“Silver production higher by 20%, Lower production with second half to be substantially stronger”
Udaipur. Hindustan Zinc Limited today announced its results for the first quarter ended June 30, 2016. Mr. Agnivesh Agarwal, Chairman – “In line with strong zinc fundamentals and our expectations, zinc prices surged 14% in Q1 FY 2017 as compared to the previous quarter, making it the best performing base metal.
We also witnessed a rally in silver prices, which along with increasing volumes is accentuating its contribution in our profits, having reached almost 20% at present. Our transition to underground mining is progressing well with robust mine development, especially during last few months. Production from our underground mines has also ramped up significantly.”
Operational Performance
Ore production from Sindesar Khurd decline reached the originally conceived capacity of 3.75 million MT per annum rate and production from Rampura Agucha underground mine crossed one million MT per annum production rate during the quarter. Mined metal production was in-line with mine plan and guidance with lower production from Rampura Agucha open cast mine as more waste was excavated than ore in accordance with the waste-ore sequence. Mined metal production during the quarter was 127kt, 45% lower y-o-y and 33% lower than previous quarter. The transition to underground mines is progressing well and mined metal production for the full year will be higher than previous year. The production plan for the year outlines second half volumes to be substantially higher than first half; in the first half, Q2 will be much stronger.
In accordance with mined metal availability and accretion to inventory, refined zinc production during the quarter decreased by 46% y-o-y and 34% from previous quarter. Integrated lead production during the quarter was lower by 11% y-o-y and 36% sequentially for the same reason.
Integrated silver metal production was up by 20% y-o-y on account of higher volumes from Sindesar Khurd mine, though lower by 27% compared to previous quarter due to accretion to inventory and lower volumes from Rampura Agucha mine. Silver recoveries were better during the quarter driven by higher recoveries from Sindesar Khurd mine and enhanced smelter efficiency.
Five Star Rating by Ministry of Mines – Rampura Agucha and Sindesar Khird mines were awarded the prestigious Five Star rating recently initiated by Ministry of Mines for the efforts and initiatives taken for implementation of the Sustainable Development Framework and for exemplary compliances & best practices. The 1 to 5 scale evaluation is based on performance in the area of scientific and efficient mining, addressing social impacts of our resettlement and rehabilitation requirements, local community engagements and welfare programmes, steps taken for progressive and final mine closure and over all reporting and adoption of international standards. This five star rating was bestowed to only ten best mines in the country, including two of Hindustan Zinc.
Changes in Accounting
The Company has adopted Indian Accounting Standards (Ind-AS) reporting from the current financial year. Correspondingly, comparative periods of previous year have also been re-cast where necessary. Ind-AS also incorporates the IFRS methodology of temporarily capitalising excess overburden in periods of high waste-to-ore ratio in open cast mining to more closely relate the costs to actual production volumes; accordingly, Rs. 189 Crore was capitalised which will be reversed in H2 FY 2017 where waste excavation is expected to be low.
Additionally, cumulative mark-to-market gain on corporate bonds of Rs. 160 Crore was capitalised including Rs. 66 Crore for the current quarter. Change in method of depreciation on Plant & Machinery increased this head by Rs. 171 Crore.
The net impact of these accounting changes has resulted in a reduction in Profit before tax by Rs. 48 Crore for the quarter.
Financial Performance
Revenues during the quarter were Rs. 2,501 Crore, which is 30% lower from a year ago. The decrease was on account of lower volumes, primarily zinc, and lower LME partly offset by higher rupee depreciation and higher silver price. On a sequential basis, revenue decreased by 19% due to lower volumes, partly offset by higher zinc & silver prices.
The zinc metal cost of production per MT before royalty (COP) during the quarter increased Rs. 62,138 ($928) in line with production plan of lower volumes from Rampura Agucha open cast mine in the current quarter and thus lower average grades. This was partly offset by lower coal & commodity prices, cost optimization projects in procurement & commercial and higher by-product credits. This incorporates the Ind-AS adjustment outlined under ‘Changes in Accounting’ section. The COP in dollar terms will be better in FY 2017 compared to previous year.
The above revenue and cost of production resulted in a 33% y-o-y decline in EBITDA during the quarter to Rs. 1,130 Crore and 13% decline from previous quarter. Silver EBITDA during the quarter was Rs. 293 Crore, up 32% from Rs. 222 Crore a year ago.
The smaller investment corpus on account of dividend pay-out in the beginning of the quarter led to lower investment income, which along with higher tax rate and higher depreciation resulted in net profit of Rs. 1,037 Crore, lower by 47% y-o-y and 52% from previous quarter.
Expansion Projects
The Company continued with high pace of mine development, achieving 14,011 metres of total mine development during the quarter, up 18% from a year ago.
During the quarter, mine development at Rampura Agucha underground mine crossed the 4,000 metre benchmark for second quarter in a row. Further, all three surface ventilation fans of 250 kW were commissioned for north decline. Main shaft sinking crossed 900 meters against the final depth of 950 meters and winder erection work commenced during the quarter.
Sindesar Khurd main shaft sinking work has already been completed to the ultimate depth of 1,052 metres and off shaft development work continues to be ahead of schedule even as work on up-ramp commenced during the quarter. Progress of new 1.5 mtpa capacity mill and power up-gradation projects are in full pace and in line with commissioning by end of the financial year.
Zawar mill debottlenecking along with associated power and infrastructure projects are progressing well while Kayad mine project is near completion having achieved its eventual capacity of 1 million MT per annum.
Liquidity and investment
The Company’s net cash and cash equivalents are at Rs. 23,349 Crore as at June 30, 2016, after outflow of Rs. 12,205 Crore of Special Golden Jubilee dividend including dividend distribution tax in April 2016.