Vedanta Limited
Q4 2015 Earnings Call Transcript

Published: 3 May 2015

[Operator:]

Ladies and gentlemen, good day, and welcome to Vedanta Limited Q4 FY 2015 Results Conference Call. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. [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. As you know our company has been renamed Vedanta Limited very recently, and I would like to welcome you for our results call for the fourth quarter and financial year 2015. On this call, we will be referring to the presentation that is available on our website. Some of the information on today’s call may be forward-looking in nature and will be covered by the Safe Harbor language on Page 2 of the presentation. From our management team, we have with us our CEO, Mr. Tom Albanese; our CFO, Mr. D.D. Jalan; and we also have Mr. Mayank Ashar and Mr. Sudhir Mathur from Cairn India; Mr. S.K. Roongta and Mr. Abhijit Pati from our Aluminium & Power Businesses; and Mr. Kishore Kumar from our Iron Ore business. With that, I’ll now hand over to Tom.

[Tom Albanese:]

Thank you, Ashwin, and good evening, ladies and gentlemen. I’m pleased to welcome you to the fiscal year 2015 earnings call for Vedanta Limited, a united and aligned identity which positions us to create considerable value for both our domestic and our global stakeholders as a diversified natural resources company. The resource sectors as you all know have witnessed a challenging year due to decline in commodity prices and slower demand from China. We at Vedanta Limited are fully equipped to navigate this downturn and have been implementing a series of initiatives to reduce capital and OpEx to maintain financial strength during this period of weaker commodity prices, while preserving a strong resource position and a portfolio of assets with attractive long-term growth prospects. As Ashwin said, we’ll work off the slide presentation, which is on the website. And so let me start with the review of fiscal year 2015 performance highlights and Slide 3. First of all, on safety, it was the best year that we recorded in the last several years with a significant decrease in our lost time incident frequency rate and an enhanced safety focus across the organization. I believe so the programs we have implemented over the past year are beginning to bear fruit. Notwithstanding that, it was a tragic year as we lost five of our colleagues which is five too many, it’s unacceptable, and we’ll continue to strive for a culture of zero harm and eliminating those fatalities. On the environmental side, we continue to make significant investments of on sustainability having spent INR 338 crore on the environmental protection measures in the last three years. During the year, we made significant contribution of INR 28,000 crore to the Indian Exchequer in the form of taxes, duties, royalties for petroleum and benefited over 3 million through our community development programs. Please move on to Slide #4. Operationally, we’ve had a good year with record production at Zinc India, Copper India, Aluminium and Alumina, resumption of iron ore production at least at Karnataka and normalization of our oil and gas operations after planned maintenance shutdown in the second quarter. Positive momentum is continuing into the fiscal year 2016 with the ramp up of the new aluminium smelters and expected startup of the Goa Iron Ore. Financially, of course, our EBITDA was impacted by decline of oil prices, but we did achieve strong free cash flow of INR 3,425 crores after CapEx and underlying attributable profit-after-tax of INR 5,060 crores and reduced the gross debt by INR 2,800 crores. The [indiscernible] has approved a final dividend of INR 2.35 per share, taking the full year dividend 26% higher at INR 4.10 per share, in line with our focus on greater shareholder returns. Of course, we recorded a one-time non-cash impairment charge of about INR 20,000 crores, INR 19,956 to be exact, partially related to the Cairn India acquisition goodwill on account of a steep fall in crude oil prices. On the Cairn India tax matter, the Group is pursuing multiple legal options and have filed a notice under the UK-India Bilateral Investment Treaty and moved to the Delhi High Court. So if I can, I’d like you to move on to Slide #5, please. A year ago, I’ve made a list of priorities and I believe we made the strong priorities on these - strong progress on these strategic priorities over the last one year. The volumes are ramping up across all our businesses. Iron ore production at Karnataka has started and idle aluminium power capacities are being brought online. We continue to focus on expeditious ramp up of our new aluminium pot lines, the Chotia coal mine, EOR and gas production at Cairn, and underground production at Zinc India, apart from participating in the government auction processes for developing captive coal and bauxite. We’ve optimized OpEx and CapEx across our businesses and reduced gross debt by INR 2,800 crore in fiscal year 2015. And we’ll continue to focus on maintaining positive free cash flows, effectively financing upcoming maturities and reducing the next gearing on the medium-term. We’ve been able to achieve substantial synergies and savings from the consolidation of group structure and remain focused on delivering the $1.3 billion of identified marketing and procurement savings, a small part of which, about $50 million were delivered in fiscal year 2015. We will continue to evaluate various options to further simplify the group’s structure for the benefit of all stakeholders. This year we have seen a substantial decline of fatalities as I’ve mentioned, an improvement of water and energy consumption, and continue to work and improve, preserving our license to operate by adopting world-class sustainability standards and practices. This year, Zinc India added a net reserve and resource of 10 million tonnes. The Gamsberg zinc project was approved and the construction will commence shortly. We are focused on the phased development at Gamsberg, and identifying next generation of resources at Barmar Hill and the other satellite fields in Rajasthan. A central exploration mining group has been created to achieve synergies even as we optimize our oil exploration program. And with all that, we are committed to deliver superior returns to shareholders and to maintain or increase the dividends. Move please to Slide #6. Vedanta’s diversified business model and low-cost portfolio of assets gives us resilience to manage commodity market’s volatility as we are witnessing now. We’ve been consistently generating industry-leading EBITDA margins due to a suite of world-class and low-cost assets in zinc, oil and gas, iron ore. As we all know, EBITDA margins are a function of volatile commodity prices and our EBITDA margins declined in the fourth quarter in line with the fall in commodity prices. We are focused on optimizing our cost to maintain our margin leadership. And in our Aluminium & Power assets, we’re currently operating in the second quartile and positioned to substantially increase their costs in contribution to EBITDA as we ramp up to new capacities and build the captive material linkages. As well the most important indicators of long-term value generation, our return on capital employed, ROCE, in fiscal year 2015 was well above the medium of our diversified global peers. And this year, we expect substantial contribution to come from $6 billion worth of Aluminium & Power assets, which were idled so far and committed to increasing returns for our shareholders. Move please to Slide #7. This chart shows the underlying production growth of the group since fiscal year 2004 in copper equivalent terms. We’ve grown at a rapid pace in the last decade and are poised to maintain the industry-leading growth rate as our capacities in aluminium, power, iron ore, zinc and silver all ramp up over the next few years amounting to copper equivalent growth of 66% over fiscal year 2015. The majority of these investments have already been made on these low-cost assets, and hence we expect substantial contributions to EBITDA and cash flows from this production growth with minimal CapEx requirements. If we can, I’d like you move to Slide #8, please. The drop in commodity prices and the reform agenda of the new Indian government are creating a positive environment for investment and growth to pick up in India. Greater headroom for interest rate cuts, package of insurance, coal and MMDR bills and the government’s focus on efficient investment program, financial inclusion, infrastructure funding and ease of doing business have led the IMF and the World Bank to revise Indian GDP growth outlook to 7.5% in 2015. Specifically, the priorities outlined by the Government of India in terms of giving a boost to manufacturing through the Make In India program, housing and electricity for all, building of smart cities and approving of the rail and road connectivity, all order well for metal consumption in the present and the future in India. Of course India’s recovery is still in its early stages, but it was encouraging to see 10% demand growth in some of our products. Now this demand growth will include imports of scrap coming in to reflect the total increase in consumption of these individual metals in India over the course of the past year. At Vedanta, we are aligned and well positioned to contribute to government’s vision and feel like this agenda when complemented with a balanced transparent and stable policy formulation is likely to lead us to that 7%-plus GDP growth scenario over the next few years. So with that, I’ll now hand over to our CFO, D.D. Jalan to go through our financial review. D.D., over to you.

[D.D. Jalan:]

Thanks, Tom, and good evening, ladies and gentlemen. Moving to Slide 10, I’m happy to share our results in today’s challenging business environment as we go through a low commodity price cycle. We have seen drop in oil prices by almost 50% in the quarter. The average oil price in Q4 2015 was $54 against an average price of $108 in Q4 2014. Given this background, INR 4,000 crore of EBITDA in Q4 was a reasonably good number. EBITDA was affected by a one-time charge of INR 270 crore on provisioning for a power tariff dispute and a one-time exploration write-off of INR 280 crore at Ravva. Excluding these one-time items, EBITDA would be over INR 4,500 crores. We are also ramping up some of our operations of aluminium and iron ore during the year, thus partly mitigating the impact of low commodity prices. We continue to push the debt down, preserve cash and contain gearing at the same level. EPS pre-exceptional was credibly flat given the background. I’ll also talk more about the non-cash exceptional items later in my presentation. Moving to Slide 11, we did exercise control over the apparent controllable item on this page. We must note that those controllables had what I would term regulatory headwinds in the form of higher royalty and contribution to the District Mineral Fund. Due to the new MMDR changes and coal scenario, this got worse during the year when e-auctions dried up, forcing us to buy power or imported coal, both of which costed us nearly INR 1,000 crore. Oil volumes were low on account of plant shutdown early in the year. However, there’s room to do better. And that exactly is our focus which we shared earlier this year in the Capital Markets Day, that is to drive multi-million dollar savings through a dedicated procurement and commercial savings program just kicked off internally and what Tom also mentioned just now. We realized about $50 million of savings through this program. Moving to Slide 12, lower depreciation on account of technical history of useful life of various assets in our metals, mining and power businesses brought down the charge by INR 865 crore, thereby offsetting the lower investment income, which is purely timing. Their investment income in FMPs is accounted for on maturity as per accounting standard. Our underlying return on investments was better than FY 2014 at around 9%, though lower in quarter four again because of the timing as I mentioned. Finance costs as a result of initiatives taken reduced coupled with low interest rate environment. Tax rate at 16% was in line with our forecast. Attributable profit improved, thanks to better performing Aluminium and Copper business on our standalone move. We held the bottom line on pre-exceptional basis. Moving to slide 13, we took INR 19,180 crore one-time non-cash charge to our acquisition goodwill pertaining to the Oil and Gas business and INR 281 crore of Australian mines. Further, Sri Lanka exploratory asset of INR 505 crores has also been impaired given the commercial non-viability of the find. The impairment was triggered by the steep fall in crude oil prices. We have considered $60 for the current year and increasing to $84 by 2020 and thereafter a 3% per annum while arriving at around this year. After impairment charges, the lower goodwill on books also will result in reduction in amortization charge by INR 800 crores per annum going forward. We are fully in compliance to financial covenants with sufficient headroom. I would also like to emphasize that impairment charge doesn’t affect our operating or earning capacity. Moving to Slide 14, our maturity profile is fairly and evenly distributed. The immediate FY 2016 maturity of $1.9 billion is mostly short-term loan taken at relatively low cost in the past to drive overall finance cost down. But now, with the lower interest rate expectations, we are actively considering refinancing this progressively into longer-term instruments. Source of funding continues to be diverse with multiple options to drive cost down. Our strong balance sheet reflects $7.4 billion of cash and cash equivalents. We are committed to improve our cash availability further by improved business performance and continuous review and control of our CapEx spends. Moving to Slide 15, given the low oil price regime, we have revised spent target at our Oil and Gas business from $1.2 billion to $0.5 billion during the current year. We have also rephrased Gamsberg-Skorpion Project and revised CapEx spend target to $80 million from $250 million earlier. Our full year CapEx has thus been cut to about $1 billion against $2 billion estimated earlier. Our continuing interests on CapEx reduce prioritization will help deleverage even in a tough commodity price environment. Next slide to summarize, we believe that our strong focus on generating healthy cash flows from operations, discipline around CapEx spends, driving volumes and minimizing costs and further Group simplification could be fundamental financial pillars around which we will continue to strengthen and deliver our balance sheet. Thank you. And with this, I’ll hand it over to Tom back.

[Tom Albanese:]

Thank you, D.D. And if I may, I’ll just refer over to Slide #18. In Oil and Gas, average gross production for 2015 was lower at about 211,000 barrels of oil equivalent per day, largely on account of planned maintenance activities for Mangala Processing Terminal at Rajasthan in second quarter. However, we did see a pickup in the offshore fields of Ravva and Cambay in their production growth. In the Rajasthan block, the Aishwariya fields crossed a production of 30,000 barrels of oil equivalent per day in the third quarter. And at Barmar Hill and satellite fields, so in their own early stages of development they achieved an exit production rate of 5,000 barrels of oil per day. Rajasthan OpEx in 2015 was $5.80 per barrel, higher on account of higher crude processing costs and well maintenance costs. In terms of projects, we achieved the first polymer injection in Mangala, debottlenecked MPTs fluid handling capacity and completed the Mangala-ASP pilot spending of about $1.1 billion of CapEx. The Management Committee approved the Raag Deep Gas Field development plan for 100 million cubic standard feet per day at production and work on execution, planning and contracting of that is underway. As we said, we would be working on - we achieved positive cash flow post-CapEx, despite these low oil prices and a large CapEx spend. And in March, we announced a revised CapEx of $500 million in 2016 as D.D. mentioned to align the work program to this new crude oil pricing reality. Our efforts are currently focused on reengineering projects and renegotiating contracts to further improve the viability of our operations. Despite the dramatic decrease in the oil price, Cairn managed to add Gross 2P reserves of approximately 16 million barrels of oil equivalent. Completing the testing of the drills H11P and prospective 2C in seismic activity will be among our primary resource focuses for exploration in fiscal year 2016 with the objective to eventually add to our contingent resource inventory. I would note that our reserve [technical difficulty] despite - so maybe I just want to comment that our reserve reporting is somewhat constrained by the PSC term to 2020, but we’re confident we will get the extension from a strictly a regulatory perspective. We cannot put those reserves beyond 2020 at the moment. We do plan to scale our polymer injection to full Mangala field by the end of fiscal year 2016, and also evaluating ERO feasibility at Dongolem [ph]. The RJ - RDJ gas production is expected to increase to 25 million cubic feet per day during 2016 from 16 million cubic feet per day in fiscal year 2015. Overall, in fiscal year 2016, we aim for the minimum to maintain the fiscal year 2015 Rajasthan production levels of 176,000 barrels of oil equivalent per day with the potential upside of higher production from the Barmar Hill, satellite fields and gas. Move on to Slide #19, please. Zinc India has a year as we said of record mine production and profitability. The mine development rates also proved better positioning for that transformation ultimately to a full underground mining activity. The cost remained in the lowest quartile and for fiscal year 2016, we expect the production to be higher, although the first quarter of fiscal year 2015 will be slightly lower than the full year average, that’s just because of mine planning. The costs will remain stable even as we go deeper in the mines. Silver production is expected to improve into the 350,000 to 400,000 tonnes in mine with expected increase in silver grade at the SK mine. We ran ahead of schedule with the expansion of SK mine. The shaft sinking at Rampura Agucha mine to extend the underground ore production to 6 million tonnes per annum is slower than the original plan and we are reinforcing contractor resources to speed up this work. However, the initial work on expansion of the open pit life to 2020 has already commenced, and this will de-risk the mine metal volumes as we transition to underground. Enactment of the Mines and Minerals Development and Regulation, or MMDR Act, Amendment Act 2015 does provide continuity for our mining leases to at least 2030 with Rampura Agucha lease extended till 2030, the SK lease till 2045 and the Cayad [ph] lease till 2048. The Act also brings transparency to grant of mineral concessions via auctions and reduce disputes. However it can potentially future increase payments to government by up to 100% of the current royalties on account to the possible contribution to the District Mineral Foundation. We are again in discussions with all of the governments with respect to that. Royalty rates for zinc and lead in India are 10% and 14.5% respectively, which are the highest in the world even before these additional contributions and much higher compared to other base metals. A significant additional royalty of up to 10% for zinc and 14.5% for lead effectively can potentially make several low grade and deeper deposits economically unviable and maintenance necessitate strategic review of some of those mines. So we are therefore hopeful that governments will rationalize the contribution to the DMF in its notification. Moving to Slide 20, Zinc International, at Zinc International the production was lower, primarily due to lower production from Lisheen as it nears the end of its middle of fiscal year 2016 and the in-plant disruptions at Skorpion due to fire incident in January. For those same reasons, the fourth quarter COP was higher at 1,500 metric tons. The fiscal 2016 production will be lower at 220,000 tonnes of Lisheen, plans as scheduled to ramp down and costs will remain at current levels as the stripping ratios increased at the Skorpion mine in deeper levels. The 250,000 tonnes per annum Gamsberg project CapEx has been re-phased and we do expect to break ground by the end of the second quarter with the first ore production in fiscal year 2018. We do now anticipate that the Skorpion life mine will now be extended by two years from fiscal year 2017 to fiscal year 2019 by deepening of the current ore pit and accessing the recently identified higher grade resources. This ore from the mine will feed the Skorpion refinery till fiscal year 2020, under which it will be fed completely by the ore from Gamsberg. Moving to Slide 21, please. In Aluminium, we had record level of production from the refinery and the smelters. We started up the BALCO-II and Jharsuguda-II smelters during the second half. Cost of production was higher at $1,775 per metric tonne due to higher alumina costs and coal e-auction costs. In the fourth quarter, we witnessed improved e-auction volumes and hence softer domestic coal prices in line with the international coal price movements. On the metal side, we’ve been very mindful of the international conditions, and we as others have noted that Chinese exports of aluminium semis have been progressively rising through the year, causing the premium to drop steeply from the highest seen during the first half of fiscal year 2015. The recent proposal by the Chinese government to withdraw tax of aluminium semi exports, if implemented could lead to additional potential supply coming into market leading to further pressure on premiums, including here in India. We’re focusing on increasing the percentage of value-added product in our sales to protect our margins with a strong focus on reducing costs, especially at our higher cost BALCO operation. Additional parts from BALCO-II and Jharsuguda-II smelter will be ramped up from May and our production is expected to exceed 1 million tonnes in fiscal year 2016 with a cost of production of $1,650 per metric tonne to $1,700 per metric tonne within that range. The BALCO 1,200 megawatt power plant is under ramp up as we speak, and we expect to commission one commercial unit and one captive unit of 300 megawatt each within the first quarter of fiscal year 2016. Move on now please to Slide #22. The PLF on power at the 2,400 megawatt Jharsuguda power plant was at 39% due unfortunately to continued lower demand and evacuation constraints. We expect the PLF to increase gradually starting in the first quarter of fiscal year 2016 as we start ramping up the parts of Jharsuguda-II smelter. At TSPL, the first 660 megawatts were capitalized in December 2014 and is currently running at 85% availability. The second and third units are expected to start in the first half of the fiscal year 2016. We expect to have a margin of approximately INR 1 per unit once all the three units have stabilized. Moving on to Iron Ore, at Karnataka, mining has started in February, with a production cap of 2.3 million tonnes per annum and we remain engaged with the authorities to relax this cap. We will be in sales in the first quarter of fiscal year 2016 under the e-auctions route. At Goa, an interim capacity of 5.5 million tonnes of saleable ore has been granted to us. And we’re now engaged with the state and central government authorities to get the remaining approvals. And we would hope to start mining after the monsoons this year. And then finally, although it’s not last but least, because it’s the most profitable of all these businesses on this slide, Copper India. The copper smelter in India had a record production run taking full advantage of the higher TcRcs and the sulfuric acid prices, which were reasonably good. Global TcRcs for the calendar year 2015 were settled at higher levels compared to calendar year 2014, and we expect to realize about US$0.24 per pound for fiscal year 2016. Move on to Slide 23, please. To summarize, our strategic priorities remain unchanged. We’re focused on sustainability, disciplined capital allocation of zinc, and oil and gas, driving operational performance, ramping up production of free cash flows, continuing to delever and simplification of the group’s structure while developing the next generation of resources. To recognize the current commodity price environment, we’re implementing a series of initiatives to reduce capital and operating cost across all of our businesses to maintain financial strength and a strong balance sheet. With continued focus, the momentum on increasing production and controlling our costs, we aim to keep delivering superior returns for our shareholders as certainly was evidenced by our increase in our dividend rate year-on-year. And with that operator, I’d like to now open the floor for questions. Operator, over to you for questions?

[Operator:]

Thank you very much, sir. [Operator Instructions] The first question is from Ruchit Mehta of SBI Mutual Fund. Please go ahead.

[Ruchit Mehta:]

Hi, good evening. Three years back at the time of the merger, there were certain assumptions related to the valuation of Vedanta Aluminium, which were primarily related to the acquisition of captive resources of bauxite and which led to sort of the premium valuation given to VAL. And at that time, we had accounted that - that was the reason why the VAL premium was there. As you revalue it again on our books, do we similarly need to relook at the VAL acquisition premium that’s sitting on the balance sheet. If so, when would such an exercise happen? And if a combination of write-off of this as well as the write-off of VAL premium, could we need to raise equity at some point in time to shore up the balance sheet?

[Tom Albanese:]

Yes, okay - I’ll just start now and just maybe ask D.D. to talk about it in more detail. But I think that as we would look with all of our assets, we look at them regularly for their asset valuations against the reported book values. And I just want to emphasize that that would certainly include the aluminium business. The key factors for the aluminium business besides market prices would be the expected ramp ups both of the smelting and alumina and I think we were reasonably encouraged by both our progress on ramping those up during the course of last year and the anticipated ramp up during the course of 2016. In addition, we’ve made good progress at the federal government level in Delhi with respect to the expected environmental approvals for our expected ramp up of the alumina refining, all an important part of that. Now, we will be watching very closely during the course of the year, how effective we are, first of all, bringing the laterite into the captive feedstock and also to the extend the additional government auctions of bauxite, how successful we are on that particular case. But D.D., maybe talk more technically as you can.

[D.D. Jalan:]

Sure. Mr. Mehta, basically as far as our process goes, we check all the assets where we think that there could be sign of weaknesses. We do the carrying value test every six months in September as well as in March, so that’s the process. And as far that process, we consider even the value of our aluminium business also for the impairment testing and the testing of the carrying value. And we see that there is a sufficient headroom available as far as the aluminium business is concerned based on the model what we have declared.

[Ruchit Mehta:]

So let me just - so you still think that within a reasonable time frame, you would have bauxite in place. And if so, could you share with us that what is your expected timeline now on getting bauxite in place, whether be one year, two year, three or whatever, just…

[Tom Albanese:]

I think, what we’ve said - and you can go back to the more detailed aluminium presentation at Capital Markets Day and that, that still stands today and that is that we would expect to see first of the laterites coming into our production profile during the course the upcoming fiscal year. And we would then expect to see that we have a number of bauxite opportunities through Odisha, some are currently within our portfolio, some we would expect to see opportunistically as we would expect the MMDR regulation to lead to bauxite auctions. I think it’s pretty clear with the states seeing how much money came into their coffers with coal auctions, that they are incentivized to proceed expeditiously with other auctions and certainly in Odisha, we would expect that would be the case in bauxite.

[Ruchit Mehta:]

Okay. Thank you, guys.

[Operator:]

Thank you. Our next question is from Pinakin Parekh of JP Morgan. Please go ahead.

[Pinakin Parekh:]

Thank you very much. My first question is on Aluminium. If I look at the guidance of the cost, it’s basically $1,650 to $1,700. And FY 2015 average cost of production - the blended cost of production was roughly $1,755. Now this is a year where there would be larger smelting ramp up, both at Jharsuguda and BALCO. So there should be start-up costs. But even as you - building in that the company is guiding to a cost reduction. So can the company help us more with how the key elements of cost alumina bauxite power should trend down from where we are currently?

[Tom Albanese:]

Okay. This is - now, I’ll start by just talking a little bit about last year. But I’d ask Mr. Roongta and Abhijit Pati who is just stepping in as CEO of Aluminium to go through that in more detail. So maybe, Abhijit be ready to follow-up on that question. But if we look at the last fiscal year, we had a tough period of time, particularly last summer, you will recall when the coal supplies were quite scarce and e-auction - e-auction volumes actually disappeared for a while. So we had a pretty big increase in our overall cost of coal and with that a corresponding increases in our cost of power. Unfortunately, we saw that settle out over the course of the fourth quarter of last year, and we would hope that we would not see a repeat of those kind of shortages this summer. But Abhijit, can you go through that in more detail please.

[Abhijit Pati:]

Yes. Good evening, everybody, ladies and gentlemen. I think, yes, the ramp up is certainly will help us to further rationalize the cost. So far as the cost component is concerned, yes, at this particular time, we are around $1,755 level and which has definitely moved out compared to the last year. But the two positive factors which is coming in, which will also further help us to reduce the cost. One is that the laterite which is coming into the system, a couple of - sometimes in this fiscal year, maybe second half of this fiscal year, we will also give positive dimension so far as the alumina cost is concerned. This particular year, we were able to see a better coal realization cost, so I think the BALCO as a sector is also have two significant move of our owned coal block. Chotia will also start getting into the system, so that will also give a good amount of the positive factor so far as the cost of power is concerned in BALCO. If you really see that overall sector cost is really vitiated because the only reason that there was a very high cost of production at the BALCO level. So that’s what I think our move is and this will be positively impacted so far as the BALCO power cost is concerned. And we are also able to see that there is a clear migration from a level of present - present level of, say, alumina of around $689 per metric tonne, which will certainly move to a level of around $616 per tonne in Q4 over the years maybe another - over the last three quarters. And similarly, we have a tremendous focus so far as the other efficiency parameters are concerned. We are also driving significantly the cost, as you understood from Mr. Tom that the buying and commodity cost is significantly around 30% of the buying overall the group, which is resting on to the aluminium sector itself. So that will also give a boost so far as the carbon cost is concerned. So collectively, these positive factors will certainly reduce the cost of what we have today at a level of around $1,755 level. So that, we are having a clear clarity, that how to drive this cost structure going down to this level. Now let me also tell you one thing that so far as the ramp up is concerned, we need to understand that any ramp up at the initial stage certainly will have a start-up cost inbuilt. So that anyway isn’t part of the capitalization. But nevertheless, the moment you get into the normalization, the cost structure improve dramatically because your fixed costs get spread over, over the volume which is generally produced. So we are not very concerned because the only positive things will come because your volume will significantly move up. What we are projecting in this year is around 0.9 million tonne of last year’s production to get into around 1.4 million tonne of the sector production. So that itself will boost a rationalization of the fixed cost over the sectors. So these are some things which will drive significantly the cost down so far as this financial year is concerned.

[Tom Albanese:]

I guess, I would just like to add that I think over the years, Abhijit has been very successful in bringing the cost down and running a very efficient business at Jharsuguda. So, we’re going to be asking to put the equal level focus and energies in bringing the unit cost down at BALCO. It is the high cost unit within our business and particularly at these lower physical premiums, it’s going to be quite critical for us to bring those BALCO cost down closer to Jharsuguda. And finally, I do see that Abhijit will be focusing quite a bit on, first, ramping up the refinery from the million tonne per year regulatory limit to something closer to 2 million tonnes as we have the environmental permits to do so and then get the bauxite for that. So a lot of weight on your shoulder, Abhijit but I’m confident you’re going to do it.

[Pinakin Parekh:]

Thank you. My second and last question is that the environment appraisal committee had recommended approval for expansion to 2 million tonnes, the refinery a few months back. But so far we have not seen the approval come through from the Environment Ministry. Has the company heard of anything from the Ministry? Are there any more stumbling blocks left before the receipt of the approval?

[Tom Albanese:]

I keep asking Mr. Roongta that question all the time, maybe Mr. Roongta you can provide an answer.

[Sushil Kumar Roongta:]

Well, environmental approval committee, they’ve already recommended that case. We have a small case of diversion of the land of about 28 hectares in refinery. That final process is on at Bhubaneswar, which we are expecting any time in the month of May. And thereafter, this approval will be formally given. So there are no hurdles and we expect to get this environmental approval sometime in May or let us within the first quarter of this year.

[Tom Albanese:]

But we remain ready to ramp up operations within the existing facility with that approval.

[Pinakin Parekh:]

Sure. Thank you.

[Tom Albanese:]

Maybe, operator, next question.

[Operator:]

Our next question is from Chirag Shah of Barclays. Please go ahead.

[Chirag Shah:]

Thank you very much for taking my question. Just a follow-up from the last question…

[Operator:]

Mr. Shah, sorry to interrupt you, we’re not able to hear you very clearly.

[Chirag Shah:]

Is it better now?

[Operator:]

Yes, this is a bit better. Go ahead, please.

[Chirag Shah:]

Okay. So thank you for taking my question. Just a quick follow-up from the last question that we had, can just elaborate on what are the assumptions going into the alumina refinery production or volumes that you have for the next year, and production that you expect from the Chotia mines? What are the - these assumptions going into the $1,650 cost of production that we are expecting? That’s number one. And number two on the Skorpion mine extension, I was hoping to understand how would the cost move going forward as we proceed towards deepening of the current open pit mines?

[Tom Albanese:]

Yes, thank you. Maybe, again, I think what we can talk about - if Abhijit, you can talk about the plans for the ramp up of the alumina next year, what the built-in assumptions, and also maybe Roongta can talk about what we got in terms of our coal mine. And then, I will go and give you an answer on Skorpion.

[Abhijit Pati:]

Yes, thanks, Tom. You see for the refinery expansion, we are targeting a volume of around 1.6 million to 1.7 million tonne in this year, which is equivalent in the last quarter of this particular year, we will be operating the refinery at 2 million tonne capacity. So we must understand this particular production ramp up is mostly on to the debottlenecking process. There is hardly - and all these debottlenecking process projects are absolutely on card, these are all completed. We are just waiting for this particular formal, the clearance as we indicated by Mr. Roongta, that’s the process we’re talking about. So we don’t really foresee any of the hindrance so far as the capital allocations are concerned and so far as the project navigations are concerned. We are extremely clear that we will certainly get it. And yes, obviously roughly around three to four left and often laterite, which has been already budgeted, to get into out of around 1.6 million to 1.7 million tonne of the refinery production is concerned. So that’s the overall number, and so far, the cost is concerned, it’s not very significant way that laterite will give in this year the cost advantage, because you will try to understand this is the initial phase of the mining and quantity is also quite small, because we’ll be starting the mining and getting this laterite into the system. So in this particular year, that’s not very significant, the cost drivers, so far as the refinery cost is concerned. But so far as the volume is concerned, yes, definitely, there is a proper plan and we don’t foresee any of the hurdles to get into that numbers, because everything is in our hand and everything is in the place to try these numbers. So Mr. Roongta for the Chotia coal mine, please.

[Sushil Kumar Roongta:]

Before we go there, just on - if I may just ask, as regard the bauxite availability is concerned, we don’t foresee a problem going to 1.7 million, 1.8 million tonnes this year?

[D.D. Jalan:]

No, this year, the bauxite is very, very marginal quantity. And if you see our business plan exercise, it’s purely the plan is resting on to the laterite because that’s where we have been giving the focus and that’s quite in an advanced stage. And as Mr. Tom has indicated, latter part of this year, it will be solely on to the bauxite, a very nominal quantity of the bauxite - solely on laterite and very nominal quantity of the bauxite we have factored in but that doesn’t really give any sort of strain so far as the volume is concerned.

[Chirag Shah:]

Sure. Thank you.

[Tom Albanese:]

Mr. Roongta.

[Sushil Kumar Roongta:]

Just to add on this bauxite, we are going to source larger quantity of bauxite from domestic sources in the current year as compared to last year, because some of the smaller mines have got opened now post MMDR. So, that will also help the mix and that should also help in driving the alumina cost down. On Chotia mine, there is a PRC [ph] of 1 million tonne. And we expect to start the mining operation sometime in June after the statutory approvals and we hope to produce 1 million tonne in the current financial year.

[Tom Albanese:]

Thank you. On Skorpion, that we had already planned in 2016 to begin a heavier level of stripping, and that was largely on the basis of the original mine plan. And you may recall, we had purchased some additional equipment at Skorpion last year to put that into place. So that additional stripping next year will help us move toward that new push back pit. In addition, as we look at the large number of tonnes. We’re certainly focusing on what we can do to improve our overall pit practices and optimize our mine plan better to reduce the unit cost per tonne of rock moved to mitigate the effect on the unit costs. To give you one example, we have been hauling the waste to one side of the pit, total haul distance about 5 kilometers. And with this change, what we’re doing is we’re actually changing our pit configuration, changing our waste haul configuration to reduce that 5 kilometers to 1 kilometer, so they’re now providing some offsetting effect. So, if you can go back to Slide 20, we would expect that as we deepen the pit that will still hold us within that expected cost of production in $1,450 to $1,500 range as mines go deeper. I think realistically over the next couple of years, because you can a see a lot of the resource at the bottom of the pit, you may have some years along the way where they go higher and then when we get the main ore body, they will go lower. So there will be some timing or some smoothing effects to get to that point over the rest of mine life.

[Chirag Shah:]

Sure. Thank you so much.

[Tom Albanese:]

Thank you. Our next question, operator.

[Operator:]

Thank you. [Operator Instructions] Next question is from Bijal Shah of IIFL. Please go ahead.

[Bijal Shah:]

Thanks for the opportunity. I have two questions. First, starting with aluminium, so have you - I mean, this MMDR bill has been passed now. So when do you see some mine actually coming up for auction in Orissa and should we expect something really to see in FY 2016 itself, or as of now there is really order, some clarity on this thing?

[Tom Albanese:]

Well, Mr. Roongta, why don’t you go ahead with that, I mean, again this is a bit speculative and - our own assumptions on this but certainly from my perspective, I would hope to see the auctions taking place over the next two quarters. How quickly they can get into production will be depending on location, resources, engineering and permitting requirements. But Mr. Roongta?

[Sushil Kumar Roongta:]

Yes, so post this amendment to the MMDR Act, government has already notified the draft rules for auctioning for the stakeholders to give their comments and last date is getting over for the comments of the stakeholders. So we expect that government may notify the final rules for auctioning by end of this month or maybe some time in the first week of May. And thereafter, it will be left to the state governments to really move ahead with the actual auction process, which of course, may take some time. But we certainly expect the auction process to be initiated within this financial year. And as Tom said, well it cannot be said any certainly at this moment as to when you can expect production from the mines which are auctioned, but auction process per se will certainly start this year, that’s our expectations.

[Bijal Shah:]

Just a small follow-up on that. Now draft auction rules talk about the fact that before something is put on auction, the state government has to get all the approvals and also determine all the land rights, which locals might have. So, can it actually really postponed this entire thing because determining all the land rights into the mine and also taking all the anticipatory approval that itself might take one year, so auction can start only next year, is it a possibility?

[D.D. Jalan:]

Well, I don’t think so it will take that long, and there will be a clarity about what kind of pre-approvals state government will have to see and the indication from the state governments are also to the fact that they will likely start the auction process as early as possible, so that the benefit will start accruing to the state governments. And that’s the indication we are getting from respective state governments that they would certainly be geared up to start the auction process within this financing year.

[Bijal Shah:]

Okay. One small follow-up again on that is what happens to Raykal in this - does it - now it has come through auction, or we have some claim on that even now?

[D.D. Jalan:]

As far as Raykal is concerned, the act amendment provides that wherever there are prospecting license given and they are subsisting - the - rather PL holder will have a right to get the ML. So the ball is the court of Government of Orissa and they are considering that aspect. So in that case, if they have recognize it then it doesn’t have to go through auction route.

[Bijal Shah:]

Okay. Okay, thanks a lot. And second question is on the goodwill write-down, so just want to understand that what is the long-term oil price assumption we have now, I mean, after this goodwill write- down, what is the long-term price assumption we have?

[Sudhir Mathur:]

So Bijal, basically what we have done, we have considered, faced this different oil prices for different years, like it is starting from $60 for current year and going up to $84 in FY 2019, FY 2020 and then after that we have provided inflation of 3%. So that is how we have built up the model.

[Tom Albanese:]

As far as straight line, where the first two years are relatively rises from there.

[Bijal Shah:]

Okay. Okay, thanks a lot, and all the best.

[Tom Albanese:]

Thank you very much. Next question operator.

[Operator:]

Thank you. Next question is from Navin Gupta of Goldman Sachs. Please go ahead.

[Navin Gupta:]

Yes, thank you. Just a couple of housekeeping questions. For a 59% stake in Cairn India, VAL has taken $3 billion write-down. Can you just help us understand what was the average acquisition price on your books before the write-down? And after your revised valuation, what is the average price per share of Cairn reflect?

[D.D. Jalan:]

So basically, Navin, we had acquired the total investment in Cairn India was computed as INR 54,000 crore. And out of INR 54,000 crore, INR 25,000 crore was considered as goodwill. So almost 50% is now provided for end balances lying in the books.

[Navin Gupta:]

And also can you share us, for the balance INR 18,000 roughly crore of goodwill on your balance sheet, under what assets is that INR 18,000 crore you mentioned?

[D.D. Jalan:]

So this is basically, if you just try to look at, it will be Iron Ore assets and it will be Zinc International assets, largely these two plus are apposite.

[Navin Gupta:]

Is it possible to - I believe we will have VAL also in that, is it possible to split it between three assets?

[D.D. Jalan:]

So basically, if we just try to look at, Iron Ore will be including the Western Cluster, that will be somewhere around INR 2,200. And then the assets of Zinc International will be somewhere around INR 1,100 crore. There will be some value, which will be for BALCO and for Hindustan Zinc at the time of original acquisition, so that is around INR 300 crore and INR 180 crore respectively.

[Navin Gupta:]

And the balance is basically for only Aluminium business. This just totals to about INR4,000 crores. We have still balance of INR14,000 crores.

[D.D. Jalan:]

So I think, Cairn has - okay, let me just try to - Aluminium, VAL doesn’t have any goodwill per se, just to clear your question. And Cairn has got INR 13,600 crore. I just repeat again. Cairn has got balance of INR 13,600 crore. Iron Ore business has got INR 2,200 crore. The Zinc International asset has got INR 1,200 crore, and there are certain values which are assigned to Hindustan Zinc and BALCO.

[Navin Gupta:]

If I may just ask a follow-up question on the BALCO’s cost of production, the cost was down about $200 in the quarter, whereas VAL’s cost of production was down about $50 on a quarter-on-quarter basis. So if you can just help us understand the higher foreign production cost at BALCO? Thank you.

[Tom Albanese:]

Maybe I will start by that, but I think Abhijit can follow up. It’s almost entirely related to the high cost of coal procurement and power procurement in the second and third quarters of last year. BALCO was hit much harder by those coal shortages in Jharsuguda. But help me if I need further elaboration on that, Abhijit?

[Abhijit Pati:]

No, I think Tom, absolutely the right explanation, because that’s the true difference so far as the operations are concerned whether it is at par so far as operational efficiencies are concerned. It is really the power cost followed by the purchasing power in the last two quarter due to the coal issue, so that has really this year set this difference.

[Navin Gupta:]

Okay, fair enough, sir. Thank you very much.

[Abhijit Pati:]

Okay. Thank you.

[Operator:]

Thank you.

[Tom Albanese:]

Operator, our next question?

[Operator:]

Sure, sir. Our next question is from Anshuman Atri of ESIB. Please go ahead.

[Anshuman Atri:]

Hi, sir, thanks for the opportunity. My question is regarding the power operations. What is the current coal mix and how will it change in the next year?

[Tom Albanese:]

Okay. Mr. Roongta, can you maybe take a stab at that, maybe break it up between linkage, i.e., coal imports, anything else you want to cover year-on-year?

[Sushil Kumar Roongta:]

So our current coal mix is different at Jharsuguda and BALCO. We have linkage coal at Jharsuguda, but very little linkage coal at BALCO. So roughly about - we have about 40% to 45% of linkage coal at Jharsuguda and at BALCO, the linkage coal overall is just less than 10%. So that is the situation. Going forward, we are not getting any extra linkage coal as such, but we will have one million tonne of captive coal from the Chotia mine at BALCO. And the import content will go up in the current financial year as compared to last year. Linkage will more or less remain at that level and extra coal has to come through e-auction and import.

[Anshuman Atri:]

And so are there any - will entire import be on spot bases or do we have any contracts for that?

[Sushil Kumar Roongta:]

We have contract directly with the mines, and it’s medium-term contract with prices are linked to the indexes. And that’s how we are sourcing our coal - single zinc coal, and we will continue to do that direct purchase of coal from the miners.

[Anshuman Atri:]

Okay, sir. So just one more question on the - there was a news article, which stated that Government of Karnataka has given a nod for mega steel plant to Sesa Sterlite. Is there any future plans for such expansion?

[Tom Albanese:]

I will start with that, but Kishore, if you are on the line, if you can follow-up. I think, this is on the Ballari side, which I did take the opportunity to visit last year. We have continued to do work on the engineering on that, because we do see that as we ramp up our own iron ore production in Karnataka, we would like to have the option when the markets are right for us to be in the steel business, just like we are in Goa. And so we will be looking at that project as we go forward. Right now, we don’t have enough iron ore within the existing leases to actually match with the kind of steel plant that we would envision. So a key part of this is actually just substantially increase our own overall capacity of resources and production capacity in Karnataka. But Kishore, anything else you would like to add?

[Kishore Kumar:]

Thank you, Tom, and thank you for the questions. It looks premature at this stage. The government is mulling over auctions of several other mines as well in Karnataka. So in line with our very benefiting strategy, that could be a strategy that could work out along with this project at some stage. So we are evaluating this very closely with the government in terms of an opportunity. And it’s not something that we have sort of cast in stone in terms of a plan for development at this stage.

[Anshuman Atri:]

Okay. So there are no timelines for your…

[Kishore Kumar:]

No, definite timelines now.

[Anshuman Atri:]

Okay. Thank you.

[Tom Albanese:]

Thank you. Operator?

[Operator:]

Thank you. Our next question is from Sumangal Nevatia of Macquarie. Please go ahead.

[Sumangal Nevatia:]

Yes, thanks for the opportunity. So my question is with regards to your Iron Ore business, during the last call, we were hopeful of government cutting the export duty. Unfortunately, during the budget, there has been no change. So is there any interaction, any understanding by the company? That’s one. Number two, iron ore prices internationally has rebound recently. So as per your internal calculation, at what price are we comfortable? Will we make EBITDA positive margins?

[Tom Albanese:]

Thank you. I will start by talking about iron ore prices and maybe, one comment on export duties and then maybe Kishore cover it for you [Technical Difficulties] look at in either today’s or last month’s iron ore price range, where we can actually deliver positive margins by exporting both through a combination of reducing our costs from our cost structure, which would have been the case three years ago to also the export duty relief. And I think we need to see a combination of both of those. I have been involved with many interactions with senior levels of the government. It seem to give us comfort and confidence that there is hearing the issue regarding our needing relief on the export duty. Of course, the steel industry is probably whispering on the ear on the other side of that - if your question is risk rating, bit of a challenge that we do have to overcome. Our objective is to recognize that Goa ores are actually not as well suited for the Indian steel sector nor are they in that demand for the Indian steel sector, so exports is a win-win situation. That’s the argument we’re going to continue to make. In my view, the recent iron ore price rebound has some extent evidenced through announcements that BHP have made recently and some - a little bit of signs of life in terms of the Chinese steel sector. So we have to be ready to work within a range that is that can we export iron ore at the prices we would have seen even a month or two ago. And also need to recognize that the spread between higher grade ores and lower grade ores is actually widening in this period of time. And what we are producing at Goa is generally in the lower end of that spectrum. But Kishore, anything else you want to say?

[Kishore Kumar:]

No, thanks, Tom, you’ve covered all of it. But I think for Sumangal just a bit on the duty fund. Both the Goa Government as well as all the producers have made representations to the Minister of Finance. And we have given our representation with full conviction that there will be some opportunity in the near future for the government to consider our request. And as well, the economics of this entire business even at the current ruling prices, which is hovering around $40 FOB. It is not going to make economic sense to run the operation with 30% duty. So at what stage of duty and what level of duty this is operable, that is one question in which we all are obviously have asked for some big relief from the government, zero duty status. At the same time, as you know, Sumangal that Goa is sitting with about close to 11 million tonnes of sold iron ore, which has been taken by the government as part of the Supreme Court order. And none of this ore is moving towards the domestic steel mills because of the reasons Tom mentioned. There are technical limitations with in the country to consume the low-grade iron ore and therefore, it will be an interest of the country that the industries are stored back, as well as allow us to export the cargo to other steel mills across the globe.

[Sumangal Nevatia:]

All right. Thanks for the explanation. Lastly, just one quick question, once you start producing from laterite mines, what according to you will be the cost saving versus sourcing bauxite from outside, if you can just quantify that approximately?

[Operator:]

Mr. Pati, could you please unmute your phone?

[Abhijit Pati:]

Yes. Yes, so far as the laterite is concerned, you try to understand, because it’s one form of a bauxite, which has got something in very low content of the bauxite, that’s the form of the laterite. So what we typically talk about that as against around 47% to 48% of the content of purity of the bauxite vis-à-vis 30% to 31%. So roughly, you can say around 14% to 15% of the reduction as an impurity, which basically carries into the laterite. So that’s what exactly will be the difference into that cost so far as the bauxite import vis-à-vis the trade import is concerned.

[Sumangal Nevatia:]

Okay. Thank you.

[Tom Albanese:]

All right. Thank you.

[Abhijit Pati:]

Thank you.

[Operator:]

Thank you. Our next question is from Ritesh Shah of Investec. Please go ahead.

[Ritesh Shah:]

Hi. So thanks for the opportunity. So if you could please give some more color on aluminium premiums and zinc premiums, both domestically and internationally? And specifically for aluminium, how do you see things moving post first of May wherein the export rebates will be taken off by China?

[Tom Albanese:]

Okay. Look, I think, first of all, aluminium premiums have dropped off quite a bit. I mean, they were over $400 a few months ago, and they are now in the plus $200 range. We’ve probably about $200 return on the aluminium physical premiums, same effect has flow through the Indian market. In addition, because premiums are dropping so quickly, we’ve seen the normal customer base more reluctant to take physical positions. So moving product in this market until physical premium stabilizes has been somewhat of a challenge. But, Abhijit, anything more you want to say?

[Abhijit Pati:]

I think this Chinese, the export taxes, which has basically having some relaxation into the Barton-doors [ph]. But I think so far our information goes, I think Chinese aluminium is still the least attractive for its pricing compared to the International aluminium price. If you really see that the three average of the aluminium price which is the US$1,900 per tonne, while the average open premium is only to US$93.10 per tonne. Thus all in the international aluminium price is about US$,2190 per tonne, 4.8% cheaper than that of the China Sunlight’s year average US$2,300 per tonne. So in our mind, if you see that additional volume with this, whatever the Chinese market is forecasting today, with the relaxation in the export taxes and a little - not very significantly down into the volume so far as the whole market is concerned. So we don’t foresee much of the additional issue, which is coming out of this. But nevertheless, I think, this is definitely an issue, which needs to be tackled. But so far as the export tariff changes only applies to a very small number of the aluminium product, which account for merely for merely around 14,000 tonnes of export in 2014 last year. So that will go up to around 24,000 from the China. So that’s what is basically this - issue of the Chinese export issue, which you had talked about. But nevertheless, the premium is definitely in sliding train now. But we expect as an - the market migration whatever it gives that over the months, maybe another one more quarter we have to see this kind of the sliding of the premium. It will certainly stabilize, correct the inventory, and once the inventory is corrected fully, maybe second-half of this particular financial year we can see again a stability in the premium so far as aluminium is concerned.

[Tom Albanese:]

I will just make one more comment on aluminium then move to something on zinc premiums. And that is - well, if you look at global aluminium production of 53 million tonnes per year and I compares with Chinese production of about 28 million tonnes per year, and I compare this with Indian production of about 2 million tonnes per year. If we begin to see large leakages of Chinese aluminium into the seaborne market, it’s likely to have some effective cannibalizing the business in India much like steel exports from China end up cannibalizing the Indian steel producers. And we are beginning to just watch this one closely. We believe that our policy makers know that you could begin seeing the risk of some Chinese jumping into India. If so, you probably see the Indian aluminium industry is making some of the calls - same calls for basically government action that you are seeing out of the Indian steel sector. So we are watchful of that just looking around the corner, but again with - that reinforces our need to keep our production down and ramp up in this market with capital we’ve already spent. Now, moving onto the zinc side, we have seen a reduction in zinc premiums nowhere near as expensive as they’ve been reduced in aluminium, but they’re down from what would have been about 170 per tonne is something closer to 130 per tonne now.

[Ritesh Shah:]

Okay. Second question basically, if you could provide some color on carbon prices or CT/CP. Specifically, you indicated that aluminium COP will go down, and there will be some benefit which will also come from carbon prices. Any particular outlook over here?

[Tom Albanese:]

I think Abhijit is probably best positioned on that one.

[Abhijit Pati:]

So far as the carbon, the commodity prices are there for CP coke and peach [ph], you have seen a good amount of reduction in the last quarter of the next - last financial year. So we don’t foresee really a further price going down of CP coke and bleach. But nevertheless, due to the demand supply equations we are talking about, if some reduction around - we are expecting around 10% of the reduction of the CP coke price in the last quarter of this financial year is expected. Bleach continued to be at the same level what we are today. I think basically, what we are talking about a carbon reduction overall from a level of around, say, $260 per metric ton in the month of April, this particular current month as in sector, I think it will further go down to a level of around $230. So roughly around $30 to $32 per tonne of the reduction in the carbon, which is basically driven by mostly on to the efficiency of the carbon, but not majority by the commodity price of CP coke and bleach.

[Ritesh Shah:]

Perfect. Just last question, sir, how much of comfort do we have on sourcing of bauxite domestically, and what is the costing that we are looking at vis-à-vis imported bauxite?

[Abhijit Pati:]

Yes, this - the availability of the domestic bauxite as Mr. Roongta has already outlined that that is quite promising due to this mindset opening up for the auctions and others. And for your information for around 1.7 million tonne, 2 million tonne, we are fully tied up so far as the domestic bauxite is concerned. So that is definitely - availability part is positive. Price part will certainly try to see, maybe a positive - the variations, maybe last quarter of this particular financial year. So that’s where the bauxite will fall into the place.

[Ritesh Shah:]

Okay, perfect.

[Tom Albanese:]

I guess, while we are talking about some of these important precious components in aluminium, just to remind you that we’ve laid out a pretty strong target for procurement savings. And when you think about that how much of the total cost base in aluminium business either purchasing coal or alumina or bauxite or caustic or coke or bleach, there is huge opportunities, and we’ve begun to consolidate, we’ve begun to centralize this within the Aluminium group and certainly a big part of our expected procurement savings will be coming from improving the pricing, but also the efficiencies of that material we are buying or recognizing that we’ve got to compare those improvements against changes in the index.

[Ritesh Shah:]

Great. Thanks so much and good luck.

[Tom Albanese:]

Thank you.

[Operator:]

Thank you. Ladies and gentlemen, due to time constraints we will take our last question from Dhawal Doshi of PhillipCapital. Please go ahead.

[Dhawal Doshi:]

Yes. Sir, if you can just highlight about the coal availability currently. I think in the mines which have got auctioned a good amount of those mines are currently shut, so our own requirement as well as the prior allottees, everyone is sourcing the coal from the open market. So are we really facing issues in terms of sourcing coal currently?

[Tom Albanese:]

Mr. Roongta is going to comment on it.

[Sushil Kumar Roongta:]

Well, yes, you are right that wherever the ownership of the mine has changed, those mines are not operational right now. But one good thing is that Coal India is putting up more quantity in the e-auction in the current quarter plus the import prices have also come down further and the board condition, which were there had eased to some extent not fully. So taking both the factors into account, higher the e-auction quantity and higher import, the demand is getting met through these two measures in spite of some production not coming from captive mines.

[Dhawal Doshi:]

Okay. So can we expect some of the cost reduction which has happened this quarter largely on account of lower coal cost and no power purchases, can that be reversed in Q1?

[Sushil Kumar Roongta:]

No, that shouldn’t happen, because as I said, there is enough availability of coal, and we don’t expect that we have to purchase power in Q1 of this year as compared to Q2 of last year.

[Tom Albanese:]

I think it’s fair to say, we are much better positioned in coal supply demand now than we were a year ago.

[Dhawal Doshi:]

Okay. And lastly, with regards to Gare Palma IV/1, I agree that the coal proceedings are on. But are we able to source or is there some kind of production which is currently happening out there or it’s totally shut?

[Tom Albanese:]

No. As I said, practically all mines where ownership has changed, there are no products. In Gare Palma IV/1, there is no ownership transferred to us, so I don’t know, there is no production, as far as we know there is no production even by Coal India, which is acting as a custodian at this point.

[Dhawal Doshi:]

Okay. Thanks a lot, sir.

[Tom Albanese:]

I think just to remind you on that, that our bid was 10 times the reserve bid, so I guess I’m a bit old fashion whether it’s fine art in London or used car in Texas, if the auction goes past the reserve price, it should be closed and cleaned, but I look forward to seeing what the courts say.

[Operator:]

Thank you very much, sir. I would now like to hand the floor back to Mr. Ashwin Bajaj for closing comments.

[Ashwin Bajaj:]

Yes. Thanks, ladies and gentlemen for joining us. And thank you, operator. Please feel free to contact us if you have more questions at Investor Relations. Thank you.

[Operator:]

Thank you. On behalf of Vedanta Limited that concludes this conference. Thank you for joining us, and you may now disconnect your lines.