Hindustan Zinc to switch to renewables to reduce power costs, improve margins

Hindustan Zinc, a Vedanta group firm, is looking to bring down cost of production by $80 -90 per tonne as it eyes reduction in power costs by switching to renewable power. It is also looking at better coal mine linkages.

The company’s power and fuel costs were at ₹900 crore in Q1 FY23, up around 15 per cent q-o-q, led by higher coal prices as fuel supply agreement materialisation was only 8 per cent during the quarter. The company continued to import the balance coal from Australia and Indonesia.

According to Arun Misra, CEO, Hindustan Zinc, the company is sticking to its cost of production (ex-royalty) guidance at $1,125 - 1,175/t range (v/s $1,264/t in Q1 FY23). This implies about 13 per cent lower cost of production for the remaining of FY23.

“Cost of coal continues to be steep and has not reduced meaningfully so far. While we are sticking to our guidance, there will be some reduction in costs that we bring in by using renewables and biomass thereby replacing coal,” he told BusinessLine.

Coal India clearing backlogs – to the tune of 1 million tonne – would also help bring down production costs. Coal available from the miner (through mine linkages) is nearly 66 per cent (two thirds) cheaper than imported ones.

“ We have a fuel supply agreement of 0.7 million tonne that we entered into in February. But now the backlog is one million tonne. We would be looking to make spot coal purchases across auction wherever prices are lower,” Misra added.

As a part of the switch to renewable, it is already looking at 200 MW of renewable power by FY24. Contract details, including, price, are being worked out.

Production guidance for FY23 has been maintained at 1,050–1,075 kilo tonnes (KT) for mined metal production and 700 – 720 tonne for silver (versus 647 tonne in FY22).

For the April–June quarter, Hindustan Zinc reported a 56 per cent increase in profit after tax (PAT) on a y-o-y basis to over ₹3,000 crore, while EBITDA stood at ₹5,100 crore (up 44 per cent y-o-y).

“Zinc prices are expected to hover around current levels for some time before moving down due to expected demand slowdown in H2 FY23. Though Hindustan Zinc’s Q2 FY23 zinc cost of production will remain elevated, it should come down in H2FY23 with availability of higher proportion of linkage coal from Coal India helping offset lower zinc costs,” a report by brokerage firm, Centrum Broking said.

Slowdown fears

Global zinc demand has been impacted because of high inflation and rising interest rates.

On the London Metal Exchange (LME), zinc prices fell from a high of $4,500/t to around $2,900–3000/t, on fears of a slowdown and amid rising interest rates globally. This is despite low inventories at LME warehouses.

Capex plans

According to Misra, the management has approved the setting up of 0.5 mtpa fertiliser plant and roaster plant having a capacity of 160 ktpa capacity.

The capex estimated is ₹1,300‐1,400 crore for the fertiliser plant and around ₹700–800 crore for the roaster plant. The two plants are expected to be commissioned in 2024.

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