Hindustan Zinc Ltd
NSE:HINDZINC
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Hindustan Zinc Ltd
Earnings Call Analysis
Q4-2024 Analysis
Hindustan Zinc Ltd
Hindustan Zinc has had a landmark year with its highest ever metal and silver production, achieving 1,079 kt of mined metal, 1,033 kt of refined metal, and 746 tonnes of silver. These figures represent significant milestones for the company, as Hindustan Zinc now ranks as the third-largest silver producer globally. This was achieved while maintaining a strong environmental, social, and governance (ESG) performance. The company has been recognized with several awards, including the British Safety Council International Safety Awards and ranking first in the S&P Global Corporate Sustainability Assessment.
Despite a challenging market environment with fluctuating zinc prices, Hindustan Zinc showcased financial resilience. The company's revenue from operations for the full year reached approximately INR 29,000 crores, although this marked a 15% decline year-over-year. However, the fourth quarter saw a slight increase in revenue to INR 7,549 crores, up 3% quarter-over-quarter. EBITDA for the year stood at INR 13,677 crores, down 22% year-over-year, while the fourth quarter EBITDA was INR 3,637 crores, a 2% increase quarter-over-quarter. Net profit for the year was INR 7,759 crores, down 26%, but the company maintained a notable industry-leading margin of 47%.
The company has effectively managed costs, reducing the cost of zinc production by 11% to USD 1,117 per tonne for the full year. In the fourth quarter, the production cost further decreased to USD 1,051 per tonne, supported by efficient resource utilization and lower input commodity prices. Looking ahead, Hindustan Zinc has set a guidance for FY '25 with mined metal production expected between 1,100 to 1,125 kt, refined metal production at 1,075 to 1,100 kt, and sellable silver production between 750 to 775 tonnes.
To ensure long-term sustainability, Hindustan Zinc has focused on strategic exploration, increasing its reserves and resources by 35% over the past five years. The total reserves and resources (R&R) now stand at 456.3 million tonnes, ensuring a mine life of over 25 years. The company has also incorporated Hindmetal Exploration Services Private Limited to explore and develop mineral resources further. Major expansion projects include a 150,000 tonnes per annum roaster and a 510,000 tonnes per annum Fertilizer Plant, which are progressing well.
The market outlook for zinc appears optimistic with prices expected to reach around $3,000 per tonne by August or September 2024, potentially rising to $3,200 by December. This outlook is underpinned by a recovery in global manufacturing and higher domestic consumption driven by infrastructure development and the automotive sector. The lead market is also anticipated to expand, aligned with the growing electric vehicle charging infrastructure. Silver prices have rallied, averaging $23.3 per troy ounce in the quarter, driven by increased demand in industrial applications such as electric vehicles and 5G technology.
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Ladies and gentlemen, good day. And welcome to the Hindustan Zinc Fourth Quarter and Full Year FY 2024 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Jhalak Rastogi, Associate Director, Investor Relations. Thank you, and over to you, ma'am.
Thanks, Gaurav. A very good afternoon, everyone. I welcome you all to Hindustan Zinc's Fourth Quarter and Full Year ending 31st March '24 results briefing. In this call, we refer to Q4 FY '24 investor presentation available on our company's website.
Some of the information on this call, maybe forward-looking in nature and is covered by the safe harbor language on the 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 financial performance, after which we'll open the floor for questions.
I now request Mr. Misra to begin today's call. Over to you, sir.
Thank you, Jhalak. A very good evening to one and all. Thank you for joining us for the fourth quarter and full year results briefing. FY '23, '24 has indeed been a year of significant achievements for Hindustan Zinc, characterized by highest ever metal and silver production, sharp reduction in cost and global best performance in ESG. This has been possible due to our efficient utilization of assets, well-planned mining and smelting, talented team and resilience of our organization.
Even amidst the challenging conditions of LNG environment, our company has not only preserved the right, marking another landmark year. On this note, I'm elated to share that Hindustan Zinc, after recording its highest-ever silver production in FY '24, has become the third-largest silver producer globally, making India proud. Here, it is imperative to note that all the accomplishments that I have outlined were made possible by a -- on the foundation of safety excellence. It gives me immense satisfaction to report 6 consecutive quarter of fatality-free operation, demonstrating our steadfast commitment to ensuring the safety and well-being of our employees.
With zero harm as a core tenet of our business and to prevent reoccurrence of similar incidents within the group, we have launched programs like critical risk management and also started to overall infrastructure to ensure continuity of operation without any fatality. Our efforts in safety has been recognized by the British Safety Council International Safety Awards with multiple recognitions.
On sustainability front, we have demonstrated remarkable global ESG leadership by ranking first in the S&P Global Corporate Sustainability Assessment during the year. We have also [indiscernible] B- in water security and climate change by CDP. As a result of decarbonation journey, we are actively integrating LNG and electric vehicles into our operations.
I'm pleased to share that our renewable energy power delivery agreement is also progressing well and has been accelerated with first flow of power expected this month. Furthering on our vision of circular economy, I'm happy to announce that Hindustan Zinc had entered into MOUs with key innovative and technology partners dedicated to transforming waste into valuable resources, thereby driving sustainable growth and innovation.
During the year, we had also commissioned Fumer Plant in Chanderiya for recovery of metal from smelter residue. These developments are contributing to our ongoing efforts to develop our recycling business further. On diversity and inclusion, we launched our flagship initiative ZincIusion during the year. Under this program, we have on-boarded 16 transgenders till date across various key functions while also providing an inclusive workplace through compulsory DE&I awareness sessions for every employee. These efforts were recognized at the prestigious Third National Transgender Awards.
I'm also pleased to share that Hindustan Zinc has been awarded the Leadership in HR Excellence Award by Confederation of Indian Industry at 14th CII National HR Excellence Award. Coming to our CSR activity this year, we have extended our footprint by powering over 3,500 villages with 1.9 million beneficiaries under the initiatives, spanning across areas including, but not limited to women empowerment, sustainable likelihood, skill development, health care and safety, sports, culture, et cetera.
Moving on to markets, inflation persists in the U.S. services sector, while Europe continues to content with weak construction and manufacturing sectors, but with expectations on interest rate cuts by the U.S. trade, coupled with geopolitical tensions between Iran and Israel, commodity prices have surged in April '24 with silver touching its highest in INR terms.
The global manufacturing PMI entered expansion zone in February for the first time since August '22. And India is still the brightest spot among the major economies, which is manufacturing PMI, recording its 16-year high at 59.1 in March 2024. Global steel demand is forecast to grow in FY '25 with India contributing the most with projected growth of 8.2%.
The quarter, zinc prices fell to an average of $2,450 per tonne. Despite multiple suspensions and closures during the year, zinc prices have plunged by 25% year-on-year. Total zinc stocks rose to 386,000 tonnes at the end of March '24 as compared to 243,000 tonnes at the end of December '23, on account of subdued demand. However, in April, due to the rebound in global manufacturing activity, there has been a push in prices of all commodities and zinc prices have been on the rise due to supply disruptions and increased global demand.
The domestic zinc consumption has grown by 20% year-on-year on the back of stronger PMI and its forecasts to stay strong in line with the steel market. Coming too late, the prices averaged at $2,077 per tonne during the quarter, down 2% sequentially and 3% year-on-year on account softened demand and lower global automobile sales at the start of the calendar year.
Moving forward, we can budget focusing on infrastructure and additional spend on EV charging, et cetera. Indian lead market is expected to expand. Silver prices over around $23.3 per troy ounce during the quarter and $23.6 per troy ounce during the year, up 10% year-on-year. The prices have rallied lately, tracking the global prices -- tracking the gold prices and market continues to look very strong.
On silver demand, while current Indian industrial silver consumption is relatively lower, it is expected to increase significantly with developing industrial car in fields like EVs and 5G, et cetera. The rally in prices and this momentum is a great start for the new financial year. Giving an update on the operational performance, I'm pleased to restate that we have recorded highest-ever mined metal production of 1,079 kt and refined metal production of 1,033 kt and silver production of 746 tonnes on the back of relentless efforts and collaborative ideas.
We also have generated the highest-ever sales in our value-added portfolio above 20%. We produced these with 0 fatality and had a dream cost of only $1,117 per tonne. These production figures grew at an industry-leading compounded annual growth rate of about 4% in the last 5 years, and the guidance for FY '25 indicates a continuation of this trend.
Our FY '25 guidance for mined metal production is set at 1,100 to 1,125 kt. Refined metal production at $1,075 to $1,100 per tonne, 100 kt. And sellable silver production of 750 to 775 tonnes. On company's reserves and resources, we can emphasize on ensuring the longevity of the mines. Through strategic exploration, we have managed to increase the total R&R by about 35% in last 5 years, putting in absolute terms, our 5-year gold production adds up to 65.1 million tonnes. We have added a core of 118 million tonnes to the R&R through exploration.
We have added metal reserves of 2.5x as compared to FY '20 on a net-of-production basis. Resultantly, at the end of FY '24, our total R&R stands at 456.3 million tonnes with a total metal content of 30.8 million tonnes underpinning an overall mine life of 25-plus years.
During the quarter, in line with the national vision and with our strategic exploration objected to upgrade R&R, we incorporated ‘Hindmetal Exploration Services Private Limited, a wholly owned subsidiary of HZL with an objective to explore, discover, develop and tap mineral resources.
Coming to our expansion projects, our 150,000 tonnes per annum roaster and 510,000 tonnes per annum of Fertilizer Plant progress is on track. I'm happy to share that during the quarter, we have received regulatory approvals with respect to Bamnia Kalan mine, which will be a new mine to be started by us. And accordingly, site activities will start operating soon.
Once again, on the guidance. Please note that we are giving a guidance of mined metal production between 1,100,000 to 1,125,000 tonnes, refined metal production between 1,075,000 to 1,100,000 tonnes, and sellable silver production between 750 to 775 tonnes.
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 already shared, it was a pivotal year marked by significant achievements in volume, cost management, project completion and growth part. Happy to share that zinc cost of production for the full year improved by 11%, USD 1,117 per tonne.
During quarter 4, company closed 12th quarter lowest cost of production at USD 1,051 per metric ton. It was down 4% quarter-on-quarter and 13% Y-o-Y. It was supported by better grade, better linkage coal utilization, softened coal and input commodity prices, partly offset by lower acid realization. This quarter marked the fifth consecutive reduction in the cost of production with a cumulative sustained reduction of the cost by USD 250 per tonne.
Despite the volatility in zinc prices, our financial performance demonstrated resilience as we adeptly sustained margins through agile navigation of market challenges, silver production has been a standout success for the company during the year. With record high production positioning as the third-largest silver producer worldwide, this achievement is worth highlighting [once more by me ].
While I'm going to give an overall picture of the financials of the company, I would like to start by sharing 2 key highlights demonstrating how ESG principles are integrated across various functions of the company, including the finance. Hindustan Zinc has been recognized by CXO Genie for ‘Exemplary Contribution in Diversity, Equity and Inclusion with the finance domains with the gender diversity of 50% in the finance function in the metal and mining company, Hindustan Zinc, comprised of the professionals with the background of CA, CMAs, MBAs, graduates from esteem institution. This award is a testimony of our progress in DE&I.
In line with the government focus for empowering the MSME sectors, Hindustan Zinc has taken the lead and prioritized payments to its MSME vendors with an average payment cycle of 29 days during the quarter with a 37% better than a statutory requirement. This underscores our sincere commitment towards ESG principles, bolstering trust in our supply chain partnership through innate social opportunity.
Turning into our performance. The revenue from operations for the full year was approximately INR 29,000 crores, down 15% Y-o-Y. Even though we had better volume and silver prices and a strong dollar, revenue was largely impacted due to lower revenue. The revenue from operations for the quarter was INR 7,549 crores, 3% quarter-on-quarter up on account of higher zinc volume, partly offset by lower lead and silver volume and metal prices.
Revenue for the quarter was down 11% Y-o-Y, though the zinc and silver volume were better, along with the silver guidance and favorable exchanges. It was largely impacted by the lower metal prices and lead volume. The full year EBITDA stood at INR 13,677 crores, down 22% Y-o-Y, in line with the revenue, partly offset by significant cost improvement for the quarter, the EBITDA was INR 3,637 crores, up 2% quarter-on-quarter and down 14% Y-o-Y. It is in line with the revenue from operations and again, the good cost improvement.
Please refer to EBITDA bridge from Slide 30 to 32 for more information. Consolidated net profit for the full year stood at INR 7,759 crores, though it was down 26% Y-o-Y. It is in line with the EBITDA, partly offset by lower tax expenditures as we move to new resi, our PR remain 25% approximately.
For the quarter, the consolidated net profit recorded was INR 2,038 crores, flat sequentially and down Y-o-Y, in line with every kind of tax expenditures. I wish to highlight here that despite the 25% Y-o-Y fall in zinc pricing, we successfully maintained our industry-leading margin of 47%, underscoring our strong foothold in the first decile of zinc mining cost curve. This year, we have issued a total dividend payout of INR 5,493 crores, with a total contribution of INR 13,197 crores to the exchequer in the form of royalty and direct taxes and indirect taxes.
On the back of strong liquidity with a healthy cash flow of INR 9,000 crores in the FY '24, which is after the post-growth CapEx of -- and RE investment of INR 1,200 crores approximately. It is also noteworthy to mention that we have recorded a 7-quarter highest domestic primary zinc market share at 80% during the quarter, led by highest-ever quarterly domestic sales.
With recovering economy and brighter outlook for both metals, supplemented by our proficiency during the year gone by, we are geared towards pursuing our guidance of cost USD 1,050 to USD 1,100 per tonne for FY '25, and growth CapEx of USD 270 million to USD 335 million (sic) [ USD 325 million ], which will be mostly for roster, fertilizer, RE power and debottlenecking while leveraging, the market dynamics strategically.
With this, I conclude my comments, and we open the floor for your questions. Thank you for listening me.
We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Amit Dixit from ICICI Securities.
I have a couple of questions. The first one is essentially on our guidance. So if you look at fine metal guidance and if I compare it with this year, it's up between 4% to 6.5%, while your silver guidance is just 0.5% to 4%. So is it fair to understand that [indiscernible] zinc over lead and silver this year?
So last year, we mostly operated our pyro facilities on only lead more, that helped us to increase lead production and also increase silver production. In our low zinc price environment, that's helped us. This time, the zinc prices are looking up, and we hope the price really continues, while silver prices is also up.
As of now, our strategy is to operate on zinc plus lead more. And hence, the metal numbers are as high as you are looking at and corresponding growth in silver is not variable. However, you have to understand that even if I try to operate the whole year in lead plus zinc more, only selectively producing that much of lead concentrate will not be feasible. So our balanced view has to be taken.
If the situation persists like this zinc environment, we will stick to the guidance on metal and silver that we are giving, and that is the most practical guidance that is possible.
Okay. But depending on the price movement, I mean, as the year close by, you can dynamically change it as well.
Absolutely, absolutely.
Okay. Understood, sir. The second question is on the exploration subsidiary. I'm a little bit intrigued because we have a very rich history of exploration as the real evidence in our R&R. So what's the rationale for floating a new subsidiary? Is it that we are trying to go beyond our zinc, lead, silver?
Yes. So government is coming up in a new scheme that they would allow exploration companies to explore areas that are blocked where they can earmark themselves. Now this is a new scheme. And if we explore, the government is going to return part of the expenditure, then that data will be available to the parent company for tomorrow to bid whenever they become auctionable blocks.
So we, being in that deep metal and deep-seated mineral business, we feel that we have a larger chance, one, to succeed with exploration; and second, use that data to bid fruitfully in options and we could gather further leases. So we -- so that's why this is a new development, and we are hopeful that this will help in this engine to grow beyond lead, zinc and silver.
Sir, does it extend to rare earth also? Is there any endeavoring growth?
Absolutely, absolutely. Rare earth, atomic minerals, all the critical minerals that the government has enlisted.
Okay. One last data-keeping question is what was the grade this quarter? And if you can also highlight the revenue at capital mine development?
So this quarter, grade was 7.62%. And this is the highest grade in the last couple of quarters. And for the capital revenue, total was 26 kilometers, 50%, 50% capital revenue.
The next question is from the line of Sumangal Nevatia from Kotak Securities.
My first question is from the operational guidance for FY '25. Now if you look at FY '24, it's been almost a stagnant year as far as refined metal is concerned. And we are now guiding this for 4% to 5% growth in '25, much lower than what our capacity is of around 1.2 million tonnes. So just want to understand, I mean, given all the projects are complete at the current capacity is 1.1, the peak capacity, to consider in future years also and future growth will come in only after more expansion?
No. So when we did 1.2 million tonne expansion, it was primarily for the mined metal capacity of 1.2 million tonnes, whereas the finished metal was designed to be 1,100, to 3,000 tonnes, 1.1 million to 3 million tonnes, right? So we are trying too fast, is 2, 3 years in consecutive years, we have achieved more than 1 million tonne in metaling concentrate. And 2 years in succession, we have achieved 1 million tonne-plus in finished goods.
So now that gives us confidence to go beyond 1.1 million tonnes, and that will be the first case whether we can go closer to our desired capacity of 1.1 million to 3 million tonnes. And as we speak, we have launched a number of debottlenecking projects to take the capacity from 1.123 million to 1.25 million tonnes. So those will -- it will take maybe another 18 months to close on that. And then after we achieve 1.123 million, 1.1 million tonne-plus this year, then next year, we can surely attempt at 1.2 million tonnes, hoping that in between, all the debottlenecking projects are completed.
Okay. Got it. Second question is we were in between considering the demerger of metal, silver and recycling from other division as well. What is the status and update on that, sir?
So as we have seen in the filings as well as new super reports that we have raised, so government has written to us saying that perhaps the timing is not appropriate considering they're in the process of disinvestment of the company on the 29% stake that they have. And at this point, a demerger may create confusion in the minds of potential investors when they do the wafer soon.
However, looking at the rally of zinc prices, we have spoken to government, and we feel that this is the right time for government to disinvest and also help us to demerge these entities and create a silver as a separate entity because we continuously believe that, that will handle off another $3 billion to $4 billion on the market cap. However, it has to be, again, after the Board comes to a consensus and the decision on this, then we can come back.
Okay. And last question on the cost. So we are guiding for midrange around $1,075 versus fourth quarter, this time it's around $1,050. So in terms of commodity price deflation, do we -- I mean, are we seeing that all the tailwinds or benefits are already priced in this quarter and no further benefits are expected? Is that the way to read?
Yes. So Sumangal, if you see there are a couple of things which happened in the quarter 4, like they're best ever the grade we got 7.62, which has the impact on the core fixed cost. Also, we had the highest linkage coal consumption, which was 46% in the overall quarter 4.
So I think that for the full year, it was 37%. So we are moderating with a 40% kind of linkage coal consumption and import coal prices also we are assuming by quarter 4. But as we go to more to mine sequence and the higher mine development, as we have to improve volume, some impact may be there, which are all factored in $1,050 to $1,100. And secondly, as Mr. Misra has said, that we are assuming zinc, lead mode completely for the whole year. So pyro plant, which has a zinc-lead mode, it has a $15 cost extra compared to overall lead and zinc. So this has also been factored into $1,050 to $1,100. So if you exclude that pyro plant in that manner, actually, we are talking about $1,035 to $1,085 kind of things on a like-to-like basis. So all these factors have been factored into part.
We have the next question from the line of Ritesh Shah from Investec Capital.
First, a couple of questions on the mining part. Sir, Bamnia Kalan, finally, I think it has come to full. Sir, can you detail over here, basically, you indicated that we have secured the regulatory approvals. So what sort of regulatory approvals we have? How should we read into resource reserves you see and timelines on the mining output over here?
So yes, this is Sandeep here. Bamnia Kalan mine has almost 1 million tonne of the resource in the metal term, 700 tonne of kind of the silver. So that kind of it had annual potential revenue at current INR 1,000 crores plus and I assume the EBITDA margin kind of this INR 400 crores. So we have received all the approvals on the IBM for the mining plan, consent to operate, consent to establishment. Everything has been received. And now we have to hit the ground with the site activities and for which we are working with a business partner to start the portal and the initial mining activity. And this is addressed into the SK mine. So it's strategically located near to the same mine. So the benefit of SK, we will also get.
Sir, what are the timelines that we are looking at over here?
So it will be around any mine to start, it takes 1 to 2 years to get a full ramp-up. But I think to hit the ground and then start the portal, it may be in the next year, it may be coming to the main operation part.
Okay. Sir, my second question is, as per MMDR, we will see a certain percentage of our results, face expiry by 2030. If I memorize right, I think it's Rampura Agucha, SK and Kayad. So these 3 mines will be what percentage of...
SK, Agucha, Kayad, Zawar. Agucha Kayad is 2030. SK is 2048. Bamnia Kalan is 2035.
Sir, can you please comment on a little slowly, sorry?
I'm saying SK mine is 2048. Bamnia Kalan is 2035.
Right. Kayad?
Kayad is 2048, and remaining mines are 2030.
So Rampura Agucha and basically Zawar is 2030. So this is what percentage of our mined output at this point in time?
Which? Agucha and Zawar?
Yes.
Agucha and Zawar will be put together 65%. But in terms of profitability point of view, 50% given that SK is silver-rich mine.
Okay. And sir, how do we see a scenario come 2030, given this, we will probably look to retain the leases. So how the royalty content can actually change?
Very difficult to speak as of now, okay? Because such kind of a [indiscernible] mineral auction has not happened that turn a brownfield. Most of the auctions that have gone for are bulk mineral, which are close to surface, exploration results can be really verified. So we'll wait as it happens.
But we know our scenarios we have already calculated, and we know that we'll be able to maintain our profitability close to the current level even if in the auction, we have to provide for a certain amount of extra premium.
Okay. And sir, Bamnia Kalan, you said 2035, right? Did I hear it right?
Yes. Yes, you heard it right.
Okay. Perfect. Sir, that's helpful. Sir, a couple of questions on financials, sir. If you could please quantify what is the GR to RE numbers as of March 31?
So is GR is basically INR 10,384 crores. And including GR and RE, it's INR 15,000 crores.
Okay. And sir, what is the status on GR to RE? I think there was an ongoing court case.
Yes. GR to RE, next date of hearing is May 17, '24. So I think that should be the last hearing as we expect.
So 17th of?
May '24.
Okay. Lastly, sir, in the prior call, you had indicated, I think we have also referenced it in one of our slides on ways to basically valuable resources. You had indicated one of the American companies for a potential tie-up. Is it possible if you could provide some technical color as well as some quantification on the scope of the opportunity that we are looking at over here?
So we are not -- so we will not be able to give the name of the company with whom we are going to tie-up. But the quantification, if you see our slide number, on the certainty, if you see the IR presentation, Slide #13, where we have talked about the Hindustan Zinc as a potential of recovering 1 million tonne of the metal and 3 kt of the silver from its accumulated waste stockpile. This is the opportunity, which we are totaling -- total opportunity, which we are talking. And tie-ups are already done, and we are in the private state. And at appropriate times, we will be able to comment upon how much CapEx is involved here.
[Operator Instructions] The next question is from the line of Pallav Agarwal from Antique.
So in this quarter, we had a sequential increase in interest costs. But, I think, you probably generated cash or maybe your borrowings have come down. So any particular reason for that?
Finance costs are in line with the debt. And also the last quarter, we have actually repaid the low-cost certain borrowing. And the second borrowings have been there. So this is normal routine movement. And I think this is not a much larger impact of the cost increases there in case if you see from the finance cost is INR 243 crores to INR 262 crores.
Sure, sir. Also, sir, after many years, we've seen reserves and resources being stagnant compared to the previous year. So normally, we do replace what we mine out, and there's been increase in trend in reserves and resource. So like will we increase the exploration activity this year? Or how will this pan out over the next few years?
So overall, I see reserve and resource may look stagnant, but you have to appreciate that how quickly we are converting more and more resourcing to reserve so that our mining in the current level of 1 million tonne plus metal in concentrate capacity at 7% grade and about 16 million to 17 million tonnes ore mining, it is able to continue year after year. And that is the first priority.
And second priority, yes, large part of Zawar is request greenfield exploration. So our next concentration of effort will be in Zawar, where currently, we have moved up the ore production and we want to take it to 6 million tonnes and then 8 million tonnes on the current level of 4.5 million tonnes of ore production.
So for say, 8 million tonne ore production, we would require a proven reserve of about 18 million to 40 million tonnes. So we are working mostly in Zawar now to increase the reserve and also add more to the resource.
But, however, you would appreciate that we have to do it in a very -- judgment has to be taken rightly so that we are in a position to continue mining. That is most important to us. We are able to control grade by enough of underground exploration. At the same time, we try to replenish a little bit more than what we are consuming. Unless if a new block we get, then, of course, we will have a sudden jump in reserve and resource, we'll turn the new block.
And just, Pallav, just to supplement, Mr. Misra, if you see [indiscernible] between resource to resource and reserves, but greatly reserves has actually increased in spite of depletion by 0.3 million tonnes.
Sure, sir. Sir, just lastly, how do you distinguish between sustenance and growth CapEx? Because I think we probably have been maintaining about $300 million to $400 million of sustenance CapEx every year. So is this basically just to ensure the continuity of output? Or what basically is the distinction between these two?
Majority of sustenance goes into equipment replacement, because we have over 900 equipment in underground and -- 900 equipment in the underground. At the same time, about -- let's say, every year, about 100 to 200 equipment on a 5-year life-cycle basis, they are due for replacement, that is number one.
Second, there are various aspects of environment and safety, which also requires investment, like we are on a path to reduce our freshwater consumption. And hence, we are putting up water treatment plants everywhere, and then we are looking at sewage water treatment plans to protect ourselves from the inadequacy of rainfall in some years.
Then the third bit is we are also looking at small CapEx, we give a quick payback, less than 12 months kind of a payback that we include in sustenance. Whereas growth would typically have a higher CapEx outlay, say anywhere between, say INR 300 crores and INR 400 crores kind of a project, which increases the design capacity of the plant by not debottlenecking, but by adding new assets.
At the same time, you can expect a payback period of anywhere between 2.5 to 3 years, and those kind of criteria will apply for growth CapEx. So Fertilizer Plant, our New Roaster, they would all qualify for growth CapEx, whereas small improvements, as I said, between 1.1 million to 3 million tonne and 1.2 million tonne we'll be unlocking through small debottlenecking projects. But a number of them with an investment for each one of them, maybe somewhere between INR 5 crores to maybe about INR 70 crores or INR 80 crores.
Sure, okay. So basically, we can expect this level of sustenance to continue in the future also? Sir, this will be our steady state.
Yes, yes, yes. It's the steady state.
The next question is from the line of Kunal Kothari from Centrum Broking Limited.
Sir, one clarification of the capacity expansion of refined metal. Have I heard right that our current capacity is 1.1 million to 3 million tonnes per annum, and it will be expanded to 1.5 million tonnes in the next 18 months?
No, no, no. I didn't say that. We said 1.123 million tonne currently, and we are launching a lot of debottlenecking projects to take it to 1.25 million tonnes. But sadly speaking, it will be close -- it will be about 1.2 million tonnes in about 12 to 14 months or maybe 16 months.
Okay. Okay. And our target is to raise it to 1.5 million tonnes. So by when we can say that we can reach the target by which year that is feasible according to you?
See, we are on the drawing board to actually, we were earlier thinking of taking it in steps, maybe 1.2 million -- 1.25 million tonnes in FY '26, 1.35 million tonnes in FY '27. But what we understand is much better to plan for something like 2 million tonnes in metal in concentrate production as quickly possible. So we are in the process of engaging global consultants.
We have placed order on 2 mining consultants already to look at the mine expansion. We are working on an order for smelter and infrastructure consultant so that we can come back to you and place before you our vision of making this company 2 million tonnes, and we are keeping ourselves the timeline anywhere between 2.5 to 3 years' time to take this company from 1 million tonne to 2 million tonnes. After the designs are done, then we know whether it will be 2 million tonne or it will be 1.7 million tonne, that final number we'll be able to project to you.
Okay. Got it. Sir, my second question is in regard to our new fertilizer plan. Sir, can you state what is the capacity and business economics that we are looking forward? And from when could it contribute to our overall numbers as well?
Of what?
Fertilizer.
Fertilizer plants.
Fertilizer is 5.1 lakh metric ton, the DAP and NPK and it has a project cost of around INR 1,800 crores with a good two double-digit IRR. And from the EBITDA, I think there are two. 1, 2 strategic -- 1 is a strategic objective of the forward integration of the asset usage and making it more sustainable. That is one objective. So financial benefit EBITDA point of view, it will be at current level of the prices INR 350 crores to INR 400 crores.
And when it is subjected to get commissioned?
FY '26.
The next question is from the line of Aditya Welekar from Axis Securities.
Sir, my question is on the guidance, which we now share today. So if I compare it with the Analyst Day presentation, we have given guidance of 800 tonnes per annum for silver. But in today's presentation, it is now cut down to 775 tonnes. And similarly for refined return from 1,200 to 1,100. And zinc COP from $1,000 per tonne to $1,100 per tonne. So can you give a slight deviation from the past?
I think -- yes. No, no. No deviation at all. In analyst week, we did not give guidance for next year. We said that, that is the potential and the vision for Hindustan Zinc. And we said anywhere between 3 to 4 years timeline to come to those numbers. We said that the company has the potential to achieve up to, say, 1.5 million tonne metal, has the potential to produce between 800 tonnes of silver, and also has the potential to become less than $1,000 per tonne of cost -- on the cost. So it's more from that angle. Whereas next year concern, these are the guidance we have given. Of course, we still will continue to work towards going to $1,000 per tonne cost of production.
We have the next question from the line of Vikash Singh from Phillip Capital.
Sir, I just wanted to understand one thing, if you look at our silver growth guidance of around 2% versus the refined metal guidance of 5%. Even with the fact that the Fumer just contributed 3 tonne out of the 30 tonne potential. So why is this Fumer not going at all with timeline?
As we said that we'll be operating mostly in zinc plus lead mode in the pyro. So correspondingly, our lead production will go down. And hence, the silver production will go down. It is just because of the Fumer that we are able to make up for that and still produce 750 to 775 tonnes of silver at this level of metal of 1.1 to 1.125. Otherwise, this number would have gone down to anywhere between 730 to 735 tonnes of silver only.
Understood, sir. Sir, given zinc prices have jumped up significantly with this, our cash flow would also be increasing. So our preference would be debt reduction? Or this kind of debt we will maintain and whatever the additional money we would have, this can be distributed at the dividend going forward. So what's our take on that?
So, Sandeep, I think the dividend is a matter for the Board to comment. Whenever it will come, we will all come to know. At this point of time, if I didn't have the cash, obviously, I will either invest in the long-term investment, whereby I can get the best of the return. Or in case, there are option, we will repay. So I think I will be more concerned about the net cash level or net debt level rather than taking the growth cash across the year.
Point taken, sir. Sir, just one last thing. Just from our understanding purpose, sensitivity-wise, how much 5% additional value-added sales would move our EBITDA?
Yes, value-added production like zinc alloy, this is not from the EBITDA or that point of view. This is more from the [indiscernible] making India self-reliant. Like zinc alloy has a total market of 30 kt, and we have also put the plant for 30 kt. So we want to reduce the import dependencies. That is more from that point of view.
If you see the value addition for the zinc alloys, it would be INR 40 crores, INR 50 crores. But I think we should not look from profitability point of view everything. Look at more from the holistic, how we'll make India self-reliant, by making zinc alloy internally in India only.
The next question is from the line of Shweta Dixit from Systematix Group.
Sir, for my understanding, could you just throw some light on the zinc plus lead mode of operations that you were talking about?
So we have a pyro facility that fund this, can run with input of zinc concentrate and lead concentrate mixed together, and convert it to sinter, and that sinter is fit to the furnace. After melting, we produce both zinc as a finished good. Also lead as a finished good in that process. And balance residue carries the silver that frees up from the lead, which is again taken to silver refinery plant and produces silver.
Now in this process, if I don't fit in zinc and only fit in lead, you can understand that when the furnace is full of led, the furnace residue is full of lead residue with the silver, and then it can produce more silver. That is the simplistic way of understanding.
Understood, sir. My next question is on what's your outlook on zinc prices in the near or medium term?
Zinc prices near and medium term. There are various reports speak on something. With the current movement, it looks like some of the reports are even slightly conservative. The first report I'll refer to had predicted when we are in the month of February, predicted that by December, zinc could touch $3,000 per tonne. But if I follow last 20, 30 days of moment of price, it looks like we'll reach that mark of $3,000 much earlier than December, maybe somewhere to August or September, we'll reach the mark of $3,000. By December, I'm very hopeful that we'll be closer to the mark of $3,200 or so.
So sir, I mean, are there -- is there underlying demand favorable for such a price movement? Because the recent uptick has more on the geopolitical or external factors. But are we looking at favorable underlying demand there as well?
So apart from the underlying demand, you should also know that TC-RC is also rowing at its lowest. Currently, what we read in the media, tax resources origin entered into TC-RC over $65 and current export is going $75. This clearly indicates that a concentrate market isn't a quite tight supply. Because of the higher costs, many of the smaller mines have gone closed. So concentrate market is sorted, and that's how you can see it is impacting on the overall supply/demand situation, where the MIP shortage and the prices are going up.
So you are right, your current supply chain issue may also be, but fundamentally, what Mr. Misra has said, sooner than around in December, we can see around $3,000.
We have no further questions, ladies and gentlemen. I would now like to hand the conference over to Ms. Jhalak Rastogi for closing comments. Over to you, ma'am.
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 so much.
Thank you.
On behalf of Hindustan Zinc, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.