Hindustan Zinc to invest $15 million for high-end digitization at its mines

Mine digitization to lower cost of production by 10%; Co looking to cut cost of production to $900 per tonne from $1,077 per tonne now

In a bid to lower its cost of production amid the ongoing economic slowdown, Hindustan Zinc Ltd, part of Vedanta Group, is investing $15 million (Rs 107 crore) for high-end digitalization at its mines.

“High-end digitization of mines will bring down our cost of production by 10 per cent directly as it will help monitor the health of machines deployed underground on several parameters,” Sunil Duggal, chief executive officer at Hindustan Zinc told Business Standard.

The company has currently laid the WiFi network at two of its mines-- Sindesar Khurd and Rampura Agucha with about 60-70 per cent of work completed.

“Monitoring health of the machines in turn will help push up productivity and utilization of the same by at least 10-15 per cent,” he added.

The company is expecting to see results at the two mines over the next two quarters. In the December quarter, the cost of production of zinc without royalty for the company stood at $1,077 per tonne (Rs 76,571 per tonne), up 8 per cent corresponding period last year.

“The plan is to bring down the overall cost of production to $900 per tonne (Rs 64,037 per tonne), which will happen gradually,” said Duggal.

Over the last couple of years, Hindustan Zinc has witnessed an increase in its cost of production without royalty as it stood at Rs 76,571 a tonne in December quarter from about Rs 55,000 per tonne about two years ago.

Nearly 60 per cent of the company’s cost of production is in dollar terms as its realisations and coal imports are in dollars.

With all its five mines located in Rajasthan, the company also operates the Rajpura Darbari, Zawar as well as Kayad mines in the state.

Currently, only about 3-5 per cent of mines worldwide have high-end digitization at their mines.

Apart from the digitization initiative, the company is also focusing on internal efficiency and productivity improvement to lower its costs.

“We are focusing on some structural measures such as minor metal recovery  which normally gets wasted. We have identified that these minor metals put together hold a (saleable) value of close to Rs 1,000 crore,” said Duggal.

Nickel, cobalt, mercury, silver, magnesium, manganese and copper among others are some of the minor minerals the company gets access to while processing and mining zinc and lead mines.

In the quarter gone by, the company’s revenue from silver metal stood at Rs 692 crore as against Rs 678 crore in the same period last year.

“We are modifying our plant and processes in a manner that we are able to take full potential of growth. This also includes mining from pillars of old mines which will take utilization of these pillars to optimum. This will lead to volume gains which will help in upping utilisations at operations end,” said Duggal.

Meanwhile, brokerages held neutral stance on the company amid expectation of high volumes.

"We expect mine production to recover up 10 percent growth in FY21 and cost of production to decline due to shafts’ commission at RA (Rampura Agucha) and SKM (Sindesar Khurd) mine. However, with zinc LME at $2,500 per cent for FY21, the stock trades at six times of estimated FY21 enterprise value/earnings before interest, taxes, depreciation and ammortisation (EV/EBITDA). We remain neutral with target price of Rs 225 per share based on 6.5 times of estimated FY21 EV/EBITDA," said Motilal Oswal in its report.

Company's realisations took a hit in the quarter gone by from same period last year even as expenses slipped in the period under review. This hit the operating margins which tumbled 26 per cent in the December quarter from corresponding period last year.

As on December 31, the company's net cash and cash equivalent stood at Rs 19,513 crore as compared to Rs 16,952 crore at the end of FY19.