 "Akhilesh Joshi")
Providing for district mineral foundations and high power costs are expected to hurt Hindustan Zinc's margins, says Akhilesh Joshi, its chief executive officer. The company is re-negotiating all its contracts to optimise costs and negate the impact of the increased expenditure. In an interview with Aditi Divekar, Joshi talks about the zinc price outlook and the company's investment plans. Edited excerpts:
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What will be the impact of rising costs on your earnings?The recent increase in power and fuel costs is mainly due to government-imposed levies such as electricity duty, water cess and the renewal energy purchase obligation. Earlier, these duties were exempted. Noting the commodity price downturn, we are re-negotiating all our contracts to optimise costs and negate the impact of recently-levied charges related to power. For district mineral foundations, we have made some provisions since the government is yet to specify the percentage hike, but this is going to hit the balance sheet, specially if the mines are deep or are of low-grade ore. It is going to be a challenge for us.
What is your outlook on global zinc prices and your revenue stream?
Zinc has held up well compared to other base metals in a volatile commodity market supporting my belief in its strong fundamentals. I expect the later part of the year to be stronger on expectation of a continuing global zinc deficit due to closure of the Century and Lisheen mines, and a further decline in Shanghai and London metal exchange inventories. This will encourage a return of investor confidence and stronger prices by the end of the year. On the revenue front, we expect the second half of the year to be better, as by then there will be more clarity from the China market.
Your April-June revenue and operating profit have dropped sequentially. What is the reason?
Comparing the January-March quarter with the one gone by is not a fair comparison. Any open cast mine towards the end of its life can have a famine and feast nature, and that is what happened with the Rampura Agucha open cast mine last year - the first two quarters were famine quarters with low production volumes and more excavation, while the last two quarters (and especially the last quarter of 2014-15) were a feast. This essentially resulted in the fourth quarter of 2014-15 being our strongest quarter till date in terms of volumes. And it is volumes that drive revenue and operating profit.
Therefore, when you compare this quarter with the previous quarter, it looks weak even though it is a fairly strong quarter by itself. This year, mine production is going to be more uniform.
What are your production targets for zinc, lead and silver in 2015-16?
Our objective is to move closer to 1.2 million tonne production per annum and we have six major mine expansion projects running simultaneously to reach this target. For 2015-16, our target is to deliver mined metal production higher than the 887,000 tonnes of the previous year. This, along with adequate opening inventory, will allow our smelters to operate at high utilisation rates. Consequently, refined metal production in 2015-16 will be significantly higher. Silver production will be in the range of 350-400 tonnes.
As far as Rampura Agucha is concerned, we are in the process of transition from open cast mining to underground mining. We will be tapering off production from open cast but at the same time we are ramping up the underground mine such that the overall ore production from this mine is only marginally lower than last year. This volume loss from Rampura Agucha will be made up by our other mines, mainly Sindesar Khurd and Kayad, ensuring the overall production for the company is higher than the previous year.
Hindustan Zinc has installed 'refuge chambers' for employees working underground. What is the investment in this facility?
We have installed seven chambers till now and will be installing two more. The total investment for this was about Rs 4 crore and the funds have been arranged through internal accruals. Until now, our mines did not have the desired mechanisation. Now that we are moving into underground mining, where the ore is being found deeper, it has become crucial to have such mechanisations. In coming quarters, depending upon the requirement, we will be installing such chambers in the Jawar and Dariba mines. Currently, these nine chambers are being installed at the Rampura Agucha, Sindesar Khurd and Kayad mines.
Hindustan Zinc has taken initiatives towards the Swachch Bharat Abhiyan, child care and women empowerment...
We accord priority to communities residing near our business locations. Hindustan Zinc is constructing toilets in rural areas and also in schools. We have a target of building about 50,000 toilets by 2019. We have adopted 3,055 child care centres from the Rajasthan government and shall be providing about 80,000 underprivileged children supplementary nutrition and other facilities. We are also teaching rural women vocational skills.
