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

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:

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.

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.

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.

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.

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.

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.