Hindustan Zinc Ltd
NSE:HINDZINC
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Hindustan Zinc Ltd
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Ladies and gentlemen, good day and welcome to the Hindustan Zinc Limited Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Shweta Arora, Head of Investor Relations. Thank you, and over to you, ma'am.
Thank you. Good afternoon, everyone. I welcome you all to Hindustan Zinc's First Quarter ended FY '23 Results Briefing. Today on the call, we have with us our CEO, Mr. Arun Misra; and our Deputy and Interim CFO, Mr. Sandeep Modi. Mr. Misra will begin with an update on business performance, while Mr. Modi will walk you through financial performance. After which, we will open the floor for questions.
I now request Mr. Misra to begin today's call. Over to you, Mr. Misra.
Thank you, Shweta. Good afternoon, everyone. Thank you for joining us today for the first quarter of FY '23 results briefing.
Before I begin today's results presentation, I regret to inform you all that we have lost one of our business partner colleagues in an unfortunate accident that happened at our Zawar Mines on 12th of April 2022. I would like to offer my deepest condolences to the bereaved family and friends of the deceased. We commit to stand by the family in this hour of distress and independent investigation is conducted on the incident, and the learnings have been reviewed and are being implemented across all our operating assets.
We have also continued our proactive safety and health initiatives during the quarter. Some of the major ones included blasting point standardization, identification and automation of high-risk manual activities, result-specific zero-fatality plans and safety guidelines against truck hauling. We also initiated cardiac evaluation programme covering 12,000 employees so far. At Hindustan Zinc, it is our sincere belief that people are our most valued asset, and we natured them with our best-in-class PT practices. This is also reflected in external recognitions that we receive, and on this account, I am to share that Hindustan Zinc has been certified as a Great Place to Work for fourth year in a row.
Coming to an update on the ESG front. In line with our commitment to net zero by 2050, Hindustan Zinc has deployed India's first battery electric vehicle in an underground mine at Zawar location under our engagement with the International Union for Conservation of Nature, IUCN. We have reframed Hindustan Zinc biodiversity policy and prepared an Integrated Biodiversity Assessment Tool, IBAT report for all our Rajasthan locations, identifying the presence of critical habitats and species, if any, within the core and buffer zones. Hindustan Zinc has also initiated work for the installation of a 4,000 kilolitre per day 0 liquid discharge plant at Zawar Mines.
I am also delighted to inform you that Hindustan Zinc Dariba Smelting Complex and Zinc Smelter Debari have both received a GreenCo Rating of coal and silver respectively at the fifth edition of The 7R Conference. Moreover, our risk management system is certified as per ISO 31000:2018 version. All of these collectively play a very important role when it comes to making progress on ESG front.
A quick update on our on-ground CSR activities. Our CSR teams have played an excellent balancing act on managing the ongoing long-term core initiatives along with health and COVID-related support during this trying time. The team has continued their well-rounded efforts towards education, sustainable livelihood via skill development, and the establishment of a self-reliant financial ecosystem for the communities, women empowerment, health and sports. I'm happy to inform that our Khushi Anganwadi Nand Ghar programme was recognized and awarded in the sixth CSR Health Impact Awards 2022 under the category CSR Health Campaign for its remarkable work in the field of improving health status among the children below 6 years of age and women.
Turning to an update on market. On the global supply side equation, the widening spread in prices reflects the erosion of LME stocks, which seems set to fall to unprecedented low levels. At the end of May, LME stocks stood at 84 kt, of which 38,000 tonnes were canceled. By the end of June, the headline stock figure were little changed at 81,000 tonnes but cancelled warrants have risen to 63,000 tonnes, leaving just 18,000 tonnes of live LME zinc stocks. The zinc market witnessed backwardation during the quarter.
On demand side, with rising interest rates and inflationary pressures globally, consumers and business spending has started to decline, threatening to underline zinc demand in the times to come. The S&P Global Eurozone Construction PMI for May 2022 fell to 49.2% from 50.4% in April on account of higher input prices and supply chain constraints, which affected output as well as demand.
All 3 segments, that is housing activity, commercial activity and civil engineering, witnessed a decline. However, with substantial backlog of work for manufacturers in many parts of the world and zinc demand to stay robust year-to-date. With the impact of the continued distribution of European Union's EUR 2 trillion stimulus package, zinc demand is expected to remain strong in the foreseeable future.
Touching briefly on lead. After the volatility seen in the month of March, quarter 1 started as flat and relatively uneventful. In June, we saw prices stumbled by 11% from the start of the month to finish at USD 1,097 per tonne for the London Metal Exchange. The key driver for this drop in value was the strengthening of the U.S. dollar supported by global interest rates, renewed coronavirus outbreaks and the deepening crisis from the Russian war on Ukraine and the resulting overall pessimism for the base metals demand. Lead was still the best performing among all the key LME base metals.
Coming to silver, which increasingly focus on renewable sources of energy, demand for photovoltaic cells, which have use in solar panels, is expected to grow. Silver being the key component for the same should experience demand tailwinds thus supporting prices in the medium term.
Talking about domestic market, India's Industrial Growth, IIP index jumped 7.1% in April 2022 as compared to 2.2% in March. The rise in IIP index of 7.1% is the highest in 8 months, mainly led by good growth in power and mining sectors, which grew by 11.8% and 7.8%, respectively. Manufacturing sector reported a growth of 6.3% in the first month of the current financial year.
Coming to an update on operational performance. Hindustan Zinc delivered best-ever first quarter mined metal, refined metal and silver production. Here, I would also like to bring your attention to the seasonality of first quarter, which is traditionally viewed as a subdued one. With our learnings through the years, we have made certain structural changes to neutralize this seasonality effect, and are confident to deliver wining formulae on volumes throughout the year. With current run rate for both mined metal and refined metal covering about 1 million tonnes per annum, we are confident to deliver on our promise volume guidance for FY '23 and would like to keep it consistent.
Coming to some of the key updates, I am elated to inform you that our Board has approved the setting up of the Fertilizer plant. Also, we have received an approval for setting up of an additional Roaster. These synergistic projects, along with value chain, will further take to deliver value for all our stakeholders.
With this, I hand over the call to Sandeep for an update on the financial performance.
Thank you, Mr. Misra, and good afternoon, everyone.
It was another record quarter where we took significant milestones and continued positive momentum of our financial performance. We delivered historic high quarterly revenue, EBITDA and net profit. This winning streak is supported by our proactiveness to catching the favourable LME environment by embarking on strategic hedging from last quarter as well as ongoing operational efficiency initiatives, volume delivery and cost rationalization. All of these helped us to protect our margins and wrestle with input commodity inflation. Being in the first quarter's cost curve, our margins are resilient owing to the positive correlation with LME prices, thus creating a favourable trade-off for us in the inflationary environment.
Quick update on financial performance for the first quarter ended June '22. Revenue from operations during the quarter was a record INR 9,387 crores, an increase of 44% Y-o-Y led by higher zinc volume and zinc LME prices. Gains from strategic hedging as well as favourable exchange rates, which were partly offset by lower silver prices, zinc LME prices and zinc metal sales increased by 34% and 10%, respectively, as compared to last year. Sequentially, revenue was 7% up, primarily driven by higher zinc prices and the lead and silver volume. Gains from strategic hedging, partly offset by lower zinc volumes and lower lead and silver prices. Lead and silver sales volume were sequentially up 9% and 10%, respectively.
Zinc cost of production before royalty during the quarter was USD 1,264 per metric tonne, higher by 18% Y-o-Y and 11% sequentially. It was up 23% Y-o-Y and 14% sequentially. The COP has been adversely affected on account of higher coal prices, input commodity inflation, lower domestic coal that the linkage coal from Coal India already partially offset by higher volume, better sulfuric acid realization and improved recovery.
EBITDA for the quarter was a record INR 5,278 crores, up 48% from a year ago primarily on account of higher zinc LME and volumes, and was up 5% sequentially on account of LME and lead and silver volume, while being partly offset by the higher costs. Effective tax rate for the quarter was approximately 33.8%, marginally higher from last quarter on quarter-on-quarter basis.
Consolidated net profit for the quarter was INR 3,092 crores, up from 56% Y-o-Y and 6% sequentially, on account of favourable LME while being partly offset by the rising input commodity prices.
I'm also happy to state on record that last week, the Board had approved an interim dividend of INR 21 per share, which is 1,050% basis face value of INR 2 per share, and amounts to INR 8,873 crores. The recorded for the same is today, which reinforces our commitment to our stated dividend policy as well as superior shareholder returns.
Coming to our cost and CapEx guidance for the fiscal year '23, we keep both our cost and CapEx guidance intact. As I mentioned in the last few quarters, that we are facing an upward pressure on input commodity prices, I would like to reiterate that we will continue to closely monitor the situation this quarter and we'll take all necessary steps to address it.
With this, I open the floor for your questions.
[Operator Instructions] Our first question is from the line of Abhiram Iyer from Deutsche Bank.
So congratulations on a good set of numbers.
My first question was with respect to the hedge, strategy hedging that the company has done. It's mentioned that you've sold forward 21% of expected production for FY '23, including orders sold in Q4 FY '22. So if we look forward from Q2 onwards, could you just let us know how much sales has been hedged and at what price?
So the last quarter -- in last quarter, we hedge 18%. And cumulatively it is 21%, and the 18% was also for the full year '23. And now, only 3% we hedge during the quarter 1. And the total price at which average price was $4,100 per tonne.
So going forward, there is no hedge, right? Because you've completed the entire 21%?
So it will be remained opportunistic, and we will see, wait and work and accordingly take the decision.
Got it, sir. Got it, sir.
And could you also just let us know any update on the government stake sale that's proceeding? Is there any update from the company's perspective or from where this is going? And would you know what essentially might be the outcome here?
[ No. At least wait for us on the fact. ] As you know -- Arun Misra here. As you know, after the Supreme Court decision, it is government internal working has to be completed before they declare the [ taxes ]. And I think the procedures, how this will be done, what would be the trans quantity that will be put out in the market for this investment. All those rules that we worked out, and that is what is our update that we have. Once that is done, I'm sure government will go ahead and do it.
Got it, sir. And just one last question. You mentioned that the project CapEx is around $125 million to $150 million. What will be the sort of total capital expenditure that's incurred? Any kind of -- any other new project or any maintenance CapEx, what will be the total figure?
So maintenance CapEx, there is no change in the guidance which we've given earlier. And with these 2 new projects announced, we still maintain the same guidance for the project CapEx between $125 million to $150 million.
Got it, sir. So -- and what's the maintenance CapEx amount, if I may, request it?
The maintenance CapEx amount remains between $350 million to $400 million.
Our next question is from the line of Amit Dixit from Edelweiss.
Congratulations for a very good set of numbers. I have 2 questions. The first one is on...
Mr. Misra, I'm sorry to interrupt. If you are using a handsfree or speaker mode, switch it to handset and speak?
Yes. Am I audible now?
Yes.
Yes. Congratulations for a good set of numbers. I have a couple of questions. The first one is on the coal cost and the forcing mix during this quarter. If you could throw light on the mix of coals linkage which is [indiscernible] and all. And how is the cost and sourcing expected to evolve over next quarter? That is the first question.
So Amit, thanks for the question. Coal cost, as you see, our sourcing market are largely Australian and Indonesian, and Australian index, Newcastle has increased significantly. Still, we have been able to hold our cost within the inbound. And the coal index, if you see compare Y-o-Y, it has increased to 250%. And if you see our cost and increase our own Y-o-Y, around 20%.
So we continue to do the various -- I can exclude innovation and operational efficiency to control the cost. And as I say in my opening themes that we continue to maintain the same guidance for the full year, and we will remain the watchful and take all the necessary actions to contain the cost and meet the guidance.
Okay. The second question is essentially on the production guidance. Now, a little bit intrigued on the guidance because you mentioned that you have made some structural changes, and that's why the performance in Q1 was volatile. And we are also expecting Fumer commissioning and followed by -- there would be Rajpura Dariba Mill also coming up.
So aren't we being a little bit conservative about the guidance? Because even price theoretically over coal quarters, it could be a little higher or at the higher end of that you are [indiscernible]. So can this guidance be -- help us deliver in FY '22?
So Amit, let me explain. Last year, we crossed 1 million tonnes in metal mined, metal production, whereas on the finished goods, we are still about 970,000 tonnes. So that means that we lost the race for us somewhere in the first quarter itself. And normally, what happens this past quarter is generally subdued, marked by more of shutdown and maintenance and things like that. Those are the structural changes in maintenance practice I was referring to.
When we see this time, first quarter is almost at par with quarter 4. If you recall your last -- last year first quarter call, always we would hear how come sequentially, we are down on production. This time, sequentially, we have saved the production, which is at the quarter 4, which is highest ever. That gives us confidence that last year, we did mined metal more than 1 million tonnes, but finished goods, less than 1 million tonnes. This is a year where our finished goods will also cross 1 million tonne mark. So that's why we are hopeful on the -- we are absolutely clear that the guidance given, we will live up to it.
Okay. All the best.
We take a next question from the line of Vishal Chandak from Motilal Oswal Financial Services.
So my first question was with regard to your production with projects. So what is the due date for the Fertilizer plant and the Roaster?
So Fertilizer plant and Roaster, both have been approved today. So from date of placement of product, anywhere between 18 to 24 months. So since we are sitting in 2022 in first quarter end, I would expect anywhere in 2024, quarter 2 or early quarter 3. This would be brought in line operation.
And for the Roaster?
Both same time.
Both, okay. And are you still sufficient on the captive power for the expansion beyond 1.2 million tonnes or beyond 1.2 million tonnes, you'd be looking at some power expansion also? Because I understand till 1.2 million tonnes, we would be captive for the power plant.
So we currently have about more than 500 megawatts of internal captive power plant. And as you know, on the ESG front, we are tying up with renewable power of about 200 megawatts which should come in line from 2024. So if that comes in line 200 megawatts of our captive power, it is surplus and available with us.
So I don't see any crate of not having captive power going forward. In fact, even after 2024, we will increase the renewable power from 200 megawatts to 450 or 500 megawatts. So power is no challenge as far as our expenses are concerned.
Just a follow-up on this power cost. The power you mentioned on the renewable side, what would be the expected power cost over year compared to our existing power?
As of now, it is cheaper than our own thermal coal-based production power. Best part of it is it will be unchanged over 25 years' time.
So there's a long-term PPA that we are looking at?
Long-term PPA, correct. Correct.
Without any escalation, or that would be with some escalations?
Without any escalation as of now.
So could you please help us with the power cost number in this case, sir?
Power cost number?
On the renewable front, what would be the power cost going forward?
As of now, unless the commercial agreements are final, it will not be proper for me to go public to those numbers.
No, I understand. Sure.
Our next question is from the line of Anuj Singla from Bank of America.
Sir, a couple of questions. Firstly, on the Fertilizer plant and the Roaster, can you quantify what total CapEx we will be incurring and over what time period?
So CapEx, if we see overall between Fertilizer and Roaster together, anywhere between INR 2,000 crores to INR 2,200 crores, somewhere in between. We should be able to manage.
Like I say, it's 18 to 24 months, so this will be this year primarily FY '23 and maybe first half of FY '24, right?
So right now, we have got approval now. In the next 6 months, we'll be designed negotiation, all that will happen. Maybe cash payouts will start from quarter 4 of this financial year and then go through the entire financial year or next financial year.
Okay. Got it. Okay. And sir, secondly, on the coal side, can you quantify what kind of materialization of the coal linkage we had in this quarter? And a follow-up to that is we are calling out for a significant decline in production -- in the cost of production in the second half. Given that the global coal prices are still very sticky, what are the key drivers there?
Anuj, Sandeep here. Thanks for asking the question. For the coal linkage, coal materialization, this quarter has been a bit better than quarter 4. With the quarter 4, it was around 3%. In this quarter, we have got around 8% linkage coal convention. So situation seems to be improving. We have almost 1 million tonne backlog on allocated coal. However, this metallization had to happen. And we also have a trend file for 0.7 million tonnes FX we already signed up with the Coal India.
So almost -- it gives the confidence that upgrading this monsoon season, they should improve the production and supply to us in the H2. You are very much right. It should have a significant reduction in the cost on account of the linkage coal materialization.
So just to clarify, sir, the guidance we have given, that includes an improved materialization of linkage from Coal India for this -- for us to achieve this guidance. Is that the right understanding?
Of course.
Okay. Okay. Got it, sir. And lastly, sir, in terms of the hedging we have done, so 21% is for the full year. And I think it's not uniform all across quarters. Can you probably handhold us in what kind of this is already consumed in 1Q? And what is the pending for the next 9 months? And how should we be looking at the quarters per se?
So Anuj, it is front-ended. So from the hedging point of view, out of this 21%, around 10%, 11% has already been consumed and the remaining will be in the next quarter.
Okay. Got it. Very clear.
Our next question is from the line of Kirtan Mehta from BOB Capital Markets.
Am I audible?
Yes, absolutely.
Yes. On the -- just going back to the Fertilizer and Roaster plant, would you indicate sort of the capacities that you are finally planning? What would be sort of the cost advantage that you have with the in-house sulfuric acid. What kind of return you are targeting?
So on the Fertilizer side, we are picking the first phase of 5 lakh tonnes. And although we are blueprinted on 1 million tonne capacity, but we will be putting up 5 lakh tonnes to begin with because we will have a new entry, set up the new business, and it's a different business altogether.
Also, we would execute this project through a subsidiary, so that right focus is there on this kind of a business with the right set of people and the organization, the selling fertilizer is a different ballgame altogether. So that organization would have a different culture than metal culture that we have with Hindustan Zinc.
If we look at project cost wise, as I have said, between the 2 projects, anywhere between [ $2,000 to $2,200 ] kind of growth kind of a number. And if we look at fertilizer separately, anywhere between [ $1,300 to $1,400 ] kind of a number, we will finally arrive at for spending in that fertilizer project over 24 months.
Return on investment. If we look at it, it does qualify for our capital allocation policy, and we have just got the approval. We are still -- we'll work on the CapEx. And this strategically, most important for us because we are -- as we cost -- we have cost 1 million tonnes. As we start making 1.2 million tonnes SG where so much of assets from the roaster. We are putting up one more roaster. So all that asset and continuing to run the business under the pressure of asset demarcation does not leave us much of a headroom to get the best value for the asset that we produce. Although right now, we do have a better value than years before.
But going forward, to ensure that the best value that we get and to keep the operations sustainable is to convert it into a usable product like fertilizer which will be consumed mostly between the regions of Rajasthan, UP, Western MP and Haryana where most of the fertilizers of BAP today are imported and are not met locally. And we will -- this will be also a first land-based fertilizer plant producing BAP with local rock phosphate of Rajasthan and selling the fertilizer to this zone. Also gives us a good branding for better views of hazardous chemical that gets produced as a part of roaster process, which is sulfuric acid.
One more cost question, if I may. In terms of the current cost of production, it's higher than 11 -- guidance of the $1,125 to $1,175. So to come back to the annual run rate, what are the drivers that you are advertising which will help you come sort of near to your annual guidance?
So it is -- I would rather say it is not one driver. You have to work across the entire value chain that causes costs. So there are operational efficiencies in mining, so that means how to reduce equipment cost, how to increase productivity, how to increase utilization of machines, how to rationalize the deployment of machines in the underground. So we have got this internal team which is working day in day out with the operating teams to find out to generate more and more ideas to cut.
On the mining side, I would look at one grade control that produced to the desired grade with lead dilution to maximize recovery. We have already implemented automated process control in Agucha Mill. We are under the -- currently under implementation in Zawar Mill and SK Mill. So on the mills, we'll have automated digital process control. We intend to add improved recovery by 1.5% to 2% through the processes that would cut costs.
And of course, in the melting, major costs being coal, the idea would be that how do we optimize between various price values of coal that we buy currently. We do have some high-cost coal position on the coal that we buy going forward. We have already started consuming biomass as a replacement of coal as a fuel, and we have increased the percentage from 3% to currently about 5%, and we want to increase it to 10%. So we increased the biomass portion which gives us a cost advantage.
And also, we would -- we are looking at the initiatives, which are power consuming initiatives but we implemented because of high ambient temperature in the summer month, would not be needed going forward. So things like chiller for underground mine, additional ventilation capacities we had to commission. So things like that would be on our positive side and would reduce the power consumption in the mines going forward.
Can I take the opportunity to ask one more question, particularly on the value added projects? You have launched [ 130 ] value addition project. Apart from this, which are the ones on the planning mode that could -- we could see sort of getting finalized over the next couple of years?
You are talking about value-added products?
Yes.
Okay. So traditionally, we have been selling value-added products within varying percentages over the years. The change we have brought in now that we are highly focused on, first, creating our operational capability to produce the value-added product of the right quality sustainably over a long run. So if you look at the current number of SHG [indiscernible] which we have started producing by investing in the production process by putting up new transformer and new handling facilities so that the chemistry is intact and repeatable across all production numbers. About 1,000 tonnes per month, we have achieved the capacity, and we have already started selling that.
So roughly about 15% of our product as today is value-added products, including jumbo, CGG and SHG. Our plan is to take this number to about 20% to 25% value-added product. We have already opened a subsidiary company, which specializes in producing value-added products in the [indiscernible] product. And that company is currently under the manufacturing facilities under construction. Once that company comes in line, we will have more value-added products. Goal is to go from 15% to about 20%, 25% so that we are known in the market not only from good quality SHG, also for good quality [indiscernible] products, which allows us to get better premiums in the domestic market.
And could you also quantify the premium that you are currently earning on this 15% value-added product? And how much could it expand when you actually reach it to 20%, 25% after completion of project?
And also in terms of the -- sort of net of operating costs, how much EBITDA could it add? For Sandeep.
So in my view, I think as Mr. Misra has said, we have to look at how do we see the more value addition into this so that we are immune to the LME. So I think that is more visible from the point of the value addition of the product.
And secondly, we will be -- this value addition product, it will also reduce our SHG export. So you can compare the duty factor, whatever we get on the value-added products, that will be a direct benefit to Hindustan Zinc.
[Operator Instructions] We will take a next question from the line of Rahul Jain from Systematix.
Sir, on the Gujarat smelter, you have any update.
And also secondly, we are seeing a very sharp surge in TCRC prices across the world, especially in Europe. And so what kind of opportunity do you think we can tap on to this?
So currently, if you ask me, we are -- unless the Gujarat smelter, public hearing and things happen, so we are not very active on that front. We are concentrating on increasing our production from the current assets and first coal remaining that we cross 1 million tonne mark in HG this year. Whenever that opportunity arises in Gujarat in the Surat smelter with the public hearing happening, then we'll redesign and rethink that project based on the current realities of that day.
And sir, on the situation that we have seen with TCRC premiums rising, what is your take on that? How would you -- is there any way we can capitalize on that?
We have -- therefore, I said that whenever we think of restarting that project, it will be based on the current realities of that day because it will be a stand-alone smelter. So TCRC will be an important aspect of that. As I said, we -- our case is concerned, current operations, it doesn't apply to us. So how we are integrated producers, so we are not affected much by the TCRC movements.
We will take the next question from the line of Pallav Agarwal from Antique Stock.
Sir, I had a question on where the inventory is declining so sharply? Why are you still seeing a very sharp fall in zinc prices? And at what level do you see some support from the global cost curve? So in the case of aluminium, we've probably seen more stable pricing of late because the cost of production is now pretty close to the marginal cost smelters. So what level of zinc prices do you think we'll start seeing some support from a global cost growth?
So if I -- I have been saying this for long that for us, and for almost on smelter, very stable operations can be achieved anyone -- anywhere between $3,000 to $3,200 per tonne of price of LME of zinc.
If I have to put a red line somewhere around $2,200 to $2,300 would be a red line when all of us will be in trouble as far as continuing our operation. Other cutbacks help our operations or continue only with the hybrid mining and hybrid operations.
So we are much above those red lines as of now. And we have further worked on our cost that we have currently. And if we are able to cut down our costs to our guidance numbers, we are much better off.
Sure, sir. Also, maybe just help us with the demand in China and the level of exports, so because that's been sort of a concern for the whole metals patch.
So the current world order, all the movement of goods, all the economic growth or lack of it across the geographies for last about 3 to 4 -- 3 years or so post-COVID, and also various certain geopolitical events that have been happening. It's very difficult to predict. Even if China demand started firming up, then again, resurgence of COVID came. Again, the lockdown started. Again, as of now, we are hearing that their zero-COVID policy, they would be relooking at it, and hence, the sudden tightening of on the society that -- what we saw in Shanghai recently for us will not be repeated. But I think those are the speculation, which I would not like to get into.
Actually, the trend was the pressure on gas, global warning has been -- sudden heat waves in Europe, need for air conditioning in Europe in summer. Summers of India, traditionally, summer of India was winter or cold weather in Europe. People would like -- were going for travel. Nowadays that also has become summer in Europe. So all these are very difficult to connect the dots and see what would happen going forward 6 months. But I firmly believe that the post-COVID era world is going through a transition phase. It would settle down in about 6 to -- 6 months to 12 months' time.
Pressure on coal cost will remain in the sense that there would be pressure on coal producers to go out of coal business, coal production because of the pressure on ESG or commitment to net zero. So that supply side shrinkage will keep on adding more cost. So as a smelter operator, we have to move out of coal-based power and go to renewable power. That would be the strategic solution to control the input cost.
If I look at demand side, we are not dependent on the demand of China. However, the LME prices do fluctuate based on the stock level and the demand in China. We -- our export market of Southeast Asia has a robust demand as of now. Going forward, very difficult to predict. But as far as all the reports that we read, it is fair to expect 1% to 1.5% growth across the globe as far as zinc demand is concerned, which may be slightly subdued compared to 2.5% that we had -- that was predicted sometime back.
And next question is from the line of Shreyans Daga from Barclays.
Congrats on a good set of numbers. My question is on the cash and investment side. So the company has reported INR 242 billion of...
We're not able to make out anything what you are saying. Can you -- I think you are not close to the mic or you are using some other device?
Sorry, am I audible now?
Now yes, yes.
Sorry. So the Hindustan Zinc has reported INR 242 billion of investments and cash equivalents as of June '22. So could you give us some breakdown as to how much is liquid cash and how much is on debt instruments?
So Shreyans, I think if you break up -- I think the price was quite sensitive. What I can say, we continue to invest in the high-quality debt instruments, and that has been our philosophy. And it is a mix of both liquid and the long-term instruments.
Okay, sir. And after the dividend announcement, that figure would be around INR 88 billion down, right?
Yes. So as of now, after the dividend, it's around INR 15,000 crores.
Our next question is from the line of Pinakin Parekh from JPMorgan.
Maybe this question was answered earlier, but I just would like to understand the hedging strategy. So at what zinc price would the company be opened to start hedging again. Because as you mentioned, most of the hedges would get consumed in the next quarter?
So Pinakin, thanks for the question. I think it is a quite dynamic situation. It will also depend upon what cost levers we are. So to say, $1,000 of the cost level, somebody maybe looked at it for $3,500. And the $1,300, maybe somebody would be liquidity of $4,000. So we'll have to continue to wait and watch. There cannot be anything at this point of time. I think we can indicate that is the price level, but it will be a dynamic situation.
So it's fair to say that you won't be hedging at $3,000 zinc price.
What I can say that we will continue to wait and watch $3,000 or $3,500. We'll have to see how the market dynamics going on and what the reports suggest and how the LME inventories and other situations are there.
Our next question is from the line of Vishal Chandak from Motilal Oswal Financial Services.
My question was again with respect to your guidance and cost of production. You've mentioned that you would like to continue with the guidance that you have given in the last year of $1,125 to $1,175 per tonne, while Q1 cost came at $1,264 per tonne. If I do a simple math, what we are implying is for the rest of the 9 months, our cost of production would be about 14% to 15% lower versus what Q1 is, and you also mentioned that the coal prices are still not trading downwards.
So if you could just help me reconcile, how are we planning to achieve a 15% reduction in cost when coal prices do not seem to be moving down any time soon? Are we expecting a significant addition from FSA coal, or is there something else that you have missed out?
So what I will say on the cost part, I would refrain from shooting in the dark and take any coal today as if we put them to wait it out until the next quarter for the LME cost to play out.
Yes, you are right. Despite the -- if you see, I give in terms of data point. During the Y-o-Y, the cost has increased of the power coal has increased by almost 200% wherein our total cost increase by 20% and power component, you've seen a jumped from 26%. This is despite the lower linkage in domestic coal already. And as I said earlier, there has been improvement in the linkage coal supply and we have been meeting the Coal India and various coal subsidiary companies to expedite the materialization. And then the negative number for Q4 today, we are at 7%, 8% linkage. And given the backlog from the Coal India was 1 million tonne. And transfer assets is [ 17% ] as I stated earlier, it's yet to start for us, sir.
We hope because it's a transferrable auction, materialization has already started for the coal companies which are near by the coal mines. But for the far away mines, far away factories like us, it is yet to start. We hope this to benefit us in the coming quarters of the year.
So overall, if I keep these all factors into consideration, I will choose to remain optimistic on the cost front. Some of the internal factors, which will help us to, as Mr. Misra already said in detail, power [indiscernible] in keeping tax control on the cost to all levers or if we started reduction in admin fixed costs, increasing the use of alternate fuel oil, sourcing of the low-cost parcel of coal. Apart from the operational efficiency, will actually help us to the -- in the cost reduction.
Sir, just to add on to this, are we also sourcing some thermal coal from Russia to bring down our costs?
So the -- our major source of the coal is coming from the Indonesia and Australia.
Our next question is from the line of Amit Dixit from Edelweiss.
I have 2 data keeping questions. The first one is on grade of material. What was the grade in this quarter? And the second question is on capital mine development and revenue in mine development capital.
This quarter, grade of the metals was around 7%, 6.91%.
And capital mine development was 14 kilometer.
And revenue one?
Revenue was almost equal to 14 kilometers. So there's a 50%, 50% we're seeing.
Okay. So that's great.
We'll take our last question from the line of Ashish Kejriwal from Centrum Broking.
So this is on sulfuric acid. Is it possible to share what was the realization in sulfuric acid this quarter? And how it has been panning out for last 2 or 3 quarters and outlook add?
The sulfuric acid, our mode of sales have been -- happened from few long-term customer agreements, mostly through auction. And whatever is the bid realized in, I can give you a trend that our realization through auction this quarter has been better. But let's see. We are seeing a cooling off in the sulfuric acid prices as well, so that sometimes restricted that.
Sir, is it possible to share what the average realization for this quarter?
Since this is not my primary product, so I'm not -- I would not -- I would rather not say what was the exact numbers. But I can give you a trend that realizing this quarter has been better than first quarter, and that has helped us to negate part of the rise in costs because of input commodities.
Okay. Fair enough. Secondly, we were contemplating to acquire zinc assets in overseas market. So any update on the scene?
No. So it remains in our strategic map. And whenever the situation matures and we do get all regulatory approvals that is required, we will come back to it.
So sir, what kind of situation -- if you can elaborate what kind of situation, we required to get into it? Or what kind of regulatory approvals are required?
So we had discussed in last -- we had discussed in few last calls that among the target is also our own group Zinc International, which is in South Africa. So whether that makes the best sense for us to acquire and use the zinc to grow in that region, but that would require permission from government and all that. So once that happens, then we will come to it and we can discuss.
Sure, sir. Sure. All the best.
Thank you.
I would now like to hand the conference back to Ms. Shweta Arora for closing comments. Over to you, ma'am.
Thank you all for joining us on the call today.
Before we close today's call, I'm happy to share that we are progressing well on our journey of enacting global best reporting practices and holistic disclosures. And towards this end, I wanted to update you all that we had published a third integrated annual report for the financial year '21, '22. From this year, we've also voluntarily embarked on reporting a total Business Responsibility and Sustainability Reporting, BRSR framework that was launched by SEBI in May 2021. We look forward to your relevant feedback on the report. And also, this tax transparency report is now available on our website.
So with this, I would close today's call. For any follow-up questions or clarifications, please feel free to reach out to the Investor Relations team. Thank you.
Thank you. Ladies and gentlemen, on behalf of Hindustan Zinc Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.