Vedanta Ltd

NSE:VEDL

Earnings Call Transcript 2019-Q4

[Rashmi Mohanty]

Good evening to all present here with us joining us to the webcast and on the audio call. I'm Rashmi Mohanty, Head Group Investor Relations for Vedanta. Thanks for joining us today to discuss our fourth quarter and full year results for FY '19. We have here with us our group CEO, Srinivasan Venkatakrishnan -- Venkat; our group CFO, Arun Kumar; a few of our business CEOs, Sunil Duggal from Zinc India; Ajay Dixit, Oil & Gas; and Ajay Kapur from Aluminum & Power.On the call, we are joined by Deshnee Naidoo from Zinc International; and Abhijit Pati, who is the CEO of Jharsuguda Center. We'll be referring to the presentation that's available on our website. And for the audience here, a copy is kept on the table. We'll begin with an update from Venkat and Arun on the operating and financial performance and then open it up for Q&A. Venkat?

[Srinivasan Venkatakrishnan, CEO & Whole]

Thanks, Rashmi. Good evening, ladies and gentlemen. Very pleased to be here with all of you and particularly a formidable team of colleagues here to present Vedanta Limited fourth quarter and full year 2019 earnings. Before we go into the slide show, if I can start putting out some highlights. Safety is something which is very close to our heart. Very pleased to say that we had a fatality-free fourth quarter across our businesses.Our work in the area of environment, sustainability and community progressed further during the quarter, and you will see that in some of the slides in the presentation. Our operating and financial performance was stronger in the fourth quarter when compared to the third quarter as guided on volume, cost, margins and even profit after tax. Our zinc underground production went up 29% year-on-year at Hindustan Zinc and lead went up by about 18%. And that in mind that Hindustan Zinc first year of full underground operations and having had some mining background myself, the ramp up in underground has been truly spectacular.We commissioned our Gamsberg mine in South Africa, which is currently ramping up. A not well-appreciated commodity within our portfolio, because we don't take credit for that in our cost, is silver. We achieved record production, and it was up 22% year-on-year, close to producing around 700 tonnes, and that took us to being a top 10 global silver producer. And with the growth trajectory, we will be reaching top 3 gold -- silver producers in the world. And it's the first time a company in India has reached the top 10 league of silver producers. Our oil and gas production was up 2%.Turning to our aluminum business, our alumina production increased 24% year-on-year. Our aluminum production rose 17%, thanks to our interventions. And the cost of production in the fourth quarter fell below $1,800 a tonne. And I remember, in the first 2 calls we had, the debate was how soon can we get the cost below $2,000. We are at below $1,800 a tonne. The turnaround in our Electrosteel business is evident by a 17% increase in steel production and more than doubling of EBITDA per tonne when you compare it to last year.Profit after tax in the fourth quarter was up 6% as compared to the same quarter last year. Our growth projects in the key businesses are tracking very well, and capital expenditure was within guided range, showing the strict control we have in capital allocation. It's all about land positions and resource. We grew our resource base across our key businesses. We continued to deliver industry-leading dividends, whilst maintaining a strong balance sheet, thanks to our strict capital allocation. In fact, businesses have to earn their money before they spend it. And there is more to come in each of the businesses next year and beyond.Now turning to the commodity markets. The commodity prices saw a downward trend in the first half of last year, reflecting concerns around global growth, especially due to trade tensions between U.S. and China, but we saw a rebound in the first calendar quarter of 2019. The rebound and the increase therein reflected supply concerns, progress in trade negotiations between U.S. and China and the fiscal stimulus in China. We expect the prices to remain volatile, but with an upside potential from the possibility of tighter-than-expected environmental policies, slower-than-expected easing of commodities, specific supply bottlenecks. Oil prices have also risen since the start of the year, amidst production cut by OPEC and other producers and supply disruptions elsewhere in the world.With that overview, let me go into our performance for the year and starting with safety and sustainability. Whilst we had a fatality-free quarter, this unfortunately came on the back of 9 previously reported accidents, which is regrettable. Zero Harm, for us, is a continuous journey, and we have embarked from further strengthening our safety processes and ensuring that safety of all of our employees and our business partners and contractors is the first priority above anything else. What we are targeting is safe production.In this regard, we are focusing on 3 specific catalysts in our commitment to Zero Harm. Firstly, visible felt leadership, where the expectation is that leaders and support personnel spend quality time in the field performing safety interactions, workplace hazard reviews, making proactive hands-on safety interventions to create a culture of care. Once you have a culture of care, safety is automatic, and a safe operation is the most productive operation.Second, manage safety critical tasks well, where the expectation is that the safety critical tasks are identified, critical competencies and controls are documented clearly in a statement of operating procedures, and the top leader verifies that these are in place every time before a work task is initiated. And the third important catalyst, given our outsource model, is around business partner engagement. Ensure that our business partners from their CEO downwards are committed to Zero Harm, and we treat them as employees for the purposes of safety.Looking at our environment, energy and water management initiatives, savings and recycling, all of which remain a focus area. We reduced our energy consumption by 1.3 million gigajoules and water consumption by 2.4 million cubic meters. We're also happy with the progress we are making on the greenhouse gas emissions intensity, which was lower by about 17%, well ahead of our target of reaching 16% reduction by 2020 against a 2012 baseline. Our many sustainable initiatives are driven by a fundamental approach of converting waste to wealth. The company recycled 93% of high-volume low-effect waste. At Hindustan Zinc, we use 60% of our tailings at paste-fills for void replacement in our underground mine. We also used an old tailings dam, and we expect to install 38 megawatts of solar farm energy.Turning to Corporate Social Responsibility. As a responsible corporate citizen, besides the many environmental initiatives, we continue to positively impact the local communities we are connected with. And here, the focus is children and women. We are happy to share that we opened the 500th Nand Ghar last quarter. Our sports initiative, including football academies, are a great way to identify and develop young talent and instill a sense of discipline and self-worth in the youngsters we train. We opened a 350-bed state-of-the-art medical center in Raipur, the only specialty hospital in central India, and it's treated more than 4,000 patients to-date. These are just few illustrations. And for the year in question, our CSR spend on a consolidated basis was INR 309 crores, which is around 3% of our profit after tax.In the last few years, our businesses have been driving technology projects to not only improve productivity and efficiency, but also using it to develop safe and sustainable processes. And there are number of examples of it. For example, at Gamsberg -- I'm sure some of you have actually been to the site -- the team uses state-of-the-art collision awareness system to prevent accidents. Our SK mine, the most advanced in our Hindustan Zinc portfolio, we are proud to have developed automated machines for continuous mining and remote control LHD for overhauling purposes. We have some of the most modern, enhanced oil recovery programs being implemented or piloted at our oilfields at Barmer.Let me take this opportunity to state again that Vedanta is uniquely positioned as one of the largest diversified natural resource businesses in the world. We are a significant player in the commodities that we are present in, and each of the commodity have a leading global demand. Our businesses benefit from abundant mineral resources that India and Africa have to offer. And it is with pride we share that we are a significant contributor to some of these reserves. Of the zinc reserves, our Zinc India business contributes to more than 70%. Similarly, we have a 25% share in our 4.5 barrels of oil reserves in India. And you can imagine, our contribution to the silver reserves of the country. We account for virtually 95% to 98%. These are all set to grow over time.I'm sure there is no more exciting economy in the world than our own here in India as the economy remains one of the fastest growing supported by strong macroeconomic fundamentals. If we combine the enormous economic growth potential of our country together with vast, untapped and underexplored resources, this provides us with a massive opportunity. The substantially low per capita consumption of key metals presents Vedanta with a unique opportunity to provide the vital commodities the country needs.Against this backdrop, we are naturally pleased to see a renewed focus by the government on the mining sector as an engine of economic growth. It's National Mining (sic) [ Mineral ] Policy, NMP, launched during the year aims to increase mineral production by over 200% and to reduce India's trade deficit in minerals by 50% in the next 7 years. NMP introduces a more effective and meaningful policy with more transparency and better regulation enforcement. A pro-inclusive growth ambition of any country needs to require -- requires a pro-business environment, and the NMP will encourage private sector participation in exploration, development and production.We have offered our suggestions to the high-level committee appointed by NITI Aayog in its deliberations on a new pathway for regulatory framework for mining. In a similar vein, we welcome the landmark policy reforms in the oil and gas sector, amidst raising domestic output, cutting imports, whilst also providing a smooth transition to cleaner fuels. And therefore, it is exciting to see that we have a strong pipeline across our businesses to capture the opportunities available to us. All the projects are stress tested to deliver at least 20%-plus returns off conservative commodity price assumptions.The medium-term brownfield opportunities in our business are as follows. If you look at Hindustan Zinc, we are expanding to reach target capacity of 1.2 million tonnes per annum this year, moving to 1.35 million tonnes in the next phase and eventually to 1.5 million tonnes. With Zinc International, at Gamsberg, we target to achieve 250,000 tonnes capacity in the first phase, moving up to 450,000 in the second phase and then eventually to 650,000. So you can imagine the scale of Zinc International as a percentage of Hindustan Zinc's production. It's close to 50% to 60% of it.Growth projects in oil and gas continue to progress well to enhance the production volumes in pursuit of our vision to contribute around 50% of India's crude oil production. In aluminum, the ramp up of our last line in Jharsuguda to take the production capacity to 2.3 million tonnes is in progress supported by ramp up of captive alumina production. And that eventually ramps up to 2.7 million and then 4 million with the final objective of 3 million tonnes integrated aluminum production for the business.On steel, we are aiming to achieve hot metal production of 1.5 million tonnes this year, rising to around 2.5 million to 3 million tonnes per annum, and we will cover this later on in the presentation. Operations at our iron ore business in Goa remains suspended through the year. We stay continuously engaged with the central and the state government, but, importantly, the people who are impacted by lack of mining in Goa to resume production, given the benefits to all of the stakeholders. At Sterlite Copper, we continue to engage with the government, the relevant authorities, the courts and all stakeholders to enable a safe and supported restart of our operations at Tuticorin. Now let's come to strategy. I'll summarize in the section reminding you of our 5 key strategic priorities to drive long-term value for our stakeholders. Firstly, ethics, governance and social license to operate, that is the foundation of any business. We will continue our journey towards Zero Harm by ensuring greater levels of safety and ever gentler impact on the environment and resources and even greater inroads into delivering healthcare, education, skills and quality of life where it's needed in our communities.Second, it's all about ground positions and reserves and resources. With focused exploration to augment our long-life, low-cost assets, by improving our land positions, growing our resources, converting resources to reserves in our business, thereby more than offsetting depletion and bringing on stream more discoveries to extend our already-long mine lives.Third, continued track of delivering value-added growth. If you look at what the company has achieved in over a decade in terms of growth trajectory, it is truly spectacular. And here, the focus is on the key 3 businesses, which accounts for 90% of our EBITDA, mainly zinc, lead and silver, oil and gas and aluminum.Four, strict capital allocation and balance sheet focus. As managers of the business, we will follow ruthless and strict capital allocation, whilst keeping the balance sheet in sharp focus. Balance sheet is proactively managed with the business having to earn their capital before spending, and Arun will articulate where our debt levels are relative to our EBITDA position, which is very, very comfortable.Finally, it's all about delivering the best out of your assets base, with the best teams and the means to focus on operational delivery and having the right management and teams in place to deliver what we want. Asset planning, execution, operational excellence, cost control and reduction, productivity enhancement, improving realizations, risk mitigation, use of technology, innovation and digitalization and, most importantly, constantly benchmarking ourselves against the best -- the best-in-class and trying to exceed that will enable us to sweat our assets better and deliver enhanced performance.With that, I will request Arun to cover the financial performance of the company.

[G. R. Arun Kumar, CFO & Whole Time Director]

Thanks, Venkat, and good evening, everyone. I'll start by sort of repeating that this has been a strong year for the company where all our businesses delivered on the growth investments. As zinc came on stream, Zinc India underground volumes ramped up more than making up for the opencast of last year.We entered the elite club of top silver producers in the world with record silver production. Robust turnaround of Electrosteel post acquisition and constantly improving cost structure in the aluminum business. Last but not the least, 35 new wells hooked up in the oil and gas business as well as the gas bridge project just about coming online any time now. We also expect and hope the copper smelter to restart sometime during this year. These are fundamental building blocks for our growth in each of our businesses. And that in place -- and I expect to see them contribute to the bottom line going forward.Some key highlight for the quarter and the year. EBITDA of quarter 4 was at INR 6,330 crores, which is about 6% up sequentially. While over 4Q 2018 it was down 19%, all of it is attributable to price, the copper smelter shutdown or one-off accounting reversals in last year. Full year was around INR 24,000 crores, flattish, excluding copper and one-off of the base year. Yet, a robust margin of 30%. Strong end to the year's cash with the free cash flow post CapEx of INR 11,550 crores, up 47%, and also strong closing balance of cash flow, INR 39,000 crores, for liquidity as you can see.Venkat alluded to this. Net debt/EBITDA continues to remain strong at around 1.1x. ROCE is around 13%. We believe could strengthen further with the growth blocks in place that we just discussed. Contribution for the year to the Exchequer was significantly higher at about INR 42,500 crores. Last year, it was about INR 33,000 crores. With a strong close to Q4, we believe we are geared up to a strong volume growth and a competitive cost position looking ahead in FY '20.We have a detailed income statement in the appendix, but few key updates I might just cover out here. Depreciation charge below EBITDA. For Q4 and also full year was driven by growth CapEx and yet higher this year, thanks to the impairment reversal which happened at the end of last year in the oil and gas business. For FY '20, I see that continuing in the same run rate as the quarter 4, probabilty slightly elevated level, so as we keep capitalizing more and more of the growth spends. Investment income for Q4 in FY '19 is higher, mainly due to the mark-to-mark gains of nearly about INR 715 crores net of ForEx on treasury investment made by overseas subsidiary, Cairn hydrocarbon, CIHL, through a purchase of the economic interest in the structured investment in the underlying Anglo American shares as we discussed quite in detail in the last quarter.These are partially offset by lower investment coppers post dividends in quarter 3. Investment income should continue at current levels as far our guidance for FY '20, which is sort of 7% return on the cash portfolio. Of course, it will be subject to mark-to-mark on the entire portfolio wherever it's underlying as debt FMPs or the structure that we've invested in. Both will have mark-to-mark. Otherwise, the general returns is about 7%.On the finance cost line in Q4, pretty much in line with the guidance. FY '19 will largely be driven by a full year impact of the acquisition debt of Electrosteel. In FY '20, the average cost of the debt book will continue to be around 8.2%, 8.5%, depending on where the yield curve is. Objective will be to absolutely reduce the debt number as well the already low debt number, with increasing surplus cash earnings from all 3 key businesses, and I repeat surplus earnings from all the 3 key businesses, including aluminum, zinc and oil and gas, all post funding the growth CapEx.The fourth item would be tax, the last line below EBITDA. The tax rate before exceptional items and DDT for the year was around 28%, but closer to 30% if you exclude the mark-to-mark gains on the interest line. As you know, that's in overseas entity and really not subject to tax. Broadly in line with the guidance that we had given at around 30%. And next year, FY '20, we retain the same guidance of around 30% to 32%. So it starts bending towards maximum marginal rate.Moving on to the next page. On the EBITDA bridge, this sequential EBITDA walk is perhaps a relevant page this time, which sort of showcases the progress we made during the quarter 4., in general, the second half of the year. The quarter 3 EBITDA adjusted to LME and currency is around INR 5,600 crores, INR 5,700 crores. Compared to that, we have delivered as you can see on the right side of this chart volume as well as cost driving the EBITDA by nearly INR 1,000 crores to land around INR 6,330 crores. The cost drivers are primarily aluminum -- I'm sure Ajay Kapur will talk a lot about it in the Q&A session -- as well as some cost as Zinc India also got taken out as the underground started stabilizing second half of the year.Volume reflects increasing output in Zinc International, a full year stable sort of an output in steel or a full quarter output, I would say. We covered this in detail on the previous page as well. A strong close to quarter 4 across our businesses sort of augurs very well for a stronger FY '20. If I were to draw attention to Page 30 of the guidance chart -- I mean it's there with you all. Presentations have been circulated. You will notice that we made some key guidance for your benefit. Volume increase of nearly 12% at Zinc India. Sunil already spoke about it in the Hindustan Zinc results. He's indicated circa million tonnes finished zinc, lead.Zinc International up by nearly 2.5x actually, driven really by Gamsberg coming on steel and also Skorpion as for the mine life. I understand some of you here visited Gamsberg as part of our investor visit as well and saw for yourself the ramp up underway. Silver is significantly up is the other guidance that we had given, closer to 750 to 800 tonnes for next year as against 670 this year. So that's another handsome increase of anywhere up to 15% to 20%.Oil and gas volumes, again up 10% approximately. Steel volumes on a full year basis up 26%. That's because of the full year impact coming as we've ramped up at the end of FY '19 to 1.5 million tonnes, and you get the full year benefit of it next year. Important to remember in steel also the compounding effect of the EBITDA margin, right? Because if you see the margins also exited above $140. And if you do a full year guidance versus a full year FY '19, margin should also be up nearly 15%, so it could have a compounding effect here.I know Karnataka sales should be up about 25%, albeit on a small base in FY '20. That's a guidance that we've given. On the cost side, importantly, aluminum hot metal cost are guided down almost 9% on an average versus FY '19. That's again -- all that we do there is just maintain quarter 4 run rate. And I'm sure Ajay and the team can get better, but from a guidance perspective pretty much maintaining the quarter 4 run rate that we exited.Zinc in the -- Zinc India in the vicinity of about $1,000, holding quite well out there. These are all EBITDA positive for the company, and the focus of the management team will hence be on execution. While we don't guide on prices, we do expect the prices to be around the current levels. There will be ups and downs. Tight demand/supply balance in zinc continues with low inventories. Oil is supported by geopolitical dynamics, and aluminum more or less led by China demand.Moving on to the next page. On this EBITDA bridge, which is pretty much for the full year EBITDA, as I mentioned, FY '19 was about 4% lower, rounded off to about INR 24,000 crores as compared to FY '18. As I mentioned earlier, excluding pretty much price, copper shutdown and one-off, it was flattish. Much of the volume gains -- and there were volume gains -- were offset by structural cost inflation in aluminum, thanks to alumina prices and some related to coal, but all of which have been largely corrected as they exited quarter 4. The guidance, which I covered in detail, should give us significant confidence and I hope reassurance as well as we start delivering FY '20.Moving on further to the next page on net debt. As you can see, we generated a cash of around INR 11,550 crores from operations, almost 50% of our EBITDA, roundabout 45% to 50%. Full year working capital was positive with good release from tax balances, both direct and indirect, where we collected a lot of refunds. Gross working capital initiative, we ran a company-wide working capital optimization program and further controls only stock levels.We'll discuss on the CapEx bar here more on detail in the next page. But important to mention that CapEx for the year was within the guidance. Broadly, one can conclude that the dividend payouts were funded by surplus cash flows CapEx requirement, and the resultant increase in net debt is pretty much the acquisition debt. And of course, the acquisition debt will in turn get supported by the expected increase in steel EBITDA in FY '20. And we talked about the multiplier effect of both volume and margin out there, thus keeping track with this investment case as well on the steel side.Moving on, broadly displaying the fact that we have a strong financial returns profile. Our focus on balance sheet management continues. We had refinanced our FY '19 maturities well in advance in H1 itself. Also, thanks to the global operational performance, our cash flows are excellent banking relationships. We were able to effectively refinance and sort of navigate some of the choppier capital markets which came off of last year. The average maturity of term debt consistently remains above 3 years on a rolling basis with a strategy in place to further improve it in the coming year in FY '20.We've been able to hold our average borrowing cost at a little over 8% for the whole year. Our investments are also rated Tier 1 by CRISIL. And with the evolving market situation, the portfolio's being monitored tightly and on a continuous basis. As I mentioned, our relationship with the banks and capital market participants remains strong, and we continue to further widen and deepen our access of debt.Moving on to CapEx page. Our capital allocation strategy is a disciplined distribution towards achieving the overall objective of maximizing shareholder returns, delevering the balance sheet and investing in the next phase of growth projects. Over the years, we have prudently allocated the capital as well. Basically, in zinc, ahead of the curve, now giving strong returns, and the prices are pretty good in the last 18 months and next 12 months outlook going forward. With the Cairn merger, we are delevered as well, and now we are investing back in the growth projects in the oil and gas sector, which, as you would observe on this page, will be the biggest spend segment for FY '20.Iron and steel will also see some investments, primarily at Electrosteel, when we start expanding. Our CapEx over years have been largely self-funded, and we continue with that even during FY '19, and no reason to believe otherwise in FY '20. Everything will come from the cash flow that we generated. All these projects have hurdle rates of 15%, 20%. Venkat as well mentioned it. And next year, just to call a number out, the number is about $1.4 billion. That's the CapEx that we're guiding, primarily again in oil and gas and zinc. We also retain an optionality there within the $1.4 billion, because there are a few projects that we're looking at in aluminum and bauxite as well.With that, I can just wrap up and say that we continue to allocate the capital prudently, focus on cash flows through increasing volumes and lowering costs, thus funding global shareholder returns. That's the bottom line. With that, I'll hand it over back to Venkat.

[Srinivasan Venkatakrishnan, CEO & Whole]

Thanks, Arun. We saw our 3 large businesses, which represent 90% of the group's EBITDA, achieve significant milestones, which gives us a very strong foundation in terms of our near-term targets that we have set for these businesses.Starting with zinc, lead and silver, as I said, we are very pleased that the transition to underground mining has gone very well. And the production went up from an underground mining point of view by 29%, and silver shot up by 22%. And I'm very optimistic about our SK mine and the silver production coming out of SK mine, which shot up 22%, rising to around 800 tonnes next year and making its way towards 1,000 tonnes. What we are looking at building is on this success in 2020 to achieve mined metal design capacity of 1.2 million tonnes and a further ramp up in silver production that we outlined.As these volumes go up, coupled with our own cost reduction efforts, we expect the unit cost in the businesses to come down also. Our growth projects are progressing well to achieve this. And these include in very simple terms: waste to mine more, shaft commissioning to haul and hoist more, refine more through additional mills, extract more silver through our Fumer project and make our operation sustainable through paste-fill plants. The Zinc India business is a great example of using innovation, technology and planned execution to achieve sustainable growth. In fact, most of these plants, et cetera, has been bought on stream in a pretty flawless manner.Turning to Zinc India, we're equally pleased that we are replicating the success at our flagship Gamsberg project in South Africa, which has gotten abundant resource. We achieved the milestone in December where we shipped the first parcel of concentrate, and we are now ramping to its target MIC capacity of 250,000 tonnes. And as I said in the last call, the focus here is to address all of the teething issues, so that once you've achieved the full ramp up, then it starts to operate in a steady manner. This new age fully-automated digital mine will be the catalyst for that region's development and a significant contributor to Vedanta's earnings over the 9 to 12 months. And certainly, in 2019, going into 2020, when you take Zinc International and Hindustan Zinc together, we are cementing ourselves to becoming the largest producer of zinc in the world with the lowest cost and a suite of long-life assets.Now moving to oil and gas. We have an optimum portfolio mix here across the oil and gas life cycle. During the year, our production sharing contracts for Rajasthan and Ravva blocks have been extended for a period of 10 years, subject to certain conditions. At the end of March, we had ramped up the development rigs to 11. Our early production facility to ramp up gas volumes by 90 million scf, which is around 15,000 barrels of oil and gas equivalent per day is being commissioned and will be gradually be ramping up volumes from that source as well. And in continuation of our efforts to enhance our resource base, we have issued a global tender inviting bids for end-to-end integrated contracts for the 41 blocks that we've been awarded under OALP. And we were also awarded 2 development fields under the DSF round 2 in Assam and the KG basin.We continue to work on many growth projects across a rich set of opportunities covering enhanced oil recovery, tight oil, tight gas and exploration and appraisal prospects. As part of this strategy, we will continue to have an integrated model, a partnership model with some of the global oilfields service companies. The internal rate of return with each of these projects have to cross 20% of a $40 per barrel price. With 11 rigs at site, we are witnessing significant increased activity levels on the field, which requires a fair amount of integration. The number of wells shall almost double from the current 500 to over 900 over the next 2 years.Our disciplined low-cost operating model with cutting-edge technology adoption shall enable us to increase production and achieve world-class recovery rate. Our exploration efforts are focused on adding to our resource base. The step change in production comes from new discoveries. Both the wells drilled in KG offshore block have been declared as discoveries. We are evaluating the data to plan the way forward in this block.In Rajasthan, we've awarded integrated contracts for drilling around 7 to 18 exploration wells. In Ravva, we've awarded the integrated contract for exploration and development for 9 to 16 wells. The campaign in both these blocks is expected to start in the second quarter of the current fiscal year. Beyond this, the acquisition of the 41 exploration blocks has made us the largest private acreage holder in India. In the current quarter, we'll evaluate the techno-commercial bids to award exploration and appraisal contracts through, as I said, the integrated partnership model.And all of these projects are at the back of the world-class resource base with gross 2P reserves and 2C resources of 1.2 billion barrels. Our exploration and appraisal efforts are focused on adding to the resource base. And all of our development efforts are focused on increasing production to the target level of around 270,000 to 300,000 barrels of oil and gas equivalent a day. As the group CEO, I tend to be the integrator. The businesses are very federal. So my job is to ensure that we keep our social license to operate and drive the ESG and also have visibility around long-life and exploration efforts. So these are 2 things which we will be driving very, very hard.Turning to aluminum. We are very happy to report that we have proved some of the skeptics wrong, and we achieved record metal production of 1.96 million tonnes. I remember during the first set of calls and roadshows, people said that they have heard the story before so many times. Are we going to get to below $2,000 a tonne? Our alumina refinery ramped up strongly this year and achieved a peak run rate of 1.8 million tonnes per annum as local bauxite sourcing ramped up during the year.Half of our refinery bauxite requirement for Q4 was met from these local sources. On cost, we faced some headwinds in the first half of 2019 as you're well aware, but we are encouraged as a result of many structural changes that we have put in place, we -- in the business, we've managed to reduce the overall cost. The cost of production in Q4 2019 was $1,776 a tonne, significantly lower compared to the previous quarters, which was around $2,200 to $2,300 a tonne.Over the last year, we have shared with you our target to get to cost of production of $1,500 a tonne. We are enthused to share that we have significant structural improvements in the aluminum business, which makes me believe that this target is achievable. We will see volatility in the interim, of course, but the trajectory for the cost reduction has been set. How do we achieve that? The production volumes for aluminum has been enhanced to 2 million tonnes.Let me take up each of our input commodities individually. Our alumina sourcing will be a mix of own alumina and imported alumina. The Lanjigarh refinery has been ramped up and achieving a peak exit rate of 1.8 million tonnes per annum. We plan to ramp this up further in stages to 2.7 million tonnes per annum with a further ramp up to 4 million tonnes per annum in the medium term.This year, we also started getting dispatches of local bauxite. We expect the local bauxite to meet 1/3 of our requirements for the year. Further bauxite security has been ensured through a long-term contract with EGA. We saw repeated headwinds on coal supply during the first 9 months of the year. However, we ended the year successfully with coal inventory of more than 10 days at most of our plants.For this year, with 3.2 tonnes of -- million tonnes of coal secured in Tranche IV auction, along with our previous linkages and our own captive Chotia mine, we have increased our coal security to around 72%. We have set Ajay Kapur an ambitious target of increasing the security to 90% through participation in auctions of coal mines and more linkage auctions. Further initiatives on logistics, long-term contracts on carbon are also being worked upon. On the market side, the focus remains to sell more domestically and increase the proportion of value-added products, thereby improving margins.Turning to Electrosteel, which is a successful turnaround story. Production has ramped up to 1.2 million tonnes per year with an exit run rate of hot metal of 1.5 million tonnes and EBITDA margins of around $122 a tonne. The business achieved record volumes, EBITDA and free cash flow with an industry-leading margin of around 19%. The plan ahead is to ramp up eventually to the design capacity of 2.5 million tonnes backed by iron ore mines in Jharkhand and supported by a diversified value-added portfolio at the front end.To conclude, Vedanta remains a great investment case. Our large-scale diversified portfolio with an attractive cost position in core businesses positons us very well to deliver strong margins and cash flows through the commodity cycle. We have positioned ourselves in base metals and oil, make our commodity mix particularly attractive. India is Vedanta's core market and one which has huge growth potential. We are strongly and uniquely positioned to benefit from this growth.With our earlier investment driving our cash flows, we have a strong pipeline of self-funded, high-return growth projects to further solidify our premier position in our commodities. We are consistently striving to improve our operations, integrate our businesses and our value chain and optimize our performance through operational efficiencies and innovative technological solutions. Our operational performance, coupled with a strong focus on optimization of capital allocation and a sharp focus on returns, have helped us strengthen our financial profile.We have a proven management team here with good bench strength, with a diverse and extensive range of sector and global experience, who will ensure that operations are run efficiently and responsibly. And beyond operating and financial metrics, the 2 big purposes, which we serve, are giving back to the country, the planet and the community and the country. And importantly, we're also in the task of producing business leaders. We catch them young and develop and groom them.With that, I'd like to thank everyone. Given that you hear me often in the conference calls in the quarterly results, I'm going to try and speak very little now in the Q&A and give you an opportunity to interact with the CEOs who are here and on the phone, and I will only supplement as when we needed. So with those comments, I hand over to Rashmi.

[Rashmi Mohanty]

Thank you, Venkat. So we have audience on the audio call and on the webcast as well. So we'll take a few questions from the live audience here and then also switching to taking questions from the webcast audience. But any questions? Yes?

[Anuj Singla, Vice President in Equity Research]

This is Anuj from Bank of America. So my question is on oil and gas side. As you mentioned, a significant portion of the incremental CapEx has grown by more than 50% last year as well and next year also, we're targeting [ up 8% ]. So this segment has actually disappointed on the ramp up consistently. So this year also we were targeting around 220,000 barrels? And we ended the year at 189,000 and the next year target is now 200,000 to 220,000, which is the very subdued target versus where the growth expectations were earlier. So what has gone wrong there? Number one. Secondly, what makes us or gives us the confidence that we will be able to achieve the 270,000 medium-term target which we have? And what's happened to the 0.5 million target, which we had committed -- 0.5 million target which you have committed earlier?

[Unknown Executive]

So I would say, if we take from 184,000, 185,000, where we are today, if we have the slide again on the oil and gas. In a very simple terms, what you see is a bottom production. This is a simple one where additional wells are getting added to be hooked up. Previous one. Yes. So these are the cases what you see. While drilling in this exploration this time, we had to go much deeper in terms of the depth as well as we have drilled now horizontal well, which is first of its kind. Now this all has taken a certain amount of being reassurance to be done on what we are trying to do in the entire extraction of oil and going forward. And these successes are now giving us confidence that this production what we are adding over here for adding more wells would clearly give us kick-in over here for the [indiscernible]. From the second quarter, we would get it close to about [ 20 ] what you see at the bottom bucket. Then the development part, if you see, if you leave the ASP part, which is MBA ASP, other than this, the rest of it is another close to about 80 to 90. And these are kicking in quarter-wise in phases and the MBA ASP is a pure big target, which is going to give us more than 90. A portion of it comes end of the year, but close to about 90 to 100 comes from this and these projects are in place. For example, if you take tight gas, which is another big number over here, about 45, we will start getting close to about 15 to 20 some time in the month of August and the balance, some time in December/January. So the progress of these projects are on schedule. So if you look at this, it's therefore a close number, which we are saying a guidance, exit rate of around 270 to 300 and an average of 200 or 220 is very clearly on track and visible with projects which are running on ground and as per schedule what we have seen. There has been rescheduling done based on the new type of wells, which we are now drilling more, which are horizontal well, which takes time. And therefore, it takes time also on the integration and accordingly, the surface facility coming up some time in January and February. So therefore, the confidence level is very high, and this will -- the numbers will be achieved.

[Srinivasan Venkatakrishnan, CEO & Whole]

Can I just come in here quickly? Just in terms of the confidence to get to 275,000, 300,000, a high level of confidence largely because I look at it in couple of buckets. The first bucket is existing production and here, it's around how you actually manage your decline management. And there, if you go back and look at what forecast decline rates were compared to now, we have done much better. Secondly, in terms of reservoir management, well reservoir management and also bringing on stream additional liquid handling capacity and improving recoveries, that's one bucket. The second bucket is bringing on stream the various development projects, whether it's in terms of additional wells, hooking them on then bringing on stream gas and also bringing on stream tight oil and tight gas projects as well. That's the second bucket. The third bucket is ASP, which has been piloted and the recoveries will actually improve quite significantly. That's the third bucket. The fourth bucket in terms of step change is bringing on stream new discoveries closer to the infrastructure so that they can be processed through the terminal and add to it, your offshore kicker coming in as well. All of these give us the comfort that 27 -- the 275,000 to 300,000 is within meeting range. You asked us about what went wrong. I think the question here to be -- thing is we probably should have estimated our integrations probably better. And with these large projects, you rather take your time, do a proper allocation of the contract rather than rush in a given contact and find that you've actually shot yourself in the foot. But now with those contracts going through the proper mechanism, quite confident that getting through to 275,000 to 300,000 barrels of oil and gas equivalent is within shooting range.

[Anuj Singla, Vice President in Equity Research]

Sure. So follow up. What is the time line? I mean, I'm not going to hold you to that, but what is the timeline for 275,000 to 300,000? Is there a 3-year plan...

[Unknown Executive]

That's what I just told you, that we get close to about 210,000, 220,000 in the range and so start producing around 210,000 in the second quarter. And around the third quarter, we'll go closer, exceeding around 250,000, 260,000. And then we come to the fourth quarter, around 270,000-plus and that's where it will be. So the average around -- comes to total 270,000.

[Rashmi Mohanty]

Pinakin?

[Pinakin M. Parekh, Associate]

If we look at the balance sheet over the last 2 years, the net debt has spiked up. And the main concern investors have is the leverage at the parent, Vedanta Resources. How should we look at dividend policy from here? It has been ad hoc. And to that extent, would we increase leverage at Hindustan Zinc and Vedanta Limited to pay out higher dividend? Or will dividend be a function of only the free cash flow and nothing else?

[G. R. Arun Kumar, CFO & Whole Time Director]

Yes. I think our articulation of the capital allocation has been fairly consistent, I would say, in the last 2 years, apart from [indiscernible]. We've always said we're going for the operating asset, right? Get the volume up, get the cost down. And of course, in that journey, you would had a few bumps like the aluminum inflation, et cetera. But then that also pretty much exited quite strongly since these are quarter 4. So you have a strong operating asset. We've always been self-funding our growth CapEx. Even last year, right? INR 24,000 crores are roughly about $3.5 billion in dollar terms, right? Even with that, we've probably generated close to about $1.7 billion, $1.8 billion of free cash flow post CapEx, which is INR 11,550 crores. If you see, the point I'm driving here is after funding for our growth plan, price is not in our control, some aspects of inflation are not in our control. Post debt, we said that the next box of capital allocation, shareholder return, and we have been very consistent with the dividend also. If you see the last 3 years, the average dividend per year would be in the range of INR 18.5 to INR 20.25 I guess, which would give you pretty much consistently year-on-year. The timing could vary between the year, but fundamentally, it's been fairly consistent. And the free cash flows are actually funded, taking us into another very attractive sort of an investment vehicle from an equity point of view as the dividend yield where our dividend yield has consistently been between 7% and 8% in the last 3 years. And among the private sector, either the first or second in the NIFTY 50. And you know in NIFTY 50, the yield is roughly about 1.8% on an average. So we've earned our way through growth and earnings that we've had we've deployed probably in returning to the shareholders. And yes, we had a bolt-on acquisition, which came in around July, and it took us about 7, 8 months to have a nice sustained turnaround. It's a nice sweet story now, sweet success what if you see in [ steel ]. And we ramped up to $140. We still don't have an iron ore mine. That should come through. And you can imagine, competitor, one is $184, exited competitor 2 is $167. We are almost at $140. So it can be a small capacity, but we think that. So that acquisition, debt will was start paying up in FY '20. So the debt has been sort of constant, I would say, subject to acquisition. Capital allocation policy consistent. We are managing between the buckets of reduced gross debt for sure, manage CapEx and then return to the shareholder. And the average dividend for last 3 years has been almost in the range of plus/minus 5%, 7%. So I hope that helped answer the question.

[Pinakin M. Parekh, Associate]

Sure. And the alumina expansion has been now optionality for 2, 3 years. I mean what is holding back the project from getting through? Is it regulatory approval? Is it bauxite? Is it capital? I mean how should we look at? Will it expand in the future?

[G. R. Arun Kumar, CFO & Whole Time Director]

I think Ajay will answer. This is actually good news we are going ahead. But, Ajay?

[Ajay Kumar Dixit, Chief Executive Officer of Alumina & Power]

So first is you saw an increase about [ 1/4 ] in the capacity. It comes because of our local bauxite sourcing to the government on Orissa bauxite where they already have a run rate of 3 million. We are confident that we will win some more mines in the vicinity, and we have a very tight schedule to now look at immediately expanding by about 1 million. The team is working on it, and I can only tell you that where we have expanded in the last year or so, this should not be very long. I think I'm looking at a 24 month on the horizon.

[Pinakin M. Parekh, Associate]

To go from 2 to 3?

[Ajay Kumar Dixit, Chief Executive Officer of Alumina & Power]

Go to 3 and then go to 4.

[Pinakin M. Parekh, Associate]

And the 3 to 4 will be additional CapEx. This is just the earlier CapEx which was half completed?

[Ajay Kumar Dixit, Chief Executive Officer of Alumina & Power]

Absolutely. We do it [indiscernible].

[Rashmi Mohanty]

Amit? You have 1 question.

[Amit A. Dixit, Financial Analyst]

Yes. Amit Dixit from Edelweiss. My question pertains to the note #9 in the account regarding -- note #8 regarding the -- that instrument, the [indiscernible] instrument. Just if you could reconcile in that how much we have to pay? How much we have already paid? And how is it reconciled in balance sheet on assets and liability side?

[G. R. Arun Kumar, CFO & Whole Time Director]

Well, just talking in dollar millions, so it's sort of easier. Just about $500 million was the total instrument that we had mentioned during the quarter 3 call. Out of which, as of year ending FY '19, we have paid up approximately $270 million. We probably have another $250 million to be paid up over the next 4 to 5 quarters, so to say. And we did go through in a lot of detail during the call and post the call last time and very happy to report that you've taken note of note #8. And I also covered it in my talk that the underlying value did go up significantly, and we have recorded mark-to-mark gains. The accumulative gain is roughly about $150-million-odd net of FX swing, which is about INR 900 crores-odd between quarter 3 and quarter 4, but primarily in quarter 4. And on the balance sheet, it is shown as cash and cash equivalents. So INR 39,000 crores includes this $270 million or roughly INR 2,000 crores that has been paid out, right? We do believe it's liquid, but if you really want to split it out, then INR 37,000 crores was cash and INR 2,000 crores roughly of this structured investment is how you'd look at it as given in the appendix.

[Amit A. Dixit, Financial Analyst]

Sir, just a follow-up question on this. Now you have said that total consideration is INR 3,812 crores that you have paid in this year. Is it correct?

[G. R. Arun Kumar, CFO & Whole Time Director]

We said that total consideration is INR 3,800 crores, which is just above $500 million. Out of which, about, you should say, 55% has been paid out and the balance, 45%, in the next 5 quarters.

[Amit A. Dixit, Financial Analyst]

So when you say the fair value of investment of investment is INR 4,772 crores, so what does that include? That includes this 250 -- sorry $270 million that we have paid, plus MTM gain?

[G. R. Arun Kumar, CFO & Whole Time Director]

Correct. And the present value of the future payment. So it's a valuation methodology. The broad way to look at it is 25 million shares multiplied by approximately every form of movement, multiplied by 1.3 will give you dollar and the rupees.

[Amit A. Dixit, Financial Analyst]

And secondly, a question -- and because the investors have been really wary of what is our rationale for acquiring the stake in Anglo? What is the endgame like? I mean, we all know that this is going to -- the option is going to come for the maturity next year. So what will happen then?

[Srinivasan Venkatakrishnan, CEO & Whole]

I'll answer that question. And we outlined very clearly the rationale behind why the investment [decision] was purely because it was giving superior returns and with hindsight has shown that actually, it delivered those returns here. As far as Vedanta is concerned and Volcan has actually -- is still holding the ownership of the shares and the voting rights. It's got nothing to do with Vedanta group at all. So as far as we are concerned, on April 20 and October 20, those structures will unwind and the money will come back to us. So there isn't a game plan which involves that underlying share as far as Vedanta is concerned.

[Rashmi Mohanty]

I'll just take one question from the webcast audience and then come back here. The question is from Ritesh Shah from Investec. His first question is on Electrosteel. 90% of the stake is with Vedanta Star Limited. How do you look at the balance 10% residual stake? Are we looking to deal it or buy out a minority?

[G. R. Arun Kumar, CFO & Whole Time Director]

The deal is being processed. It's on actually the -- it's actually been delisted and now it's in the process of merger with Vedanta Star Limited. And there will be a formula-based payout, which is not more than $30 million, $40 million, approximately, so the 10% of the shareholder. So it's pretty much a procedural thing. The more exciting thing about Electrosteel and Vedanta Star is really about the ability to expand the volumes there with very marginal CapEx. And the multiplier effect I talked about in terms of the base year volume versus next year's stabilized volume and the ramped up EBITDA at a full year level versus the average lower EBITDA of this year. So that should give us good EBITDA growth or a growth block for Vedanta in FY '20.

[Rashmi Mohanty]

Yes. There are other questions. Is there any scope of moving the Gamsberg ore to feed the Indians' Hindustan Zinc smelter?

[G. R. Arun Kumar, CFO & Whole Time Director]

I think this question was already asked in something [indiscernible]. We have no plans to move the concentrate to Hindustan Zinc, because the smelters are located in the landlocked area. So it -- if we would have subsequent to locate it at a port would have taken that call, number one. Number two, we have a metal balance in Hindustan Zinc wherein we have the expansion coming up from our mines, and we balance it with the smelter capacity. So we are debottlenecking the smelter as required to fill in the capacities coming from the expansion of the mines. But we definitely have a plan to put up a smelter at Gamsberg. We are evaluating that opportunity, but we will come at the right time to say that when our growth will start and when we are ready to go.

[Rashmi Mohanty]

There is one more question from Ashish Kejriwal from IDFC. He's asked that the net debt has reduced significantly by INR 126 billion quarter-on-quarter to INR 270 billion. The EBITDA in quarter 4 was just INR 63 billion. What could be the reason for the net debt reduction?

[G. R. Arun Kumar, CFO & Whole Time Director]

I think in the last quarter result, we had guided that we will definitely have a good quarter 4 in terms of pulling back some of the working capital investments. We do see a lot of efficiency kicking in the second half of the year. Our sales maximized. And that is one prime reason why we've been able to achieve what we did. So the good news is that the full year number is around $1.7 billion, INR 11,500 crores of free cash flow post CapEx. Approximately, about 45% to 50% is EBITDA generation. If you look at the last 4 years of trend, you would find Vedanta consistently at that percentage whatever be the level of EBITDA given the price ups and downs, because we manage our whole cash flows that then we leave enough on the table, again, to meet all the 3 requirements that I laid out earlier.

[Rashmi Mohanty]

[indiscernible]

[Unknown Analyst]

So I think it's in connection with the previous questions earlier which were asked. So just to go back to the promoter entity, we had seen almost $700 million of annual interest outgo is what their [indiscernible] right now, which translates to -- effectively, it has to be matched with the dividend payment from India, almost $1.6 billion, $1.7 billion, given that they have 50% stake. Now the cash flow at zinc is furthered by INR 16,000 crores and then we have some INR 4,000 crores or INR 5,000 crores electric gain. So we are approaching that level where even full cash outgo from zinc is probably not enough to make this sort of commitment? So what are we looking at? Are we looking at some sort of take certain zinc? Or get in zinc? Something has to match up to meet expectations at the promoter level. That's point number one. Point number two on the Cairn side. 186,000 was the total production for this year. And if you can break it up between Rajasthan and the rest, because what we have seen is a natural decline in the Rajasthan field. Now this natural decline was supposed to be offset by the enhanced oil recovery to a certain extent, which is not happening. So on what base are we adding the additional 90 of kboepd? And from the development projects and the [ bets ], what is under the new drilling project? If you can just break that part a bit over the next 2 or 3 years? And the last question, if I may, just to refresh my memory. I think there has been a bit of pull-down for FY '20 production as far as Zinc International is concerned. And FY '21 guidance has been given, but if you also give -- take us through the FY '22 guidance -- or rather FY '21 guidance, because Volcan will run out in FY '21, 112 kt that you're showing in Skorpion. So if you can also just briefly guide to the production that one should expect from Zinc International in FY '21?

[Srinivasan Venkatakrishnan, CEO & Whole]

Why don't Arun take the first one. Ajay, second and then Deshnee is on the call, so he can take the third question.

[G. R. Arun Kumar, CFO & Whole Time Director]

Sure. I think fundamentally, far from those thoughts that you're thinking about. And again, we have to ask the question in the first half, in March '18, I should go even back, my cash balance has been more or less constant, which really comes back to the point we had earlier that we're generating enough free cash flow, both for CapEx needs to do any shareholder reward that we have to. And this is Vedanta Limited so I'm not going into detail in the -- from the parent side. But whatever little public information is available, you'd gather that the annual servicing is around $350 million to $400 million, right? So that's not much. And plus, there is a separate asset where we also have Zambian mines in copper will directly roll into the [indiscernible], but I don't want to get into that. they also generate cash flows and have good potential of debt. So multiple assets and it's a strong holding at that point of time. And it enables us to access capital -- global capital. We just did a global bond issue. The biggest bond issuance by an Indian high-yield name since August 2017. So that's the strength of Vedanta and Vedanta name globally. Between the parent and Vedanta Limited, there isn't a company which, in the last 15 years, has financed or refinanced nearly $40 billion of global debt raising capital market. So -- and also gives us access to so many bank relationships, [indiscernible] Indian banks, private banks, et cetera. So I think we're in a good spot. The fundamental focus for us is really on the growth blocks on EBITDA, right? We did mention Electrosteel, we have big growth block even though it's small volume. But the effect of big is that I, as you rightly observed and I'm sure that [ steel ] will endorse it, Gamsberg goes from 0 to nothing. And Sunil, Zinc India simply has to grow -- even a Hindu growth rate -- Hindu rate of growth is enough for him to generate big EBITDA if you see what I mean and he has already guided 12% up in volumes. And with that kind of margins with first the file cost of positioning, just look at the quality of the asset and, more important than not, is India needs a country -- I mean, a company like there's a natural resources company in the Indian subcontinent where 1 out of every 4 human beings live. There is no other company doing this kind of business. Yes, there are some other companies, they've power, they've steel, there's automobile, et cetera, but natural resources play, fundamental resources that go into everything is a basic need of all of us. So I think that's what really drives us to deliver more, and we have enough the building blocks of our EBITDA. And I do think we'll dip into our cash reserve that we have in -- they're all there for the rainy day, but having almost INR 40,000 crores of cash reserve is fantastic. I believe it's probably the second biggest treasury in the country as well so that's another data point. And this is after contributing nearly INR 43,000 crores to the exchequer, government of India with the revenue -- I mean, with the sales royalty tax, indirect tax, dividend, et cetera, which again, places us either at #1 or #2 in the country. So I think all of us can feel good to have this kind of quality assets and that kind of cash flow to meet all our natural resources ambitions for the subcontinent.Yes. So when we said about 200,000 to 220,000, the decline has been accounted for. Just I will reconcile again the number, which I said in the beginning. The bottom production is close to about 35. And the other than ASP asset is close to about [ 90-plus ]. So even if you consider another 20, 25 decline, and you add back, you reach an exit rate of about 270-plus. So on an average, therefore, this number is including the -- considering the decline.

[Rashmi Mohanty]

Received during the call, can you take up the third question? Guidance on [indiscernible] for FY '20? And then if possible, some insight as to the next plan?

[Deshnee Naidoo, CEO of Africa Base Metals & Konkola Copper Mines]

Sure. Rashmi, am I audible? Hello, Rashmi, am I audible?

[Rashmi Mohanty]

Yes, Deshnee. Thanks.

[Deshnee Naidoo, CEO of Africa Base Metals & Konkola Copper Mines]

All right. Okay. Thank you. All right. So in terms of what you look at Zinc International. Over the next 2 to 3 years, Black Mountain continues to be a stable producer around that 70-odd-thousand tonnes of MIC level. In terms of Skorpion, you're absolutely right. Skorpion starts to ramp down in the next financial year. You will remember when we gave guidance on the Pit 112 pushback, we indicated that we had some 250,000 to 270,000 tonnes of zinc metal that we could get out of it. And last year's production took around 60-odd-thousand off that, so we are left with around 200,000 tonnes of zinc metal between this year and next year. Of course, the plan is to accelerate that metal production this year and then the balance, try and shorten the life for next year. So we've guided more on the ore production, leading into metal for our Skorpion this year. But between this year and next year, we want to produce just under 200,000 tonnes of zinc metal. As it stands, the plan with Skorpion this year is around 120,000, 130,000 tonnes of zinc metal. And if you look at it, Skorpion's performance over the last 3 years, this will be one of its largest years, all driven by the fact that we start to get into some double-digit grade profits within the said pit. On Gamsberg, if you look at the entire project, we have been talking about an average grade of 6% to 6.5%. So I look at Gamsberg in terms of how quickly I can ramp it up to 3 million to 4 million tonnes of ore from a run-of-mine point of view as early on as possible. In terms of how we planned this year, we get to close to that ramp up of 330,000 tonnes of ore treatment at the end of quarter 1. So because we continue to be in a lower-grade regime than the average grade from now 'til the end of this financial year, we are therefore guiding around 180,000 tonnes to 200,000 tonnes of MIC. And then next year, the grade does pick up. But yet again, we will be able to exceed 4 million tonnes, but still not be for average grade. And that is why next year, we can look at maybe 220,000 to 230,000 tonnes of MIC for Gamsberg. I trust that answers the question and there is enough insight in terms of how we're looking at planning.

[Rashmi Mohanty]

Thank you. We have a question on the audio audience.

[Unknown Analyst]

[indiscernible] If you can touch upon the additional resource potential in Swartberg, [indiscernible] and in terms of your [indiscernible], et cetera, just to give a long-term trajectory it will be good..

[Deshnee Naidoo, CEO of Africa Base Metals & Konkola Copper Mines]

Okay. The thing what's exciting on the international and for the many analysts that [indiscernible]. Year-on-year, our reserve [indiscernible of 30%. So we're now sitting at 4 million tonnes more of zinc metal, just under 30 million tonnes of zinc metal and equivalent in our resource base. What we've done outside of proving up our resources in the last year, we've also both confident in terms of the project pipeline. So the phase 2 project, which many of you will remember on Gamsberg is a doubling up of the pit when we go from 4 million tonnes to 8 million tonnes of ore and then another modular of the plant is in feasibility. And in the course of this financial year, we'll be looking to approve that project and hopefully start. Venkat as well as Arun touched on the zinc refinery. That's work that we want to complete this year because, I mean, if you're in a high PP market, it's always best to be in an industry where you are getting all of the benefit on metal. So [ Kamil ] and myself are looking at that. But as zinc at [ 30 ], though, we might be looking at ramping down the Skorpion mine and the plant within the next 18 months, but there does remain a little bit of metal under Pit 112. We need to figure out how smartly and safely to get it out. And there is or there does remain a [indiscernible] project, which is a JV with the neighboring Trevali mine, [indiscernible], so we are looking at how we can exploit that. So I think as Venkat and the Chairman like to say, at Zinc International, there continues to be sufficient water in the well and the path for the coming year is to look at how quickly we can get this into production, into a market, looking, as you are all seeing, that this business continues to be the highest potential in terms of step change for the group.

[Rashmi Mohanty]

Thanks, Deshnee. We have one question on the audio that we will take now.

[Operator]

That is from the line of Vineet Maloo from Birla Sun Life.

[Vineet Maloo, Fund Manager]

My question is related to Aluminum segment. On the slide on Aluminum profitability bridge that you've shown, it seems that the EBITDA for that is $131 per tonne and your realization is about $2,010 something. So I am not able to get to $2,010. So it implies a cost of $1,870-odd, whereas in our cost numbers, you have shown a cost of $1,770. So I'm just wondering where is the difference? How do we reconcile this from the profitability bridge to the number that we have -- your actual number of $1,770?

[G. R. Arun Kumar, CFO & Whole Time Director]

I think the audio line wasn't awfully clear, but are you referring to the bridge page or the tendered Aluminum business? Well, I can throw a little bit light on the tenders.

[Vineet Maloo, Fund Manager]

So I'm on Slide 42, which was Aluminum profitability where your total realization is $2,010 per tonne and your EBITDA per tonne is $131. And if I find the difference between them is implied cost, which is about $1,870, which is about $100 higher than the actual reported cost of $1,776-odd. I just wanted to reconcile the difference of about $100.

[G. R. Arun Kumar, CFO & Whole Time Director]

I think we do get your question, but we can come back -- the IR team will come back to you off-line on the exact reconciliation of the numbers. But broadly, to make the point I think for Ajay and the business is really about the guidance that we've given at $1,725-odd I think is the guidance given in the appendix, which typically is hot metal. We've been conservative there. And we also understand that we always have a premium of about $200. With increasing domestic share this year, I think about 3 percentage points, has gone up very much in the last 2, 3 months actually as well as the fact that the VAP percentage, the value-added percentage is constantly going up. We exited last year at about 58%, and we're already clocking 60-plus at this point of time. So that could add another $30 or so more to the top line. So any Aluminum you take anywhere between $1,750 to $1,950, or an average in between Aluminum, you add another $200, 230 and reduce $1,750, $1,775, that should be a conservative margin. I would say, it can get to INR 350, INR 400, a nice target. And what is the potential of that business? Very easily, it's 600 because as you already have been articulating and what Ajay and Venkat covered in the bauxite supply. Every tonne of aluminum produces bauxite uses about $300 benefit in the EBITDA actually. So the more and more as we convert during the year, the cost should start gradually coming down. So on a lighter note, I do hope Ajay's kept a lot of [ copper ] in his guidance and he's going to beat it, but that's the direction of Aluminum. Do you want to add, Ajay?

[Ajay Kumar Dixit, Chief Executive Officer of Alumina & Power]

No. I think you have almost stated everything. The building blocks are coal because last year, we had to pay heavily when coal was not available. Thankfully, as was also mentioned by Venkat in his address, we have more than 10 days stock at all our sites. Our linkage and also our short supplies, along with our own Chotia block, is now upwards of 70. We would target reaching closer to a run rate of 80, 85 end of the year. So that's all the big part of our cost. Second is alumina where I already spoke about 3 million run rate on the locally available bauxite. And in addition, with [indiscernible], we have a long-term contract, that should also further help us. I think these are the 2 big building blocks. Marketing and sales is something what Arun already mentioned. We are wanting to increase our domestic, which we can already say the run rate is much better and also the value-added products. I think those are the building blocks.

[Rashmi Mohanty]

Thanks, Ajay. Indrajit, do you have a question?

[Indrajit Agarwal, Equity Analyst]

This is Indrajit from Goldman Sachs. I have 2 questions. First on Aluminum. What is the status of procuring alumina from NALCO? Any update on that?

[G. R. Arun Kumar, CFO & Whole Time Director]

So the matter is [ disputed ]. The High Court has opined it favorably now in our favor. It's under appeal at Supreme Court as of now.

[Indrajit Agarwal, Equity Analyst]

Sure. And on the -- despite benchmark, price is going down sequentially. Our realizations have risen sharply. So what has contributed to that?

[G. R. Arun Kumar, CFO & Whole Time Director]

[indiscernible]

[Indrajit Agarwal, Equity Analyst]

On steel realizations, our realizations have increased sharply quarter-on-quarter despite benchmark prices going down. So what has contributed to that?

[G. R. Arun Kumar, CFO & Whole Time Director]

So one is the volume. Another is the IBRM material. So input cost has gone down. And the coal prices also softened a bit. So it's combination of the productivity. Product portfolio, I would say, has improved because over these times, the figure in percentage has gone down. So next year, we have taken even a -- the smaller target. So the product portfolio improvement, IBRM prices, internal efficiency, coal prices, so a combination of that has improved the margin.

[Rashmi Mohanty]

Yes, someone can come. We'll take that.

[Unknown Analyst]

This is [indiscernible] from Kotak. Two questions. One on this $400 million investment in Volcan. Now we did this in search of better yields in case really for the -- appear to still remain above market yields. Are we open to increase this investment beyond the current $400 million? Or we are done with this instrument?

[Srinivasan Venkatakrishnan, CEO & Whole]

I'll answer that question. We're done with it. And that's what we said last time and it stays there.

[G. R. Arun Kumar, CFO & Whole Time Director]

A very quick clarification on the previous question and it was new, Page 25 with regards to talk about the hot metal cost in Aluminum. And the [indiscernible] was $,700. The average for the quarter was $1,780-ish. Page 42 will talk about including conversion cost of $103. That gives you a reconciliation of $131 EBITDA margin, right? Thanks.

[Unknown Analyst]

Just one small bookkeeping. We've discontinued giving the buyer credit, so if you could disclose that?

[G. R. Arun Kumar, CFO & Whole Time Director]

We'll take your suggestion, and we'll definitely put in our footnotes soon on that. I mentioned last time, it's about $1 billion of steel around that purchased. There's no significant movement in the last almost 4 quarters, I would say. It's just capital employed -- working capital employed sort of.

[Rashmi Mohanty]

We have one more question on the audio line. We can take that.

[Operator]

That is from the line of Abhishek Poddar from HDFC Mutual Fund (sic) [ Kotak Securities ].

[Abhishek Poddar, Research Analyst]

First one is regarding the power cost in the Aluminum segment. We are seeing the 20% decline. I think in 3Q, you had reported at $793 per tonne in the power cost, which has come down to $632. What has led to such a sharp decline in power?

[Ajay Kumar Dixit, Chief Executive Officer of Alumina & Power]

It's basically coming from our no imports. Earlier, we didn't have coal so we had to import power, which was at INR 6 for an average. So I think that's been the key factor. And as I mentioned, our security from our linkage and other domestic sources and also own mine, Chotia, which almost went up to closer to 0.6 million this year. I think that added to the power cost.

[Abhishek Poddar, Research Analyst]

So how do we see the sourcing in FY '20?

[Ajay Kumar Dixit, Chief Executive Officer of Alumina & Power]

FY '20, I think the direction is what we did last quarter, we should actually do better than that.

[Abhishek Poddar, Research Analyst]

So imports for Aluminum in that case.

[G. R. Arun Kumar, CFO & Whole Time Director]

And if we can just help you with a couple of data points, I think we exceeded -- we exited the year with almost 2/3 of linkage percentage. And thanks to the fourth round of coal linkage auctions, which we started realizing in fourth quarter. Plus the fact that you'd remember we had driven one of mine in BALCO [indiscernible], that started producing. So you'll have a full year impact of both of this as well as a fifth round of auctions scheduled for August '19. So structurally coal, 3/4 perhaps linkage security as Ajay elucidated. And the balance would be spot and import if required, but then they become very small. BALCO has almost reached a design level of around $560, $550 in quarter 4 as exited. So pretty much a nice tick for BALCO?

[Abhishek Poddar, Research Analyst]

Okay. And the last question is regarding the net debt breakup that you have given in Slide 34 of the presentation. There's one item in Cairn India Holdings where the net cash has gone up from [ $38 billion ] in previous quarter to [ $57 billion ]. What has led to that increase?

[G. R. Arun Kumar, CFO & Whole Time Director]

Okay. Cairn India Holdings is an operating entity at the end of the day and half of the Cairn business you'll recollect fits in that. So exact reconciliation, I'm sure that Naveen can get back. But broadly, I mean, it's a nice question to have why is going up. It will go up. The output is coming and the profit petroleum is going up there. So EBITDA has gone up in quarter 4. And as I mentioned earlier, that includes the investment that we have made, which is roughly around $270 million or INR 2,000 crores approximately there, included in cash and cash equivalent.

[Operator]

Thank you. I now hand the conference back to Ms. Rashmi Mohanty.

[Rashmi Mohanty]

Thank you. Again, any other follow-up questions, or we can just wrap it up?

[Unknown Analyst]

End of the day, the linkage supply is dependent on Coal India basically meeting its commitment, right? So through that extended period with a repeat of this first half of 2019 where the power demand shoots up and coal India alike. Then the cost guidance would again come under stress, right? I mean the linkages wouldn't matter. That would be a fair assumption?

[Unknown Executive]

I think you have already said that, sir, in your question. This volatility is very, very severe, but when I meet the people and I talk to, Coal India did a very -- highest production you see it at 7%. I think they're also well geared to go ahead. If you see overall coal stocks in the country, across sector and coming from cement, and we've a softening there as well, but I hear now that there's a sufficient amount of coal available. So the risk remains but I think it also happened because at one stage the government also went more for domestic at the cost of imported. You know that full story. Now I think that that [ mistake ] for us will not become [indiscernible]. So I'm more confident, more bullish on coal supply.

[Unknown Analyst]

So given your experience of cement, if the coke consumption keeps on coming down and cement has been gone for so many years and there calls to go to coal, does that tighten the situation further or...

[G. R. Arun Kumar, CFO & Whole Time Director]

[indiscernible] it's a relatively -- very small buy of the -- we buy in Aluminum alone close to 60,000 tonnes of coal every day. I mean, that's [indiscernible] the kind of a coal cement sector can buy.

[Rashmi Mohanty]

Thank you, everyone, for joining us here in [indiscernible] on the webcast and on the audio call as well. As always, if there are any follow-up questions, we're available. The IR team is here and you can reach out to us. Thank you so much.