Ladies and gentlemen, good day and welcome to Hindustan Zinc Limited Q2 and first half FY 2022 earnings conference call. I now hand the conference over to Ms. Shweta Arora, Head of Investor Relations. Thank you and over to you, Ms. Arora.
Good afternoon, everyone. I welcome each one of you for Hindustan Zinc second quarter and first half FY 2022 results call. Today on the call we have with us our CEO, Mr. Arun Misra and our recently appointed interim CFO, Mr. Sandeep Modi. Mr. Misra will begin with an update on the 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 and a very warm welcome to all of you. I trust that you and your family are staying safe and following all necessary precautions, as well as taken dose of vaccination to fight the spread of COVID-19 pandemic in the country. It gives me satisfaction to report fatality-free operations during the quarter. Nothing is more important to us than safety of our people and we as leadership team reiterate our commitment and vision to ensure all employees go home safely. Hindustan Zinc's safety team continuously tries various initiatives to meet our vision and working committees identify critical areas for improvements to address any potential risk. It is heartening to see that the shared vision of holistic, inclusive and sustainable growth that we have set as leadership team for the company is building desired results.
Progressing well on our water positive journey, Debari Zinc Smelter commissioned zero liquid discharge plant as part of water recycling. Kayad Mine have received FIMI Bala Gulshan Tandon Award of Excellence for the year 2020-2021 for the longest accident-free period and National Safety Award from DGMS. This reinforces our commitment to safety of our people. Our Chanderiya Lead Zinc Smelter was given the Most Innovative Project Award for restoration of Jarofix Yard at the CII National Award for Environmental Best Practices 2021. Also at ESG India Leadership Awards, Hindustan Zinc won in overall environment category as well as greenhouse gas emission reduction category. I am also delighted to report the bold steps that Hindustan Zinc is taking on sustainability front. We have committed to net zero emission by 2050 and published our first task force on climate related financial disclosure, also known as TCFD report.
We have also joined the task force on nature related financial disclosure, also known as TNFD, to tackle nature related risks proactively. I am also proud to represent Hindustan Zinc and participate in person at the British High Commission Conference of the Parties, also known as COP26 next week at Glasgow. I'm proud to announce that we won Industry Leadership Award at the prestigious S&P Global Platts Global Metals Awards 2021. As a group, our core value and priority is to give back to society and our CSR team have doubled up efforts during these trying times and carefully balanced both the ongoing long term core initiatives as well as health and COVID related support to the villages and communities surrounding our operations. I'm happy to share that Hindustan Zinc has won the CSR Leadership Award 2021 presented by World CSR Day for transforming lives of community nearby.
Our Samadhan program received an appreciation from FICCI for commendable work under the food security and agriculture category. Turning to market update, zinc prices continued the momentum gained in Quarter One FY 2022 and crossed the $3,000 mark on multiple occasions. Though prices retreated briefly in the face of macroeconomic worries about the softening global economy. Over the last one year, we have seen global zinc supply facing uncertainties in form of COVID related stoppages to latter logistical challenges due to bottlenecks at major ports, which caused long delays and shortage of containers to ship concentrate. More recently, industry is also dealing with coal shortage. Earlier, China announced curtailment of power supply to energy-intensive sectors, which also impacted output. Energy crisis, which started from China quickly spread to Europe, which is also facing rising natural gas prices.
We have seen big players such as Nyrstar announcing curtailing production up to 50% at three of its European smelters because of rising electricity cost. All these supply side constraints are pushing zinc prices higher and partly also helping to offset rising input energy costs for low cost players such as Hindustan Zinc. Talking about LME exchange stocks at their current levels, that is at the end of September, they are only sufficient to meet 7.5 days of global demand, which is one of the lowest level for the current calendar year. We feel relatively low stocks, supply side disruptions and robust demand will continue to put upward pressure on spot metal premiums globally. Despite the supply chain and energy related constraints, manufacturing activity in North America and Europe remained buoyant, albeit below the peaks seen earlier in the year.
End-use demand in most of the world's major economies remains robust. On domestic front, India's manufacturing PMI stood on the higher side of 52 during the quarter, suggesting a strong confidence of the market on economic progression. Quarter Two of this year saw a continuation of the Indian manufacturing sector's recovery. New orders continued to rise during the quarter, suggesting favorable market conditions. As government spending continues in infrastructure, highways, electrification and transmission projects, the major demand for zinc came from the structural segment, followed by the alloy segment, which after a dull year exhibited strong recovery as automobile demand improves. Lead prices fell during the quarter, but fundamentally we see OEM battery consumption, replacement demand and electric bike batteries to remain intact. Silver market in India has seen some headwinds in the quarter of this year, majorly owing to increase in premiums.
The increase in premium is being caused due to the increasing demand and decreasing price. Onset of imports from the international market is another development which is being observed since the end of July due to low global prices as compared to domestic prices. As we are increasingly seeing focus shifting to green energy in India, in line with global practices, we foresee strong pickup in industrial demand of silver for renewable power projects such as solar cell manufacturing. As we have seen some recent merger and acquisition activities from reputed corporate houses on green energy, we progressively expect more investment to come into this space. Coming to update on operational performance.
During the quarter, mined metal production was 248,000 T, up 4% year-on-year on account of higher ore treatment at Rampura Agucha, Zawar and Rajpura Dariba mines, supported by improvement in recovery, which has been partly offset by lower mining grades. Sequentially, mined metal production grew by 12%, mainly due to higher ore treatment at Sindesar Khurd, Kayad Mine and improvement in mining grades and recovery. On a half-yearly basis, H1 of this year, mined metal production was 470,000 T, up 7% year-on-year in line with the higher ore treatment at Rampura Agucha, Zawar mines and Rajpura Dariba mine and increased recovery offset by a slight dip in overall mining grades. Integrated metal production was 209,000 T for the quarter, down 12% sequentially on account of extended shutdown at one of the roasters at Chanderiya Smelter for repairs and overall structural components.
We lost close to 25,000 T due to the roaster maintenance work shutdown. The shutdown, which was originally planned for 60 days, however, was finished in 52 record days. Integrated zinc production was 162,000 T, down 14% quarter-on-quarter, and integrated lead production for the quarter was 47,000 T , down 4% sequentially. Integrated silver production was 152 T, down 5% quarter-on-quarter in line with lower lead production. I am proud of our teams at Hindustan Zinc, who with their mettle continue to successfully overcome formidable challenges ranging from pandemic, operational and other macro challenges like energy crisis. They in turn have strengthened the backbone of our operations through effective systems and planning and have set the stage right for us to deliver 1 million production mark. Coming to project updates, we are awaiting public hearing date for Doswada Zinc Plant.
Once that is cleared, we will proceed for environment clearance process and follow the statutory approvals from state and central governments. Also, we will continue to engage with technology partners for closure of best in class technology. After all necessary approvals within the system and from government, teams will start the groundwork. Due to ongoing COVID-19 related restrictions on visa for Chinese nationals, we expect Fumer commissioning to be completed by end of this fiscal year. Before I hand over the call to Sandeep for an update on financial performance, I would like to reiterate our production guidance for the fiscal year 2022. We maintain our mined metal and refined metal production guidance for the fiscal year in the range of 1,025 KT -1,050 KT each and sellable silver production at 720 T. With this, I hand over to Sandeep to update on the financial performance.
Thank you, Mr. Misra, and good afternoon, everyone. An update on financial performance for the second quarter and first half-year ended September 2021. Revenue from operations during the quarter was at INR 6,122 crore. This is an increase of 8% YoY, led by higher Zinc LME and Lead LME. We also had a higher premium as well. This was partly offset by lower metal and silver volume. Zinc and LME price were up 28% and 25% YoY respectively. Sequentially, revenue decreased 6%, primarily due to the lower metal and silver volumes and lower silver prices. It got partly offset by higher Zinc and Lead LME prices and higher premium. Zinc volume was sequentially down by 12% and Lead was down 4% in line with lower production due to the maintenance shutdown. Zinc cost of production before royalty during the quarter was $1,124 per ton.
In the INR term INR 83,208, higher by 22% YoY and up 5% sequentially. The COP has been affected by higher input commodity prices like coal, diesel, met coke, and higher revenue mine development. It got partly offset, benefited from the operational efficiencies and better recoveries. Sequentially, metals maintenance shutdown and lower metal volume also weighed on the cost of production. EBITDA for the quarter was INR 3,332 crore. It was a 13% YoY and down 6% sequentially. Drop was driven by lower volume and higher cost, primarily on account of input commodity inflation. I'm happy to share that on H1 basis, we delivered record high H1 EBITDA of INR 6,890 crore, an increase of 51% YoY. This was driven by higher zinc and lead LME prices, higher premium as well as higher silver prices.
While an uncertain macro environment where we are facing headwinds in form of input commodity inflation led by global energy shortages, tailwinds in form of higher LME is acting as a hedge to protect our margins. In addition, our continued efforts on operational efficiencies and recoveries are also supporting on lower cost. Net profit for the quarter was INR 2,017 crore, up 4% YoY and 2% sequentially. This increase was mainly driven by recovery in metal prices and lower ETR. Net profit for the H1 FY 2022 was INR 4,000 crore, which is YoY up 21%. Effective tax rate for the quarter was approximately 13% and H1 32%. Based on the projection of our ETR guidance for the full year remains unchanged at 32%. Our cash tax rate would be 17% as we have net credit available.
Once we move to new tax regime from FY 2023, FY 2024 onwards, our tax rate will be around 25%. Coming to our cost and CapEx guidance for the full year. In the previous quarter, we had cautioned against the risk to cost from rising input commodity prices. In light of the same, we would like to revise our cost guidance upwards. For the fiscal year 2022, zinc cost of production is expected to remain below $1,075 per ton, which was from $1,000 per metric ton earlier. Project CapEx guidance for the year remain unchanged and is expected to be approximately $100 million. With this, I open the floor for your questions.
Thank you very much. We will now begin the question and answer session. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Yeah. Hi. Good evening, and thanks a lot for the opportunity. I have two questions. The first one is on the coal sourcing currently. What is the split between linkage and imports, and what is the likely increase in power and fuel cost in Q3 FY 2022 as a result of imported coal prices? We know where they are.
Sandeep?
Yeah. Our mix of the linkage and non-linkage coal, which is the import, is 25% in the linkage and around 75% is the import. That is the overall mix for the coal. The likely increase in the coal cost, which is resulting into our cost guidance, which I said about $1,075 per ton, is largely on account of the input commodity prices. In the Q3, Q4, almost $50 cost is increase is coming on account of the coal cost increase.
Okay, that's helpful. The second question is a data-based question. Essentially, what is the export quantum in, you can say in even express as a proportion in Q2 and what it is likely to be in Q3?
Typically export are roughly around anywhere between 10 KT- 14 KT per month is the export, depending upon the production volume. However, in the Q2, since our overall metal production was lower, so overall, we try to maximize the domestic component. And in fact, our domestic share went up in Q2 in spite of lower production, and that has resulted in additional earnings.
Okay, what would be the proportion in Q3? Will it come back to 10 KT-14 KT per month or is there some other problem in it?
Depends on the volume. Typically, Indian market has an absorption capacity of 45 KT- 50 KT zinc production, and if we produce 65 KT zinc in order to produce a 90 KT+ metal, in that case, 14 KT-15 KT export will come back, which is the normal case in our case for a 90 KT production in a month.
Okay, thanks. Thanks a lot. That's helpful. All the best.
Thank you.
Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Hi. Yeah, thank you for the opportunity. My first question is with respect to the production. Now, in the first six months, we've seen a lot of issues with respect to roasters at Chanderiya shutdown at Dariba smelter. Ganesh, if you could share if these issues are behind. I know you've already reiterated the full year guidance, in fourth quarter, do we expect to run at full rated capacity at around 1.2 million T? What would be your confidence level for next year, whether we can deliver as per our rated capacity at 1.2 million T, which would mean a very significant growth from FY 2022 levels?
No, absolutely. I also share your views. We were actually slated for 1.2 million T delivery this year. However, we never anticipated the second wave of COVID-19, which affected us badly in the beginning of the year. That was in Quarter One, and then it was subsequently followed by this disruption in supply chain across Europe. Most of the equipment which we tried to introduce this year as a replacement, which were scheduled to arrive in Quarter Two, have not yet arrived and expected in Quarter Three. That's why we took the decision when at Nyrstar there was a breakdown in Chanderiya, where the shutdown got extended for the dome failure.
We preponed the shutdown, which was there in H2 into the same Quarter Two, assuming that most of the new equipment will arrive in this quarter, and then we'll be in full throttle as far as operations are concerned. The current level of operations that I see, I can say from December onwards, we should be able to demonstrate our capacity of delivering 1.2 million ton annual capacity, and we will reach that mark in quarter four surely, but we should demonstrate a monthly capacity even before that.
Understood. Mr. Misra, this is more of the delays, and we don't see any structural issue of grade slippage or something to deter us from achieving 1.2 million T. Is that the right understanding?
Overall, if you look at the grade, compared to last year, these are almost similar, if you look at quarter-on-quarter. Annual-wise, we are still slightly worse than what it was last year, but the development targets that we have taken for ourselves to liberate better grade ores in the coming H2. Our H2 number plan was also for better. Typically, in the mine planning, compared to H1, H2 grades are better, and we are looking to that. H2 should provide better grades, should provide better numbers, and should also demonstrate our capability of 1.2 million T, and I am sticking to that.
Understood. Just to follow up, this Fumer project, we were delaying the commissioning by months. Earlier it was September, then October, then November. Now it has been pushed to end of FY 2022. Things have opened up, there's these issues of visa, et cetera, for Chinese officials still there, that is why we are delaying by another six months?
Correct. The visa issue remains same. That's what is also affecting us. However interested we are for commissioning, but we are unable to get the same thing done in absence of the experts visiting us. We have to wait till quarter four. At the same time, I can assure on the production front, since we have got enough of MIC in stock because of higher mine metal production in this quarter compared to metal production, we will be full on as far as H2 is concerned, and any commissioning of Fumer will only give benefits for the first quarter of next year.
Understood. Sir, my second question is with respect to the capital allocation. Generally, in last few years, we've been giving a big interim dividend around H1 result. This time also there was a board meeting scheduled, but suddenly overnight it was canceled. Any thoughts on that? Secondly, there are media reports suggesting that we might look to take on Zinc International business from the parent. Any thoughts on that media speculation, if you could share?
We are just into the festive season, and going onto the Christmas, I think good news is there for all. We need to just wait for that, and good news will of course arrive at the right time, and I am very optimistic about the festive season delivering good news for us, as far as dividend is concerned. The other part is Zinc International. I have also committed earlier, in our annual general meeting with respect to question from a respected shareholder, that should Hindustan Zinc look at South Africa and in particular, ZI. Of course, we have to grow inorganically as well, and the targets do include ZI as well as other facilities around the globe. I will rest my comment there.
Whenever we are matured on that thought process, and we have due approval from all relevant agencies, we will come back and would be sharing the good news with you.
Understood. Thank you so much, sir, and all the best.
Thank you.
Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Raashi Chopra from Citigroup. Please go ahead.
Thank you. Sir, just to clarify, you mentioned that the coal cost will be higher, the power cost will be higher by $50 in the second half. Just kind of tallying it with the guidance that you have, which is $1,075 for the full year versus $1,095 in the first half. Apart from higher volumes, where are you expecting cost savings and to more than offset the power increase?
Sandeep, I will take this question. If you see my cost structure, almost whatever the volume driven would be there, the volume will be helping with offsetting this coal cost increase. Apart from this, I have a water acid prices are also there. We have better realization in case of acid prices. These are the two factors apart from the operational efficiencies or recovery improvement and what Misra has also said about the better ore metal grade. The ore grade, that will also help me to reduce my cost. With that, we should be able to meet the below $1,075. We also had some exceptional item in the shutdown cost in the other expenses category, which was in the H1, especially in the Q2.
Now leaving behind everything and we don't have any plant shutdown in the H2, we should not be having such a shutdown cost also.
Can you quantify the exceptional amount, please?
No. I am saying one of item in the part of the other expenses, that is shutdown cost was there, which would not be there in the H2.
Okay. What was the grade like during this quarter?
Sorry.
Grade.
Grade in Quarter One was 7.12. It was better than last quarter of 6.91, I guess.
Yes. Okay. Thank you. That's it.
Thank you. The next question is from the line of Pinakin Patel from JPMorgan Chase. Please go ahead.
Sure, sir. My first question is that, if tomorrow the visa issue is not resolved, would it be fair to say that the Fumer will not come into line by the FY 2022 deadline that has been mentioned?
We are desperately looking for alternative expertise available in the globe. We have done similar commissioning. I am hoping that if this visa issue does not get resolved, and in next three to four months time, we are also able to locate experts. We have commissioned similar Fumers of similar make, and we have confidence on that expertise, then surely we will go for that.
Sure, sir. By the time you make alternate arrangements, and it gets pushed out into FY 2023, what would be the volume impact from the guidance that we have given this year so far?
This guidance that we have given, we are not factoring anything for the Fumer assets because we had anticipated that Fumer commissioning perhaps would get delayed because of the COVID and all that. We are intact on our volume guidance with or without Fumer. We will deliver that guidance.
Understood. Thank you very much, sir.
Thank you.
Thank you. The next question is from the line of Vishal Chandak from DAM Capital Advisors. Please go ahead.
Yeah. Thank you very much for the opportunity. Sir, my question is with regard to Zinc International. Now, I just wanted to understand, do we really have any synergies with Zinc International, or it would just be a means of acquiring because ultimately, we give dividend goes to the parent, and instead of paying dividend, we acquire an asset from the parent and from there onwards, the dividend moves through to the parent entity ultimately. How does that Zinc International fit into our entire scheme of things? I understand expansion at Rajasthan is the primary opportunity and then probably, the Gujarat plant can also come up. Zinc International is a little difficult to understand. If you could just help us on that.
I don't think I have said anything to indicate that I am right now getting into the Zinc International as an acquisition firmly. I have only said that if another geography has to be seen, South Africa does provide an alternative geography. The question of Zinc International, whenever they come, I'm sure a proper due diligence valuation related approval and something on the solid foundation on which I can present to you. Saying that, since Zinc International is part of our group company structure, and I am as a also Zinc person being part of many discussions, all I can tell you is Zinc International has a resource base of about 30 million T -32 million T, which is equivalent to Hindustan Zinc, right? That should give us a comfort if that were to happen.
Nevertheless, if Hindustan Zinc has to grow, it should look at a property which allows it to remain in the first decile on the cost curve, which uses its expertise of converting resource into reserve with its huge experience of exploration in base metal. Third, it rests on its expertise of high metal recovery from the reserve in the smelting process. If these three attributes are there and satisfied, for us it would have a right synergy with Hindustan Zinc. This particular entity of ZI is concerned, till the time we are firm about what we have to talk about or we are committing or we are considering, until that time, I would not be able to address that question. I would treat it purely hypothetical.
Sure. That helps, sir. Just let me rephrase it once more. If I look at any overseas acquisition done by any commodities player in India, whether it's under steel or non-ferrous, generally we have seen that it has been EPS dilutive to the shareholders. In that light, would you still want to pursue anything that would be more accretive or better than Hindustan Zinc's current assets at Rajasthan itself? If you were to just compare between ZI and the existing assets that we have.
Again, you are dragging me to comparing on a particular entity. I cannot comment on that. Nevertheless, those are all whatever you are saying are the right things to be talked about, and they should also always form part of a due diligence and part of the valuation exercise. Ultimately, in the business, how much do I pay for how much value to be created in future? Rest all are internal matters of calculation. As a shareholder, from outside I will look at each money that I invest, how much money that investment can bring back. As long as these two equations satisfy, I'm okay. Rest all are internal calculations. We can keep on arguing which is better where, right?
That really helps, sir. My second question was with respect to the Gujarat project. If you could just update us on what are the likely timelines over there?
We are waiting for a new date for public hearing. Once the new date is announced, then our team on the ground will work for that public hearing to be successful. Frankly speaking, any greenfield project in India does have some hiccups to start with. We also had a hiccup of public hearing not being held successfully. Let the public hearing be the first success. Once that happens, we buy the confidence of the society around, and then we will think about design and declaring to you when, how much and where and who will do that. All that will fall in place.
Sure. Thank you very much, sir.
Thank you.
Thank you. The next question is from the line of Rahul Jain from Systematix Group. Please go ahead.
Yeah. Hi. Thanks for taking my question. On volume side, you're sticking to the guidance, but it does look very aggressive at this stage, given how the first half has gone through. By your interest in international assets, are you trying to imply that the growth opportunities in Rajasthan are not so exciting anymore?
Growth opportunity in Rajasthan is attractive. It's not that it's not attractive. Provided that option has to be physically in place. Right now, if you look at Rajasthan, all the other blocks surrounding our mines or the blocks between Gujarat and Rajasthan on the border areas, where the GSI data shows they have potentially high reserve of zinc, lead, and some of the places also lead and silver. The question is, when does the government bring them out for allocation, either through the auction route or any other method and through the PL-cum-ML is perhaps the only route for base metal that one would get a combined license of PL and ML and get it. Now, the question is, whenever that comes, Hindustan Zinc would be in the best place to go for it and get new blocks.
Until the time new blocks come, which also would take anywhere between five to six years for development of underground projects and then delivering numbers. We are also flush with cash as far as cash reserves are concerned. If the cash reserve is to grow and get earning more than whatever is earning on the treasury side, then a new investment has to be thought of. Logically, if I have to think as a CEO, zinc material available elsewhere, wherever there the mine is currently at a concentrate stage. That means I don't have to prove the reserve or explore and mine the reserve. It is already there, and it is available in the concentrate stage. My future investment will be only smelter. It will be a quick startup, quick investment, and cash returns for the investment that I make.
My shortlisting of tentative targets would be based on that.
No, right. Sir, basically, I think what we understand now from here on that we are kind of clearly at a peak production level and next two, three years probably this is what the number we should look at.
No. Surely my vision for future is from 1.2 million T, we should look at first sustaining because we have not yet delivered 1.2 million T. We need to deliver 1.2 million T sustainably for at least two to three years before we can make the next jump to 1.35 million T, if possible, from the current resources. At the same time, if I have to go for, say, overall ambition would be Hindustan Zinc should be of a capacity of a 2 million T kind of producer across the globe. Anywhere if I can add another 0.5 million T through inorganic process anywhere in the world, that would help me take the company to a globally 2 million T kind of capacity.
Well, see, your current volume run rate sounds more like where the numbers every time the guidance is very high, is really not met for quite a long time now. Essentially, it's kind of, is it like a very mature phase? Even what you said about these new blocks which you get, you will essentially have to pay a premium, right? I don't think much will be left on the plate, like how we have seen for a lot of the RNO options and other options. It's not really very value accretive, right? In that sense, you would want to increase our dividend. Is that not an option with you?
Dividend is always as per the policy. That option can never be ruled out. That's always there. As I'm speaking plainly from the business sense of investment and earning more returns from the money that we have, perhaps expansion into a frontier where concentrate is available and only smelting and quick conversion is possible, I would surely look at that. At the same time, on the auction and premium that you spoke of, it depends upon the competition. Who would be there to develop a mine with a 600 m, 700 m depth is a question that all of us need to ask. We are in the best place possible, and we should have that advantage as far as bidding is concerned.
That was helpful, sir. You said that in Zawar you got some extension. How much is that going to add in?
No, I said that in Zawar, we have got some intersection. As you explore, every time you drill, intersection means you find more ore. That is how in our R&R we add resource, then we convert it to reserve. Zawar, we have the lease area, which is huge, and only in that more explorations are going on. If I look at future, Zawar production can go up from 4 million T- 8 million T kind of ore production. In Rajpura Dariba mine, the production has to go up from 1.5 million T- 4 million T. These are the potential places for more exploration, addition of resources, and opening up new frontiers as far as mining is concerned. That's more to give us a guarantee that 1.2 million T will not be a flat in a pan.
It should be there steady for next four or five years, if not more.
Sorry to interrupt you, Rahul. I'll request you to come back in the question queue for a follow-up question. The next question is from the line of Noel from Ashika Group . Please go ahead.
Hello. Yes, sir. Regarding the higher cost of production that we have seen increases of about $54 per ton quarter-on-quarter. Regarding that, I just wanted to know, you had mentioned that the increase is mostly due to the higher coal cost, right?
You are talking about the Quarter Two. In the Quarter Two, if you recall, I said that there were two reasons. One is about the coal cost, obviously, and the other is because the commodity input costs have been putting the pressure. Since in the Quarter Two, there was a metal production also lower. That has also impacted the cost of production because to have a maintenance shutdown. These are three primary reasons for the overall cost increase.
Okay. Understood. Generally, if we're looking at sensitivity of cost of production to higher coal prices, let's just say if we see coal prices, say thermal coal prices sustained again another upwards by around $20-$30. How would that move the overall cost of production, assuming that there is no production-related difficulties?
If you see our cost guidance, I would say that to the extent we foresee this fast-evolving situation, we have revised already our cost guidance. However, it remains to be seen how quickly and proactively various authorities and industry bodies around the world would resolve this at local and global level. In turn, how this dedicated trilogy of coal, natural gas, and oil balance itself out in the short to medium term. If this is left unattended, it has the potential to snowball into something big, which may even dent the overall economic growth. I would leave at this juncture from the overall cost guidance and this point of view.
Okay. Yes, that is all my questions. Thank you.
Thank you. The next question is from the line of Vikash Singh from PhillipCapital. Please go ahead.
Good afternoon, sir.
Good afternoon.
Sir, previously couple of quarters back, we were guiding that concurrently, apart from 1.2 million T, we would be concurrently doing CapEx for 1.35 million T as well, at least the mine development things all. Looking at our current project CapEx of just 100 million T, just wanted to understand what happens to that project. Have we kept it on a back burner for the time being? Is it still going on and initial CapEx is very low?
If you look at our exploration, we have actually been adding. We are focusing first on converting resource to reserve and adding more resource because if you want to do 1.35 million T, see the mining volume that will go up, you need to file for revision of mining plan. For every mining plan revision, they require five years of reserve to be proven first. First priority for 1.35 million, when we back calculate, we have focused on R&R increase across the mines. Part of the increase of Zawar mine from 4 million T- 8 million T and the Rajpura Dariba expansion, SK mine from 6 million T- 7 million T, starting of some old blocks after due clearance, Bamnia Kalan like that, or getting hold of prospecting license and mining license from SK North, SK South.
Those are the actions have to be frozen first before we can start declaring about 1.35 million T. It's not on the back burner. As I said clearly, if Hindustan Zinc has to become a 2 million player in India, it has to be 1.5 million T. 0.5 million T has to be inorganically elsewhere in the world. For 1.5 million T currently at 1.2 million T, the growth has to come in two stages, 1.2 million T-1.35 million T, and then 1.35 million T-1.5 million T. I am hoping in between there will be addition of leases, which will give me more resource and reserve to support this theory of my ambition of higher production to 1.5 million T.
Understood, sir. Sir, my second question pertains to recently we had some shutdowns in Europe in terms of zinc capacities because of soaring energy prices. Any expectation from our side in terms of some more supply cuts which could still benefit us? With recent some correction in the power prices, there's a risk of these supplies coming back. Any thoughts on that?
We are watching over the situation very closely, whether that expected cut down in production finally fructifies, materializes, how much would be the exact drop, that's number one. Number two is world shipping logistics as well as container availability. Port congestions are a matter of concern. As the world has coming out of COVID-19, suddenly we find direction of material movement all across the globe has completely changed from what it used to be earlier. Primarily because, one, sudden realization or withdrawal of many American companies out of China and shifting of production bases. Second, we find that the delay in the port, which is holding the containers, releasing of ships from ports are not allowing free flow of material across the globe.
Even if we want to serve at this moment in European market, perhaps the high logistics costs or delivery timeline commitment would be key challenge for us to serve that market. However, we're saying that we look at the upward push on prices perhaps would be one way to counter the upward push of commodity prices, which is on the input side. The situation what you said is, yes, something we are looking at very closely, but using that market for our supplies may not be as remunerative as it would be if we are only supplying to domestic.
Understood. Sir, any idea to hedge any of?
I'll request you to come back in the question queue for the follow-up question.
Sure. Thank you. Thank you for answering my question.
A request to all the participants. Please restrict to two questions per participant. The next question is from the line of Amit Dixit from Edelweiss Financial Services. Please go ahead.
Hi. Thanks for taking my question again. I had a couple of questions. One is, tell us about the capital mine development in the quarter.
Capital?
Mine development.
Capital mine development in the quarter was about 12 km. It was about 12 km this quarter, almost same as that of the Quarter One of this year, about 2 km more than Quarter One or Quarter Two of last year.
Okay. The second question is, just wanted to pick up from Vikas's question, actually. As you mentioned in your opening remarks also that Nyrstar has temporarily idled some of its refining capability. Since we are also dependent on imported coal, do we see any threat on the imported or domestic coal availability that might impede our smelting operations? Do we see a threat as of now?
As of now, on the supply side, we are tied up with supply and fully protected till about February or early March of next year. This business plan year, we don't see much risk. The way the dynamics are playing, we will see some interventions, some big coal producing nations going forward, and I'm hopeful that the situation will come back to control. Availability is not a concern just as of now. We have to make do with savings on other fronts, as Sandeep had narrated. There will be a price from the coal side, we will try to make gains by working with better grade of ore, better recovery, as well as cost of water. We have preponed the shutdowns of H2 to H1. The cost has already got absorbed, so the planned cost of H2 will be avoided.
At the same time, we would aim at more recovery from the other income sources that we have, which is acid sales or other residues that we sell. We'll make more recovery from that front. Those are the levers that we have in our hand to counter in case the coal cost becomes too high.
Sir, just to follow up on this, have you seen coal availability from Coal India improving in October so far?
I guess more than the availability, the current issue is the domestic power plants or energy sector plants have a priority, and rake allotment of transportation would be again a bottleneck because every power plant are at different locations. Their logistics time, turnaround times are different. Government has a clear focus on energy priority first on the energy sector. We come in the metal producing sector, so that priority does impact the amount of domestic coal available to us.
Okay, fair enough. Understood, sir. Thanks. All the best.
Thanks.
Thank you. A request to all the participants, in interest of time, please limit to two questions per participant. The next question is from the line of Ashish Kejriwal from Centrum Broking Limited. Please go ahead.
Hi. Good evening, everyone. Sir, this question is on coal cost only. You are talking about $50 increase in zinc production cost on account of coal. You are taking into account both international coal supply, which we have till February, as well as disruption in the domestic coal market because Coal India is not giving it in October. Incorporating these two events, we are saying that $50 increase will be in third quarter as well as in fourth quarter?
I'm saying that compared to the overall H1, whatever my cost was $1,096, I am assuming there's approximately $50 cost increase from then. This captures the both import coal prices increase and some pressure on the lesser materialization of the coal from the domestics, which is obviously the situation, as Mr. Arun Misra said, with everyone who is in the non-power sector.
This $50 will be effect in third quarter itself.
It will be in the sequential manner. I am putting the overall from the H2 point of view. When I revise my guidance for the overall $1,075, this is built into that.
Sure. Secondly, sir, in terms of volume guidance, though you are maintaining the volume guidance, but in any of the earlier quarters historically, we have not seen that kind of volume in a quarter. Is it possible to share that in a quarter how much maximum we can produce?
I would say that in the March of last year, we executed at 1.2 million capacity because of high mining volume as well as smelting. Our aim is to recreate that in Quarter Three. The enablers that we look for that is all the equipment that we placed order this year's business plan was supposed to be delivered Quarter Two have got postponed, so Quarter Three would have more new equipment in place. Second, ambient temperatures are less. Typically, mine operates at a higher productivity when the weathers are good and comfortable. We have also finished all our infrastructure work related to ventilation in mines. We have commissioned new air chilling plant in SK mines. Those investment that we had planned have already in place.
All that gives us confidence that both Quarter Three and Quarter Four will be exceptional years, and we would have better volumes so that gives us confidence of maintaining the guidance.
Yes, sir. Volume-wise, definitely it's going to be there. Do you think that we can do 300 KT in a quarter, especially in third quarter? We already have some data on October, so that confidence still you are seeing that 300 KT can be done in a quarter.
At the end, the effort will always be there for that. In case of 1.2 million ultimately boils down to 300 KT per quarter has to be delivered, right? The attempt is there, and we'll see how it pans out.
Sure. Thank you, sir. And sir, lastly.
Sorry to interrupt [crosstalk].
Now zinc prices are already on a higher side.
Sir, sorry to interrupt [crosstalk]. I'll request you to come back in the question queue.
Okay.
Ladies and gentlemen, we will take the last question from the line of Pallav Agarwal from Antique Stock Broking. Please go ahead.
Yes, sir. Good evening. You had mentioned that this quarter we sold more in the domestic market rather than the export market because the volumes were low. Is that reflecting in the premiums that we realized? Sequentially, I think, there has been an increase of both zinc and lead premiums. Is that something that has happened or played out in the 2Q?
Yeah, it is reflecting in my premium because in the domestic, whatever the [EC], I get a duty factor, and also we have the excess premium. I can't disclose the number, but it's a reflection in my overall revenue increase.
Sure, sir. Just on that, with auto volumes coming down, are we seeing any impact of that on our lead demand? Because lead primarily goes into batteries. Is that impacting our demand or not really?
Arun Misra here. If you look at my change in operating strategy in H2, is operate the pyro in zinc and lead mode, whereas in H1, we were operating the pyro in all lead mode. Comparatively, my zinc production will be up and my lead delivery will remain at the current level, somewhere around 17 KT, 18 KT per month. That absorption is not a very difficult target to achieve. We have not seen yet any impact on the auto battery side. Also, you'd appreciate more and more EV vehicles are being launched, which also run on a combination of lithium battery as well as lead acid battery. Primarily lithium battery being used for the motor drive, whereas the lead acid battery is being used for the window drives and auxiliary power consumption.
We see a shift towards EV would also result in more lead acid batteries, so that demand will be intact. As of now, I can assure you there is no indication for us to see that there is a drop in demand as far as auto customers are concerned.
Sure, sir. Briefly, sir, if we produce less of lead, will that impact our silver volumes because most of our silver production is linked to the lead. Will the silver guidance be lower because of that?
It's a balanced operation. The guidance that has been given, we'll stick to that, and we'll ensure that the grades are such that we produce that.
Sure, sir. Thank you so much.
Thank you.
Thank you. I now hand the conference over to Ms. Shweta Arora for closing comments.
Thank you, Neeraj. With this, I close today's call. On behalf of Hindustan Zinc, I wish you and your family a very happy and safe festive season ahead. For any follow-up questions on results, please feel free to reach out to the investor relations team. Thank you.
Thank you very much. On behalf of Hindustan Zinc Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.