Hindustan Zinc Ltd
NSE:HINDZINC
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Hindustan Zinc Ltd
Earnings Call Analysis
Q1-2025 Analysis
Hindustan Zinc Ltd
Hindustan Zinc began the fiscal year 2025 on a robust note, reporting an impressive 12% year-over-year increase in total revenue for operations, reaching INR 8,130 crores. This growth was attributed to better metal volumes and prices, bolstered further by a stronger US dollar. Despite the decline in silver volumes, the company's strategic focus maintained a positive revenue trajectory【6:0†source】.
The company underscored its commitment to cost leadership by achieving a zinc cost of production at USD 1,107 per tonne in Q1 FY 2025, marking a 7% year-over-year reduction. This was made possible through softened coal prices, better linkage coal availability, and the initiation of renewable energy (RE) power from the Serentica Group. These efforts not only reduced production costs but also led to an impressive EBITDA increase of 17% year-over-year to INR 3,946 crores, and a net profit (PAT) increase of 19% year-over-year to INR 2,345 crores【6:0†source】.
Hindustan Zinc celebrated its highest recorded first-quarter mined and refined metal production, achieving 263,000 tonnes and 262,000 tonnes respectively. Although there was a 7% year-over-year decline in saleable silver production due to work-in-process accumulation, the company remains committed to its volume guidance for both metals and silver production【6:1†source】.
Sustainability remains a key strategic pillar for Hindustan Zinc. The company launched Asia's first low-carbon green zinc, EcoZen, produced using renewable energy with a carbon footprint significantly lower than the global average. Additionally, the commencement of renewable power supply from Serentica increased the company's renewable energy share to 8.5% of its total power requirement for the quarter【6:3†source】【6:4†source】.
In response to metal market volatility, Hindustan Zinc embarked on a strategic hedging initiative, selling forward 90,000 tonnes of zinc production, or 10% of its annual production, to capitalize on elevated zinc prices. This proactive approach, alongside a dividend payment of INR 4,225 crores, led to the highest shareholder returns among major Indian companies, with a total return per share standing at INR 387【6:0†source】【6:4†source】.
Looking forward, Hindustan Zinc has several projects in the pipeline, including a 160,000 tonnes per annum roaster at Debari, expected to commission by Q4 FY 2025, and a 510,000 tonnes per annum fertilizer plant targeted for Q2 FY 2026. Despite market uncertainties, the company’s management remains optimistic, projecting a 5-7% growth in metal production and a 3-5% growth in silver production for the year【6:1†source】【6:7†source】.
The quarter saw a notable improvement in base and precious metal prices, driven by production cuts in Chinese smelters and geopolitical tensions. This led to a 12% reduction in zinc stocks within LME warehouses. Hindustan Zinc is poised to benefit from these favorable market conditions, with the domestic demand for zinc being fueled by robust public infrastructure projects in India【6:7†source】.
Despite a positive outlook, Hindustan Zinc remains cautious, acknowledging the ongoing geopolitical uncertainties and the slow recovery of the Chinese economy. The management expects these issues to persist until the end of the year but remains hopeful for significant improvements in the global economic environment by Q4【6:12†source】【6:10†source】.
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Ladies and gentlemen, good day, and welcome to Hindustan Zinc First Quarter FY 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Kritika Mehta, Investor Relations. Thank you, and over to you, ma'am.
Thank you, Nirav. A very good afternoon, everyone. I welcome you all to Hindustan Zinc's first quarter FY '25 ending 30th June '24 results briefing. In this call, we will refer to Q1 FY '25 investor presentation available on our company's website. Some of the information on this call may be forward-looking in nature and is covered by the safe harbor language on second slide of the said presentation.
Today on the call, we have with us our CEO, Mr. Arun Misra; and our CFO, Mr. Sandeep Modi. Mr. Misra will begin with an update on business performance, while Mr. Modi will walk you through the financial performance, after which we will open the floor for questions.
I now request Mr. Misra to begin today's call. Over to you, sir.
Thank you, Kritika. A very good afternoon to all of you. Thank you for joining us today for the first quarter of FY '25 results briefing.
At the outset, I deeply regret to inform you all that despite all the efforts and constant emphasis on safety as our key priority, we had an extremely unfortunate incident in our Rampura Agucha underground mine on 29th May, 2024, where we witnessed a man-machine interaction as a pedestrian was fatally injured by a passing underground vehicle.
I would like to offer my deepest condolences to the bereaved family and friends of the deceased, and we stand by them in this hour of distress. An in-depth investigation was carried out to determine the root cause of the accident and design corrective and preventive measures and the learnings were shared across the organization for preventing such undesirable incidents and promote a safe working environment for everyone.
It gives me immense pleasure to inform you that Hindustan Zinc has been trained -- Hindustan Zinc has trained India's second all-women underground mine rescue team following the remarkable success of the first batch. We constantly strive to set benchmarks in people practices through game-changing initiatives and policies as a result of which the company has won prestigious PeopleFirst HR Excellence Awards in the categories of Leading Practices in Employee Management (sic) [ Leading Practices in Employee Engagement ], Leading Practices in Talent Acquisition and Leading Practices in Technology Deployment in HR.
Coming to an update on the sustainability front, I'm happy to announce that Hindustan Zinc has preponed the commencement of renewable power supply from Serentica to May 2024 with around 8.5% of our overall power requirement being catered through renewable energy during the quarter.
We have marked a significant milestone in the metal and mining industry by launching Asia's first low-carbon green zinc, EcoZen, expanding our zinc product portfolio, which is currently one of the largest in the world. Produced using renewable energy, it boasts of a carbon footprint of less than 1 tonne of carbon equivalent per tonne of zinc produced, almost 75% lower than the global average. This new offering enables the steel producers to avoid a total carbon emission of about 400 kgs of CO2 equivalent per tonne of steel, providing an unmatched competitive advantage to them with a more sustainable choice.
The quarter was also characterized by a few key strategic partnerships done to sustain our global sustainability leadership. We have signed an MOU with VEXL Environ Projects Limited for establishing a pilot plant for producing saleable products from our waste streams, embracing environmental responsibility through circular economy.
Another key partnership is done with US-based AEsir Technologies as a preferred supplier of zinc for their nickel zinc batteries, which has a potential to revolutionize energy storage due to their cost effectiveness and environment friendliness with much scope to grow owing to their merits over conventional lithium ion batteries.
Furthering our commitment towards the environment, we have set a new standard in the Indian metals and mining industry by launching the first-ever Taskforce on Nature-related Financial Disclosures or TNFD report covering the key dependencies, impacts, risks and opportunities in nature.
As an update on our corporate social responsibility, it gives me immense satisfaction to see remarkable outcomes from our CSR activities spanning across the verticals of women empowerment, education, sustainable livelihood, health and water, environment and safety, sports and community assets creation. A quick snapshot of a few key CSR initiatives taken during the quarter is provided on Slide 14 for your reference.
Moving on to the market update. The quarter has seen a stark improvement in base metal and precious metal prices whose momentum sustained throughout the quarter. The global economies have shown a modest recovery following the pickup in manufacturing activity globally as reflected through the global manufacturing PMI, which has recorded 50.9 in May 2024, its highest since June 2022.
During the quarter, the global zinc prices closely traced the copper trend. With production cuts across Chinese smelters due to tight concentrate market, the geopolitical tensions near Middle East, the zinc stocks in the LME warehouses dropped by 12% during the quarter, thereby increasing the prices to as high as $3,093 per tonne. India being the fastest-growing economy among the major economies, continues to drive healthy zinc demand through robust public expenditure towards infrastructure projects.
Touching briefly on lead. The quarter started with a neutral sentiment and ended at a higher level with an 18% reduction in LME stocks. The domestic demand for primary lead dropped by 10%, in line with the automobile sales. However, India's share in global lead demand is expected to increase from 9.2% in 2023 to 9.9% in 2026 on account of increasing digital transactions and growing data centers.
Coming to silver, the prices rallied along with the gold prices, with an average of $29 per troy ounce, even touching the highest of $32.01 per troy ounce. With the Indian industrial sector shifting towards renewable energy and EVs, et cetera, the domestic silver demand is expected to expand beyond jewelry and physical investments.
Giving an update on the operational performance. I'm pleased to inform you that Hindustan Zinc has recorded its highest ever first quarter mined and refined metal production at 263,000 tonnes and 262,000 tonnes, respectively. The saleable silver production dropped by 7% year-on-year on account of WIP accumulation in the normal course of the business as company moved to lead mode for pyro operation from June 2024.
However, this WIP will be liquidated in the subsequent periods, advancing us towards the commitment to deliver on the volume guidance for metal and silver and would like to keep it unchanged. I'm proud of my team who delivered very significant cost reduction of 7% over last year to help the company register a massive growth in net profit by 19% over last year on the back of a growth in total income by 12%.
Coming to the projects update, the 160,000 tonne per annum roaster at Debari and 510,000 tonne per annum fertilizer plant are on track with their commissions being targeted by quarter 4 of FY '25 and quarter 2 of FY '26, respectively. Bamnia Kalan mine received the consent to operate in the last quarter, post which site work has started and is currently in progress.
The company has also appointed strategic partners for conceptual design of a growth plan towards 2 million tonne per annum metal for which the studies are under progress. With the rest of the commissioned projects ramping up, we have marked a great start of the year and would like to build on this momentum going ahead to finish the year with 5% to 7% growth in metal production and 3% to 5% growth in silver production over last year.
With this, I hand over the call to Sandeep for an update on the financial performance.
Thank you, Mr. Misra, and a very good afternoon, everyone. As Mr. Misra said, this has indeed been a great start for the year with numerous accomplishments achieved on the sustainability front. Apart from our first TNFD report, we have also published our fifth edition of the Integrated Annual Report for FY '24, giving a peek into the key highlights across the length and breadth of our business in the last year, along with our Tax Transparency Report, which are available on our website.
We have also set a benchmark in reporting by launching India's first AI-based Digital Annual Report for FY '24, which leverages generative AI in the form of your very own Zincky, a generative AI chatbot which seamlessly and accurately answer any question based on Integrated Annual Report. On this note, I humbly request everyone to join us in our sustainability journey by utilizing Zincky and opting the digital copies of the report over paper printouts.
Briefing you on our financial performance, the total revenue for operations during the quarter stood at INR 8,130 crores, up 12% Y-o-Y on account of better metal volume and prices. Further supported by a stronger dollar and partly offset by lower silver volume, it's up 8% quarter-on-quarter. In our pursuit towards sustenance of our global cost leadership, we have achieved an entry cost of production of USD 107 (sic) [ USD 1,107 ] per tonne in Q1 '25, indicative progressing towards recording a fourth year lowest cost.
The Q1 zinc cost of production was down 7% Y-o-Y, as Mr. Misra said. This is on account of softened coal and input commodity prices, better linkage coal availability and starting of the RE power from our Serentica Group captive arm and better metal grades. It's 5% up quarter-on-quarter, in line with the volume and grade.
The resulting EBITDA for the quarter was INR 3,946 crores, up 17% Y-o-Y. The consolidated PAT stood at INR 2,345 crores, up 19% Y-o-Y. The effective tax rate for the quarter stood at 25%.
I would like to highlight that this quarter's revenue, EBITDA and PAT recorded the highest level in the last 5 quarters. Leveraging the favorable LME environment and buoyed up silver prices, we have recorded double-digit Y-o-Y improvement in revenue, EBITDA and PAT, and have expanded our margins from 46% to 49%. With concentrate efforts, we have also expanded our domestic primary zinc market share to 78% from 75% last year.
Further, considering the volatility in the current metal market and inherent necessity to protect the margin, we have embarked on a strategic hedging of zinc to cash in the elevated zinc prices during the quarter. We have sold forward 90 kt of zinc production for the fiscal year, around 10% of our annual production of zinc, demonstrating our agile decision-making and flexibility to harness right opportunities.
During the quarter, the company paid INR 4,225 crores as dividend. As on of the leading companies in our country, our ultimate priority is to maximize the distribution of the value created among the shareholders in a sustainable manner. As a key highlight of the quarter, Hindustan Zinc delivered the highest shareholder returns among the major Indian companies, reinforcing the trust among the investor community.
During the period, the total return per share in form of capital appreciation stood at INR 377. Considering a dividend of INR 10 per share, the shareholder return totaled to INR 387 per share. With a whopping 133% return on the closing price of the previous fiscal year, the company's returns were incomparable with 18x return as compared to NIFTY 50 and 7x return as compared to NIFTY Metal indices.
I would also like to draw your attention to the fact that Hindustan Zinc enjoys an industry-leading EV/EBITDA multiple of 18x in the metal and mining sector. As most of you would already know, we have organized a site visit for around 35-plus analysts and investors in June to showcase our excellence and irreplaceability of our assets and operations.
I'm sure most of you attended it, and I strongly believe that the visit has helped you to assess the true potential of Hindustan Zinc. You are now more confident on our ability to record an EBITDA of $2.7 billion in near term with a 1.2 mtpa of metal, 800 tonne silver and COP of $1,000 in a favorable LME environment and silver prices.
We are constantly striving to push ourselves beyond your expectation by identifying and exploring new opportunities to exploit and challenging ourselves regularly by setting up further targets and achieving them. I hereby let you know that we are confident in achieving our cost guidance and hence, are keeping the cost and CapEx guidance intact.
With this, I conclude my comments, and we'll open the floor for your questions. Thank you.
[Operator Instructions] The first question is from the line of Amit Dixit from ICICI Securities.
Congratulations for a good set of numbers. I have two questions. The first one is essentially on the recent judgment by the Supreme Court in which they have mentioned that the states have got power to levy additional surcharge or cess or whatever. Now in the past, in 2008, I think -- June 2008, to be precise, Rajasthan government had notified a cess, environment and health cess actually. And we have certain contingent liability on the balance sheet, I think, to the extent of INR 142 crores as on March 31, 2024.
Now first of all, what are your thoughts on Rajasthan government going ahead and applying this in a retrospective manner? Although I understand that the Supreme Court has stayed this particular judgment for a while -- reserved rather the judgment for a while. But what are your thoughts around that? How -- do you feel that, taking advantage of this, there could be some other cess or this cess can be applied retrospectively from 2008 or whatever? Just wanted your thoughts on the same.
Requesting Sandeep to address the issue.
Yes. So thanks for your question. While we await the order from -- you're right, Supreme Court has reserved the order, and I also appreciate the -- or your memory and recollection of INR 142 crores environment and health cess, you are right, this remain as a part of the contingent liability.
And of course, one of the argument we had, the royalty is not a tax, but apart from this also, from a legal evaluation point of view, this is one of the arguments which we had in the court. And apart from this, we don't have any liability or any part of the contingent liability, which comes into the picture or impact in the financial materially.
Whatever the cases where there have been already closed or it has many other grounds to argue in the court. Of course, the future or prospective anything Rajasthan government or any state government putting any cess, I think that will depend upon the time, and we will need to be watchful about it.
So actually, this amount has remained constant for a while. Maybe we have recognized this contingent liability when it occurs. And it was, I think, INR 150 per tonne of ore if I'm not mistaken. So potentially, what would be the liability now, let us say, if we were to recalibrate this contingent liability?
I think I would refrain to answer or -- about giving any numbers because we need to wait about the Supreme Court order. At the same time, as I said earlier, one of the argument was royalty is not a tax, and state doesn't have the power. But apart from this, there are many other arguments. So I would not like to quote any number which will create something impact on the financials. As of now, we remain confident that we have strong grounds apart from this as well.
Okay. The second one is on your cost essentially. So if I see the cost of production, first of all, great work on that. We have seen the cost declining quarter-on-quarter. Just wanted to understand since we are getting more power now from Serentica and coal prices are -- e-auction prices are soft, we will get more e-auction prices or linkage from Coal India.
And our cost is like near the level we guided for the full year, I mean, in Q4 results. So wouldn't you be -- why are you refraining from giving a revised, more optimistic cost guidance at this point in time? Whether we expect some kind of escalation in cost going ahead? Or what is that?
I don't think it's -- would like to say that we are being conservative. We have given the guidance as a lower quartile of $1,050 to $1,100. We achieved $1,107. And it is partly on account of the -- you're right, softened coal prices as well as the RE power which started coming from Serentica. So we remain optimistic that and confident to remain -- it's better to remain $1,050 to $1,100. And at the same time, if we deliver $1,050 or below that, I think it will be good to start -- close the year. But we believe that we remain between $1,050 to $1,100 and most likely the lower quartile of this range.
Next question is from the line of Ashish Kejriwal from Nuvama Wealth Management.
Sir, again, the same question which Amit asked about, Supreme Court judgment. You are -- what you are trying to say is that because Supreme Court has already said that royalty is not a tax, so there is no question on that reverting back. Only thing is whether it's prospective or retrospective. So you mean to say that even if it is retrospective, then also we have certain grounds to get negotiation with Rajasthan government, and we don't need to pay that amount?
No, no, I have not said about the negotiation. I said the cases were in the court, and we have multiple grounds because in any case, when you go to any court, you know there are various grounds. And one of the ground which was there, even the Supreme Court upheld that ground, we have many other grounds to protect ourselves.
Okay. So in case -- in the worst case, this will be -- suppose in the worst case, INR 150 per tonne of ore produced, whatever we have produced, that could be there in case if -- it's in the worst case, which I'm trying to look at.
It's an immaterial amount from the point of the Hindustan Zinc's profitability and balance sheet point of view.
Okay. Again, sir, because this INR 142 crores, which was imposed that time, that was on a small amount maybe and -- because it's INR 150 per tonne of ore produced. And over a year, obviously, we have produced more than 1 million tonne ore on a yearly basis. So in case of retrospective and -- so my only point is that even after the Supreme Court judgment, do we have something where we can fight legally with the state government that -- which will not allow us to impose this kind of taxes?
I think we have to look at firstly that we should refrain from the Supreme Court judgment until it is out. And I think we have been in touch with the various lawyers and our own peers. It is -- what we understand Supreme Court is going to take a balanced view because we have in the Board government nominee directors as well.
So yes, you have to appreciate that we have not only mining companies, there are larger mining companies, including government entities, which are also likely to be affected, had there been a -- if the judgment was to be affected on a retrospective effect and the numbers would be much, much larger compared to -- the number that we can't even think of. So our information is expected that the judgment, whatever comes, would be more balanced and not to cause complete stoppage of industries across India.
Understood. So on this only, if it's prospective, then also because INR 150 per tonne, they are imposing it right now also. So going forward also, maybe they can continue with that. Is that a right assessment?
Going forward, they can levy anything. It is not in your or my control. I think we have to be watchful, but at the same time, as Mr. Misra said, industry also has to be a competing industry. So I'm sure government or anybody -- the state which wants industry to be in their state, they will take a balanced view.
I understand, sir. But only thing is 2014 we have seen what happened when Supreme Court deallocated all the coal blocks and put cess on that. But anyway, that's okay. Sir, second question is, is it possible to give us a cash and debt balance as of first quarter end? I think we missed it in this press release this time.
Yes, so we have cash of INR 10,885 crores and around INR 11,200 crores is the debt.
Okay. And sir, lastly, we hedged 90,000 tonnes for this quarter -- for this year. And what will be the average in price at which we have hedged this?
So we hedged at $2,906 and already 5,500 got unwinded in the month of June. So the open position as at June end, the price is $2,910.
Okay. And this is for 85,000 tonnes?
Yes, yes, absolutely.
Next question is from the line of Kiran Mehta (sic) [ Kirtan Mehta ] from BOB Capital Markets.
In terms of your projects, I had a couple of questions. Am I audible?
Yes, yes, you are. Please go ahead.
So roaster in Debari which we are targeting to sort of start during Q4 FY '25, how long would it take to ramp up to the full production rate of 160 kt? And how would its contribution to EBITDA will develop over the period?
So we are looking to prepone the commissioning from Q4 to maybe end of Q3. That is the target so that at least we get 1 quarter of additional production from that. And as per our calculation, that roaster is likely to add another 45 kilo tonnes per annum of zinc production. If I get 1 quarter, that comes to 15 kt, right?
Right. And what would be the additional cost of roaster operation?
No, no, this is also like any other roaster. So the cost structure doesn't change. Additional 15 kt that will come, that will come as a standard cost of production like any other -- the other -- rest of the production today, we are reporting say, 1,170 or so, it will remain in that only.
Just to supplement Mr. Misra, the 15 kt, the metal which he's talking is only the part of FY '25. Overall, full year basis, it has a capacity of 160 ktpa. Of course, we have a sellout, which is a bit bottleneck, so it will be keep on like it's a cat and mouse story. So when we develop the 160 ktpa, we will debottleneck selloffs, we've already given the order to L&T for 22 kt selloff debottlenecking towards to achieve the 1.2 million tonne of the metal.
At the same time, this roaster is having the best of the technology, which will replace the roaster of the -- old roaster of the Debari. So that will be actually a cost efficiency point of view also, beneficial. And that's how we plan our $1,000 cost because this has the benefit of the -- having the best of the technology, new roaster.
Understood, sir. And this 45 kt zinc production can be delivered in FY '26, basically the additional, will we be able to ramp up to that rate?
That is the minimum.
Right, sir. Second was about the fertilizer plant that we are targeting by Q2 FY '26. How does it sort of placed on the global cost curve with our technology?
That number as of now, we are looking at cost wise -- see, being the sulfuric acid, we'll be evaluating at a market price only. It will be much cheaper compared to the imported DAP that we import from the rest of the world. And it would have a good enough profit margin. It is payback on the project on an equity basis of about 17%, 18%, so which is a good payback to have -- a good IRR to have on the project.
I think just to supplement Mr. Misra, I think we have two [Audio Gap] so we have better advantage. One is the asset, and second is the rock fossil which is within the Rajasthan. I think we have two competitive advantage compared to other competitors.
Sure, sir. And in terms of -- you also mentioned about the appointment of the global consultant for 2 million tonne run rate development of mine. So what would be the timelines? And when would we know about the potential solutions?
The mining consultants are already on ground and working. The plant's consultant, which is another global consultant for smelter and mills, so they would be reaching Udaipur maybe this week itself, and they'll start working on the ground.
We are expecting by end of August or maybe middle of September, we'll get the pre-feasibility report, which would tell us that with our ambition of 2 million tonnes, how much would be the reality and what would be the basic needs for achieving that. And then we'll go to Board and take sanction for that.
Next question is from the line of Raashi from Citigroup.
Just a quick question. Any change in your FY '25 volume target?
FY '25 volume target, as in the given guidance, no, we are holding the guidance as of now.
Okay. And on the linkage coal materialization losses last year, what is the percentage this year? And what was it last year?
This year, we have 45% of the linkage coal consumption. And last year, it was almost half of it. I just want to give the confidence that it's not only we now renamed the linkage coal, we have revamped our coal-based power plant at two units to consume 100% of domestic coal.
So when I say domestic coal, Coal India coal, and not only the linkage coal, we are participating in the various e-auctions, which comes for the CPP and that also we are participating. That's how we are reaching the 45% overall domestic coal and reducing our dependency on the import coal.
The ultimate objective remains to reduce the power cost in a manner where we produce the power towards the getting $1,000 cost. And that's how the RE power is helpful in the whole year basis, whereas Serentica power will be 8% in the total power bucket, 5% already we have our own solar and WHRB and import will be 50%, remaining will be domestic.
So just to be clear, 45% is domestic coal, not linkage, as in it's linkage plus e-auction, right?
Absolutely.
And you're targeting -- in percentage terms, maybe in a year's time, how much should we expect this to be, the percentage?
So FY '25, our focus is to reduce the import, improve the linkage and get the -- over 13% is the RE power. So you can assume 13% is RE power, remaining 50-50 linkage and domestic.
13% you said is RE power, right, versus 8.5%?
13% is RE power and remaining 87%, you can divide by 2, which will be 42%, 42% around will be domestic and import.
Yes. So 13% compares to 8.5% currently?
Yes.
Yes.
Next question is from the line of Shweta Dikshit from Systematix Group.
Could you give us more details on...
Shweta, sorry to interrupt you. Can you speak a little louder, please?
Is it better now?
Yes.
Yes, please go ahead.
Sir, could you provide more details on Bamnia Kalan mines commencing operations? And what is the expected outlook in terms of volumes from there? And when can that potentially come on stream?
So Bamnia Kalan mines roughly will have a potential of about 5 million tonnes of ore. Upgrade will be similar to what RD mine, Rajpura Dariba mine has, and it also switches between, say, anywhere between, I think 4.5% to 5.5%. This mine, we have just started the ground clearance. We have got the CTO, we have got permission to start the infrastructure activities.
Typically, development of decline will take around maybe 1.5 years or so. And then we will -- first time we'll hit the ore body, which is about 2 years from now on, which is we have set stages, in 2024, somewhere around 2026 August or September, we might see the first mineral coming out.
Next question is from the line of Pallav Agarwal from Antique Stockbroking.
So just wanted your views on the recent decline across nonferrous metals. So I think you had a lot of expectation over there on Chinese stimulus but we've not really seen any of that coming through. So do you think your prices should stabilize at these levels because given cost curve or there could be some further fall from here?
So as of now, see, we had that quarter 1 beginning was very nice. It was increasing and then we reached up to $3,000 per tonne. Although towards the end, we had stocks reducing across the world on the metal stock houses that we have, but the prices also started coming down. There was kind of some uncertainty.
Also the expectation of Chinese economy coming back did not happen, the war did not end. Somewhere European slowdown continued. So those uncertainties are still playing on the metal prices. I don't expect the situation to improve drastically any time sooner from between now until about December.
Hope that by November, when the U.S. elections are over and whosoever new government comes, may set right a new global agenda, there might be -- I'm expecting that there'll be a lot of global positiveness as far as infrastructural developments are concerned. And I'm sure by the time Russia-Ukraine war also should have a finality of settlement. If those things happen by December, I'm sure we're going to have a fantastic quarter 4 going forward.
Okay. So you think any of the -- probably some of the rate cuts also can help in the sentiment towards commodity price?
Fed rate cut also has to got to do with U.S.A.'s own compulsions on their inflationary trend. Although there is two opinions on U.S. that inflation is under control or the necessary items of day-to-day living inflations are higher. So that -- typical like us, they are also caught between the two. The only thing remains is the next government if they continue Biden's agenda of infrastructure focus and U.S. economy grows more than 2.5%, Europe comes to around 3%, then in that case the world will be a different place in quarter 4.
Sure, sir. So also, I think we mentioned the $2.7 billion of target EBITDA. And what LME assumptions are we factoring that in?
So we are factoring the consensus of the $2,900 to $3,000, and silver at $30 to $32 per troy ounces.
[Operator Instructions] Next question is from the line of Shivang Chauhan from Barclays.
My first question is on the zinc price guidance. So with the prices that they are now, do we still expect zinc price to reach $3,000 by September, October and $3,200 by year-end like you previously guided? Or is there any change in guidance we can take?
So to clarify, we never give guidance on price. I've never -- but always like anybody else, we also like to be more optimistic about future, right? Anybody in business are always optimistic about future. Only the time for that optimism to come to fruition has shifted from December to maybe January to March, nothing else has changed.
My next would be on the general reserve and to retain earnings conversion. Have you affected the transfer after the approval?
Yes. As you see in our financial reports -- results, we have already affected this thing into our July month because it come after June. So we got the NCLT approval 16th of July, and we have made the scheme effective. We have got all necessary approvals.
Right. So just a follow-up on this, if you could provide any colors on use of these additional balance that you have maybe towards CapEx or...
Yes, I think as we said earlier, this is an enabling proposal. It provides the flexibility to the Board in case they want to reward the shareholders. So -- and it being a Board decision to reward the shareholders in the form of dividend or anything, I will not be able to comment about the use of this proceed, any timeline or something.
[Operator Instructions] Next question is from the line of Vikash Singh from PhillipCapital.
So I just wanted to understand, we are already -- in terms of cost of production, we are already at the higher end of our guidance. And as we see that the second half volumes are usually low. Can we expect the exit rate to be lower than even $1,050 which we are headed? Or we are expecting some other cost inclusions going forward?
While we are absolutely confident on living up to the guidance we have given, but like anybody else, everybody tries to outperform their own commitment, right? So we will surely try that. But as far as guidance is concerned, on which we can develop the model, we can predict the future, we would like to remain committed to the guidance first. Of course, the attempts will be there to bridge the guidance. So we'll see by quarter 3, we will know better. Any requirement of correcting the guidance comes, it will come in quarter 3 only.
Understood, sir. And sir, silver custom duties have been trimmed sharply in the current budget. So how we should look at the silver part in the 2Q going forward? Any inventory adjustment, which could negatively impact us going forward? Or how we should look at the pricing because -- pricing part is it going forward for the silver expectancy?
So silver, if you're talking for the inventory which is lying in our stock, there's no impact because we don't remain any finished good silver in the books at any month. So it's always nil. So we don't have any impact coming to the financials. Of course, the duty has given the impact, which is a 9% impact, that I think in your model you would have already factored.
Understood. So no inventory adjustments would be required.
No, no, we keep [Technical Difficulty].
[Operator Instructions] Next follow-up question is from the line of Kirtan Mehta from BOB Capital Markets.
Just wanted to touch base upon a couple of aspects. One is basically, we are increasing renewable power in our cost mix. So what is the difference with our marginal cost of power purchase between the renewable power and whichever is the highest cost of power for us?
So the marginal delta, I would not be able to quote, it is not a part of standard disclosure quote, but you can assume from the marginal cost of production, it's 30% lesser in terms of price -- cost.
Second thing, we also talked about the developing a low carbon zinc offering, and we are targeting probably the international market for this. So how do we see the global demand for this? And what kind of premium that we can derive for low carbon zinc?
So this product is primarily designed for our customers who are into galvanizing and export that galvanized steel primarily to European market. So there, the pressure is on them to reduce overall CO2 emission per tonne of galvanized zinc landed in Europe. And there, we play a crucial role, and that's where our value will be more appreciated by our customers.
As far as we are concerned, the customer would surely appreciate the value in terms of, were they to reduce 400 grams equivalent of CO2 emission in their production of steel, it would have taken them huge amount of CapEx or even technology import to get that thing done, whereas by just by galvanization, they are able to get a similar reduction in CO2 by using our EcoZen.
So the value is clearly perceived and how much of that value will transfer into premium, that will happen only when we actually bring the product to market and get into discussions with our customers.
How much quantum we will be able to produce in this market?
As of now, it's about 8.5% of our production. Roughly, it would come to about 60,000 tonnes in a year.
So it will be basically proportional to -- our RE power consumption, that would be exactly the sort of the...
Absolutely, absolutely. And it will grow as the RE power percentage grows up, so this number will keep growing.
Sure. Just last one bookkeeping question. What was the mine development run rate during the quarter? And can you indicate between capital and revenue split?
So it was 25-kilometer for the quarter, and you can assume 50%, 50% for both capital and revenue.
[Operator Instructions] As there are no further questions, I will now hand the conference to Ms. Kritika Mehta for closing comments.
Thank you, everyone. With this, we close today's earnings call. For any follow-up questions or clarifications on the results, please feel free to reach out to Investor Relations team. Thank you, everyone.
Thank you very much. On behalf of Hindustan Zinc Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.