Hindustan Zinc Limited analyst Q&A

The first question is from the line of Amit Lahoti from Emkay Global.

My questions are on silver. So the first one is, are we running the plant on lead mode or zinc - lead mode given pricing economics favor lead mode?

No, no, we are running the plant still on zinc -lead mode because what we are doing is we are slightly tweaking the strategy from the earlier strategy of our silver we run only on lead mode. What we are doing, we are running on zinc plus lead mode, but we a re consuming most of the concentrate, which is coming from SK Mine, which is rich in silver. This also has to be seen along with the grade of silver, which the mine is producing. Current grade of silver is not very high. It's around 90 ppm. So we would not be getting that much benefit with lead mode as we were getting earlier. So it is prudent to run in zinc plus lead mode while maximizing use of SK Mine concentrate so that we at least produce all the silver that we can in the current circumstances.

And then based on our 680 tons of guidance for silver, the asking rate for the second half is high given that first half production has been a little slow. So how are we looking to achieve this number? And then do we have visibility of producing, say, 800 tons capacity in a year or two?

Yes, yes. So what we have done in H2, we have diverted resources from other mines to SK Mine and also we have incentivized the contractors and workmen who are working there, to ensure that we attack those stopes with high silver quantity and produce them i n H2 so that we get the maximum advantage of silver till the time the prices are high. So that would change you will see in the numbers as we keep on delivering. H2 will produce the numbers so that we can reach the guidance that we are very confident of that we have released today.

Then can we reach 800 tons in, say, FY '27? Is that a target?

That's the target because by that time, we will have this current fumer fully stabilized. We will have that with the acid leaching from jarosite to recover some amount of silver. We will also have the new 250 KTPA plant coming in. From there also, it will be built along with fumer. So it may not be 800 ton, but surely from 700 ton on an average to 750 ton looks possible.

The next question is from the line of Manav Gogia from YES Securities Limited.

First of all, congratulations on the good set of numbers. Sir, my first question comes around the 250 KTPA smelter project, which is costing about INR12,000 crores. And now we have a tailings project of INR3,800 crores coming up. So how do we see the capex shaping up for the next couple of fiscals, particularly '27 and '28?

So I'll just correct you a little that 250 KTPA smelter per se is not INR12,000 crores. It is a smelter, expansion of mine , new concentrator plant , altogether. That part of the project is INR12,000 crore. As far as -- what was your second question, that 250 KTPA smelter, we have already started work on the ground and we are finalizing the technology that this smelter. The cell houses will be 240 kiloamps cell house compared to the earlier cell houses, which were 200 kiloamps. And we are also looking to begin the inherent ability to debottleneck and increase the capacity further with a marginal capex investment. Once we stab ilize that 250 KTPA production, we will be able to debottleneck further.

And Manav, this is Sandeep here. I think you also wanted to know how the capital allocation or capex will be there in the next 3 to 4 years. So this INR16,000 crores will be around 20% will be in this year or around 50% in the next year and then remaining will be next to next year. So normally, the capex es goes in those manner. Initially, you pay them advances in mobilization advances to 20% to 25% this year and 55% to 60% next year and then remaining in FY '28.

And sir, for FY '26, we have USD350 million to USD400 million growth capex. What would be the total inclusive of the maintenance capex for this particular year?

This is the growth capex. Maintenance capex will be around USD400 million.

Okay. Okay. Got it. Sure sir. Sir my second question again comes back to the tailings project. I just wanted to know what sort of refined metal output are we looking at from this 10 million tons of the tailings project that we are setting up.

From the 10 million tons -- from the tailings project that we're looking at about 100 KT odd zinc metal should be produced.

It's going to be purely zinc coming out of this?

Zinc and some proportionate, but very low quantity of lead also.

And then around 20 tons…

25 tons. Yes.

Silver containing in the concentrate.

7.4%.

7.4%. Earlier was 7.53% in Q1, right?

But 7.53% this time also, our expectation was 7%, but we could finish at 7.4%.

We should also look at Y-o-Y. Last year quarter was 7.3%.

The next question is from the line of Pallav Agarwal from Antique Stock Broking.

Yes. Good evening, sir. Sir, just want to get a sense of what is the proportion of renewable energy in this quarter and what can it be at the end of FY '26?

19% was the renewable energy during this quarter, and the exit, we -- as we said earlier, should be 25%.

Sir, and this should be one of the factors for our cost COP staying down?

So as we said earlier, every 2% of the renewable energy increase reduced by power cost by $1 - - the total cost by $1.5 per ton. So that is one of the key factor. Apart from the overall coal cost also softening, that is also helping us in the overall power cost.

Sure, sir. And any reason why our depreciation declined sequentially because mine metal production was broadly similar. So we've seen a decrease on a sequential basis in depreciation?

Yes. Initially, it has decreased on the amortization , there are two po rtion, depreciation and amortization. So, we have a lower mining rate. So it is a function of the mine development per meter . Accordingly, our mine development rate per meter was still down. Accordingly, amortisation cost has reduced.

Sir, I'm sorry to interrupt you, your voice is breaking right now.

Am I audible?

Can you repeat your -- sir, please repeat your last line. We couldn't hear it clearly.

So amort -- the depreciation and amortization Pallav contains two para -- items, depreciation and amortization. While depreciation has been increased with the roaster and the debottlenecking capex is getting capitalized, there was a benefit in terms of a r eduction in amortization expenditure given that it is a function of the mine development rate per meter. So that was trued up in line with that, the amortization expenditure has been lower.

Sure sir. Also, just on the net debt. So we have seen a decline on a sequential basis. So are we still expecting that we could probably end up with a net cash position by the end of FY '26?

We should be. We should be at a net -- it should be flat given that we have revised our growth capex guidance from $350 million to $400 million. As we said earlier, pre-growth capex should be our number, $1.1 billion to $1.2 billion. And with the growth ca pex investment and overall sustaining, we should be generating the numbers in that basis, we should be a net debt or net cash flat.

Sure sir. So lastly, I mean, so now I think we are coming back to below $1,000 of COP. So one obviously is the increasing proportion of renewable power. So that's reducing the power and fuel cost. And also, I think maybe in the second half, maybe your grades also sh ould improve. So would that also contribute to the COP coming down?

Yes. Yes. So we should be expecting COP around $950 to $975 in the Q4 exit.

The next question is from the line of Sumangal Nevatia from Kotak Securities.

Yes. Sir, first question on our hedging policy. In the past, we occasionally hedged and sold forward some volumes. So as on today, what is our position given the spike in zinc and silver prices, are we looking at hedging some volumes? And principally, if you ca n reiterate what is our strategy?

So Sandeep here. Currently, we are hedged or open position of hedging of zinc at 87 KT at an average price of $2,872, that is the hedge position as on date. And silver, we are hedged by 131 tons with an average price of $37 per troy ounce. So the strategy remains that how -- if there is a spike in the prices and we see it better than our internal business plan accordingly, some portion we can hit. So it gives the balancing of the margin on the hedge position, which is 10% to 20%. On the remaining 80%, it remains open exposure. So that is something we are thinking to put the strategy in place.

For second half FY '26?

FY '26 second half, that's what I was saying. Open quantity is 131 ton of the silver and 87 Kt of the zinc.

That is the hedged quantity, right, not the open quantity?

That’s open quantity. That's what I'm saying. Second half you are asking? Open means hedge quantity remaining will be open. You reduce whatever we will produce in minus 131 will remain open.

Yes, that’s what. I understood. Understood sir. Sir, second question is on the volumes. Now practically, our capacity is around 1.18 -- sorry, 1.128. When can we achieve these volumes given all our projects are now in place, can we hit this sometime in FY '27 next year, which implies high early double-digit kind of a growth in volumes?

We will have the growth up to 1.1 million ton plus next year surely because see the way we had put up the reason for which we had put up the new roaster was to create that availability of calcine and allow other roasters to go on shutdown whenever required, so that there was never a shortage of calcine. But that delay in commissioning of R6 have impacted availability of calcine in H1, and that is showing in the results. However, in H2 from the calcine side were projected. Now we have also debottlenecked our Dariba Cell House by increasing the current capacity from 200 kiloamps to 210 kiloamps. And we'll be doing the same thing in Chanderiya in this month. So, two together will give us additional 25 Kt of production over the base of -- earlier base of 1,040 and 1,080 Kt. So altogether, next year, we are absolutely positioned correctly to achieve more than 1.1 million ton metal. We could have achieved this year also had the Roaster 6 commissioning not got delayed.

Understood, sir. understood. And just one last question. Any of our earlier planned strategic action like acquisition of Zinc International or split of business into zinc, lead, silver, anything of that on the cards now over the next near to medium term?

No, acquisition of Zinc International is really out of the question because that is separately trying to expand and they will become 1 million ton player by themselves. And we are also trying to grow from 1 million ton to 2 million ton. So right now, we have no more capacity to absorb any further zinc capacity from any other part of the world. So that's number one. And number two, on the demerger, we still believe that's the right process, and we will take it up wherever it is required because as you can understand today, with such rising silver prices, if we were demerged into zinc, lead and silver company, net valuation would have been far better than what it is now.

Understood, sir. Thank you and all the best.

Thank you.

Thank you. The next question is from the line of Raashi Chopra from Citigroup. Please go ahead.

Thank you. I just want a clarification on some of your answers. On the capex side, you mentioned that the capex breakdown for the two projects, that is one is INR12,000 crores and the other is INR3,800 crores. That will be 20% this year, 50% next year and then the balance following. Is my understanding correct?

Yes, broadly correct.

So, FY '26 you've indicated that growth capex of 350 million to 400 million, that includes this 20% that we're talking about, right?

Yes.

Okay. And maintenance capex is at 400 million?

Yes.

All right. Then on the hedge position, 131 of silver. What is -- I missed the price. It's hedged at 87 to 84 of zinc , what are the prices? Open hedging.

Okay. And renewable proportion this year -- this quarter, sorry, how much?

19%.

So same as the first quarter?

Yes. So it will be increasing with the wind capacities getting added during this quarter.

And the 70% target that you have given in the presentation, that is for when?

FY '28.

FY ‘28, we'll have 70%.

And just last question for me. How much domestic coal -- what was the proportion of domestic coal in this quarter?

58% was the same quarter and last -- overall H1, it was around 52%.

Got it. Thank you.

Thank you. The next question is from the line of Pavan Kaware from Nayan M Vala Securities. Please go ahead.

So, my question was on the outlook for the '27 and ’28. Do we have calculated on the refined metal productions?

No, no. FY '27, you are talking about FY '27, '28. That outlook we cannot give now. After we do business plan, then we will release the guidance for next year. That time you will come to know.

Any ballpark numbers in terms of mined metal?

No, no, no. As we said that, you know, all that I can say that this year we tried to produce 1.1 million tons. Had the roaster commission not got delayed, we would have surely achieved. Now, that means now the roaster is commissioned, so next year this number should be achievable. But what will be our guidance next year? We will be able to tell only next year.

Okay. And in terms of the debottlenecking of smelters, is there any increase in the refined metal capacity?

It's about 25,000 tons of metal production capacity.

On annually.

Annual.

It's only zinc only. Debottlenecking is in zinc.

Thank you. And that's it from my side.

Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Ms. Jain for closing comments. Thank you, and over to you, ma'am.

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Thank you. Thank you, members of the management. On behalf of Hindustan Zinc, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.