores in free cash despite lower metal prices in our growth investments.

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

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [5]

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Now to sum up, as we get closer to complete 1.2 million tonne per annum project, including debottlenecking of smelters, we expect volumes to improve in the coming months. This together with internal efficiencies, technology and digitization initiatives will help cost to progressively come down.

Furthermore, we expect recovery in metal prices driven by robust fundamentals, especially growing demand for infrastructure in emerging economies. This, together with higher value-added product portfolio and double-digit growth in silver production, keeps us optimistic about improvement in overall performance in coming quarters.

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) The first question is from the line Amit Dixit from Edelweiss.

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Amit A. Dixit, Edelweiss Securities Ltd., Research Division - Financial Analyst [2]

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I have 2 questions. The first one is that if we compare the commentary from last quarter, we find that some of the projects, such as shaft at Rampura Agucha has been delayed by a quarter. Similarly, Fumer has been a little bit delayed. So just wanted to understand the reasons for the same.

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [3]

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So first on the shaft. There is no further delay. What we have said is that in the earlier commentary, last quarter, that the shaft project will get commissioned by the end of quarter 2. It is just slipping by another 5 to 7 to 10 days. And we said that this will get commissioned in the early quarter 3. Some geotech issue has come because of which we had to make a separate chamber for 2 pressures, which was 1 chamber. So there is not a significant delay, I would say, in the shaft commissioning.

As far as Fumer is concerned, our commissioning activity has already started, [33% drives] filed and already been taken. In Fumer, of course, will be commissioned in this quarter. But with the teething issue that the commissioning issues, we are hopeful that the next quarter, we will start getting gain out of this.

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Amit A. Dixit, Edelweiss Securities Ltd., Research Division - Financial Analyst [4]

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Okay, wonderful. The second question is that is there an increase in power stress for captive producers by Rajasthan government?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [5]

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Yes. So on power, I would say that in the proposed flexi duty increase from INR 0.40 to INR 1, which had been mentioned in the budget, final notification is about to come. But there is a strong advocacy which is going on in the state government with all the major industries, and there is strong pressure. And the early indications show that there will be some rollback that the pressure to roll back the complete industry duty increase of INR 0.60. But I am quite hopeful that if not full rollback, at least, the partial rollback or a major rollback will come.

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Amit A. Dixit, Edelweiss Securities Ltd., Research Division - Financial Analyst [6]

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Sir, a follow-up question to that. In worst case, how will it impact us financially, if it is not done?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [7]

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Well, the worst case could be -- the worst case means the INR 0.60 increase would result into $35 per tonne cost increase. But I don't think this will happen. There are positives around this also. There are structural initiatives which we are taking. Number one is that we are reblading our turbines. And we have cleared the order on Siemens for the first turbine. This will give us around 6 megawatt of diesel power from a turbine with the same usage of the stream back in the -- power costs will come down. The potential for all our CPP units is 30 megawatt.

Similarly, there's another structural change, which is coming with the global players and benchmarking. We have found the opportunity of another 30 megawatt from our roaster plants, where we can generate the additional steam. Some modification we have already done in part of the roaster and therein, the cube area we have increased, which has already started to give us the additional steam, which we have started using in the process.

But this opportunity is there. We will modify our turbines going forward. So around 60, 65 megawatt on the additional power availability will come, which can bring a big structural change and a huge cost reduction in the power.

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Operator [8]

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The next question is from the line Pinakin Parekh from JPMorgan.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [9]

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Sir, the prepared remarks talk about lower grades. Sir, can you talk us through about where the lower grades are? And how will it change going forward once the expansions come into play? And how much of the cost increase can be attributed to the lower grades?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [10]

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So in the Q1, probably the cost increase was around [$15] per tonne. And the lower earnings grade fell down by around 0.3% from the previous quarter.

You know the grade is a mix of all the mines. So it all depends on from where we have pulled in what volume. This lower grade has come because -- basically, we analyze all the mines. The volume at Rampura Agucha has gone up. Volume at Zawar has gone up. Volume at our RD mine has gone up. The volume at our SK mine has gone down. So the volume which went up at Rampura Agucha, which is a very, very happy story if you ask me because at some point of time, we were a bit concerned because when we were going opencast to underground in mining still in the open pit, this was a bit of concern, but this is a happy situation now. So in SK mine, we traced some geotech issues and filling of the mine is a priority. So indeed, you must have seen that -- you must have noticed that in my talk prior, I said that the second paste fill plant is commissioned. And this mine is getting filled in. The sequence will move right, and we will start, again, getting these grades, especially from the higher grade area, where the silver content is also high, which is at a deeper lever. So now this sequence will fall in place, and you will see the rates going up quarter by quarter.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [11]

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Understood. And sir, secondly, the guidance for cost was below $1,100 as of Q4? I mean how should we look at the rest of the year? Will the cost of production fall from what we saw in the first quarter? Will it trend at similar levels for the remainder of the year?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [12]

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I insist Swayam to answer.

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Swayam Saurabh, Hindustan Zinc Limited - Acting CFO [13]

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Sure. The cost for the quarter was $1,067. Our guidance for the year was approximately $1,000. The first reason why cost is higher is due to lower volumes, which, as we said, will just flow, we progressively see going up over next 3 quarters.

Other than that, when shaft comes in, we also expect efficiency gain in our haulage. On commodity side, a number of gains are not fully reflected yet. So our coal cost has come down, but we also progressively see coal cost going further down in Q2 and Q3 based on the parcels which we have booked. On top of that, we expect grade to also recover. Putting this all together, we are confident that progressively, our cost will come down, and we would go back to committed level of $1,000.

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Operator [14]

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The next question is from the line of Anuj Singla from Bank of America.

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Anuj Singla, BofA Merrill Lynch, Research Division - VP in Equity Research [15]

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Sir, a follow-up question on cost. You mentioned that from the 1.2 million tonne per annum target, which is in Phase 1, we are now proceeding to start work on the 1.35 Phase 2 target. So does it imply that the mine development work is going to remain at a higher -- at the elevated level for an extended period of time. And hence, some of the cost benefits which we thought could come once the things were stabilized on the 1.2 million tonne expansion will take a bit more time to factor in?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [16]

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No. Actually, we have to understand that there are 2 types of development: revenue and capital development. So revenue development is a separate entity; capital development is separate. Capital development is capitalized. So once the project finishes, we only do the revenue development. So like in the ramp is connected from top to bottom. And the [footfall] levels open up, and then we enter into the overhead mine.

The capital development will be applicable for the project activity beyond 1.2, which we account for this in term of the project cost. So that will be a separate [head dragging] along within, between what we do in revenue and in project. So it will be accounted for in the project activity.

So separate ore body, separate lengths, separate area we're working those on.

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Anuj Singla, BofA Merrill Lynch, Research Division - VP in Equity Research [17]

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Okay. Sir, if that understanding is correct, that given that in FY '21, I'm talking about the year after, you have everything going for you. You have hauling through the shafts, you have the commodity prices, obviously, the full benefit of income flowing through. And you have the lower mine development expenses as well. So does it imply that the -- there can be a significant reduction in cost of production in FY '21 or FY '20?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [18]

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Absolutely, this will be there. And one -- I will ask Swayam to pitch in after I give you one comment from my side. We are also looking at the minor metal recovery in a very, very big way. Like we set up some engineering in the field, in which we improve -- apart from improving our ore to metal ratio, there are opportunities around cadmium, there is opportunity around mercury, there is opportunity around copper, manganese, bismuth. So all this ancillary industry setup and minor metal extraction, we have benchmarked and some of the orders also we have placed.

Current recovery from this is around INR 35 crores to INR 50 crores. Current year, it would go up to INR 60 crores, INR 65 crores, but the total opportunity is up to INR 1,000 crores. So by bringing all this opportunity on the table and commissioning these projects, we will get the benefit of -- when -- if we get the full benefit of INR 1,000 crores, it will throw us -- our cost down by another $100 or so. So the big -- opportunity is very big apart from what I have said. But I will ask Swayam to add on from his side.

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Swayam Saurabh, Hindustan Zinc Limited - Acting CFO [19]

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No, indeed -- so indeed, cost would come down. The biggest driver would be volume growth. And the grades which are expected to go back to its normal levels. But other than minor metal initiative, which would be quite big, and it would come in progressively in 2020, 2021 onwards, we are also looking at fixed cost optimization. And as you know, fixed cost with higher volume would translate into a lower cost per tonne.

Other than that, we also had commodity-related hits this year, as I talked a few minutes back, which would also be better absorbed. And together with other efficiencies around IT, automation, digitization, we expect to gain significantly in terms of how our costs will look like, let's say, in FY '21, '22.

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [20]

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And I would add 2 points on what Swayam has said. What is -- one is you heard me that there are structural initiatives around the power to generate the free power, INR 0.60, INR 0.65. The commodity prices, we project [barely] was cement. What we are trying to do, we have the fly ash available with us, we are putting up a fly ash grinding unit wherein we will -- it will be used as a binder. We will purchase the OPC from the cement manufacturers, [they keep] (inaudible). It will cut down our cement costs by 25%. There is a lot of thinking going around, lot of thinking is going around.

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Operator [21]

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(Operator Instructions) The next question is from the line of Vishal Chandak from Emkay Global.

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Vishal Chandak, Emkay Global Financial Services Ltd., Research Division - Research Analyst [22]

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My first question is with respect to your power requirement at 1.35 million tonne. So at 1.35 million, would the existing power be sufficient? Do you plan to have additional capabilities on the capital power front?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [23]

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So beyond 1.2 million, the power definitely will be required because we will be exhausting all our resources. But we talked that up to 1.2 million also, the power requirement, we have to make -- meeting this power requirement from renewable energy, from turbine efficiency improvement, from wastage recovery. But beyond 1.2 million, there will be definitely some power requirement. But we are very a dynamic company. We will also think of internally what could be the new opportunity going forward.

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Vishal Chandak, Emkay Global Financial Services Ltd., Research Division - Research Analyst [24]

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Okay. Sir, secondly, you mentioned in your opening remarks that the average inventory is about 5 days of consumption today. And we are at sub-2,500 levels at LME. What was the last thing when you saw this number? And what you believe would be the challenges or responses from the industry to, again, take it up in terms of pricing?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [25]

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See March quarter we talked, it was (inaudible) 1 month at the same level, maybe 4 days, I thought, if I remember correctly. Now, it is 5 days. There is hardly any difference which has taken place. People are talking (inaudible) that the mining capacity is coming up, that meant they'd trade up. But you must also watch for many, many quarters, how the mining gaps get filled up. The new capacity addition from that is slower than normally expected when the deeper ore bodies around the globe are going on. So I am quite hopeful that the inventory levels may not go -- may not improve, at least in the coming few quarters. So my sense is that this prices will fall down in the coming quarters. You must have also seen that the lead has gone up around $250 in the last 30 days' time. Silver has gone up from $14 to $16.5 today. So the kind of portfolio we have, I mean, we always have the opportunity from one commodity or the other commodity, but we are in a very happy situation I would say.

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Operator [26]

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The next question is from the line of Rajesh Lachhani from HSBC.

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Rajesh V. Lachhani, HSBC, Research Division - Analyst [27]

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Sir, 2 questions from my side. Number one is, so if you see the production in the first quarter is 21% of our guidances of close to 1 million tonne. So are we maintaining our production guidance for mine metal for this year? So this is number one.

And number two, sir. The reserve and resources this year saw a fall. This was the first time in several years that we have seen reserve and resources falling. And what is slightly more concerning is that the reserves have fallen significantly. So they are down 12% from the prior year, which means that we have not converted resources into reserves that much by the pace which we were converting previously. So just want to understand that. Is there a one-off this year that we have not been able to convert resources into reserves?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [28]

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So I would pick up your first question first. I think you asked that the volume is 20% of the total guidance of the year. So we are mindful of that, that volume is 20%. We also see that what is going to happen going forward. So you will see that from now on, the kind of opportunities or the plants we have commissioned, so we look at mine to mine, we are in a quite happy situation. One of the mines, where the SK mine, mainly because of the geotech issues, we could not lay hand on the higher-grade stopes and the volume. This will -- this you will see -- a huge change will be seen going on in the mine. And you'll see -- we still maintain our guidance of 1 million tonne metal -- 1 million tonne plus metal. And the silver guidance, 750 to 800 tonnes we had given.

On your second part, R&R going down. There is no surprise which has happened. The addition from the new drilling has been better this year, I would say, compared to last year. There is a calculation method. We engage Golder for this, a global consultant, who look at our R&R and give us the report, which is JORC compliant, which is an Australian guideline.

So Rampura Agucha open cast had certain recovery percentage and the valuation percentage from the ore. So the method of calculation has been changed as we have gone underground. And we have taken the actual figures which have been achieved over the last 3 to 4 years. But being mindful of all this, what we have also done is the -- is to improve the ore recovery and the valuations -- improve the valuations, we have changed the mining method. This year, we have changed the mining method. You may also see a positive surprise, like you have seen the surprise this year. Next year, we think reserves will significantly go up. But that's a calculation method. There is no surprise as such.

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Operator [29]

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The next question is from the line of Sumangal Nevatia from Kotak Securities.

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Sumangal Nevatia, Kotak Securities (Institutional Equities) - Analyst [30]

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Yes. Just one question from my side. So this year, I mean, it looks like given the smelter debottlenecking is on track and capital -- the mine development will also finish in second half. So can we assume next year, at the start of the year itself, we'll have both 1.2 million tonne smelting and mine capacity; and volume growth could be 15%, 20% at least?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [31]

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This is what we hope for. Normally, we have given this growth from underground mines year-on-year, and this is what we are hopeful. You are right.

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Sumangal Nevatia, Kotak Securities (Institutional Equities) - Analyst [32]

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So given the market is also in deficit, what could be the constraint next year to have any volume growth lower than double digit?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [33]

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Volume growth from our mines, you are saying?

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Sumangal Nevatia, Kotak Securities (Institutional Equities) - Analyst [34]

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Yes, volume growth and metal production growth.

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [35]

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So this is what we are hopeful for from our base as the project has got commissioned and the capacity is built up. Normally, you would have seen that from our underground mines, now, we are a totally underground mining company, the ore -- the CAGR has been very robust. So we have to prove this point together in next year itself. And if -- what we have done in the last few years, and we continue with the same story this year and next year. And now the project activity is getting completed, shafts getting commissioned, paste fill plants are commissioned. So this gives us the opportunity of mining a higher volume. And I'm very hopeful that the same growth what we have, as we said, in the last few years should definitely also come this year and next year.

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Sumangal Nevatia, Kotak Securities (Institutional Equities) - Analyst [36]

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Understood. And sir, with respect to the Fumer project, does it take time to ramp up? Or we can start expecting the 35 tonnes of additional silver getting added to overall volumes in 1 quarter or 2 time?

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [37]

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I don't think it will take much of a time, but at the same time, we also have to be mindful that this is the first project of its kind which we have commissioned in our organization. It could be a bit of a learning curve, but the kind of initiative we have taken, we have sent people -- our people to those fumers where these fumers are operating and spend time there for 2 to 3 months. They have come back after training. With this training in our hand and confidence in our hand, we should be able to commission it and ramp up -- ramp it up quickly. But let's see how it goes. Since this a first fumer, once the learning will become and the second and the third fumer will become a much easier job for us.

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Operator [38]

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The next question is from the line of Abdul Fateh (sic) [Abul Fateh] from Geecee Holdings.

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Abul Fateh, Geecee Investments Limited - Senior Equity Analyst [39]

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I have a question on employee cost. If I look at your employee cost, it has come down significantly compared to the last year, 1,820. How should we look at the employee cost going forward? Is there any specific one-off in the cost?

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Swayam Saurabh, Hindustan Zinc Limited - Acting CFO [40]

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Yes. So if you look at sequentially, INR 182 crores in this quarter has a one-off gain of about INR 20 crores, which is a combination of some incentive provisions which were reversed as well as the bonus provisions which were reversed. And that basically should go off from the subsequent quarters.

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Abul Fateh, Geecee Investments Limited - Senior Equity Analyst [41]

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So how should we look at the employee cost going forward? A normal growth in employee based on the WTI rate or something like that? Or around INR 200 crores per quarter?

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Swayam Saurabh, Hindustan Zinc Limited - Acting CFO [42]

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We should be looking at about INR 210 to INR 220 crores per quarter.

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Sunil Duggal, Hindustan Zinc Limited - CEO & Whole-time Director [43]

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Normally, what we do each year to optimize our costs and whatever the increasing cost comes by way of the annual appraisal cost, we try to optimize it and our endeavor remains that the cost base remains the same every year.

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Swayam Saurabh, Hindustan Zinc Limited - Acting CFO [44]

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Our cost grows slower than the top line growth giving us efficiency.

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Operator [45]

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Thank you very much. That was the last question in queue. I would now like to hand the conference back to Ms. Preeti Dubey for closing comments.

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Preeti Dubey, Hindustan Zinc Limited - Head of IR [46]

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Thank you, everyone, for joining us today. If you have any further questions, please feel free to contact me. Thank you.

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Operator [47]

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