Hindustan Zinc gets down to check rising coal costs, meet ESG commitment

Company could relook at FY22 guidance if it is unable to check costs, says CEO.

Hindustan Zinc plans to reduce coal consumption to check input costs and protect margins, aiming to meet its environmental, social, and (corporate) governance (ESG) goal.

“We have advanced modification of the three steam turbines earlier scheduled in the second half of this fiscal. Due to this, we will be able to reduce our coal consumption in August onwards. We aim to lower coal usage by 7-8 per cent,” Arun Mishra, chief executive officer at Hindustan Zinc, told Business Standard.

The company’s annual coal consumption stands at 2 million tonne. “We had factored in high input cost when we worked out the guidance for FY22. But reality was higher than what we anticipated as prices of steel, shipping freights and coal escalated significantly," said Mishra.

The company has given guidance to keep its overall zinc cost of production below $1,000 a tonne for FY22.

“With turbine modification and other measures, we aim to bring down the overall H2 cost plan to $1,000 per tonne from $1,070 per tonne now. So will look to reduce $70 over the next few quarters,” said Mishra.

In case the company is unable to rein in the costs in the coming months, it also hinted at reviewing its guidance by the end of September.

“We should be able to come clear in the next 2-3 months, whether we should be able to arrest costs by the methods we have planned. Else, we will take a relook at our guidance for FY22,” he said.

In April-June quarter, the company’s costs escalated about 13 per cent sequentially because of coal and diesel prices.

Alongside, the company’s plans to lower coal usage is also aimed at achieving its ESG goals where Hindustan Zinc is eyeing increased consumption of renewable energy over conventional.

“Our plan is to increase the share of renewable power consumption–wind and solar, as part of our ESG goal. We are looking to convert 60 per cent of power consumption to renewable and balance to conventional. For this, within a year we should be able to close the work,” said Mishra.

Now, only about 10 per cent of the company’s power consumption comes from renewable sources.

“We are talking to agencies to supply power on a long-term basis. We are still working on a plan whether the renewable energy will be procured from outside or whether Hindustan Zinc will look to set up its own plants,” said Mishra.

The company has coal based thermal captive power plants with a total power generation capacity of 474 MW. These generated a record 3,880 million units of power in FY2020.

During FY20, the company produced 437 million units of wind power and 79 million units of solar power and achieved a reduction of 506,393 tonne of CO2 through green energy and various cost reduction initiatives.

With regard to Hindustan Zinc’s mined production, which declined sequentially in the June quarter, Mishra said the April-June mine production is one of the highest since the company transitioned to underground mining and is, in fact, the highest in the last five years.

“We should meet our mine production guidance for FY22. Mine production in Q1 of every fiscal is always muted compared to Q4 of the previous fiscal because of a lot of infrastructure work that commences in the first quarter for the mine production. This sequential fall in mine production is not a concern as it is typical of the mining cycle,” said Mishra.

Mined metal and refined metal production is guided to be at 1025-1050 kT per annum. This compares to metal production of 930,000 tonne for FY21. Management has guided for 720 tonne of silver production in FY22.

In April-June quarter, total mined metal production at 221,000 tonne, declined 23 per cent sequentially. Consequently, sequential production of zinc and lead were also down 4 per cent and 21 per cent, respectively. Even silver production was down by 21 per cent sequentially in line with declining lead production.