Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Arora, Head of Investor Relations. Thank you and over to you, ma'am.
Thank you. Good afternoon, everyone. I welcome you all to Hindustan Zinc's first quarter ended FY 2023 results briefing. Today on the call we have with us our CEO, Mr. Arun Misra, and our Deputy and Interim CFO, Mr. Sandeep Modi. Mr. Misra will begin with an update on business performance, while Mr. Modi will walk you through financial performance, after which we will open the floor for questions. I now request Mr. Misra to begin today's call. Over to you, Mr. Misra.
Thank you, Shweta. Good afternoon, everyone. Thank you for joining us today for the first quarter of FY 2023 results briefing. Before I begin today's results presentation, I regret to inform you all that we have lost one of our business partner colleagues in an unfortunate accident that happened at our Zawar mines on 12th of April, 2022. I would like to offer my deepest condolences to the bereaved family and friends of the deceased. We commit to stand by the family in this hour of distress. An in-depth independent investigation is conducted on the incident, and the learnings have been reviewed and are being implemented across all our operating assets. We have also continued our proactive safety and health initiatives during the quarter.
Some of the major ones included blasting point standardization, identification and automation of high-risk manual activities, role-specific zero fatality plans, and safety guidelines against truck toppling. We also initiated cardiac evaluation program covering 12,000 employees so far. At Hindustan Zinc, it is our sincere belief that people are our most valued asset, and we nurture them with our best-in-class people practices. This is also reflected in external recognitions that we receive. On this account, I am to share that Hindustan Zinc has been certified as a Great Place t o Work for fourth year in a row. Coming to an update on the ESG front. In line with our commitment to net zero by 2050, Hindustan Zinc has deployed India's first battery electric vehicle in an underground mine at Zawar location.
Under our engagement with the International Union for Conservation of Nature, IUCN, we have reframed Hindustan Zinc biodiversity policy and prepared an Integrated Biodiversity Assessment Tool, IBAT, report for all our adjacent locations, identifying the presence of critical habitats and species, if any, within the core and buffer zones. Hindustan Zinc has also initiated work for the installation of a 4,000 kL per day zero liquid discharge plant at Zawar mines. I am also elated to inform you that Hindustan Zinc's Chanderiya Smelting Complex and Zinc Smelter, Debari, have both received a GreenCo rating of Gold and Silver respectively at the 5th Edition of the 7R's Conference. Moreover, our risk management system is certified as per ISO 31000:2018 version. All of these collectively play a very important role when it comes to making progress on ESG front.
A quick update on our on-ground CSR activities. Our CSR team has played an excellent balancing act on managing the ongoing long-term core initiatives along with health and COVID-related support during these trying times. The team has continued their well-rounded efforts towards education, sustainable livelihood via skill development, and the establishment of a self-reliant financial ecosystem for the communities, women empowerment, health, and sports. I am happy to inform that our Khushi Anganwadi Nand Ghar program was recognized and awarded in the 6th CSR Health Impact Award 2022 under the category CSR Health Campaign for its remarkable work in the field of improving health status among the children below six years of age and women. Turning to an update on market. On the global supply side equation, the widening spread in prices reflects the erosion of LME stocks, which seem set to fall to unprecedentedly low levels.
At the end of May, LME stocks stood at 84 KT, of which 38,000 tons were canceled. By the end of June, the headline stock figure was little changed at 81,000 tons, but canceled warrants had risen to 63,000 tons, leaving just 18,000 tons of live LME zinc stocks. The zinc market witnessed backwardation during the quarter. On demand side, with rising interest rates and inflationary pressures globally, consumers and business spending have started to decline, threatening to undermine zinc demand in the times to come. The S&P Global Eurozone Construction PMI for May 2022 fell to 49.2 from 50.4 in April on account of higher input prices and supply chain constraints, which affected output as well as demand. All three segments, that is housing activity, commercial activity, and civil engineering, witnessed a decline.
However, with substantial backlog of work for manufacturers in many parts of the world helped zinc demand to stay robust year- to- date. With the impact of the continued distribution of European Union’s EUR 2 trillion stimulus package, zinc demand is expected to remain strong in the foreseeable future. Touching briefly on lead. After the volatility seen in the month of March, quarter one started as flat and relatively uneventful. In June, we saw prices tumble by 11% from the start of the month to finish at $1,907 per ton for the London Metal Exchange. The key driver for this drop in value was the strengthening of the U.S. dollar, supported by global interest rates, renewed coronavirus outbreaks, and the deepening crisis from the Russian war on Ukraine and the resulting overall pessimism for the base metals demand.
Lead was still the best performing among all the key LME base metals. Coming to silver, which increasingly focus on renewable sources of energy, demand for photovoltaic cells which are used in solar panels is expected to grow. Silver being the key component for the same should experience demand tailwinds, thus supporting prices in the medium term. Talking about domestic market, India's industrial growth IIP index jumped 7.1% in April 2022, as compared to 2.2% in March. The rise in IIP index of 7.1% is the highest in eight months, mainly led by good growth in power and mining sectors, which grew by 11.8% and 7.8% respectively. Manufacturing sector recorded a growth of 6.3% in the first month of the current financial year.
Coming to an update on operational performance, Hindustan Zinc delivered best ever first quarter mined metal, refined metal and silver production. Here, I would also like to bring your attention to the seasonality of first quarter, which is traditionally viewed as a subdued one. With our learnings through the years, we have made certain structural changes to neutralize this seasonality effect and are confident to deliver uniformly on volumes throughout the year. With current run rates for both mined metal and refined metal hovering above 1 million tons per annum, we are confident to deliver on our promised volume guidance for FY 2023 and would like to keep it unchanged. Coming to some of the key updates, I am delighted to inform you that our Board has approved the setting up of the fertilizer plant. Also, we have received an approval for setting up of an additional roaster.
These synergistic projects, along with value chain, will further aid to deliver value for all our stakeholders. With this, I hand over the call to Sandeep for an update on the financial performance.
Thank you, Mr. Misra, and good afternoon, everyone. It was another record quarter where we took significant milestones and continued positive momentum of our financial performance. We delivered historic high quarterly revenue, EBITDA and net profit. This winning streak is supported by our proactiveness to cash in the favorable LME environment by embarking on strategic hedging from last quarter as well as ongoing operational efficiency initiatives, volume delivery and cost rationalization. All of this has helped us to protect our margins and wrestle with input commodity inflation. Being in the first quarter cost curve, our margins are resilient owing to their positive correlation with LME prices, thus creating a favorable trade-off for us in the inflationary environment. Quick update on financial performance for the first quarter ended June 2022.
Revenue from operations during the quarter was at record INR 9,387 crore, an increase of 44% YoY, led by higher zinc volume and zinc LME prices. Gains from strategic hedging as well as favorable exchange rates, which were partly offset by lower silver prices. Zinc LME prices and zinc metal sales increased by 34% and 10% respectively as compared to last year. Sequentially, revenue was 7% up, primarily driven by higher zinc prices and lead and silver volume. Gains from strategic hedging partly offset by lower zinc volume and lower lead and silver prices. Lead and silver sales volume was sequentially up 9% and 10% respectively. Zinc cost of production before royalty during the quarter was $1,264 per metric ton, higher by 18% YoY and 11% sequentially.
It was up 23% YoY and 14% sequentially. The COP has been adversely affected on account of higher coal prices, input commodity inflation, lower domestic coal, that's linkage coal from Coal India availability, partially offset by higher volume, better sulfuric acid realization and improved recovery. EBITDA for the quarter was a record INR 5,278 crore, up 48% from a year ago, primarily on account of higher zinc LME and volume and was up 5% sequentially on account of LME, lead and silver volume, while being partly offset by the higher cost. Effective tax rate for the quarter was approximately 33.8%, marginally higher from last quarter on a quarter-on-quarter basis.
Consolidated net profit for the quarter was INR 3,092 crore, up 56% YoY and 6% sequentially on account of favorable LME, while being partly offset by the rising input commodity prices. I am also happy to state on record that last week the Board had approved an interim dividend of INR 21 per share, which is 1,050% basic face value of INR 2 per share, and amounts to INR 8,873 crore. The record date for the same is today. This reinforces our commitment to our stated dividend policy as well as superior shareholder returns. Coming to our cost and CapEx guidance for the fiscal year 2023, we keep both our cost and CapEx guidance intact. As I mentioned in the last few quarters, that we are facing an upward pressure on input commodity prices.
I would like to reiterate that we will continue to closely monitor the situation this quarter, and we'll take all necessary steps to address it. With this, I open the floor for your questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two.
Participants are requested to use handsets while asking a question. Anyone who has a question may enter star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Abhiram Iyer from Deutsche Bank. Please go ahead.
Congratulations on a good set of numbers. My first question was with respect to the hedge, strategic hedging that the company has done. It's mentioned that you've sold forward 21% of expected production for FY 2023, including what was sold in Q4 FY 2022. If we look forward from Q2 onwards, could you just let us know how much, you know, sales has been hedged and at what price?
The last quarter, in last quarter we hedged 18% and cumulatively hedged 21%, and the 18% was also for the full year 2023. Now only 3% we hedged during the quarter one. The total price at which average price was $4,100 per ton.
Going forward, there is no hedge, right? Because you've completed the entire 21%.
We remain opportunistic and we will see, wait and watch and accordingly take the decision.
Got it, sir. Could you also just let us know any update on the government stake sale that's proceeding? Is there any update from the company's perspective or from where this is going, and would you know what essentially might be the outcome here?
No, it is, as you know, Arun Misra here. As you know, after the Supreme Court's decision, it is government's internal working has to be completed before they declare the stake sale. I think the procedures, how this will be done, what would be the tranche quantity that will be put out, in the market for, you know, disinvestment. All those, rules are being worked out, and that is what is our, update that we have. Once that is done, I am sure government will go ahead and do it.
Got it, sir. Just one last question. You mentioned that the project CapEx is around $ 125 million-$150 million. What will be your sort of total capital expenditure that's incurred? Any kind of, any other, you know, new project or any maintenance CapEx, what will be the total figure?
Maintenance CapEx, there is no change in the guidance which we've given earlier. With these two new projects announced, we still maintain the same guidance for the project CapEx between $125 million-$150 million.
Got it, sir. What's the maintenance CapEx amount, sir, if I may request it?
The maintenance CapEx amount remains between $350-$400 million.
Got it, sir. Thank you very much.
Thank you. Our next question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Yeah, thanks for the opportunity and congratulations for a good set of numbers. I have two questions. The first one is on the
Mr. Dixit, I'm sorry to interrupt. If you're using a hands-free or speaker mode, switch it to handset and speak.
Yeah. Am I audible now?
Yes.
Yeah, I said thanks for the opportunity and congratulations for a good set of numbers. I have a couple of questions. The first one is on the coal cost and the sourcing mix during this quarter. If you could throw light on, you know, the mix of exports, linkages, materalization load, and how is the cost and sourcing expected to evolve over next quarter? That is the first question.
Amit, thanks for the question. The coal cost, as you see, our sourcing markets are largely Australian and Indonesian. Australian index of Newcastle has increased significantly. Still, we have been able to hold our cost within the range bound. The coal index, if you see compare YoY, it has increased to 250%. If you see our cost has increased around YoY 20%. We continue to do the various alternate fuels, innovation and operational efficiency to control the cost. I will say in my opening thing that we continue to maintain the same guidance for the full year, and we will remain watchful and take all the necessary action to contain the cost and meet the guidance.
Okay. The second question is essentially on the production guidance. Now a little bit intrigued on the guidance because you mentioned that you have made some structural changes, and that's why the performance in Q1 was what it is. We are also expecting few more commissioning then followed by, you know, there would be Rajpura Dariba mill also coming up. You know, aren't we being a little bit conservative about our guidance? Because even if I see relatively over core quarters, it could be little higher or at the higher end of what you have projected. Can this guidance be surpassed during FY 2022?
Amit, let me explain. Last year we crossed 1 million ton in metal, mined metal production, whereas on the finished goods we are still above 970,000 tons. That means that we lost the race perhaps somewhere in the first quarter itself. Normally what happens is first quarter is generally subdued, marred by more ups and downs and maintenances and things like that. Those are the structural changes in maintenance practice I was referring to. When we see this time, first quarter is almost at par with quarter four. If you recall your last year first quarter call, always we would hear how come sequentially we are down on production. This time sequentially we have sustained the production which is at the quarter four, which is the highest ever.
That gives us confidence that last year we did mine mined metal more than 1 million ton, but finished goods less than 1 million ton. This is a year where our finished goods will also cross 1 million ton mark. That's why we are hopeful. We are absolutely clear that the guidance given, we will live up to it.
Okay. Thanks, sir. Have a good day.
Thank you. We'll take our next question from the line of Vishal Chandak from Motilal Oswal Financial Services. Please go ahead.
Thank you very much for the opportunity. My first question was with regard to your production with projects. What is the due date for the fertilizer plant and the roaster?
Fertilizer plant and roaster both have been approved today. From date of placement of order, anywhere between 18-24 months. Since we are sitting in 2022 in first quarter end, I would expect anywhere between 2024 quarter two or early quarter three, they should be brought to in line operation.
For the roaster?
Both same time.
Both. Okay. Are you still sufficient on the captive power for the expansion beyond 1.2 million tons? Or beyond 1.2 million tons you'll be looking at some power expansion also? Because I understand till 1.2 million tons you would be captive for the power front.
We currently have about more than 500 MW of internal captive power plant. As you know, on the ESG front, we are tying up with renewable power of about 200 MW, which should come online from 2024. If that comes online, 200 MW of our captive power will be surplus and available with us. I don't see any threat of not having captive power going forward. In fact, even after 2024, we will increase the renewable power from 200 MW to 450 or 500 MW. Power is no challenge as far as our expansions are concerned.
Just a follow-up on this power cost. The power you mentioned on the renewable side, what would be the expected power cost over here compared to our existing power?
As of now, it is cheaper than our own thermal coal-based production power. Best part of it is it will be unchanged over 25 years' time.
This is a long-term PPA that we are looking at.
Long-term PPA. Correct.
Without any escalation or that will be with some escalations?
Without any escalation as of now.
Could you please help us with the power cost number in this case, sir?
Power cost number?
On the renewable front, what will be the power cost going forward?
As of now, unless the commercial agreements are final, it will not be proper for me to go public with those numbers.
No, I understand. Sure. Thank you very much.
Thank you. Our next question is from the line of Anuj Singla from Bank of America. Please go ahead.
Yeah. Thank you very much for the opportunity. Sir, a couple of questions. Firstly, on the fertilizer plant and the roaster, can you quantify what total CapEx we will be incurring and over what time period?
CapEx, if we see overall, between fertilizer and roaster together, anywhere between INR 2,000 crores-INR 2,200 crores, somewhere in between we should be able to manage.
Like you said, it's 18-24 months, so this will be this year and primarily FY 2023 and maybe first half of FY 2024, right?
Right now, see, we have got approval now. In the next six months will be design, negotiation. You know, all that will happen. Maybe cash payouts will start from quarter four of this financial year and then go through the entire financial year of next financial year.
Okay. Got it. Sir, secondly, on the coal side, can you quantify what kind of materialization of the coal linkage we had in this quarter? A follow-up to that is, we are calling out for a significant decline in production, in the cost of production in the second half. Given that the global coal prices are still very sticky, what are the key drivers there?
Anuj, Sandeep here. Thanks for asking the question. For the coal linkage, coal materialization, this quarter has been bit better than quarter four. With the quarter four was around 3%. In this quarter we have got around 8% linkage coal consumption. Situation seems to be improving. We have almost 1 million ton backlog, unallocated co-allocated coal. However, this materialization had to happen. We also have a tranche file for 0.7 million ton FAC already signed up with the Coal India. It gives the confidence that during this monsoon season, they should improve the production and supply to us. As you too are very much right, it should have a significant reduction in the cost on account of the linkage coal materialization.
Just to clarify, sir, the guidance we have given, that includes an improved materialization of linkage from Coal India for us to achieve this guidance. Is that the right understanding?
Of course. Of course. Sure.
Got it, sir. Lastly, sir, in terms of the hedging we have done, 21% is for the full year, and I think it's not uniform all across quarters. Can you handhold us in, you know, what kind of this is already consumed in 1 Q and what is pending for the next nine months, and how should we be looking at the quarters per se?
Anuj, it is front-ended. From the hedging point of view, out of this 21%, around 10%-11% has already been consumed and the remaining will be in the next quarter.
Okay. Got it. Very clear, sir. Thank you very much.
Thank you. Our next question is from the line of Kirtan Mehta from BOB Capital Markets. Please go ahead.
Thank you, sir, for giving the opportunity. Am I audible?
Yeah, yeah, absolutely.
Yeah. Just going back to the fertilizer and roaster plant, would you indicate sort of the capacities that you are finally planning? What would be sort of the cost advantage that you have with the in-house sulfuric acid? What kind of return you are targeting?
On the fertilizer side, we are taking the first phase of 5 lakh tons. You know, although we are blueprinted on 1 million ton capacity, we will be putting up 5 lakh tons to begin with because we will have a new entry, set up the new business, and it's a different business altogether. Also, we would execute this project through a subsidiary so that right focus is there on this kind of a business with the right set of people. The organization, you know, the selling fertilizer is a different ballgame altogether, so that organization would have a different culture than metal culture that we have in Hindustan Zinc.
If you look at project cost-wise, as I have said, between the two projects, anywhere between INR 2,000 crore-INR 2,200 crore kind of a number. If we look at fertilizer separately, anywhere between INR 1,300 crore-INR 1,400 crore kind of a number we will finally arrive at for spending in that fertilizer project over 24 months. Return on investment, if you look at it does qualify for our capital allocation policy. We have just got the approval. We will work on the CapEx. This, you know, strategically, most important for us because we have crossed 1 million ton.
As we start making 1.2 million tons FG, then so much of acid from the roasters, you know, we are putting up one more roaster. So all that acid and continuing to run the business under the pressure of acid evacuation does not leave us much of a headroom to get the best value for the acid that we produce. Although right now we do have a better value than years before. Going forward, to ensure that the best value that we get and to keep the operation sustainable is to convert it into a usable product like fertilizer, which will be consumed mostly between the regions of Rajasthan, UP, Western MP, and Haryana, where most of the fertilizers of DAP today are imported and are not made locally.
This will be also a first land-based fertilizer plant producing DAP with local rock phosphate of Rajasthan and selling the fertilizer to this zone. Also gives us a good branding for better use of a hazardous chemical that gets produced as a part of roaster process, which is sulfuric acid.
Thank you, sir, for the detailed explanation. One more cost question, if I may. In terms of the current cost of production is higher than the $1,125-$1,175 guidance. To come back to the annual run rate, what are the drivers that you are identifying which will help you come sort of adhere to your annual guidance?
I would rather say it is not one driver. You have to work across the entire value chain that causes cost. There are operational efficiencies in mining. That means how to reduce equipment costs, how to increase productivity, how to increase utilization of machines, how to rationalize deployment of machines in the underground. We have got some internal team which is working day in and day out with the operating teams to find out to generate more and more ideas to cut. On the mining side, I would look at one grade control that produce to the desired grade with least dilution to maximize recovery. We have already implemented automated process controls in Agucha Mill. We are currently under implementation in Zawar Mill and SK Mine.
All the mills will have automated digital process control. We intend to add and improve recovery by 1.5%-2% through those processes that would cut costs. Of course, in the smelting major cost being coal, our idea would be that how do we optimize between various price values of coal that we buy. Currently, we do have some high-cost coal position on the coal that we buy going forward. We have already started consuming biomass as a replacement of coal as a fuel, and we have increased the percentage from 3% to currently about 5%, and we want to increase it to 10%. Increase the biomass portion, which gives us a cost advantage.
We are looking at the initiatives which are power consuming initiatives, but we implemented because of high ambient temperature in the summer months would not be needed going forward. Things like chiller for underground mines, additional ventilation capacities we have to commission. Things like that would be on our positive side and would reduce the power consumption in the mines going forward.
Can I take the opportunity to ask one more question, particularly on the value addition added projects? You have launched one 30 KT value addition project. Apart from that, which are the ones on the planning board that we could see sort of getting finalized over the next couple of years?
You're talking about value-added products?
Yeah.
Okay. Traditionally, we have been selling value-added products between varying percentages over the years. The change we have brought in now that we are highly focused on first creating our operational capability to produce the value-added product of the right quality sustainably over a long run. If you look at the current numbers of HZDA 3, which we have started producing by investing in the production process, by putting up new transformer and new handling facilities so that the chemistry remains intact and, repeatable, across all production numbers. About, 1,000 tons per month we have achieved the capacity and we have already started selling that. Roughly about 15% of our product as of today is value-added product, including Jumbo, CCG, and HZDA. Our plan is to take this number to about 20%-25% value-added product.
We have already opened a subsidiary company which specializes in producing value-added product, in the alloy product, and that company is currently under a manufacturing facility under construction. Once that company comes in line, we will have more value-added product. Goal is to go from 15% to about 20-25%, so that we are known in the market not only for good quality SHG, also for good quality alloy product which allows us to get better premiums in the domestic market.
Could you also quantify the premium that you are currently earning on this 15% value-added product, and how much could it expand when you actually reach it to 20%-25% after completion of project? Also in terms of the sort of net of operating cost, how much EBITDA could it add per ton?
In my view, I think as Mr. Misra has said, we have to look at how do we see the more value addition into this so that we are immune to the LME. I think that is more visible from the point of view the value addition of the product. Secondly, we will be this value addition product, it will also reduce our SHG export. You can compare the duty factor, whatever we'll get on the value-added product, that will be a direct benefit to Hindustan Zinc.
Thank you, sir. Thank you for the detailed answer.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, we would request you to please limit your questions to two per participant. Time permitting, you may come back in the queue for a follow-up question. We will take the next question from the line of Rahul Jain from Systematix. Please go ahead.
Yeah. Hi, thanks for taking my question. On Gujarat's smelter, you have any update? Also, secondly, we are seeing a very sharp surge in TCRC prices across the world, especially in Europe and you know. What kind of opportunity you think we can tap into this?
Currently, if you ask me, we are, unless the Gujarat smelter public hearing and things happen, so we are not very active on that front. We are more concentrating on increasing our production from the current assets. First goal remaining that we cross 1 million ton mark in SHG this year. Whenever that opportunity arises in Gujarat, in the Rasoda smelter with the public hearing happening, then we'll redesign and rethink that project based on the current realities of that day.
Sir, on the situation that we are seeing, you know, with TCRC premiums rising, you know, what is your take on that? Is there any way we can capitalize on that?
That's what I said, that whenever we think of restarting that project, it will be based on the current realities of that day because it will be standalone smelter, so TCRC will be an important aspect of that. As I said, as far as our case is concerned, current operations, it doesn't apply to us. We are integrated producer, so we are not affected much by the TCRC movements.
Right. Thank you so much.
Thank you. We'll take the next question from the line of Pallav Agarwal from Antique Stock. Please go ahead.
Yeah, good evening, sir. I had a question on with the inventory declining so sharply, why are you still seeing a very sharp fall in zinc prices? And at what level do you see, you know, some support from the global cost curve? You know, in the case of aluminium, we've probably seen more stable pricing of late, because, you know, the cost of production is now pretty close to the marginal cost, smelters. What level of zinc prices, you know, do you think, we'll start seeing some support from a global cost curve?
I have been saying this for long that for us and for almost all smelters, very stable operations can be achieved anywhere between $3,000-$3,200 per ton of price of LME of zinc. If I have to put a red line somewhere around $2,200-$2,300 would be a red line. When all of us will be in trouble as far as continuing our operation, either cut back high cost operations or continue with only the high- grade mining and high- grade operations.
We are much above those red lines as of now, and we further work on our costs that we have currently, and if we are able to cut down our costs to our guidance numbers, we'll be far much better off.
Sure, sir. Also if you could just help us with, you know, the demand in China and the level of exports. Because that's been sort of a concern for the whole, you know, metals pack.
Current world order, all the movement of goods or the economic growth or lack of it across the geographies for last about three to four years or so, post-COVID and also various, you know, geopolitical events that have been happening, it's very difficult to predict, you know. Even if China demand started firming up, then again, resurgence of COVID came. Again, the lockdown started. Again, as of now, we are hearing that their, the zero COVID policy, they would be relooking at it and hence the sudden tightening on the society that was we saw in Shanghai recently, perhaps will not be repeated. I think those are the speculation which I would not like to get into.
Russia-Ukraine war, the pressure on gas, you know, global warming has been, you know, sudden heatwaves in Europe, need for air conditioning in Europe in summer. In summers of India. Traditionally, summer of India was winter or cold weather in Europe, people were going for travel. Nowadays, that's also become summer in Europe. All these have very difficult to connect the dots and see what would happen going forward six months. I firmly believe that the post-COVID era world is going through a transition phase. It would settle down in about six months to 12 months time. Pressure on coal cost will remain, in the sense that there would be pressure on coal producers to go out of coal production because of the pressure on ESG or commitment to net zero.
That supply side shrinkage will keep on adding more cost. As a smelter operator, we have to move out of coal-based power and go to renewable power. That would be the strategic solution to control the input cost. If I look at demand side, we are not dependent on the demand of China. However, the LME prices do fluctuate based on the stock level and the demand in China. Our, our export market of Southeast Asia has a robust demand as of now. Going forward, very difficult to predict. As per all the reports that we read, it's fair to expect 1% - 1.5% growth across the globe as far as zinc demand is concerned, which may be slightly subdued compared to 2.5% that was predicted sometime back.
Sure, sir. Thank you for the answer.
Thank you. Our next question is from the line of Shreyans Daga from Barclays. Please go ahead.
Yes. Hi. Thank you for the question. Congratulations on the good set of numbers. My question is on the cash and investment side. The company has reported INR 242 billion of.
We're not able to make out anything what you are saying. I think you are not close to the mic or you are using some other device.
Hello. Sorry. Am I audible now?
Now yes.
Oh, yeah. Thanks. Sorry. The Hindustan Zinc has reported INR 242 billion of investments in cash equivalents as of June 2022. Could you give us some breakdown as to how much is liquid cash and how much is in illiquid instruments?
Shreyans, I think this is breakup. It's, I think, quite sensitive. What I can say, we continue to invest in the high quality debt instruments, and that has been our philosophy, and it is a mix of both, liquid and the long-term instruments.
Okay, sir. After the dividend announcement, that figure would be around INR 88 billion down, right?
Yes. As of now, after the dividend, it's around INR 15,000 crore.
Okay. I see. Yeah, that's it for me. Thanks.
Thank you.
Thank you. Our next question is from the line of Pinakin Parekh from JP Morgan. Please go ahead.
Yeah, thank you very much. Maybe this question was answered earlier, but just would like to understand the hedging strategy. At what zinc price would the company be open to start hedging again? Because as you mentioned, most of the hedges would get consumed in the next quarter.
Pinakin, thanks for the question. I think it is a quite dynamic situation. It will also depend upon what cost levels we are. At a say $1,000 cost level, somebody may be lucrative for $3,500, at the $1,300 level somebody would be lucrative $4,000. We'll have to continue to wait and watch. There cannot be anything at this point of time I think we can indicate. That is the price level, but it will be a dynamic situation.
It's fair to say that you won't be hedging at $3,000 zinc price?
What I can say that we will continue to wait and watch $3,000 or $3,500. We'll have to see how the market dynamics is going on and what the reports suggest and how the LME inventories and other situations are there.
Understood. Thank you very much.
Thank you. Our next question is from the line of Vishal Chandak from Motilal Oswal Financial Services. Please go ahead.
Yeah. First, thank you very much for the opportunity. My question was again with respect to your guidance and cost of production. You've mentioned that you would like to continue with the guidance that you have given in the last year of $1,125-$1,175 per ton, while Q1 cost came at $1,264 per ton. Now, if I do a simple math, what we are implying is for rest of the nine months, our cost of production would be about 14%-15% lower versus what Q1 is. You also mentioned that the coal prices are still not trending downwards.
If you could just help me reconcile how are we planning to achieve a 15% reduction in cost when coal prices do not seem to be moving down anytime soon? Are we expecting a significant addition from FSA coal or there is something else that we have missed out?
What I will say on the cost part, I would refrain from shooting in the dark and take any call today as we prefer to wait it out until the next quarter for the LME cost to play out. Yes, you are right. Despite the increase. If you see, I've given you some data point. During the YoY, the cost has increased on the power and coal by almost 200%. Whereas our total cost increased by 20%, the power component as you've seen has gone up 26%. This is despite the low linkage domestic coal availability. As I said earlier, there has been improvement in the linkage coal supply, and we have been meeting Coal India and various coal subsidiary companies to expedite the materialization.
There's the negative number in Q4. Today, we are roughly at 7%-8% linkage. Given the backlog from Coal India over 1 million tons and tranche FSA 0.7, as I stated earlier, is yet to start for us. We hope, because it's a tranche auction, realization has already started for the companies which are near the coal mines, but for the faraway mines, faraway factories like us, it is yet to start. We hope this to benefit us in the coming quarters of the year. Overall, if I keep these all factors into consideration, I will choose to remain optimistic on the cost front. Some of the internal factors which will help us too, Mr. Misra has already said in detail.
Power net availability, keeping tight control on the cost through all levers, whether it is through the reduction in admin fixed cost, increasing the use of alternative fuel oil, sourcing of the low-cost parcel of coal, apart from the operational efficiency, will actually help us in the cost reduction.
Sir, just to add on to this, are we also sourcing some thermal coal from Russia to bring down our costs?
Our major source of the coal is coming from Indonesia and Australia.
Okay. Sure. Thank you very much for the elaborate answers.
Thank you. Our next question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Yeah. Thanks for taking my questions again. I have two data keeping questions. The first one is on grade of material. What was the grade in this quarter? The second question is on capital mine development and the revenue mine development in this quarter.
This quarter grade of the material was around 7%, 6.91%. Capital mine development was 14 km.
Revenue was?
Revenue was almost equal to INR 14,000 crore, so the 50/50% we are seeing.
Okay, sir. That's great. Thank you. Thank you so much.
Thank you. We'll take a last question from the line of Ashish Kejriwal from Centrum Broking. Please go ahead.
Yeah. Hi. Thanks for taking the opportunity. Sir, this is on sulfuric acid. Is it possible to share what was the realization in sulfuric acid this quarter, and how it has been panning out for last two or three quarters and outlook ahead?
The sulfuric acid, our mode of sales have been apart from few long-term customer agreements, mostly through auction, and whatever is the best realized. I can give you a trend that our realization through auction this quarter has been better. Lately we are seeing a cooling off in the sulfuric acid prices as well. That I would restrict at that.
Sir, is it possible to share what's the average realization for this quarter?
Since it is not my primary product, I would rather not be able to say what was the exact number, but I can give you a trend that realization this quarter has been better than last quarter, and that has helped us to negate part of the rise in cost because of input power increases.
Okay, fair enough. Secondly, we were contemplating to acquire zinc assets in overseas market, so any update on the same?
No. It remains in our strategic map, and whenever the situation matures and we do get all regulatory approvals that is required, we will come back to it.
Sir, what kind of situation actually, if you can elaborate, what kind of situation we require to get into it or what kind of regulatory approvals are required?
We had discussed in few last calls that among the targets is also our own group, Zinc International, which is in South Africa. Maybe that makes the best sense for us to acquire and use our zinc to grow in that region. That would require permission from government and all that. Once that happens, then we will come to it and we can discuss.
Sure, sir. Sure. Thanks and all the best.
Thank you. Thank you.
Thank you. I would now like to hand the conference back to Ms. Shweta Arora for closing comments. Over to you, ma'am.
Thank you all for joining us on the call today. Before we close today's call, I'm happy to share that we are progressing well on our journey of adapting global best reporting practices and holistic disclosures. Towards this end, I wanted to update you all that we have published our third integrated annual report for the financial year 2021-2022. From this year, we've also voluntarily embarked on reporting as per the Business Responsibility and Sustainability Reporting, the BRSR framework that was launched by SEBI in May 2021. We look forward to your valuable feedback on the report. Fifth tax transparency report is now available on our website. With this, I would close today's call. For any follow-up questions or clarifications, please feel free to reach out to the investor relations team. Thank you.
Thank you. Ladies and gentlemen, on behalf of Hindustan Zinc Limited, that concludes this conference. Thank you for joining us. You may now disconnect your line.