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Will lower production costs by securing more linkages from Coal India: Hindustan Zinc's CEO

Arun Misra talks about the demand situation, rising costs, efforts to improve efficiency, export prospects, and the outlook for the company.

July 28, 2022 / 05:46 PM IST
Arun Misra, Hindustan Zinc CEO

Arun Misra, Hindustan Zinc CEO

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Hindustan Zinc Ltd expects to bring down its costs by more than $100/tonne in the upcoming quarters and stay within the guidance of $1,120-1,175/ tonne. It aims to achieve this through a variety of measures such as higher linkage materialisation from Coal India to lower power and fuel costs; and higher biomass consumption — from 3% to 5% — in the near term, Arun Misra the company’s CEO and whole-time director, told Moneycontrol in a telephonic conversation after reporting Q1FY23 numbers.

The company’s June quarter operational performance rose 44 percent year on year to Rs 5,140 crore on strong zinc and lead prices. However, this was offset by a rise in the cost of zinc production and other input commodity prices.

Excerpts from the conversation, edited for clarity, follow:

What is your guidance on the cost of production for Q2 and FY23?

Keeping the cost of production unchanged at $1,120 per tonne to $1,175 per tonne. In the current quarter, we have reported a cost of about $1,265 per tonne, which is primarily driven by coal costs. So, we have a task at hand in reducing another $80-$90 per tonne. And also, we are looking at things like using more biomass. We intend to increase usage from 5% to 10%. Currently, about 10% of the coal basket is from domestic coal; we want to increase this to 25% or 30%, depending upon availability. We have enough fuel supply agreements with Coal India Limited. Also, we are looking at various productivity and efficiency measures in our operations.

Tell us more about your tax transparency report.

It’s for self-declaration. We are among the few companies producing and publishing tax transparency reports, instead of people having to find out how much tax, on what, how it is paid etc. We have been up front in putting it in the public domain.

And it’s not only a tax transparency report, I think it’s an output of our inclination to put out self-declarations in public, be it on ESG, carbon disclosure projects, or financial risks, among other things.

How about demand and supply dynamics; what sort of demand growth are you expecting for FY23?

So, going by worldwide predictions, the number is expected to be around 1.5%. And in India, we like to believe that the government will continue to spend on infrastructure projects, and we should see demand growth of 2.5% to 3%. I am not reducing that.

Also, how do you see LME prices moving forward?

A level of $2,900/tonne to $3,000/ tonne should be the stable zone. The key thing to watch out for is LME stocks, which have been at one of their lowest levels. So, it can absorb more production. Europe’s demand is quite strong. Also, on the issue of gas supply, and Russia-Ukraine, those uncertainties remain but the stimulus package that was declared for Europe is still being spent on infrastructure. So, the export market is as of now quite strong. We don't find any difficulty in exporting 30,000 tonnes of metal every month.

Do you expect a supply response or curtailment to be kicked in at $2,200-2,300/ tonne LME levels?

Yes. That’s the number when suppliers will be alarmed and some operations will come to a stop.

At what LME level would the company’s operations be comfortable?
Anywhere above $2,600 should not be an issue. A level of $2,600 minus can be a cause for worry, and $2,200 levels will be difficult. But with the cost of production being controlled, the fall in LME prices can be arrested for the financials.

Tell us about the integration of Vedanta Zinc, which is supposed to be streamlined. What are the timelines looking like?

There is no doubt about the potential of that property to become something like Hindustan Zinc. But when and how we will do that depends upon the stakeholders, the government being a 1/3 shareholder, and being on board. We will wait for clearances from the government before we move forward.
And when do you expect the clearance to come? In this financial year?
So, we are working with the government — they are on board. I am sure at the right time, they will give the go-ahead.

Does the company intend to use more cash towards dividends? If so, what's the kind of quantum you’re looking at?

I will not comment on that. But traditionally, we have been known to hold good cash reserves at any point. We have been able to grow our mining capacity by investing in an underground mine and realising the benefit.
Nickey Mirchandani Assistant Editor at Moneycontrol covering Materials and Industrials space which includes Metals, Cement and Infrastructure sector. She’s a presenter and a stock market enthusiast with over 12 years of experience who loves reading between the lines and scanning through numbers. Before joining Moneycontrol, she was an Associate Research Head at Bloomberg Quint/ BQ Prime, where she wrote analytical pieces, anchored multiple interviews and a show called “ Market Wrap”.
first published: Jul 28, 2022 05:46 pm
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