Vedanta Limited

Thanks, operator. Good evening, ladies and gentlemen.

This is Ashwin Bajaj, Director of Investor Relations. Thanks for joining us today for Sesa Sterlite's results call for the second quarter of FY 2015.

On this call, we will be referring to the presentation that is available on the homepage of 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; Mr.

DD Jalan, CFO; Mr. Tarun Jain, Director.

And we also have several other business leaders. We have Mr.

Sudhir Mathur from Cairn India; Mr. S.K.

Roongta from our aluminium and power business; and from our iron ore business, we have Mr. A.N.

Joshi. I'll now hand it over to Tom.

Thank you. And good evening to some, good afternoon to others, and also, good morning to some of you, ladies and gentlemen.

It has been an eventful quarter with the new Indian government announcing and launching various initiatives, as India has become an even more prominent part of the global economic landscape today. At Sesa Sterlite, we deliver progress operationally and financially.

And while we've seen some global macroeconomic volatility toward the end of the quarter, our diversification and exposure, particularly the local zinc and oil and gas operations, gives us a strong operating position. And I do think that -- I just spent some time in London and have spent time meeting with many in the market.

Over the past few months, we've seen a lot of general sector chatter about declines, particularly of iron ore, other bulks and oil prices. I just want to remind all of you that we have strong zinc and aluminum positions, which have offset this.

So at any point in the cycle, you'll have some market hits and you'll have some market misses, which really is the beauty of a diversified portfolio.

So moving on to Slide #1. Operationally, we've had a good quarter, with improving production rates at Zinc India, Copper and Oil and Gas.

At Zinc India, mined metal production started ramping up in September, as we would have flagged and as per the mine plan, and we would expect the second half to be significantly higher. At Rajasthan Oil and Gas business, we did complete the planned shutdown of the MPT terminal in Rajasthan and operations there have normalized as we would've scheduled.

At Copper India, the smelter has operated at record utilization following its own planned outage in May and also benefited from a strong TC/RC environment. Meanwhile, in the aluminum business, we have -- have the ability to continue to ramp up our lower-cost aluminum smelters, and they've continued to operate efficiently, and we are in the process of ramping up new pots as we speak.

Moving to South Africa. Our project review at Gamsberg is at the final stage.

And again, from a capital standpoint, in our prolific Rajasthan Oil and Gas block, development drilling is on track. I would say that the iron ore business and the slow pace in getting the iron ore shipments going in Goa has been a disappointment.

And we do await government interventions at the state level to resume mining in Goa, and to a lesser extent, in Karnataka. But overall, with a continued focus on cost controls and efficiency improvements, we sustained strong EBITDA margins of more than 45% and delivered 15% higher attributable profits after tax.

And the leading distributors to EBITDA, as we've said in the past, are Oil and Gas and Zinc India, with high EBITDA margins in both businesses in excess of 50%. DD is certainly going to talk about this more later, but we've reduced our gross debt by 100 -- by about INR 1,000 crores in the last 6 months.

That's INR 1,000 crores over the last 6 months, and our balance sheet remains strong, with more than INR 47,000 crores of cash.

Moving on to Slide #2. And this is, again, focusing on those priorities that I laid out 6 months ago as the incoming chief executive.

Overall, my focus had been to create the momentum and build step-by-step. Safety remains my top priority, and our goal is to eliminate fatalities.

In line with our focus on disciplined capital allocation, and to the extent we're allocating new capital, we are spending it on zinc and on oil and in other places where we're competing -- completing existing projects and getting them into production. At Zinc India, the expansion to 1.2 million tonnes per year by fiscal 2018 is on track.

At Rampura Agucha, we're deepening the pit to de-risk the volumes and have stable mined metal output while we transition to underground. We're looking at Gamsberg and Skorpion as an integrated zinc project, and this project's review is in its final stages.

As you know, recently, in Oil and Gas, we've appointed Mr. Mayank Ashar as the new CEO of the Cairn business.

He has over 36 years of experience in oil and gas and has worked in leadership positions with companies like BP, Petro-Canada, Suncor Oil (sic) [Suncor Energy] and Irving Oil, and we're certainly excited to have him join us. At Rajasthan Oil and Gas block, the Mangala EOR project is on track for first polymer injection, and this will help improve recovery rates.

Aishwariya field has received joint venture approval, and we hope to ramp that up to 30,000 barrels of oil per day equivalent. And in the Barmer Hill formation, we've undertaken some of the largest fracs in the region and initial results are encouraging.

We have plans to ramp up gas development to about 100 million cubic feet per day by fiscal year 2017, and this has been approved by the joint venture.

In some of the other businesses though, things are moving in the right direction, but not in all cases as fast as we had hoped for. At aluminum, the key constraint, as I flagged in the past, is coal for captive power, and in the near term, this is expected to continue to be a constraint and near-term coal imports will significantly exceed the estimates -- even the current estimates by the government.

The government has announced they will auction off coal blocks, and I do see this as a positive development, potentially emanating from the crisis of a present shortage. And we would hope to see the first set of blocks open for auction maybe in the new calendar year, as has been recently announced.

For alumina refining feed, we have attained laterite deposits in Odisha and continue to work with the government for alternative means of bauxite. We have started commissioning aluminium potlines using surplus power.

At BALCO, as we have previously flagged, we started 84 pots, and at Jharsuguda, as of today, we're at 16 pots out of the 50 pots we flagged that we want to ramp up to in its first stage.

At Goa iron ore, the government has announced the policy for the grant of iron ore mining leases, and we are working now with the relevant authorities to get the necessary approvals and hopefully resume production in the fourth fiscal quarter of this year. I am -- I would have to say, I am disappointed by our iron ore situation in Goa, and we haven't seen the production that we would have liked to have seen by now.

But frankly, in these markets, perhaps it's not that big a deal, because we're not looking at the same levels of EBITDA. As a matter of fact, without some relief on the current export duties, these businesses would not deliver a lot of EBITDA margin even if we were to get them up and running.

So we have been separately discussing with the government the need to provide relief, particularly for lower-grade ores from these export duties in the current weak seaborne market. At the group structure level, we earlier in this fiscal half, we completed a $200 million buyback of a 2% stake at Cairn India.

And at Hindustan Zinc and BALCO, we would like to see the minority buyouts out for those going forward. The government has appointed valuers as we understand, and we do know that they visited our sites over the past few months.

Moving on to Slide #6. Sustainability is the core of our business.

I'm focused on taking the performance to the next level and establishing a culture of 0 harm. I'm pleased to announce that we've recently appointed our new head of safety, Phil Turner, who used to work for me, and has had more than 3 decades of safety experience at companies such as BHP, Rio Tinto, JKTech, et cetera.

He understands underground mining, surface mining, smelting, oil and gas. I think he can give us some seasoned, practical experience that will help all of our businesses in their pathway for eliminating fatalities.

We have been actively addressing our environmental footprint, and in this regard, we have invested over $250 million across the businesses over the last 3 years. And from a CSR perspective, 3.4 million people are benefiting directly through our various community initiatives on health, education, livelihood and environment.

And I would be happy to say our CSR -- I'm proud to say our CSR program in India is among the largest in the country.

Moving on to Slide #7. The Indian markets have significantly outperformed global indices, and we see the new government's overwhelming majority in the mandate for industrial growth and job creation certainly is a strong positive for Sesa Sterlite.

The government has announced a broader initiative focused on improving transparency and the ease of doing business in India, promoting manufacturing, infrastructure spending, urban development, policy reforms for land acquisition, labor laws, policy award frameworks, et cetera, et cetera. India has also outperformed other BRIC countries and stands out as a net importer of raw materials.

So the recent weakness we've seen globally in commodity markets against the emerging markets has been, counter to what we've actually seen, for a positive wind in the back of India, which has created additional stimulus for India's growth. While we haven't seen the sentiment affecting recent economic data yet, we would expect the positive lag effect in the near term as confidence in economic activity does pick up.

Moving on to Slide #8. Things have indeed been moving on the ground.

We've received approval for various Oil and Gas development projects in Rajasthan, and the government is clearly prioritizing energy security. Since we're a contributor of 25% to 30% of domestic crude production, we look forward to the licensing policy for new blocks.

We've seen over the past few weeks, the government announcing a new gas pricing policy. And as I've already mentioned, the power sector is facing coal supply constraints.

And I think we have seen that the government is putting this higher on their own priority list. They're actively looking at policy frameworks to address this, which is a countrywide issue.

Across the business, we've seen progress in other areas. For refinery feed, we've received laterite deposits.

At Goa, the policy of granting of iron ore mining leases was announced, and we do see them beginning to process those leases where stamp duty has been paid. And on minority buyouts, the government's valuers are visiting the individual assets.

So as the largest corporate -- Indian corporate creating significant value for India, and I think one of the largest taxpayers in India, we continue to engage with the government toward achieving our own strategic priorities. And what's good for Sesa Sterlite certainly is good for India.

Moving on to Slide #9. And just from my own perspective, I've said this for years in terms of the emerging markets, I do believe India remains a good market with metal consumption yet to break out in the classic S curve.

And as you can see from the chart on the top right-hand side, India has a very low metal consumption intensity. And you've seen from prior discussions, I've mentioned India's per capita consumption is about 1/10 that of China, as just one example.

While India's trajectory is probably not going to be like the export-oriented economies, such as South Korea or even China, the rise in metal consumption will be nonlinear and very steep, particularly in the next phase of India's economic growth from where India is today. I think that, in many ways, India's GDP growth against the S curve will have an added tailwind of excellent demographics, with so many hundreds of millions of new Indians coming into the workforce between now and 2025.

So for us, India remains a key market globally, and Sesa Sterlite is well placed as the top-ranked local producer across its commodities.

And I'd say, compared with export-dependent growth economies, India's greater reliance on domestic demand makes it less vulnerable to some of the global economic slowdowns. As a commodity importer, India benefits from lower commodity prices, especially crude oil, which is expected to translate into a lower current account deficit and help lower inflation.

As you know, India imports $400 million of crude oil every day, while 1/3 of its basins have yet to even be opened up for exploration, and certainly not development. So again, in summary, Sesa Sterlite is very well positioned as a large Indian natural resource provider.

Now over to you, DD.

Thanks, Tom, and good evening to you, ladies and gentlemen. I'm happy to share this strong set of results for quarter 2 FY '15.

I'm on Slide 11. EBITDA for Q2 was INR 6,381 crores.

Margin continues to remain strong with our diversified portfolio. EBITDA in Q2 was lower by 8% versus last year Q2, mainly due to anticipated lower volume, slightly higher cost and a stronger rupee, partly offset by improved aluminium and zinc, LME and the premium.

However, EBITDA performance improved by 13% sequentially, driven by higher volume and prices. We continue to focus on deleveraging, and our gross debt is in reducing trend, as discussed by Tom also.

We are comfortable with a net gearing of 23%. With the improved performance, minority share reduced to 49% as against 59% in the corresponding period last year.

We expect similar numbers for the full year, too. Attributable PAT before exceptional items was 15% higher versus last year and 24% higher sequentially.

EPS before exceptional items was at INR 10 per share in H1, as compared to INR 7 in comparable period last year.

Moving to Slide 12. On the right-hand side of the chart under controllable factors, you will see 2 red bars comprising impact of INR 1,081 crores due to lower volumes and higher cost.

Some of these are due to anticipated lower volume as per mine plan and some are due to timing difference. We expect about 40% of it will be reversed with targeted volumes planned for H2.

The next bar, negative variance of INR 88 crores, comprises the EBITDA impact due to putting our copper mines at Australia under care and maintenance. Improved aluminium and zinc prices, combined with better premium across businesses contributed INR 1,163 crores over last year, partly offset by lower [indiscernible] by INR 319 crores.

During the intervening 2 periods, as you are aware, rupee appreciated marginally by 2%. Given that our business model is of dollar-linked prices, in all the businesses, it impacted INR 318 crores through the bottom line as the rupee appreciated.

Moving to Slide 13. Finance cost is almost flat compared to the corresponding previous period.

The interest cost is lower than in Q1 due to impact of benefits from refinancing of project loans at aluminium, part repayment of Cairn acquisition-related loans towards the end of the previous quarter and the effects of a one-off charge in Q1.

Post-tax return on investments are around 10% in H1. However, credit to P&L [indiscernible] on Q-on-Q basis, will be forced to align with majority of investment, as per the accounting standards.

Depreciation was higher on account of methodology change at Cairn and normal capitalization at other businesses. It is likely to further increase in H2, due to progressive capitalization of lines at our aluminium smelter and power businesses.

We are also reviewing the useful life of the plants in line with schedule 2 of the new Companies Act, which could lower the depreciation charges. Amortization in current quarter was lower, primarily on account of lower production at Cairn India, Zinc International and due to putting Australian mines under care and maintenance.

The tax charge in current period is INR 560 crores, representing a tax rate of 14.7%, excluding exceptional items. As guided earlier, we [indiscernible] tax rate about 15%.

Moving to Slide 14. As you will observe from the slide, that our free cash flow is far exceeding the CapEx profile.

Over the next 3 years, we expect 80% of our growth CapEx will be on value-accreting Oil and Gas and zinc assets in India. And the remaining 20%, about $0.7 billion, on -- for completion of aluminium and power projects.

Moving to Slide 15. We are planning to repay FCCB out of internal cash, as well as raising of MCDs, which have already been planned.

With this, maturity over the next couple of years will be light, with less than about $1 billion each year. As you can see on the slide, we have cash and liquid investments of $7.6 billion and undrawn line of credit of about $1 billion, which makes our balance sheet quite robust and strong.

Thank you. With this, ladies and gentlemen, and I hand back over to Tom.

Thank you, DD. And I'll now briefly review the operating performance for each of the businesses.

Let's move on to Slide #17, please, and start with Oil and Gas. Our overall gross production was slightly lower due to, first of all, planned maintenance shutdown at the Mangala processing terminal at Rajasthan, which we had previously flagged.

And what we hadn't flagged and had not anticipated was a several-month temporary suspension of gas sales at Ravva as a consequence of the offshore state-owned operator of the pipeline complex having to shut down all the offshore pipelines due to an incident within their own facilities. And since we're upstream of those facilities, we were affected.

That has now been fixed and our gas sales from Ravva have resumed.

Moving back to Rajasthan, our focus has been on near-term volumes from development. And key areas include, first is enhancing recovery from the currently producing fields through a polymer flood project, leveraging existing infrastructure to quickly scale up and monetize the Barmer Hill formations and existing discoveries, while at the same time, developing and growing a long-term sustainable gas business.

And as we've announced progressively over the past quarter, there has been exploration upside. We are on track to drill out our targeted 3 billion barrels of hydrocarbons in place, taking the total in-place resource to 7 billion barrels, and have identified prospect inventory for the next stage of exploration, take this 10 billion barrels of hydrocarbons initially in-place.

And again, just to remind, since we've resumed exploration in Rajasthan only last year, we made 11 new discoveries, taking the total number of discoveries on the block to 36. And we've established 1.4 billion barrels of in-place resources and looking for every opportunity to accelerate its early production.

the MBA fields, the Barmer Hill fields and the Satellite fields, and the gas. At MBA, we remain focused on the creation of infrastructure projects and an implementation of the EOR process, including the Mangala polymer flood EOR, which will be one of the largest EOR projects in the world.

And we're on track to deliver the first polymer injection in Mangala this year. That Mangala ASP project has also yielded excellent results so far, well above our expectations.

Within the Barmer Hill development, we've been focusing on leveraging our existing infrastructure on the surface for quicker monetization. So we've been working on both vertical fracs, and more recently, horizontal fracs.

And the initial result of our horizontal well frac-ing trials have been quite good.

On gas development, we do remain excited about the gas potential in Rajasthan and our plans to double volumes from the current level of 12 million cubic feet per day by the fourth quarter of 2015 through the existing pipelines by the addition of some compressing capacity, which is currently underway. And again, longer term, we plan to install a new gas terminal and a 30-inch pipeline to ramp up gas initially to 100 million cubic feet per day, which again, the FDP has been approved by the joint venture.

If I move on to the next business, Zinc India, Slide #19. As we had flagged, the second quarter was a good quarter as the production started recovering in line with mine plan, and we would expect the second half to be significantly higher with the first half.

Second half more skewed and similar to what we delivered, but opposite to that in the fiscal year 2013, where in the fiscal year 2013, the first half was strong and the second half wasn't so strong. The business continues to deliver stellar cost of less than $550 per tonne of zinc, if you consider by-product credit for silver and lead.

And compared to the first quarter, the cost improved in the second quarter in line with higher production and should be even better in the second half with higher volumes as per the mine plan. And just as a reminder, this is again for the LME price of about $2,250 per tonne.

As I think Hindustan Zinc business has been flagging in its result, our projects for expansion to 1 million -- 1.2 million tonnes per annum of mined metal continue to progress well. At Rampura Agucha, we are nearly completing the studies for deepening of the open pit from 372 meters to 420 meters to increase the life of the mine by 2 -- of the open pit part of the mine by 2 to 3 years, and that will take us until about 2019.

Mine design and planning are in progress, and we expect to start preparatory work in the fourth quarter. This is expected to de-risk mined metal volumes as we make that important transition from open pit to underground mining.

Meanwhile, at the SK mine, which is going to be another big important contributor to our volumes, shaft sinking is ahead of schedule.

On the other side of the world in Southern Africa and in Europe, as we move on to Zinc International on Slide 20. At Zinc International, second quarter production was lower in Skorpion and Black Mountain due to some temporary operational issues, which we have resolved, and which we are on track to produce about 330,000 tonnes to 340,000 tonnes in fiscal year 2015.

We are evaluating the Gamsberg mining project and the Skorpion refinery conversion as an integrated zinc project between Northern Cape in South Africa and Southern Namibia. And this is in line with what we previously talked about in terms of capital allocation policies towards high-margin brownfield projects in oil and in zinc.

So we've completed the detailed feasibility for a 250,000-tonne, open-cast zinc mine in Gamsberg, and this is smaller than we would have flagged maybe a few years ago, but it's also what we see as being more capital efficient and really a starting project that gives us optionality down the road. And pre-feasibility for the Skorpion refinery conversion, which will allow us to produce not only oxide ores but also sulphide ores from Gamsberg and other deposits.

So we would see over the next few years, in summary, Gamsberg will ultimately replace output from Lisheen, while Skorpion may run out within the decade. So effectively, we're not going to add supply into this global zinc market on an overall basis.

Moving on to Slide #21 in aluminum. We have continued to operate our smelters at high efficiencies despite grid failures and a nationwide shortage of coal, which we would expect to continue into the near term.

E-auction volumes of coal were nearly nonexistent in the second quarter, and the power cost of our aluminum smelters rose by 26% to $728 per tonne, as we've had to temporarily purchase power and we've had much greater imports of coal. Power costs were significantly higher at BALCO also, with taper of linkage driving the average cost higher despite a much lower cost of overall power and aluminum at Jharsuguda.

And we would expect these power costs to remain affected in the short term. We will continue to work on this and toward the overall coal availability issue.

Additionally, as per the recent ordinance, de-allocated coal blocks will be auctioned. Meanwhile, we commissioned 84 pots at BALCO.

And at Jharsuguda, too, we're commissioning 50 pots currently and pursuing a range of options to continue to ramp up thereafter.

Finally, on refinery feed, we have, as I said, received 3 laterite deposits, so we'll continue to pursue bauxite and laterite options with the Odisha government.

And if we look at the other suite of assets on Slide 22. On power, the PLFs at the 2,400-megawatt Jharsuguda power plant were lower at 34% in the second quarter, due to temporary issues with the turbine at one of the units, which has now been corrected.

But as we said, coal availability is a concern, and we'll continue to work toward it with the expectation of increased imported coal in the meantime. And at TSPL, commissioning of the first unit is in progress, and the reliability run will be done in this quarter.

Moving on to our copper businesses. Our Copper India smelter has been operating at record utilization since completing a maintenance shutdown in the first quarter.

And going forward, we would expect to operate at more than 90% utilization. And just looking at the copper markets, I know all of you are sensitized to the risk of copper prices falling, because you got new copper supply coming in the market.

It's actually having a counterintuitive effect on TC/RCs, which we would anticipate more copper concentrate coming in the market well in excess of the new smelting capacity come in the market. So at this time, we would expect to see TC/RCs remaining strong with this increased concentrate supply, not only this year, but potentially into the coming year.

Meanwhile, within our copper mining business in Australia, drilling at the D-panel and other areas are currently underway, and we hope to be able to come up with a production decision over the course of the next year. Again, as we've talked a bit about iron ore, at Karnataka, we mined about 300,000 tonnes this year out of our total provisional capacity under the cap of 2.29 million tonnes.

And we're currently in the process of renewing our forest licenses. And depending on when we restart mining, we may or may not restart and fully utilize this 2.2 million tonne capacity for this year.

And frankly, the longer it takes for us to get these various forest approvals, the harder it will be for us to fully mine within that 2.29 million cap for this year. And again at Goa, with this progress we are starting to see within the state, we would expect us to restart mining in the fourth quarter.

And again, based upon what we would see as the leases that they allow to mine, we would expect it to be about half our pre-shutdown mining capacity at 14.5 million tonnes per annum. But again, realistically, to get what I call a reasonable and competitive EBITDA margin, we need to see some relief on these export duties.

So now I really want to spend some time on the last slide, Slide #23, then we can move to questions. Over the past 6 months, I have given you a focus on those strategic priorities.

Get those businesses that are not pulling their weight, to be pulling their weight, and those strong businesses, particularly in zinc and in Oil and Gas, to build on that particular strength. We are focusing on sustainability, not only in terms of stakeholder issues, but certainly, sustainability of our balance sheet, disciplined capital allocation to zinc and Oil and Gas, driving operational excellence, ramping up production and free cash flows, while we focus on deleveraging, exploration and mine life and simplification of the group structure.

I think that post the election, there was a euphoria that the Indian government was going to quickly fix everything on its plate. I think there's been probably a more realistic set of assumptions now and expectation that the government is going to move in the right direction, but it's going to move at its own pace.

So I do think we are beginning to see the Indian government take the necessary decisive steps to get the projects going, to create the new jobs, and certainly, from our perspective, deliver on the 'make in India'. And so with that, I'd like to open the floor for questions.

And operator, if you can -- again, as we did last time, please direct questions to DD and I in the first instance, and to the extent that they're related to any of the businesses, we'll redirect it on to the business unit presidents to provide the fulsome detail. So over to you, operator.

My question really is on the power business. Now as I understand, the PLFs of the 2 -- first 2.4 gigawatt power plant is currently lower, apart from the distribution issues, also because it has not been granted CPP status.

Now we've heard some media reports talking about granting the CPP status to the 2.4 gigawatt. So in that context, I was just wondering where can PLF settle for the 2.4 gigawatt next year, also given the fact that now new distribution at [indiscernible] is catching up.

Yes, Chirag, I'd like to make just an opening point and then turn it over to Mr. Roongta, who's on the line.

I think as we've said in the past, there is an excess of power-generating capacity and a lot of it is our own. Meanwhile, we have smelters that aren't running.

And I think from the perspective of both increasing the effective load of the power plant, which is utilizing capital we've already built, but putting that power to best use by producing aluminium, particularly in what is a stronger aluminium market with physical premiums, makes the most sense. So we've been engaged with the state of Odisha in a number of -- looking at a number of different options on what is the best way to effectively create a conversion of all or part of that ICC capacity into a CPP or some type of a hybrid of CPP.

And Mr. Roongta and the team has been very heavily involved.

And I'll turn it over now to you, Roongta.

Good evening. As Tom mentioned that we have been engaged with the government of Odisha to find a solution to use our own IPP power for running our smelter.

And we have had a meeting at the very high highest level with the government of Odisha very recently. And it has been agreed in principle by them that [indiscernible] at Sesa Sterlite is entitled to use its power from its IPP for running this smelter, which is a win-win situation for us, as well as for government of Odisha, which will generate taxes and revenues for them as well.

So along with the government of Odisha, I'm grateful we are in the process of finding a solution, and some kind of timelines also have been agreed with the government of Odisha, and we hope to find acceptable solution in the next 2 months. And in the meanwhile, our priority will be to sell in open access to the extent we have corridor as well as we get remunerative prices for our power.

And sequentially, we will ramp up our port beyond it, 50 ports in the first line. And then there's the power will flow out of this 2,400-megawatt power plant.

And once we commission the first line, maybe sometime by the middle of next calendar year, then we will take up the second line. Obviously, that should really improve the PLF significantly in the financial year '15, and '16.

And -- thank you. And I'll just like to add that we were 6 months ago sensitized to the fact that the existing conversion [ph] rate is a series of substantive policy and other issues.

So we weren't going to realistically see that we'd fix them all like turning on a light switch. Although the engineer in me would say, we should be able to turn it on like a light switch.

And so what we've recognized is that, taking steps at a time by bringing pots in on a progressive basis and then creating small wins that then can lead to the next stage of success is the right approach. And I'm pretty happy with the way it's been going so far.

Sure, I understand. My second question is on the Zinc International business.

Now over the next couple of years, we should expect the mix to change significantly, with Lisheen production expected to come down and Skorpion BBM expected to ramp up. The question that I have is with the change in mix between these mines, how do we see the cost of production moving?

Yes, at this stage, I wouldn't expect to see a fundamental change in our positioning on the cost curve as we move forward. But what we will be -- because we will be producing different mixes, we'll have some byproducts and we'll be opening up different ore bodies as we go forward.

So our intention is to stay around the midpoint of the overall cost curve in what we see is a rising zinc market. But I think the important point, particularly of opening up Gamsberg, with its relatively small stage first step, is that as we get into the ore body, we understand it better, we understand the technology better and understand the ore body better, with what we hope to see stronger market.

We have the optionality to quickly look at ramping up that capacity as we go forward. I think we've always recognized this as one of the largest undeveloped zinc deposits in the world.

But I think, frankly, it hadn't been developed over the past 10 to 20 years because the initial cost of capital were pretty high, so what we're trying to do is to break that hurdle by reducing the entry point.

Sure. My last question, if I may, BALCO has seen a very sharp increase in cost for production during the quarter.

And as you've mentioned, one of the reasons is there has been a drop in the linkage coal -- from Coal India. Now if you can just give us a sense of what sort of coal mix right now from BALCO and how much percentage of coal really comes from the linkage?

Yes, Mr. Roongta, you can cover that.

Yes. So BALCO, the cost increase in Q2 has primarily been on account of our power costs, even on a combination of factors.

Yes, one is that there was further deepening of coal linkage by 25%. So we are left with 25% of coal linkage of the original.

Then, all of a sudden, there was a drying up of e-auction quantity, and BALCO was primarily depending upon e-auction quantity. So that's not only impacted the mining prices, but also created problem about availability of coal and temporarily, we have to so far some power purchase.

So that has impacted the cost considerably and most of the increases come on account of higher power costs. Now -- as of now, we have only about 15% of our requirement which we are getting through linkage coal.

We are pursuing with the government now that the coal blocks have been canceled for restoration of the original linkage, because we had the linkage prior to allotment of coal blocks. And rest, of course, we have to source some from partially restored e-auction, as well as we have -- we are going for import of coal.

Just to supplement what Mr. Roongta said, almost, we had imported 20% of the coal requirement during this quarter, and we have used 7% from linkage and balance from auction and [indiscernible].

So just following up on the previous question on power cost increase at BALCO, can you quantify how much was the e-auction component at Jharsuguda smelter? Because the cost increase there, it's been only $100 per tonne, whereas BALCO cost has increased by $250.

So is it possible to quantify just for a comparative understanding?

Maybe DD, if you want to start with that, and then Roongta, if want to add anything.

So basically, it's a [indiscernible] look back in Jharsuguda, it was 35% linkage coal which was there as compared to 7% in BALCO that we talked about. The auction was almost 42% in Jharsuguda and balance being imported.

Okay. And what was the average e-auction cost in the quarter?

The average e-auction cost was -- whereas for Jharsuguda, it was about INR 3,000, for Korba it was INR 2,600.

Sure. And so if I may just add one more question.

What is the status of the 1,200-megawatt power plant at BALCO. When do we expect...

I'll start with that, and then Roongta, I know you were just in the vicinity, you can comment on it, but we've been -- we built that facility and we've been waiting for these final environmental approvals. We had an series of notice requirements that we have successfully completed over the past few months.

And every time I ask Mr. Roongta the question, he says it's just around the corner.

So maybe Mr. Roongta, you can tell the group of 100 analysts and media just how close that corner is.

Well, yes, certainly, we have been mentioning that, well, we are in the last stages of these regulatory approvals. I can say that we are making further progress, but not at the pace at which it should have really happened.

By now this the full approvals should have come, but things are moving at a little slower pace. But I can say that one important milestone towards this regulatory approval, which has been achieved, and notification for land use change is expected by tomorrow, because they issue the budget notification on Thursdays.

Once that happens, then rest are some more formalities of file movements through approvals of the building plans, and we should get our consent to operate approvals within this quarter.

And I mean, the objective here is once we have that complete and provided we have the coal for that to run that, so we have the coal issues, of course, like everywhere else, then the intent will be to complete the ramp-up of smelter line 3 at BALCO and bring that to full capacity in due course.

Two questions from me. First of all, you've outlined $820 million of project CapEx during the first half of the year.

Could you give us how much sustaining CapEx you spent during the periods? And then also, in previous periods, there's been a discrepancy between IFRS definition of debt at the Vedanta PLC level and the Indian GAAP definition of debt, and I think it's due to operational buyers credit.

Can you sort of quantify what that discrepancy was at the end of September, please?

Yes, DD, you can handle both those.

Okay. So the first question was...

[indiscernible] growth.

Sustaining CapEx.

Roger, that $820 million was the project CapEx and it doesn't include the sustaining CapEx of what we do it out of the free cash flow. And normally, we incur sustaining CapEx of almost $200 million a year.

And considering that, being this half year, it will be somewhere around $70 million, $80 million.

And second question about difference in classification of debt. So you have an absolutely bang on point that the difference between numbers, which is reported in the Vedanta PLC and the Sterlite is basically on account of buyers credit for operational requirement.

And this buyers credit for operational requirement is about $800 million to $900 million.

Okay. So that is $800 million to $900 million as of the end of September?

Yes, that is what is included in Sesa Sterlite.

My first -- my 2 questions are on coal. My first question is how should we look at coal cost for the next 2 to 3 quarters, in the event that e-auction volumes are not going to pick up?

So have coal costs peaked out in this quarter or should we see further increases? My second question relates to coal block auctions.

Now Sterlite, as an entity, would be the largest coal consumer probably outside some of the big power utilities like NTPC. But to the extent there is an evacuation constraint in India, so what is the optimum distance that companies can truck coal, I mean beyond which it will not be possible?

So we're just trying to understand that are there any nearby mines available for Sesa Sterlite to participate in the auction? Or would it be difficult for the company to participate outside of the BALCO coal block?

Well, maybe, DD, if you want to take the first question on coal cost for the next 2 to 3 quarters. And then maybe, Roongta, talk about coal block allocations.

I have my own views on coal block allocations, I'd like to add to that, too.

I think since Mr. Roongta is here, it is better for him to address both the questions.

As far as the coal costs are concerned, coal costs have definitely peaked in the Q2. And going forward, we expect coal cost to come down in Q3 and Q4.

Traditionally, Coal India availability in Q3 improved and it peaks in Q4. We get higher linkage tonnage also in Q3 and Q4 as compared to Q2.

And as far as e-auction, it's concerned also which was -- which had suddenly dried up completely in the month of August and September. It's getting partially restored, plus we are better equipped to go for imported coal, where prices have further softened.

So I suppose it's taking into account all these factors, we expect coal cost to be lower in Q3 and Q4 as compared to Q2.

I guess, Mr. Roongta, to add to that, we should recognize that our facilities were designed for the coal qualities in the immediate coal basins that those facility is located in.

So we've had to reconfigure some of our material handling and material movement facilities to adapt to higher levels of import and greater blending requirements. So it's not been ideal in terms of boiler efficiencies, et cetera, but we're making do with the best we've got.

Ideally, again, we'd like to be seeing more coal from the basins that our plants are sitting in go into those facilities.

Yes, exactly. So we are expecting more coal from the domestic sources in Q3.

Like in Q1, wasn't that bad. We got comparatively better coal in Q1.

That problem suddenly came only in Q2, which is now easing, and we expect more domestic coal to improve our blending requirement, also with the [indiscernible].

And that probably feeds into the coal block auction question, Mr. Roongta.

Now on the coal block, we believe that there are 42 plus 32 coal blocks, 74 coal blocks. Government will be probably concentrating first on the e-auction of 74 coal blocks.

And there are enough coal blocks in Chhattisgarh and Orissa, which may be put on auction. As far as logistics are concerned, currently, coal is being moved even to a very long distance because primarily the sources are SCTL [ph] and MCL mines and coal today is going even to northern side and western side.

So there is no such constraint that coal can't be moved beyond a point. Of course, economies for moving coal from a long distance remains.

So we will -- we have -- we look at all the options, and when government comes up with the e-auction of the coal blocks, and we are examining our options.

And I'd like to say, from my perspective, initially, we were concerned because I have seen real bias in favor of steel and cement companies in terms of participation, but what we've seen recently as guidance leveling the playing field between the aluminum, the steel and the cement businesses. Frankly, anyone who's got a CPP should be participating in this auction.

So I've been encouraged by that. I've also been encouraged by some of the signals coming out of government recently, that they're receptive to coal miners, non-state-owned coal miners, being in the position where they can sell coal into the market.

And I think to bring in the private sector into the coal mining business for merchant mining is probably the single biggest thing that policymakers can do to relieve the country of this particular crisis.

Just a follow-up question on coal. The government has also allowed in the circular that one can use the coal for any other plant other than that particular captive plant, which would theoretically mean that if the company were to get the previous BALCO coal block, it could supply to its Orissa plant.

So to that extent, if the BALCO coal block were to come through again, can it be ramped up quickly or is that something that it will take time to get production moving up to, let's say, 5 million, 10 million tonnes?

You said this for the particular categories, the government has in the ordinance put 3 categories, that is in steel, cement and power, including for captive usage. So within that end use, probably the coal can be used.

Let us see -- it's premature to talk about the coal block. Obviously, it's going to be open for e-auction.

Others will bid, can bid for a BALCO coal block, as we can bid for other coal blocks. There are many other coal blocks also with better coal quality.

Let us see what happens, I suppose. We don't want to speculate as if we have set on this coal block.

I think it's important that we shouldn't be speculating on that, because every block has got unique resource differences. Some may be open pit, some may be underground, so you actually look at the specifics and the configuration of that plant.

Are there prestripping requirements? What is the state of the environmental planning?

What is the state of the mine planning? All those need to be done in a normal course of business before you actually would see the first coal production.

So one good thing, which I saw in the results, was alumina costing actually it's remained flat on a sequential basis. What I wanted to understand is what our bauxite sourcing arrangements are like?

And what would be our domestic sourcing costs and imported bauxite sourcing costs?

Maybe again, Mr. Roongta, you're probably best to handle that.

While you're thinking about the answer, I would add that we're in a position where it is somewhat hand-to-mouth. We're certainly getting whatever bauxite we can from BALCO, which has actually been down a bit the past quarter on a tolling business and then elsewhere within Odisha, and then else -- then the next priority would be within India, and the final priority would be West Africa.

We are mindful of the Indonesian situation, but I think, frankly, the Indonesian export issue is more of a Chinese phenomena than it would be an Indian phenomena. But Roongta, if you can provide the details.

As far as bauxite sourcing for our 1 million tonne alumina refinery concerns, there are broadly our mix is 1/3 from domestic sources bauxite, 1/3 from BALCO mine for tolling business and 1/3 on imported bauxite, primarily from Guinea. In Q2, of course, because there were some logistics issues and some small local issues at BALCO mines, so we had to go for higher mix of imported bauxite.

That's one of the reason that costs have been somewhat higher. But going forward, we want to maintain this mix of 1/3, 1/3, 1/3.

Of course, domestic bauxite is cheaper as compared to imported bauxite, but then there are quality advantages in imported bauxite. So taking into account the quality advantages, they have lower silica and higher alumina, as for imported bauxite is about 15% costlier, 15% to 20% costlier than domestic bauxite.

And I think you've raised a very good point, Roongta, that it is about value in use, and some of the better quality bauxite would be West Africa, will be much less cost to consumptive than some of the domestic materials. And that plays very importantly into that overall cost of alumina production.

All right. Sir, is it fair to assume Guinea bauxite will be around 53% alumina reactive silica content remains the same?

Well, alumina maybe somewhat lower than 53%. It doesn't go to that, but silica is quite less, it's just about 1% to 1.5%.

Sir, would it be possible to give a absolute number on a per tonne basis, for say, international add factory bauxite cost?

Well, we are -- the FOB cost of this Guinea bauxite in the range of about $40, and then freight keeps varying. So it came down to as low as $19, $20, went up to as high as $32, $33.

So it has been fluctuating.

Great. One more question, if I may, on the power side.

I just wanted to have some clarity on the tapering for 2,400 megawatt. I understand it started October last year.

So you did highlight that currently 35% of our supply is coming from linkage. So this will be sustainable or is it expected that the proportion will reduce or is it a more of function of efficacy [ph]?

If you could please provide some color over here.

Well, tapering as it is linked to the coal block allocation, so logically, once the coal block allocations have been canceled, further tapering should be really put to -- and by the government price -- the government is yet to make a decision. But it will not have any significant impact as far as more one tapering, even if would happen, from 75% if it comes to 50%, I don't think so it will significantly reduce our linkage cost.

Okay. And just correct me if I'm wrong.

The linkage is only 1,000 megawatt, right? It's for first 1,000 megawatt.

Sorry?

The linkage is for 1,000 megawatt. I see a 2,400 megawatt.

Is that correct?

This coal block was linked to 1,000 megawatt out of 2,400.

Okay, perfect. And sir, just we had a suggestion.

We have -- you give excellent disclosures. The only thing that we find, a bit difficult to analyze is on the power costing front.

What reduces the average cost of generation. So if you could possibly give generation costs, particularly for say, BALCO 810 megawatts and BAL 1215 [ph], it would be a lot easier for us to analyze.

Okay. We'll follow up on that.

Sir, for my question, I'd like to first, actually [ph] we were talking about the 1.2 million tonne in mine metal output. So should we take that progress like $0.05 -- 7% to 8% [indiscernible] increase over the next year, or it would be a back-end net growth?

It's a bit back-ended as the open pit winds back and some of the underground mines hit their capacity.

So is it fair to assume like minimal growth in FY '16, on mined metal like 2%, 3%?

I think what we'd be expecting is that there'll be a gradual increase over next year to about 1 million tonnes and after that there will be a step-up to 1.2 million tonnes, as some of the underground mines get themselves developed.

Okay. My next one relates to Talwandi Sabo, now we have commissioned like first unit, we have been commissioned.

So what are the coal sourcing? We have told in the past that it was government responsibility to arrange coal, but have we had a word with the government, how they're going to do that and if then they say we can't do that, then what will be the next plan be for us?

Mr. Roongta, go ahead with that.

So for Talwandi Sabo, we have the linkage coal allotted to -- for this project and that's the linkage coal with MCL, so we are sourcing that. To make up for any shortfall of the linkage coal, because that's not up to the 100% PLF requirements.

So for the balance, requirement of Talwandi Sabo, the government of Punjab or PSPCL, they will have need to supplementing it with imported coal.

So is it fair to assume that we can reach the full ramp up by the end of next year, FY '16?

Yes, we should be able to ramp up all the 3 units by FY '16.

Yes, this is Bijal Shah from IIFL. My question is on Hindustan Zinc, like beginning of the year, you were very confident that Hindustan Zinc disinvestment is just around the corner.

Now with this new PIL, does it change our take on like with disinvestment, or it still remains on course?

From our perspective and the information we give is roughly that, that's in the public domain, this is a very doable disinvestment project in the context of the government's needs to meet its own budget, that the Hindustan Zinc BALCO disinvestment can meet up to 25% of that budgeted disinvestment component in total. There is a ready market.

There is a not a lot of uncertainty about it. It's just a matter of getting the evaluation getting done.

So we're pursuing it on that basis. But we haven't gotten any details as to the process.

We just -- we do know that they have to undertake a proper evaluation.

On the Zinc International business, you mentioned that the Gamsberg project feasibility is virtually done? Can you share some sort of details on what the feasibility is throwing up in terms of CapEx cost, cash cost and project economics, et cetera?

Just to understand what we can potentially see in this project going forward.

I think we're in the stage of refining all of those numbers. So it would probably be premature at this point to give specificity.

But again, what we're looking for is a capital solution that -- I would expect it to be less than $1 billion, for both the Gamsberg open pit development, the plant associated with that and the refinery conversion at Skorpion, and that would be done over a period of several years. It would be, a big part of the costs will be a prestripping component in the open pit, and that's probably going to be the critical path for the development.

So we would start off with the open pit prestripping in the first instance.

So you said less than $1 billion for the entire project including the refinery over several years?

Correct.

Right. And what kind of ROI or what kind of cash cost can we see in the project?

How do...

Again, I think our objective is to stay around the midpoint of the cost curve, as I said earlier. And we'd evaluate this on, I think, realistic assumption regarding -- the big drivers, the externalities are going to be the South African rand and the zinc price.

And I think that, from a perspective of numbers, that would be, seem to be realistic in terms of the current rand-U.S. dollar relationship and probably a set of zinc price series that would be seen as conservative against a consensus assessment of zinc pricing, will deliver a hurdle rate above our cost of capital.

Understood. My second question is on the alumina expansion that we have been sort of -- that has -- that was on hold and where there is some progress in terms of the public hearing and we are hoping to get the EC.

On that, what would be the milestones besides the EC? And what kind of timeline do we see by which the project can start?

And do we expect the CapEx for that -- we had earlier numbers for the CapEx? Or do we expect the same CapEx to hold or should we see some revised CapEx for this expansion?

Let me start with the sequence of what we envision happening and based upon events on the ground. Maybe DD, you can talk about the CapEx numbers.

First of all, this public hearing and the environmental approvals for the ability to ramp the facility up from 1 million tonne current capacity to 6 million tonnes ultimately. And of course, we would only want to build it up as we have actually have bauxite capacity, and because we have multiple numbers of resource sources within the Odisha nearby area, we're confident we'll find that bauxite in time.

The likelihood is that we would be expanding the refinery in stages -- again, that's probably the most capital-friendly approach, but also, recognizing that we won't have all the mines ready to go in one shot. So we would envision moving from 1 million tonnes to about 2 million tonnes per year, predominantly through de-bottlenecking of the existing facilities, which we've been able to bring efficiencies out just through running of it.

So that first stage, the 2 million tonnes, we would not be capital incentive at all. And then probably, we'll go in stages from 2, to say, 3 or 3.5 and then 3.5 onward to 5 million tonnes.

And my guess is at 5 million tonnes, we'd be roughly balanced with what we see as our current configured smelting capacity at 2.3 million tonnes of aluminium smelting. So I think that when we're looking at capital numbers, we'd be looking at capital numbers to be spent over a phased period of time after we've gone to 2 million tonnes of capacity and probably not all at once.

But with that, DD, if you can go through that.

Yes, sure. Prasad, if we just try to look at it as Tom articulated, we're doing it in phases.

First phase is to complete 1 to 2 million tonne de-bottlenecking. That is more or less complete.

I think it is hardly $20 million, $30 million will be required to be spent. Then, from 2 million tonnes to 5 million tonnes, the total estimated project cost was $1.6 billion.

Out of that, 50% was already incurred, and 50% was to be incurred. And we, as of now, we're at the detailed work of the valuation is going on.

But the preliminary indication is that we should be in a position to manage within $800 million, which is to be spent to increase the capacity from 2 million tonnes to 5 million tonnes.

I understand. Very useful.

I also wanted to understand that besides the EC, what would be the key milestones? Other approvals or things like that, which would be needed for us to be secured on launching the project?

As of now, it is the EC only, which we need to restart the construction and ramp up our CapEx. Still, there after that usual consent to operate.

Forest clearance would not be required to [indiscernible]?

There is no forest involved in it. So there is no forest clearance.

Operator, we are getting on to time here now. Maybe this is the last question.

This is Dhawal Doshi here. Sir, just 2 questions.

One with regards to the laterite deposits. What could be the timelines in terms of commissioning these laterite deposits and the quantum that we could expect from this?

Okay. Maybe, Roongta, you can handle both of those?

Yes. These are 3 small laterite deposits.

We have got the PL, so we're in -- now we will undertake the exploration and the submit the explorations that are to the government to seek mining leads. And thereafter, we have to have environmental clearance.

This is a minor mineral, so it will be handled at the state government level itself. So the timeline is we are expecting this laterite to be mined sometime in FY '16.

And the production level will be roughly about 0.5 million tonnes.

0.5 million tonnes for the full year?

Yes.

Okay. Secondly sir, with regards to the Zinc International business.

If I'm not mistaken, there were some amount of annuity, which was built up at the start of the second quarter, that which was to be liquidated, and that durational benefit was to flow through. I believe INR 67 crores was the operating profit impact, which was mentioned at the last call, which was there for Q1.

So has that come through in Q2? And if yes, then the numbers still don't add up, sir.

I'd like to first compliment you on your memory, and maybe ask DD to take a stab at that one.

So Dhawal, I think in this quarter also, whereas we were expecting this to come in this quarter. But in this quarter also, we had missed one more shipment, so that way I think it is carrying forward to the next quarter.

Okay. And the costs that we've seen, can we see this as a sustainable cost going ahead?

Or was it because of these costs in shutdown that the costs were a bit higher?

I think as Tom gave the guidance on the costs, that was very apt guidance, and that is what we should try to look at going forward.

I think that Black Mountain, we would've liked to see higher production in the first half and we'll try to work on improving that in the second half.

I think that's the end of the questions. I'd like to just close by saying, it's been now 6 months being chief executive, 6-months plus some at Sesa Sterlite.

It's been a thoroughly enjoyably ride. I would like to say that every single aspect of government approvals would be done in a flick of a pen.

That's not the case, but I think we are taking a realistic approach, step-by-step, and as I had said from day 1, it's been about changing momentum, from negative momentum to positive momentum, and I just want to thank everyone within the Sesa Sterlite team for delivering to you, the shareholders, that positive momentum. Thank you very much.