MUMBAI: Hindustan Zinc Limited, the leading global integrated producer of zinc, lead and silver, reported its results for the second quarter and half year ended September 30, 2019.
Commenting on the Q2 performance, Kiran Agarwal, Chairman, said: “We are setting up Hindustan Zinc for 1.35 mtpa capacity in a phased manner over coming years through focussed exploration, smart technology interventions and disciplined execution of expansion projects. We are strengthening our fundamentals of low-cost operations and long mine-life in order to be at the forefront and deliver industry leading returns for our shareholders.”
Sunil Duggal, CEO, said: “We are entering H2 with the last phase of expansion projects getting completed, enabling 1.2 mtpa capacity. With rapid development initiatives leading to opening of newer mining blocks and increasing shaft haulage, we expect to deliver a better performance in H2.”
Swayam Saurabh, CFO, said: “Our investments in automation and digitisation are steadily delivering results and would support cost optimisation goals. Our target is to maintain our strong financial profile and cost leadership through higher productivity.”
Operational Performance
Mined metal production for the quarter was 219kt, up 3% sequentially on account of higher ore production. From a year ago, mined metal production was down 6% in Q2 and 3% YTD on account of transient lower grades at Sindesar Khurd (SK) mine, partly offset by higher ore production.
Integrated metal production was 210kt for the quarter, almost flat from a year ago. Integrated zinc production was 166kt, up 2% y-o-y in line with mined metal production while integrated lead production was down 11% y-o-y to 44kt due to production issues at Dariba lead smelter leading to higher WIP.
Integrated silver production was 134 MT, down 22% y-o-y in line with lower lead production and lower silver grades at SK mine. Sequentially, integrated metal production was lower by 4% on account of lower mined metal availability and maintenance shutdown & production issues at Dariba lead smelter. YTD metal production was up 1% y-o-y to 429kt in line with mined metal availability while silver production was down 5% y-o-y to 293 MT in line with lead production and SK silver grades.
Financial Performance
Revenue from operations during the quarter was Rs. 4,511 Crore, a decrease of 6% y-o-y primarily due to an average 6% decline in LME prices and lower lead & silver volumes, partly offset by higher zinc volume and silver prices. Sequentially, revenue declined 10% primarily due to a steep 15% decline in zinc LME and lower lead & silver volumes, partly offset by a recovery in lead LME & silver prices and rupee depreciation. For the six-month period, revenue was lower by 6% on account of an average 10% decline in LME prices, partly offset by higher sales volume, higher silver prices and rupee depreciation.
Zinc cost of production before royalty (COP) during the quarter was $1048 (Rs. 73,754) per MT, lower by 2% (1% in Rs) sequentially and higher by 1% y-o-y (2% in Rs). For the six-month period, zinc COP was higher by 2% y-o-y at $1057 per MT.
The COP during the quarter and H1 benefited from lower power cost on account of decline in imported coal prices and higher linkage ratio, as well as lower fuel prices. The COP was impacted by $12 in Q2 due as electricity duty on captive power plants increased from Rs. 0.40 to Rs. 0.60 per unit starting July 2019.
The y-o-y increase in COP in Q2 and H1 was due to lower grades, higher mine development expense, higher cement prices and lower acid credits.
EBITDA for the quarter was Rs. 2,120 Crore, down 8% y-o-y and down 15% sequentially while year-to-date EBITDA was Rs. 4,600 Crore, down 10%. This was primarily on account of lower revenue from operations, partly offset by lower exploration expense. In accordance with IND AS 106 ’Exploration for and Evaluation of Mineral Resources’, the Company has capitalised exploration expense of Rs 51 Crore for FY 2020 based on commercial viability of the exploration activity.
Net Profit for the quarter was Rs. 2,081 Crore, up 15% y-o-y and 18% sequentially while YTD net profit was up 3% to Rs. 3,846 Crore as higher investment income and lower tax rate more than offset the decline in EBITDA and higher depreciation expense. Investment income increased due to a higher rate of return on account of mark-to-market gains in portfolio resulting from recent decline in interest rates.
The lower tax rate is on account of revision of the estimate for deferred tax liabilities pursuant to Taxation Law (Amendment) Ordinance 2019, leading to reversal of Rs. 365 Crore related to prior years. Excluding this one-time reversal, the effective tax rate for the year-to-date was 21.4 %.
Outlook
The production in H1 was impacted by geo-technical issues at SK mine. Mined metal and refined metal production in H2 FY2020 is expected to be higher than in H1 on account of continued ramp-up of underground mines. The production at SK mine is expected to ramp up in H2 on account of opening of new blocks, faster development and higher back filling post commissioning of second paste fill plant.
The revised guidance for both mined and refined metal production in FY2020 is c.950kt while silver production is expected to be c.650 MT. The COP before royalty is projected to be c.$1030 per MT in H2 FY2020 including the impact of higher electricity duty. The project capex for the year will be c.$300 million.
Expansion Projects
Update on ongoing expansion projects during the quarter.
The ongoing expansion projects are at the verge of completion and reach 1.2 mtpa of mined metal production capacity in H2 FY2020.
Capital mine development increased by 20% y-o-y to 11.7 km in Q2 and by 14% to 23 km in H1.
The production shaft at Sindesar Khurd, which was commissioned earlier, is ramped up with associated conveyor & automation system in production.
At Rampura Agucha, the shaft project is in advanced stage and expected to be completed in Q3 FY2020.
At Zawar, India’s first ever dry tail stacking plant was commissioned during the quarter. Additionally, the two back fill plants are on track to be commissioned in Q3 FY2020, enabling mining of left out high-grade ore in old pillars.
At Rajpura Dariba, the existing production shaft capacity is being upgraded from 0.7 to 1.3 mtpa to debottleneck the mine and expected to complete in Q4 FY2020.
Smelter debottlenecking to expand capacity to 1.13 mtpa is complete. The commissioning of Fumer Project has commenced and first metal to be out by end of Q3 FY2020.
Digitisation projects at RA and SK mines are on track. Key milestones achieved in quarter include tracking of UG equipment on real-time basis at RA and SK mines, automation of pumping system at RAM, tele-remote operations of drilling equipment & loaders at RAM and centralised task scheduling & management at SKM.
Liquidity and investment
As on September 30, 2019, the Company’s cash and cash equivalents was Rs. 19,628 as compared to Rs. 16,952 Crore (net) at the end of FY 2019 and was invested in high quality debt instruments. The portfolio continues to be rated “Tier –1” implying Highest Safety by CRISIL.
