Vedanta Limited
Q3 2016 Earnings Call Transcript

Published: 29 Oct 2016

[Operator:]

Ladies and gentlemen, good day and welcome to Vedanta Limited Q2 FY ‘17 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashwin Bajaj. Thank you and over to you, sir.

[Ashwin Bajaj:]

Thank you, operator. Hello, ladies and gentlemen. This is Ashwin Bajaj, Director of Investor Relations. Thanks for joining us today to discuss our results for the second quarter of FY 2017. On this call today, we will be referring to the presentation that is available on our website. Some of the information on today’s call maybe forward-looking in nature and will be covered by the disclaimers on Page 2 of the presentation. From our management team, we have with us our CEO, Tom Albanese. We are also very pleased to introduce our new CFO, Arun Kumar, today. As you know, Arun took over as CFO of Vedanta about a month ago. We also have several of our business leaders with us. We have Abhijit Pati from Aluminum; Sudhir Mathur from Cairn India; Sunil Duggal from Hindustan Zinc; Deshnee Naidoo from Zinc International; Kishore Kumar from Iron Ore; and Ajay Dixit from the Power business. With that, let me hand over to Tom. Tom, over to you.

[Tom Albanese:]

Thank you, Ashwin and good evening ladies and gentlemen. I am pleased to welcome you to Vedanta Limited’s results call. And as Ashwin noted, I would like to welcome our newly appointed CFO, Arun Kumar. Arun takes over from DD Jalan who had superannuated after 16 years with the group. Arun has been Deputy CFO of Vedanta. And maybe I would like to take the opportunity to thank DD for his service as CFO and his valuable contribution to the company. Fiscal year 2017 has generally been a good year so far for our sector. Investors are beginning to return to the sector with less concern that they had about 6 to 9 months ago. Commodity prices have been stronger and more stable with zinc, silver and oil particularly delivering strong returns. Chinese growth has also been relatively stable in the first half delivering growth within the range of their guidance of 6.5% to 7% for calendar year 2016. Although the real facts in the ground are probably lower than that. India remains the fastest growing major economy of the world and there is an increasing level of confidence and expectation on growth, with the government continuing its strong emphasis on reforms to enable future development and future operations. As you know, I have been saying that the commodity loans we have seen early 2016 should be the trough in the markets and it seems that more investors are believing this now. We started this year with ramping up of aluminum power and iron ore business and I think the current improvement in commodity prices have come in a very opportune time helping us to accelerate our pace towards stated targets. So with that, I will now move over to the slides and update you on quarter two fiscal year 2017 performance. As always, I will start with the slide on safety and sustainability. On safety, I am pleased to say we had a zero fatality quarter. However, we did regret that we had one fatality in the beginning of the first quarter, so we have had one year-to-date. This has been a huge improvement, but we could not be complacent on this. We remin committed on our efforts to achieve our objective of zero harm. We have taken several initiatives like training our line managers on risk identification and mitigation measures, implementation of safety performance standards and safety leadership drives of achieving zero harm. Our lost time injury frequency rates for the last 5 years have come down as shown in the chart of the top of the right side of the page. And we are also working hard to reduce our water consumption rate increased our water recycling rates. If you could move to the next slide please, delivering on all fronts. During the first half of this financial year, we have been focused on delivering on all fronts. We were delivering on our guidance ramp up aluminum, power and iron ore. We are generating higher free cash flow and de-levering our balance sheet. So, while these have been supportive in the first half and we believe the fundamentals have improved significantly. However, we do remain focused on continuing to drive down our costs. The merger with Cairn India was approved by both sets of shareholders, which is the significant step towards creating long-term shareholder value and we are pleased the market response since then has been very positive. We are pursuing value accretive and low CapEx organic growth in line with what we have said our approach is toward prudent capital expenditure. We remain very optimistic about the India’s growth potential which will drive demand for our commodities and we are well placed to tap India’s resource potential and contribute to its growth. So at this juncture, I would say that these have been the areas that are focused for the past few years. And if you go back to our statement of 2 years ago, you see that we have been consistent with our priorities and consistent with pursuing a target of de-levering the balance sheet. So, if you could move on to the second quarter highlights. Operationally, we have had a strong quarter in terms of ramping up production as planned at the beginning of the year. At aluminum, we are ramping up our new smelters. We, unfortunately, did have some product averages, which I will speak about at smelters which are now being rectified. At TSPL, the third and final unit was capitalized during the quarter and I feel we started mining and shipping ore post the monsoon season. At Zinc India, mine metal production was higher in the second quarter as compared to first quarter. And as we have guided, second half production was expected to be significantly higher in the first half. In oil and gas business at Cairn, in Rajasthan, the Mangala EOR project increased by 24% and costs have improved 10% sequentially. As you see on the EBITDA mix pie chart contributions from aluminum and iron ore have increased significantly in the last 12 months, better balancing the diversified portfolio. On group simplification, the merger with Cairn India has been approved by shareholders. We have applied for approvals in Reserve Bank of India, the Ministry of Petroleum and Cairn India has applied for the High Court approval, while Vedanta will apply for that in due course. We remain on track to get all pending approvals and close the transaction by the first quarter calendar year 2017. Talking about our rfinancial highlights, we are pleased that this quarter EBITDA and profit after tax has been highest in the past 7 quarters, with the strong EBITDA margin at 39%. I just said commodity prices have improved significantly, but we continue to maintain our focus on cost savings. Arun will talk more about that in his section, but we have delivered cumulative savings of $421 million over the last 18 months. The strong operational performance, we have reduced our net debt by INR 2,260 crore over the quarter. So, now I would like to focus on our ramp ups, aluminum power and iron ore. This page talks about how we are progressing against our stated plan of ramp up of aluminum, power and iron ore. And as the graph suggests, we made significant progress in increasing production at each of our businesses and we will continue to see higher production during the second half. I just would remind those who have been following our company for the past several years when we first started putting this slide out, people said oh, that looks pretty promotional, but we have been actually delivering what we promised. Talking about aluminum, we have achieved production run-rate to first 1.2 million tons per annum in the second quarter including the trial runs. As I said, we have capitalized the third unit TSPL. And again as expected the second quarter production was low during the normal monsoons, but we are resuming mining and we expect a good third quarter. I mentioned earlier that we are a little more diversified than we were in terms of our balance of the earnings. And the next slide, we have talked about those benefits of diversification and the resilient margins that we have overall. Our commodity basket has been much less volatile than the individual commodities, but at the same time has captured the rebound in commodity prices very well, our basket being up 33% since the 1st of January. And our EBITDA margins have been strong throughout this volatility, 30% up for the fiscal year 2016 and as I have said rebounding to 39% in the current quarter. So with that, I would like to introduce you and hand you over to Arun to take you through the financial update. Over to you, Arun.

[Arun Kumar:]

Thank you, Tom. Good evening to all. As highlighted by Tom, it’s been a strong quarter for us driven by planned ramp-up in production volumes, supportive improvement in the commodity prices and operations delivery on cost savings and efficiencies. If you look at the page on Q2 financial highlights, EBITDA for the current quarter was INR 4,640 crores coming in at a robust margin of 39% as compared to 32% in the previous quarter, a good improvement. The absolute EBITDA growth is 31% on a sequential basis. Most of our business segments saw EBITDA growth reflecting the strength of our diversified portfolio model. I will come back on some of the drivers of this group in a while. Attributable PAT at INR 1,252 crores doubled compared to the previous quarter and is 17% higher year-on-year. As Tom highlighted earlier, most EBITDA and attributable PAT were the highest in the last 7 quarters. We also generated a healthy free cash flow post CapEx of INR 2,600 crores, which helped improve our net debt to EBITDA ratio delever further with net debt going down by approximately INR 2,600 crores. It maybe noted that the opening debt numbers have been adjusted for operational buyers’ credit which was earlier treated as part of debt now classified as street payables under the new India standards. This is now well aligned to our existing IFRS disclosures of the parent, Vedanta Plc level. This resulted in a downward adjustment in the opening net debt by INR 10,400 crores to about INR 14,000 crores. The board also approved an interim dividend on INR 1.75 per share. Regarding the quality itself, our listed subsidiary, Hindustan Zinc, had announced its dividend policy last week. At Vedanta Limited, we expect to finalize our dividend policy towards the end of the financial year following expected completion of the Cairn India merger. Moving on to next stage on the EBITDA bridge the 31% EBITDA improvement over the previous quarter was equally supported by external as well as internal drivers. Commodity prices and lower discount to bring for Rajasthan crude improved our EBITDA by about INR 600 crores. On the operational side, high volumes from zinc, Zinc India, oil and gas and commercial power contributed to about INR 330 crore. This was further supported by a continuous and relentless focus on cost saving program which further delivered by adding INR 160 crore to the EBITDA sequentially. In H2, we continue to ramp up our thoughts in aluminum further had recommenced iron ore dispatch as Tom mentioned post the monsoon and as guided expect to have higher production levels at Zinc India. I would like to talk a bit more about the delivery of our cost savings initiatives on the next page. I am happy to share that we have achieved a cumulative savings of $421 million during the last 18 months on the cost base of FY 2015. We are on track to achieve our stated savings target of 1.3 billion perhaps 6 months in advance of our original plan. Our cost savings program takes place across all our business while savings from aluminum and power stand out. Procurement and cross-functional teams across businesses are involved in delivering the cost savings program, which in certain instances is further supported by strong external expertise. Additionally, in this quarter, we have introduced a few more cost savings focused areas like logistics, quality control and operations planning across the business. For example, we aspire to achieve savings in our logistic spend, not only through standard levels like road contract negotiations, backhaul, multi-axle trucks, etcetera, but also through effective deployment of technology and other best practices to significantly reduce turnaround time and manifold improvements in asset utilization. Moving on to the income statement on the next page, this slide is self-explanatory. On the finance costs, the blended cost of borrowing for Q2 FY ‘17 is about 8.1%, expected to go down further in the second half, reflecting improving credit profile and lower interest rate environment. On other income, we have generated a healthy post-tax 8.8% in the period. This was driven by mark-to-market gains on S&Ps and bond portfolio even as we continue to invest in high-quality paper only. It will be slightly lower and as through the current interest rates stays at this level. Depreciation for FY ‘17 will be marginally higher as compared to FY ‘16 on account of capitalization at aluminum and power units. Tax rate for the current quarter is at 20% in line with our earlier guidance and is expected to remain at this level for the remainder of the year. Attributable net profit after tax at INR 1,252 crores resulted in an EPS of INR 4.22 per share. Moving on to the next page on net debt, as explained earlier, operation wise credit was earlier treated as part of debt under IGAAP and is now classified as trade payable under Ind AS. This resulted in a downward adjustment in the opening net debt by about INR 10,400 crore. On this new base, the free cash flow post-CapEx was INR 2,600 crore driven by a strong EBITDA growth and working capital initiatives. CapEx spend is in line with the guidance and well invested in growth projects and particularly tax payments for ramp up. Some more details on the CapEx spend is coming up on the next page. We continue to apply disciplined capital allocation and continuously optimize this trend. Our current outlook for FY ‘17 reflects an estimated trend of $0.8 billion. This is lower than our earlier guidance of around $1 billion at the beginning of the year. This is primarily due to re-phasing of CapEx spend pattern as we concluded project contracts at our old season Indian zinc businesses with largely no change in the project schedules. The CapEx estimate for FY ‘18 is $0.8 billion as well. The FY ‘18 numbers will include a further investment in zinc business with a planned pit expansion project at Skorpion mine at Namibia while continuing to invest in the ongoing zinc projects at India and Gamsberg. In oil and gas, we continue to retain the flexibility to raise capital investment as oil prices recover with an additional bucket of $150 million in the growth projects with good returns as and when needed. A quick snapshot of our debt maturity profile on the next page. In H1, FY ‘17, we successfully reached long-term funds to the resources. As mentioned earlier, net debt reduced by INR 2,300 crores approximately in the quarter. We not only leveraged our strong relationships with our lending banks, we are also accessing the capital markets for long-term funding at lower rate. Extending the maturity of our debt profile continues to be a priority. We further paid down the intercompany loan to Vedanta Plc and the outstanding intercompany loan as of date is about $380 million. We are quite comfortable on the credit metrics and liquidity at this point of time. The liquidity for the group remains strong with $8.2 billion of cash and cash equivalents, up from $7.7 million at the end of June. Finally, a sum up on the next page. In summary, focus on generating increasing free cash flow with disciplined capital allocation, de-levering the balance sheet with strong liquidity and accelerating cost savings continue to be the key financial priorities. We are focused on long-term shareholder value, group simplification and dividends as key priorities. The board will finalize a dividend policy at the end of this financial year. Thank you, all. And over to you, again, Tom.

[Tom Albanese:]

Thanks, Arun. As you know, I have been talking about strong fundamentals for zinc over the last 6 months. We continue to believe that zinc still looks strong among the metals pack. Along with zinc, silver has also had a good run in calendar year 2016. So, we go through this slide with key on the global cost curve, Hindustan Zinc operates the lowest quartile in the cost curve. You also note that the cost reflecting the curve is before silver byproduct credits. If we were to take into account silver byproduct credits, these cash costs were further reduced to about $500 per ton. Concentrate markets continue to be in deficit and that becomes visible when you look at spot Tc/Rcs. Given the fact that Tc/Rcs are under pressure, that means the smelters are continuously finding it difficult to support concentrate post closure of a number of old mines and that does suggest even more fiscal tightening of the metal in the coming months. So, we do expect zinc – we find zinc to stay in deficit and this deficit with slow improvement in demand is drawing the inventory from LME and the Chinese and other exchange warehouses, which are now at a 6-year low. So, we look specifically at Zinc India and Hindustan Zinc, mined metal for the quarter was 192,000 tons, 50% – 51% higher sequentially in accordance with the mine plan. Refined metal production was also higher in line with the mine plan. We are moving ahead, as we have said, with the extension of Rampura Agucha open pit with the modified stage 5 now limiting the incremental pit depth from what have been 50 meters to now being 30 meters. And with this improvised plan which also significantly reduces our pre-stripping with accelerated ore production, so the pit would be expected to be complete by March of 2018. Move over to the SK mine, we are on track to expand this mine from 3.75 million tons to 4.5 million tons a year by ramping up production from declines. Preparatory work on the erection of the main shaft has commenced, while the development work on the shaft is progressing well. So, there is no change in full year guidance for Zinc India, with mined metal production in the second half to be significantly higher than the first half and costs will be sequentially lower as we increased production in the second half as compared to the first half. Moving over to Southern Africa with Zinc International, second quarter production was lower due to a maintenance shutdown that was planned at the Black Mountain. Cost of production moved up to lower production at Black Mountain. Last year, we mentioned in a period of lower zinc prices that we were deferring the pre-stripping at Skorpion for the next pit layback. Now of course, zinc prices have recovered, we are working towards that Skorpion pit extension and anticipate to start early next quarter, next – that’s fourth quarter of this year. And this will extend mine life by 2 years. Hence with that, we are also planning to defer the roster CapEx for a couple of years. The reason we are doing that, as I mentioned earlier, we have a tight concentrate market. So what we found is that we can go in and market all of our Gamsberg concentrate without the need of a roster for the near future. We will look at that on a year-by-year basis as we go forward. In terms of outlook, our production guidance for the year is 170,000 tons to 180,000 tons, and we would expect cost of production in the second half at about $1,200 per ton. We continue to be very excited with the Gamsberg zinc project. Pre-stripping is well underway. First work in Gamsberg is expected in the mid-calendar year of 2018 and we will wrap up full capacity of 250,000 tons in 9 months to 12 months after that. We have put in some of the major orders already and we would expect that zinc at Gamsberg will come on stream in net deficit zinc concentrate and physical zinc market and generate strong returns for shareholders. Let’s now move on to Cairn and the oil and gas business. Mangala EOR production increased 24% over the quarter. Overall Rajasthan production remains stable. Water flood costs [Technical Difficulty] 1.25 million tons sequence and about 325,000 tons smelters. As I mentioned, we had incidents of power outages at Jharsuguda and BALCO smelters due to power failures and pot failures. Fortunately, we had no injuries. However, we were disappointed with these outages and we realized we need to work much better on a safe and sustainable running and more stable running of these operations. We are taking all necessary steps to mitigate the impact of these incidents and we were able to broadly maintain the production guidance. We would expect to exit production run rate for the quarter is 1.1 million tons per annum, excluding trial run production. The second one is Jharsuguda commissioning of start in July and will be gradually completed in the course of the year. And we plan to commence the ramp-up of the third line from November ahead of our earlier plan in the fourth quarter of fiscal year 2017. And this again was one way of mitigating for the year the effects of the hot line failure in the second line. We benefited from higher aluminum prices during the quarter. The average price in the quarter surpassed $1,600 per ton. And we delivered a strong EBITDA margin of $247 per ton which is the highest we have seen in the last six quarters. Our hot metal costs for the quarter was $1,462 per ton and the sequential improvement was due to lower power costs, partially offset by higher aluminum costs. The impact of these power outages I have described have been limited on our production guidance. However, we have reduced aluminum production to 1.1 million tons for the year excluding the trial run. And the hot metal cost for the second half is expected to be in the range of the $1,400 per ton, averaging as previously guided. We are on track to reach 1.4 million tons of alumina for the year. And during the quarter, we achieved a run rate of 1.2 million tons per annum. We would expect alumina costs at about $250 per ton for the second half. So talking – next slide on power, at TSPL, the third unit was capitalized during the quarter. Its overall plant availability is 77%. The BALCO 600 megawatt PLF was at 64% due to a weak spot power market in the second quarter. As guided earlier, we target TSPL availability 80% for the second half. So we have – with respect to coal sourcing, I think we have been well placed strategically. I think we have seen notwithstanding what you see in international seaborne coal markets, our own weighted average coal costs have moved lower in the last few quarters. Domestic coal prices have remained stable or dropping despite huge volatility in the seaborne coal markets. So you can see we remain relatively unaffected by that recently increase in coal prices internationally as we procure more and more of the requirement, particularly at BALCO and Jharsuguda and TSPL domestically. Moving on to iron ore, the current quarter production and sales were low during – due to as expected due to monsoon at Goa and we have now resumed mining and shipping from Goa post the monsoon. We achieved sales of over 40% of allocated mining capacities in the first quarter. With current mining rate, we will complete our 5.5 million ton mining limit. We do expect to see this in Goa by the end of the third quarter. So we are engaging with respect to state governments with allocation of higher volumes. The chart on the right-hand side of the page shows our cost efficiency. Mining, processing, logistics costs at Goa were at $13 per ton. Despite such a low cost of operation, our EBITDA margin is $17 per ton as we realized lower pricings for Goa iron ore due to issues pertaining to grade, alumina content and moisture. Iron ore business remains strong in the quarter, producing 192,000 tons, 27% higher year-on-year. I would like to note that we also have a current environment of high coking coal seaborne prices. So we have we have been adjuvant. We are pursuing some coke samples from our coking plant and reducing pig iron production accordingly to take advantage of high coking coal prices and that’s mitigating the damage we would obviously otherwise see in our cost of production for pig iron. We have maintained a production outlook for the year of 5.5 million tons and 2.3 million tons from Goa and Karnataka, respectively. On Copper India, Copper India performance was marginally lower for the quarter. We did have an impact in an outage in September due to two separate boiler leakage incidents in the smelter. Tc/Rcs have come down significantly since the beginning of the year and acid prices in India have been lower resulting in lower EBITDA for the Copper India business. The production outlook for the fiscal year 2017 is maintained at 400,000 tons as smelter efficiency has improved post the outage. [Indiscernible] power PLFs remain low due to lower demand. However, as mentioned earlier, we have compensated 20% of the contract rate for any off-take below 85%. So moving over to final page, our strategic priorities remain the same. You have seen this slide for the last couple of years, it’s been very boring. We are progressing well in our production ramp ups and growing production in a disciplined manner. We remain focused on optimizing CapEx and OpEx to generate strong free cash flow and using that to de-leverage. We remain committed to group simplification and expect to complete the merger with Cairn in the first calendar quarter of 2017. We are confident this transaction will deliver long-term sustainable value for all shareholders. Vedanta Limited has had a strong track record of dividends and this Board has today approved an interim dividend as announced. The Board is expected to finalize a dividend policy, as Arun said towards the end of this fiscal year once the merger completes. And you all know, the Hindustan Zinc has already announced their dividend policy just last week. Of course, we will refocus on preserving our license to operate and adding resources as we complete them. So I think before we get into Q&A, I would like to dispose that we were celebrating Diwali, a very happy Diwali and enjoyable holiday with your families. With that, over to you, operator, for Q&A.

[Operator:]

Thank you very much, sir. [Operator Instructions] The first question is from the line of Sumangal Nevatia from Macquarie. Please proceed.

[Sumangal Nevatia:]

Yes, good evening. Congratulations on a strong quarter. I will start with your bookkeeping questions. First, in the aluminum cost of production there is a saving of close to $30 in power cost. Now, this is kind of a surprise given prices in India and imports are higher. Can you explain what drove this?

[Tom Albanese:]

Okay, thank you, Sumangal. I just want to thank you on behalf of your sales test for an excellent brokerage before I loved your title firing on all cylinders, I couldn’t have said it better myself. So, looking at the aluminum savings and I will ask Ajay Dixit, our Head of Power, to speak more about this. But I would comment that in the first quarter, you remember we had some outages and some upsets which led to some penalty purchases. So, I think we have said that the first quarter was anomalous. I think as we said the second quarter was better as a consequence of that. But Ajay, you can go into more detail.

[Ajay Dixit:]

Yes. So in the second quarter, I would say if you see we commissioned BALCO units and we got the better efficiency of the plant into full operation. So, this also contributed in the second quarter for lowering the overall power cost in BALCO and thereby the average cost of power coming down in aluminum. Second is that the outages which were there, which Tom already told, they were eliminated. And we were in a therefore position to save under this. So, this led to – both the topics led to better power cost in the second quarter.

[Sumangal Nevatia:]

Understand. Second question, the standalone debt not moving much, when I say standalone, I mean consol less gain in Hindustan Zinc and BALCO. So clearly, we are just breaking even on cash flow level at the standalone basis. So when can we expect that to start reducing?

[Tom Albanese:]

So, maybe Arun will comment on it, but just a reminder that as we ramp up our aluminum business, we do consume working – or we do build up working capital for that. So once that stabilized, that will be a more positive effect to cash flows than we would have seen in so far this first half. But Arun maybe you can give more detail.

[Arun Kumar:]

Yes, thanks, Tom, Sumangal. So, primarily on the standalone basis, if you see that iron ore aluminum and power and copper, and as Tom articulated, the ramp up, that’s little bit of investment in working capital like the metal that needs to be invested in the parts. And just a quick reminder the iron ore business normally imported to is the monsoon period. So, there is not really any sales in cash flow. So, as I articulated in one of my pages the iron ore comes back and the ports keep ramping up in second half. So that should see some movement on that line in H2.

[Sumangal Nevatia:]

Yes. Just one last question if I can. Now, any benefit of classifying buyers’ credit under trade tables, better leverage ratios could lower our interest cost and/or is it just a book entry?

[Tom Albanese:]

I will let Arun when he talks about conversions to IFRS, he has been suitably confused. So, I like the new CFO to fully explain that one.

[Arun Kumar:]

Sure. Thanks, Tom. I think we faced this question several times in our investor calls, because IGAAP it gets treated in a particular way in an IFRS, which is a globally acclaimed accounting standard and globally audited by global staff, audit staff. It’s very classified under trade payables. So, this year it’s been a natural conversions, I would say, with the implementation of Ind AS. So that evens out all the, I would say, confusion and even understanding our results now. Insofar as credit agencies are concerned, each of them have their own framework and the way they treat all these items. So, that is something that’s unique to meet our credit agency trade book. While yes on an overall basis, our net debt to EBITDA looks better with this, but the credit agencies go much deeper than that.

[Sumangal Nevatia:]

Sure. Thanks. I have a few questions more. I will get back. Thanks for the answers and wish the entire Vedanta team a great Diwali.

[Tom Albanese:]

Thank you so much.

[Operator:]

Thank you very much. Our next question is from the line of Pinakin Parekh from JPMorgan. Please proceed.

[Pinakin Parekh:]

Yes, thank you very much. Just two questions on aluminum. The first question is that if we look at the aluminum production ramp up other than one line of 313kt, essentially the company would have started production on 2 million tons of aluminum capacity. So from 1.1 million ton production in FY ‘17, at the run-rate of exit of FY ‘17 what kind of production can we expect for next year? Second related question is that the aluminum CapEx for next year seems to be not taking into account any expansion of the Lanjigarh refinery. So, how should we look at the alumina refinery expansion? Has that been put on hold? And hence, the alumina cost of production in Lanjigarh would bottom out at $250 per ton or can it go further lower?

[Tom Albanese:]

So, Pinakin, what I will do is I will give you some high level response, but I think if we have Abhijit here, he can go into in more thorough detail. But on your first point, as we look at fiscal year 2017, we look at putting all about go in during the course of the year. And at this stage, looking in the Jharsuguda mines acceptable last line and then we would hope to see the last – also we would start fiscal ‘17 with full BALCO or fiscal year 2018 with full BALCO and Jharsuguda less one mine. And then that would be ramped up depending on the timing of some technical matters that need to be solved before we could start that line that we referred to as Line 6, we referred to in this language here as I think Line 4. So, Abhijit will go through that in more detail. On Lanjigarh, in the first instance, we are looking at bringing that up to its 1.7 million, 1.8 million ton debottleneck, 2 million tons forward using given the bauxite mix we have. And my feeling is that over the next 6 months, we hope to see steady progress in finding new bauxite resources, either through OMC or some other right and that will give us the impetus to move forward with the next stage of the Lanjigarh expansion. But what we are trying to do is to create something which is just in time delivery of our expansion as we see the bauxite being available, but with that Abhijit, you might want to expand on both.

[Abhijit Pati:]

Yes, thanks, Tom and good evening everybody. Now, I think the run-rate which you have seen as 1.1 million ton is an average for the year. And in fact, if you see whatever the ramp up Tom has explained about the three lines in this year for AC Jharsuguda units and one full line for the BALCO. So invariably in March 2017, we are getting into a monthly production rate of around 165,000, which is proportionate to a equivalent run-rate of 1.9 million tons. So, that’s precisely give you the answer that whatever has been planned is really built in, into the split. The reflection of that quantity is not able to visible in this year, because it’s a ramp up year where you need to build up the heal metal and thereby lot of metal get consumed into stabilizing heal of the metal at the initial stage. And so far, as the Lanjigarh is concerned, I think Tom has explained absolutely rightly. Things are prospective now looking up with the Government of Orissa and we hope to see that how it really work out in coming 6 months and then take the cost for the expansion. But having said that, the drive for the cost reduction of the alumina is still on, we have been offloading and looking for many other smelters to not to remain at around $250 to our H2 production around $250 level, but every opportunity, further reduction of improvement of the efficiency and reduction of the input cost is always on to the curve and it will be run by the team.

[Pinakin Parekh:]

Understood. Thank you very much.

[Tom Albanese:]

I think you will see that on Slide 16 we make reference to the Lanjigarh refinery expansion not as part of our primary capital guidance, but as optionality.

[Pinakin Parekh:]

Understood. Thank you.

[Tom Albanese:]

Operator, next question.

[Operator:]

Thank you. Our next question is from the line of Ravi Shankar from Credit Suisse. Please proceed.

[Ravi Shankar:]

Yes, hi. Good evening sir. Two questions. One is on the rising run-rate at BALCO, where do you see that peaking out? And the second is on the – so the fourth – the cost of getting smelters back on track, how has that been accounted for after the outage at Jharsuguda?

[Tom Albanese:]

So maybe Arun, you can tackle both of those.

[Arun Kumar:]

Sure. Thank you, Ravi. As far as BALCO raising debt, you are right, it should that’s about peak at that level, because as you know the CapEx results, it’s only the ramp-up expenditure and that too for the next couple of months. So BALCO should peak and should start coming down. And so far as the cost of smelter is concerned, we should probably have on either side somewhere around INR 150 crores each both on Jharsuguda and BALCO as the cost of setting the pots back to their original condition. And given that they are in a trial run mode at this point of time, they were not capitalized, these would add to the project CapEx. And on the seat of money, potentially on the insurance claim that we have filed, this will be then be capitalized. So that’s how this should be treated. Thank you.

[Ravi Shankar:]

Understood. If I may just ask one more question here, are there any technical complexities with the fourth line ramp-up at [indiscernible] when it remains under evaluation, I want to just get a sense of what all factors are being considered for the fourth line?

[Tom Albanese:]

So I think Abhijit can cover that one. But again, it will be a combination of just having the primary power, backup power and on the same vein, primary transmission capacity and backup transmission capacity. So with that Abhijit, go with the details.

[Abhijit Pati:]

Yes, I think for the last line of the [indiscernible] is so far as the primary power requirements are concerned there is absolutely no issue, but we will have share one point that any aluminum smelter needs continuous power supply 24/7, 365. So thereby the availability of the power both in smelter power as well as transmission of the power is important and you will need substantial amount of redundancy into the system by way of it’s standby proposition. So that is one factor of the evaluation which we were are doing and we are creating certain amount of infrastructure that fit us to remove that transplant whichever is there for the fourth line. Having said like that, there are also an area which we are looking into is some additional supply of the anodes because you will need constant supply of the anode for the fourth line. We have sufficient the green anodes plant, but maybe this should be well improvement into the efficiency of the existing plants and also maybe a possibility of creating certain infrastructure of GMP only and not being different [indiscernible] plans, so that is under evaluation. So these are the two areas which we are considering and trying to de-bottleneck for the fourth lines and on top.

[Tom Albanese:]

So thank you. Maybe I can – there is also transmission matters. So maybe I will just ask Ajay, if you have any additional points you want to do.

[Ajay Dixit:]

Yes. So we want to move the entire plant to the central transmission utility connectivity, because this is a much higher reliable network. So we are having a line which is getting completed by November. And monthly there, we would be shifting this to the central transmission utility. But we are also seeing that Orissa is a very cyclone-prone area. And we would like to have redundancy in the system. So we would be constructing one more line so that we are in a position to have redundant connection to the central transmission utility. This would also provide us for getting any import or export of power much easily in a simultaneous basis. So this would bring robustness in the entire transmission infrastructure.

[Tom Albanese:]

I might just want to add to with that transmission line, not a big item, but it is in the capital guidance. It’s more a question of timing of getting it done.

[Ravi Shankar:]

Understood. It is a very competitive answer. Thank you so much.

[Operator:]

Thank you. Our next question is from the line of Jigar Mistry from HSBC. Please proceed.

[Jigar Mistry:]

Yes. Good evening everyone. Two questions for my end, first. On the power side, declaring TSPL targeting availability of 80% in H2, would that be in place, in the last conference call you have guided for EBITDA closer to 13 billion, that still stands with whatever has been progressed so far?

[Tom Albanese:]

So maybe just Ajay, if you would start with that and then I think maybe Arun, we will talk about what we have done and what we expect in terms of PLF, so then Arun to talk about the numbers.

[Ajay Dixit:]

Yes. So as far as the availability is concerned, you see we brought in this third unit and we have now put it on commercial in September. And immediately on coming in September, once you are commissioned, there is a small time lag between the linkage coal because you will need to apply after commissioning and getting it finally running. We have been able to do in the shortest possible time, but that small gas is calling 77% availability. And the second topic is that one of the units we took under annual maintenance prior to the scheduled maintenance time. So as a result of this now this unit availability which perhaps would have – we would have taken in the next half has come into the first half. So I do very clearly see that the availability moving forward on an average basis when we move to the second half, we will be able to achieve 80% plus.

[Jigar Mistry:]

That’s for the full year of operation essentially or just for the second half?

[Ajay Dixit:]

No and that is the average on full year operation basis. So once we achieve on an average for the full year, in any case then the financial number stay intact.

[Jigar Mistry:]

Correct. And you did mention that you secured a coal linkage of 6 million tons for the captive power plants through the recent auction. So how exactly is the total coal requirement structured at the moment, you have given percentages, but if you can throw some more color into how comfortable are we once we ramp up the full aluminum production?

[Ajay Dixit:]

Yes. So one, as you see, we have been able to reduce significantly on import and that was very – I would say very conscious decision to move away from imports. And this import is only a small amount, which is mandatorily coming on a group basis from other plants. As far as the overall aluminum is concerned, we are very comfortable because I would say from BALCO perspective, two-third of our total linkages and the balance one-third through auctions is secured. And in case of Jharsuguda, we are in a position to secure about 40% already through the linkage, another 40% through the auctions and spot auctions. And we will be soon having another round of linkages and we are very hopeful to secure additional things. Already another 20 million tons unspecified auction linkages are already in the market. And I would say Government of India is doing well in raising the production capacity. We do not see any concern regarding availability of the coal as we move forward.

[Jigar Mistry:]

Perfect. Thank you so much for your answers.

[Operator:]

Thank you. Our next question is from the line of Amit Dixit from Edelweiss. Please proceed.

[Amit Dixit:]

Thank you, sir for taking my question and congrats for the great set of numbers. I have two questions, one is regarding the bauxite and laterite mining, when – I mean if it is possible, can you give the time lines when are we going to commence them? And the second question is financial in nature that we have around 3.9 billion of debt maturing in FY ‘17 and FY ‘18, can you just throw some light, how much is it likely to be refinanced and what would be the approximate cost of debt going there?

[Tom Albanese:]

So I think I will ask Arun to tackle the second question and then of course, Abhijit on the first one. Just on the first one, though on bauxite mining, I just want to remind you what we said in the previous meeting that is that the restrictions for the barriers of bauxite mining have not been technical. They have been very much non-technical, social, etcetera. So as we look at these, we have to navigate a whole series of challenges including forest clearances, [indiscernible] consent. The status of the resource, the government got the status of resourced mapped etcetera, etcetera. And I think that what will that means as we carry out a portfolio of opportunities that we are pursuing all with some of them we have made good progress. But we will also remind the fact that we also – we are actively tracking some of these just to get us a convenient political thing for an NGO to go after. So we don’t want to elevate specific names too much in the public domain just because it does tend to represent a block curve for progress on that particular project. So with that maybe, Abhijit, you can talk about it in a bit.

[Abhijit Pati:]

Yes. I think you have two one is laterite and the OMC bauxite. Let me handle the laterite first, because we discussed even in the last call. So laterite has moved significantly, but you know that recent MMDF act, where you have minor minerals to the major minerals debt conversion, which has taken place. And we will appreciate one point, because this conversion needs some cabinet approval at the state level. So that recently that this is the only approval which you are spending over here at the state level which we are hopeful that the matter should get cleared off in the Q3 end by the state government. And once it is done, then there will be some other peripheral activity which takes maybe another 3 to 4 months’ time to start looking into a possibility of getting out the laterite on the mines. So, I am talking about roughly around 6 to 7 months of further drive into the laterite did all approval in place and getting into the mining first. So far as the bauxite of OMC is concerned, because the only one mines which is Kodingamali mines, which is under process. And there a good amount of progress has been made by the Government of Orissa. The public hearing has been already conducted and the file has moved for the first clearance and we are expecting maybe sometimes at Q1 of the next financial year with the government support and everything the OMC can start looking into the mining possibility from Kodingamali. So, these are the two very broad and as Tom said very rightly that it is more often technical propositions and government gives strength to handle everything together, but the focus is positive and progress is under troubled as our the focus by the government.

[Tom Albanese:]

Thank you. And then just maybe if I can add to that, I had one of our geologists sent me an e-mail with a photo last night, which showed a wall made of bauxite and this was basically, he was just traveling at an area [indiscernible] anything else, then there is a road cut cutting through bauxite. And the villagers have built a wall next to it of bauxite. And this particular area was a long ways away, tens of kilometers from any discovered bauxite deposit. So, it’s not a hard problem of finding the bauxite. The difficulty is actually getting it through the various regulatory and land processes for development.

[Arun Kumar:]

So, on the question regarding the debt and the refinancing 3.9 billion over the next 18 months to 20 months, as a recap, the financial priorities did mention that debt being refinanced at longer maturities and lower interest costs would be one of our key priorities as well as continuing to generate cash. So, that gives us a few options on refinancing and de-levering as we ramp up our operations. And given what we mentioned in terms of improving access to markets for long-term debt, and in fact, this afternoon, we have just released another information to the market that we have issued INR 300 crores of NCD at about 8% to the market. So, our objective will be to delever with free cash and issue new debt or refinance the debt at lower than the cost that exists at this point of time. Hope that takes care of the question.

[Amit Dixit:]

Thank you.

[Operator:]

Thank you. Our next question is from the line of Harsh Agarwal from Deutsche Bank. Please proceed.

[Harsh Agarwal:]

Hi. I wanted to ask a couple of questions, Tom. I am not sure if you can answer these. There have been media reports suggesting that the company might be getting closer to acquiring the balance take in Hindustan Zinc. If you can to any light on that would be helpful. The other related question was there were also talks about Hindustan Zinc conducting a share buyback. So, I guess if you can clarify that would be helpful as well? Thank you.

[Tom Albanese:]

Thanks, Harsh. Look, I think that again sometimes when we see something in media, that’s from somebody else. It’s hard for us to actually respond to that. I think that’s the case here. What I get out of – what I read over the papers over the past week is some encouragement that files are being opened and people are looking at these things again, and maybe there is some effort by the government to revisit the disinvestment of [indiscernible]. And if that happens, I am certainly very pleased with that and certainly we are working towards that. And we have not been instructed along those lines by the Government of India. In the meantime, I would certainly look forward to continuing to work with the Government of India. They have been good partners. They have been good members of our board. They have been very supportive of management. And I would look forward to continue to work for them. If that’s the joint decision they make, ultimately, they are increasing this investment up their gift, their power and we will roll with the direction that they take. I think that there is always discussions in the Hindustan Zinc about various options and I think that we should just respect the fact that those kind of board discussions are generally non-public matters and we should keep them non-public. We do have Sunil Duggal, who is CEO of Hindustan Zinc on the call. If there is anything else, Sunil, you’d like to add to that?

[Sunil Duggal:]

No, I don’t really agree with you that the government might be making up their mind and maybe some press statement as a result of that. But as of now there is no board discussion which has happened. And with the cordial relationship with the government, if they would come forward, we will see at that point of time. But it may not be possible for us to divulge anything which has happened in the board, but I would say that no such discussion has happened in the board as yet.

[Tom Albanese:]

Thank you, Sunil.

[Harsh Agarwal:]

Alright, thanks.

[Tom Albanese:]

Thanks.

[Operator:]

Thank you very much. Our next question is from the line of Abhishek Poddar from Kotak Securities. Please proceed. Mr. Poddar, you line is un-muted. You may please proceed with your questions.

[Abhishek Poddar:]

Hello. Yes, good evening sir. Thanks for taking my question. Just one small question around the debt, last year in the 4Q results, Mr. Jalan had mentioned that some part of working capital will be unwinding in FY ‘17. I think the total working capital that was close to INR50 million? What is the status of that and also if you could provide the buyers credit number for September ‘16?

[Tom Albanese:]

Arun, I will maybe give you those.

[Arun Kumar:]

Sure. I think if you noted Abhishek in quarter two, our working capital, we held it fairly flat, whereas in quarter one, there was an unwinding of approximately about INR 1,500 crores. So that came as part of our quarter one results. And insofar at the September end buyers’ credit number is concerned, it’s around the same 10,000 odd crores.

[Abhishek Poddar:]

Okay. Should we expect more working capital unwinding for the rest of the year?

[Arun Kumar:]

I think we have various levels in our hand and there is enough meat in the balance sheet that we go after. So, if there is any unwinding, we should be able to perhaps offset it.

[Abhishek Poddar:]

Okay, sir. Thank you.

[Operator:]

Thank you. The next question is from the line of Ritesh Shah from Investec Capital. Please proceed.

[Ritesh Shah:]

Yes, hi sir. Congratulations on good set of numbers. So, my first question is if you could provide some color on the physical market premiums and specifically for Val and BALCO separately?

[Arun Kumar:]

Sure. I will just ask Abhijit to comment on that and my answer is a bit lousy. We have been seeing pretty low physical market premiums because of the pressures of oversupply in the markets and that’s both on a global basis and in India, but we have had Abhijit if you could say anything nicer about physical premiums for aluminum, please do so.

[Abhijit Pati:]

Yes, physical premium for the aluminum is roughly an average of around $135 an ounce. So, we have different category of the product each year even on selling it like I can specifically talk about [indiscernible] and maybe some related alloy ingots which we are producing, which is in the tune of around 120 to 140, that’s the level it varies. And simple premium is in the tune of around $100 simply in that. So that’s the type of the average premium moving into the market as of now.

[Ritesh Shah:]

Sir, how was premium mode on a sequential basis?

[Abhijit Pati:]

Sequential basis means can you explain a little bit?

[Ritesh Shah:]

Sir, how much was it in Q1 versus Q2?

[Tom Albanese:]

Quarter-on-quarter, I believe.

[Abhijit Pati:]

For quarter-on-quarter, quarter-on-quarter, as you know, in the Q1, we have roughly around it was in the tune of around 145 to 155 level. And Q2, in fact there is a decrease into the premium, which has fallen to roughly around $15 to $22. So, that is the shift which has happened between Q1 to Q2.

[Ritesh Shah:]

Okay, that helps. So, second is more of clarification, you indicated about Kodingamali mines, what are the volume expectations from OMC if this at all materializes?

[Tom Albanese:]

Yes. Can I just say that this is still permitting process, so I can’t say we are in a position of giving what I call specificity on volumes, tons until we go through these early stages. But with that Abhijit, is there anything you can add to it?

[Abhijit Pati:]

Overall, as of today the estimated mine’s capacity for the Kodingamali is around 81 million tons. Now considering that when they will start the mining, what speeds they will be doing either it is 1 million tons to 2 million tons per annum. That is still under evaluation. And we won’t say any to really fix up that guideline. So that is still under evaluation. But so far as the overall volume of mine capacity is confirmed, it is around 81 million tons.

[Ritesh Shah:]

Great. Thank you so much and happy Diwali.

[Tom Albanese:]

Thank you.

[Operator:]

Thank you. The next question is from the line of Anshuman Atri from Haitong Securities. Please proceed.

[Anshuman Atri:]

Thanks for the opportunity and congratulations on the results. So my question is regarding the iron ore operations, so can you please enlighten us what progress we have made in terms of getting higher allocation given that other miners have not been very active in Goa and how much more allocation can we potentially get in Karnataka?

[Tom Albanese:]

So thank you for that. And I guess we will ask Kishore to comment on it. But just to recognize that while miners aren’t necessarily meeting their allocation, they don’t like to lose their rights to ramp up. So as we talk about this with government, we have to recognize there is some sensitivity with the other miners. But with that over to you, Kishore.

[Kishore Kumar:]

Yes. Thank you, Anshuman. As you know, in Goa overall we see capacity of 20 million tons continues to be the targets with the state government. As on date, there are two opportunities coming up. One is the forest area declaration, where about almost 200 million tons of iron ore cannot mine, because of the Government Committee report is getting discussed at the Supreme Court. So theoretically, therefore 17.5 million tons which can be mined by the miners for whom the EC limit has been allocated. And there are also some mines who are not able to produce for various reasons. So overall, you can say between 3 million tons to 5 million tons of unallocated EC limits are there with the state government. And this obviously would apply that if the state government wants to push its achievement of the 20 million cap which is there currently, they would request the current mining companies to come forward. And as Mr. Tom had mentioned, that we are well poised to achieve whatever excess that the state government would like to allocate to us at an appropriate time. And coming to Karnataka, where we have EC limit of 2.29 million tons, we have made applications to the development authorities for achieving our original EC which was 6 million tons for the state. And as you know, in Karnataka, there has been a cap imposed of 5 million tons in Chitradurga area which is where our mine is. So there is a recent hearing in the honorable Supreme Court where the court has mentioned that the current 30 million tons to the state will be allocated to the A and B category mines, which means NMDC and MML who are the other two state miners, their EC limits will be curtailed at some point of time. And we can be beneficiary of our expansion from 2.3 million tons to 6 million tons. But having said that, our application have to go through the approval mechanism which is going through at this point in time. And we should have a better visibility of the enhanced capital by the end of this quarter.

[Anshuman Atri:]

Okay, thank you. And the question related to Goa, question is also now that we are making good EBITDA, so the logistics largely the operators, are their contracts linked to realization or is it a fixed transfer, if then iron ore prices move up further, will it directly transfer into EBITDA or will a transfer be taken away by other logistics and costs?

[Kishore Kumar:]

No the logistics cost are all based on the logistics commercial parameters. So they are not linked to the prices of iron ore. So prices of iron ore keep floating and we always have amount of shipment average in [indiscernible] so that remains, the top line is always free.

[Anshuman Atri:]

Okay, thank you. And just last question on the aluminum operations, so I considered BALCO trial for environmental clearances for its mines, so any progress on those?

[Tom Albanese:]

So maybe I will start with that and Abhijit will, of course, would follow. But we have two areas of mines. One of them is fairly the north of BALCO in Korba at that main pad. I just actually had the opportunity to visit there about three weeks ago. And we will be – we are starting mining and that is all on a mechanized contract mining basis. With that, Abhijit over to you.

[Abhijit Pati:]

Yes. I think these two mines are very important mines for us. In fact, you can see that Kawardha and Mainpat both are under 4%. We are able to definitely we have asked for the environmental clearance. And the idea is to further to intensify the mining, obviously with the mechanization because we find – we get a lot of feeling that they is lot of value interest and we can significantly support the refinery of Lanjigarh [indiscernible] of this mining, both from the Kawardha as well as Mainpat. But having said like that, I think we need to also create certain amount of infrastructure improvement including some physical separation and purifications of the minerals so that we give the right kind of value at the refinery. But both teams are under tremendous focus. I know we intend to carry out a larger volume of the mining for both these mines.

[Anshuman Atri:]

Okay, thank you and wish you all a very happy Diwali.

[Tom Albanese:]

Thank you.

[Operator:]

Thank you. The next question is from the line of Vikas Singh from Batlivala & Karani Securities. Please proceed.

[Vikas Singh:]

Good evening sir. Hello.

[Tom Albanese:]

Yes. We are here.

[Vikas Singh:]

Yes. Sir, last year at the start of the year, you have given a 30% EBITDA growth guidance at that current metal prices, since then after all the metal prices have moved up significantly, so still we are maintaining that 30% EBITDA growth target, so are we already comprehended in recent rates or how would this or there is a possibility of increasing EBITDA?

[Tom Albanese:]

Well, let me just try to recall the timings when we talk about it. If I remember, we would have given that in the fourth quarter of the year, April, where you had already seen a lot of the upward price movement from the beginning of the year. So remember on the chart we showed earlier, with 33% increase in our basket, but the bulk of that had happened between January and April. So if you look at the price movements from April to now, they have not actually had that same progressive price movement. But as I would say, Arun, correct me if I am wrong. But most of the increase that we have seen from April would probably be related to higher volume. And of course, just remember, that we have had – we had a strong fourth quarter of last year at Hindustan Zinc. And [indiscernible] planned cycle, but we have a much weaker first quarter at Hindustan Zinc. So we have other things beside that period-on-period comparison we presented in April.

[Arun Kumar:]

You are right on the – prices are fairly consistent with what we had at that point in time and the markets have already moved up by that time.

[Vikas Singh:]

Okay, sir that’s all from my side.

[Tom Albanese:]

Thank you.

[Operator:]

Thank you very much. The next question is a follow-up question from the line of Sumangal Nevatia from Macquarie. Please proceed.

[Sumangal Nevatia:]

Yes. Thanks for another chance. Just one question, now after the Cairn merger, what do we do with the cash we get, do we lower the gross debt, repay some dividends, start excluding expansion opportunities of those businesses?

[Tom Albanese:]

Well, look I think that I will ask Arun to comment, but just want to remind you what we have been saying for the past year about this that once the merger is complete, it will be up to the Board of the company to determine the best allocation of capital. And as you would have heard me earlier describe it, we would be expecting that our Cairn business it self will have growth opportunities or will have some money unavailable for. I would like maybe Sudhir if you can talk a bit about that from a Cairn perspective. And clearly, the market is generally expecting that there is some de-levering with this. So we would see there would be room for quite a bit of flexibility with the Board to meet our objective, which is to grow those parts of the business and make a lot of sense, particularly in oil and gas, as we have said, but also to improve the overall direction of de-levering of the company. So maybe if I can start by asking Arun to comment from a balance sheet perspective and then Sudhir to talk about some of the growth things you have in your plate in Cairn.

[Arun Kumar:]

Thanks Tom. As you likely pointed out several optionalities for us from a balance sheet point of view as several of the businesses ramp up and if prices continue at this level. But yes, the final decision on how the cash can be allocated would be left the Board under the broad principles of robust capital allocation. And quick reminder before Sudhir comes on as Cairn by itself on a standalone business produces significant positive cash flow post CapEx every year. So with that, I will hand it over to Sudhir.

[Sudhir Mathur:]

Thank you, Arun. We have coal projects that we have gone for the past year and the parameters that we have chosen are 18% to 20% IRR at $40 oil book. And in that context, we are quite pleased that the teams have brought – to bring to life almost four ideas. One is on the gas project, which is good – would have volumes of 25,000 to 30,000 barrels of oil equivalent. The second – two projects relate to enhanced oil recovery at Mangala – sorry at Bhagyam and Aishwarya after the success of the Mangala EOR as Tom mentioned earlier on in the call is significant. We believe that the combined volumes that could come out of these enhanced oil recoveries would be in the region of about 30,000 barrels of oil per day. And lastly, it’s a tight oil obviously, there is a bunch of them, but the first project that we would like to do is on the Aishwarya Barmer Hill and which again is 20,000 barrels of oil per day project and all these are very close to 18% IRR, with the gas one being north of 25%. So, we want to take these without reasonably well in line with the partner and we believe we should be in a position to get all approvals, including them towards the next 6 to 9 months and producing to execution. So all-in-all, about 175 million barrels of reserves out of which about 60 to 65 million barrels that we already booked. So, you can give an IRR a reserve depletion ratio of excess of 1, exit when it happens, this is till 2030 and we look forward to executing these projects.

[Sumangal Nevatia:]

Thank you. And definitely of $400 million to Vedanta Plc, when do we pay that?

[Tom Albanese:]

Arun?

[Arun Kumar:]

Yes, as we had articulated during the quarter one results, it’s when we expect to pay down during this financial year.

[Sumangal Nevatia:]

Understand. Thank you and all the best.

[Tom Albanese:]

Thank you.

[Operator:]

Thank you. We will take our next question from the line of Jigar Mistry from HSBC. Please proceed.

[Jigar Mistry:]

Yes, thank you for taking my question again. A small thing from Slide 36, so if I take the revenue and divide it by total production or even total sales, it gives me an aluminum selling price which is lower than LME, and historically, this has been sufficiently higher to reflect both the physical market premium and the product premium. So, is that something that I am not reading right in this?

[Tom Albanese:]

Well, can I just so for our benefit, which slide are you looking at?

[Jigar Mistry:]

Slide 36.

[Tom Albanese:]

Which column?

[Jigar Mistry:]

So, 2Q F ‘17 INR 30.3 billion of revenues, you divide it either by 296 kt of total aluminum production or 284 kt of total aluminum sales?

[Arun Kumar:]

Let me take that, Jigar. I think what you see there is the total production. If you cast your eye to probably Page #30, Page #40.

[Jigar Mistry:]

Yes, 284.

[Arun Kumar:]

Right. The aluminum sales would be 249 for the quarter.

[Tom Albanese:]

And you should also subtract the trial run which is not booked through the P&L.

[Arun Kumar:]

That’s right. So, the trial run is not booked to the P&L which goes to the – out of the 284 trial run, net of trial will be 249. And if you divide it by 249, you get your answer.

[Jigar Mistry:]

No, trial runs frankly have been in the prior quarters as well, but it’s better if I take this online – offline. Thank you so much for answering.

[Tom Albanese:]

Yes.

[Operator:]

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Bajaj for closing comments. Over to you?

[Ashwin Bajaj:]

Yes. Tom, any closing comments?

[Tom Albanese:]

Yes, well thank you. Look I think that again, we always would like a better quarter, we always like better numbers, we always like better markets. I would have liked that we did not have the top line failures. But that all being said our revenues are up, EBITDA is up, high as it’s been in 7 quarters. Margins, EBITDA margins high as it’s been in several years. We have not spectacular price improvements, but steady price improvements on a calendar year-to-date basis. And we said we ramp up our production. We are ramping up production. All of this is delivering us that cash flow. It’s delivering us the delevering. And with the pending merger of Cairn, we will have even a stronger position. I know that most of you in the call have been quite positive in your recent assessments. Thank you for that and we look forward to seeing those continued positive assessments as we continued to deliver what you expect us to deliver. Thank you. With that, over to you, Ashwin.

[Ashwin Bajaj:]

Yes, thank you, Tom and thank you ladies and gentlemen for joining us today and wish you all a very happy Diwali weekend.

[Operator:]

Thank you very much, members and participants. Ladies and gentlemen, on behalf of Vedanta Limited, that concludes today’s conference. Thank you all for joining us and you may now disconnect your lines.