Hindustan Zinc Ltd (HINDZINC) Q3 FY23 Earnings Concall Transcript

Hindustan Zinc Ltd (NSE: HINDZINC) Q3 FY23 earnings concall dated Jan. 19, 2023

Corporate Participants:

Jhalak Rastogi — Associate Director, Investor Relations

Arun Misra — Chief Executive Officer

Sandeep Modi — Deputy and Interim Chief Financial Officer

Analysts:

Amit Dixit — ICICI Securities — Analyst

Pinakin Parekh — J.P. Morgan Chase — Analyst

Prashant Kumar Godha — Emkay Global — Analyst

Rahul Jain — Systematix Group — Analyst

Sumangal Nevatia — Kotak Securities — Analyst

Alok Deora — Motilal Oswal — Analyst

Ritesh Shah — Investec — Analyst

Kiran Mehta — BOB Capital Markets — Analyst

Ashish Kejriwal — Nuvama Institutional Equities — Analyst

Presentation:

Operator

Ladies and gentlemen. Good day, and welcome to Hindustan Zinc Limited Third Quarter FY 2023 Earnings 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 Ms. Jhalak Rastogi, Associate Director, Investor Relations. Thank you and over to you Ms. Rastogi.

Jhalak Rastogi — Associate Director, Investor Relations

Thank you. Good evening, everyone. I welcome you all to Hindustan Zinc’s third quarter and nine months ending 31st December ’22 Results Briefing. On behalf of Hindustan Zinc, I wish you and your family a very happy New Year 2023. In this call, we will refer to Q3 FY ’23 investor presentation available on our company’s website. Some of the information on this call may be forward-looking in nature and is covered by the Safe Harbor language on slide number two of the presentations.

Today on the call, we have with us our CEO, Mr. Arun Misra and our Deputy and Interim CFO, Mr. Sandeep Modi. Mr. Misra will begin with an update on business performance, while Mr. Modi will walk you through financial performance, after which we’ll open the floor for questions.

I now request Mr. Misra to begin today’s call. Over to you sir.

Arun Misra — Chief Executive Officer

Thank you, Jhalak. Very good evening to all of you. First of all, I would like to wish you and your family a very happy New Year 2023. Thank you for joining us today for the third quarter and nine months of FY’23 Results Briefing. This quarter, the key themes and highlights remained sustainability and community at Hindustan Zinc. Mentioning a few of the initiatives during the quarter, Zinc family participated in Run For Zero Hunger within Delhi and Pink City half marathon, rolled-out an electric vehicle policy for the employees under evolving for good initiative, successfully organized sixth edition of Vedanta Udaipur World Music Festival and hosted India’s largest and first underground All India Mines Rescue Competition. And now, we are thrilled to enter into the new year and the last quarter of this financial year with great vigor, towering optimism and growing opportunities and fresh targets.

Coming to our key priorities on safety front, we are extremely mindful and concerned of the fatalities happened during first half of FY ’23, and the working committee has been regularly identifying critical areas requiring improvement to address potential risk, and have been determined to provide support to our people wherever required. This quarter, it gives me satisfaction to report a fatality-free operations.

Safety and people are the most important pillar and priority for us at Hindustan Zinc, and it is our commitment and vision to ensure that all our employees return home safely. Zinc safety theme continues to drive various projects and initiatives in order to meet our region of eliminating fatalities and serious injuries. It is heartening to see the efforts of entire zinc leadership team fructifying.

An update on our key priority in ESG, in-line with our commitment to net zero by 2050, I’m happy to share that we have received Board approval to undertake another long-term captive renewable power delivery plan up to a capacity of 250 MW, for a further investment up to INR430 crores. I’m also delighted to inform you that Hindustan Zinc has secured third place globally, and first overall in Asia-Pacific at Standard and Poor’s Global Corporate Sustainability Assessment Score in metal and mining sector.

We have been recognized as A minus category in climate change and water security in CPP 2022, a movement upward from last year performance. In addition, power plants at Dariba Smelting Complex and Zawar received platinum awards at FATE Excellence Awards 2022 in energy efficiency and best practices of industrial water management categories respectively. These recognitions play a significant role in motivating us to march ahead in seen our ESG journey.

Coming to an update on our on-ground CSR activities, it gives me immense pride to inform you that Hindustan Zinc has been felicitated with S&P Global Platts award, and our seven units have been bestowed with the 26 Bhamashah Award reflecting our commitment for the remarkable work undertaken in the field of education related community development initiatives. This recognition of our continued commitment towards education gives a sense of satisfaction to each one of us.

Our CSR team continues to strive towards making positive impact across array of fields and are delivering on various initiatives and activities across the areas of education, sustainable livelihoods, women empowerment, health, community asset creation, and water and sports and culture through their well-rounded on ground efforts.

Strengthening our commitment towards health of our local communities, Hindustan Zinc provided an oncology vehicle for early detection of various cancers to Rabindranath Tagore medical institution on its 60th foundation day. I would like to share that two of our Zinc football players got selected in the national camp. Also our football player [Indecipherable] in All India Football Federation under 17 youth cup with incredible wins over top Indian youth teams and the under 17 team of Zinc football player, finished third in the 18th edition of administrative challenge cup held in Chandigarh.

Moving on to the market, overall picture remains similar to previous quarter. The global economy continues to be impacted by the multiple forces including inflationary pressure, Russia Ukraine war and slowdown of Chinese economy. Inflation has been universal, impacting almost everybody globally and the measures are being taken to combat these forces, the impact of which is expected to show in the subsequent year.

This quarter has seen the peak of it with China reopening faster than expected and easing of power prices along with unusually warm winter in Europe, a rapid rebound is expected resulting in slight lowering inflation and slowing growth.

For 2023, IMF projections suggest weak or no-growth for most major economies, then gradual recovery in 2024. IMF forecasted that global growth of 3.2% in 2022 and 2.7% in 2023, and the global inflation to decline to 6.5% by 2023 from 8.8% in 2022. The growth numbers for India has been forecasted at 6.8% for 2022 and 6.1% for 2023, reflecting resilience, despite the challenging external environment.

Supply-and-demand forces remain underperforming. On the supply-side, smelters all across the world faced an acute margin squeeze due to rolling energy prices. Energy prices have brought use of smelters being put up into care and maintenance, leading to concerns around the supply of metal.

At the end of December, LME stock stood at about 30,000 tons as compared to 140,000 tons at the start of the year at April 2022.

Whereas, stocks in the [Indecipherable] warehouse at the end of December stood at 20,000 tons compared to 176,000 tons at the start of April 2022, with exchange stocks falling to multi-digit lows, stock premiums in Europe remained well-supported at elevated levels.

On demand side, global uncertainties have started showing early signs of slowdown in the metals demand. Global consumption fell by 1.4% in 2022 to 13.8 million tons. Rapid easing of COVID restrictions in China and slowdown in U.S. inflation boosted the zinc price. However, considering the wave of infections starting across China is likely to disrupt the economy well into next quarter with the price lost ground. In 2023, the relaxation of COVID restrictions in China and infrastructure push in USA will be the main driving force behind the forecast recovery in demand, which is projected to grow by 1.4% to 13.98 million tons.

The S&P Global Euro Zone construction PMI fell to 43.6 in November from 56.5 in April on account of higher costs and supply-chain constraints, which affected output as well as demand.

Touching briefly on lead, lead prices witnessed an upsurge in the quarter and closed out at $2,335 per ton, an approximate improvement of 24% from September 2022. Global net demand is expected to rise in the medium-term due to steadily new vehicle and replacement battery used as well as utilization of lead batteries in EV for auxiliary functions.

Lead demand is expected to exceed supply in 2022 and 2023. Global supply is set to fall 0.3% to 12.34 million tons because of lower output in Russia, Ukraine, and Germany. At the same time, global demand is set to rise 0.8% to 12.42 million tons following a modest rise in Chinese demand due to lead-acid battery exports.

Coming to silver, prices witnessed an upside in the quarter and closed out at $23.95 per troy ounce. The supply-side looks to be diminishing, silver inventory is at two-year low globally, while output from [Technical Issues] has also been dropping continuously, making silver attractive for the medium term. Further, silver demand in the solar power sector is expected to continue to grow as nations look to develop green energy.

On the domestic front, the economic environment in India remains buoyant. The sentiment is buoyed by optimism that demand will remain strong. This was reflected in S&P Global manufacturing PMI in December 2022, which was at 57.8, indicative of expansion in the manufacturing activity. Further, the Indian economy is on track to achieve 6.8% to 7% GDP growth in the current fiscal, and is in a a better position to navigate global headwind than other major emerging economies.

With the union budget coming in, government’s focus is expected to remain on infrastructure development, which will see the consumption of zinc grow substantially in 2023.

Now turning to our third quarter results, starting with key highlights on page 9, I am delighted to inform that Hindustan Zinc has delivered a record nine-month production with highest-ever mined metal and refined metal, and with this run-rate, we are fully geared to deliver another stellar performance this year. Mined metal for nine months was up by 5.4% year-on-year and refined metal was up 7.9% year-on-year. With consistent MIC flow from mine and better plant availabilities, our volume deliveries have been on the up curve and we are on the right track.

The quarter performance on a consolidated basis was impacted by rising input costs, inflationary pressures and unfavorable macros, and amid these challenging macroeconomic environments, we delivered a strong EBITDA margin of 52%. We have also been up to speed in some key projects. For our fertilizer plant, we have locked in partner, roaster and[Indecipherable] plants are also in advanced stage.

On strategic developments, I’m happy to share that the Board has approved the acquisition of THL Zinc Ltd, having zinc points across South Africa and Namibia, subject to receipt of requisite regulatory approval. These zinc assets have an RNR of about 35 million tons, which is equivalent to that of Hindustan Zinc. This will help drive our growth inorganically by creating substantial synergies and unlocking values.

I’m also happy to inform that Hindustan Zinc is now reach registered which will enable us to penetrate the European market. We have started selling in Europe and consider it a good opportunity to expand our market base further, all this while we continue to export to our neighborhood countries and Southeast Asia.

With continuous new developments and increased momentum in projects along with valuable learnings and some of the key structural changes that we have discussed over the last few quarters, alongside increased use of technology as well as learning deployed, we are confident to deliver the projected volumes for FY ’23 and move even beyond the same in coming years.

Having said that, our production guidance for the fiscal year remains unchanged.

With this, I hand over the call to Sandeep for an update on the financial performance. Thank you.

Sandeep Modi — Deputy and Interim CFO

Thank you, Mr. Misra and very good afternoon, everyone. Hindustan Zinc has delivered a record-setting operational and financial performance with highest ever nine months revenue and EBITDA along with PAT, and has delivered another set of strong results despite the global commodity inflation. We have laid a strong foundation for this landmark year by achieving a significant milestone of historic high nine months volume.

The last few months have seen the global economy grapple with inflation despite which we are strongly moving forward, demonstrating our determination and resilience. Our quarterly performance was better by operational efficiency initiatives and volume deliveries, keeping us ahead in this ever evolving and volatile business environment.

Refer to Slide 16 for an update on our financial performance for the third quarter and nine months ended December 22. For the first nine months of FY ’23, revenue from operations stood at INR25,589 crores, an improvement of 24% for the same period last year. This was supported by improved zinc LME and volume gains for the strategic reason, favorable exchange rate and better lead and silver volume, which was partially offset by lower lead and silver prices.

Revenue from operations during the quarter was at INR7,866 crores, down by 2% Y-o-Y mainly on account of lower zinc, lead and silver prices. Lower refined metal and silver volumes, which was partially offset by favorable exchange rate and gains from strategic hedging. Sequentially, revenue reached 6% primarily due to lower zinc prices, lower lead and silver volume and lower gains from the strategic hedging, partially offset by favorable exchange rates, improved zinc volume and improved lead and silver prices.

For the nine months, the COP stood at $1,272 per ton, 14% higher Y-o-Y in USD term, and 22% higher in INR term. The COP was up mainly on account of elevated coal prices, lower domestic linkage availability and input commodity inflation. It was partially offset by higher-volume and improved operational efficiency.

Zinc cost of production before royalty, during the quarter was $1,293per ton, higher by 13% Y-o-Y and 3% sequentially. And in INR term, it was 24% Y-o-Y and 6% sequentially for the same reason. Further for quarter-on-quarter, it was higher on account of consumption of high prices fuel inventory coinciding with lower acid prices and grade. The resulting EBITDA for nine months of FY ’23 was at INR13,382 crore, an increase of 19% Y-o-Y, driven by improved metal and silver volumes, higher zinc LME prices and gain from strategic hedging, and favorable exchange rates partially offset by higher costs and lower lead and silver prices.

EBITDA for the quarter was INR2,717 crores, down 15% Y-o-Y and 16% [Phonetic] sequentially. This movement was primarily driven by lower revenues due to zinc prices coinciding with increased cost on account of the prevailing input commodity inflationary environment. Please refer to EBITDA bridge from Slide 18 to 24 for further details.

Net profit for the nine months FY ’23 was INR7,928 crores, a growth of 18% Y-o-Y, led by higher EBITDA, partly offset by increasing tax. Net profit for this quarter stood at INR2,156 crores down 20% Y-o-Y sequentially, majorly on account of lower EBITDA offset by lower tax extent.

ETR for the third quarter was close to 32%, and if we see alignment, it will be approximately 33%. That said, our cash tax is much lower due to available MAT credit. Once we move to new tax regime for the next financial year, our tax rate will be around 25%.

I am happy to inform that Board further approved a third interim dividend of INR13 per equity share amounting to approximately INR5,500 crores. This reinforces our commitment to providing superior shareholder returns continuously.

Entering Q4 ’23 with softened coal index and increased optimism on coal availability domestically, we are confident on meeting our annual guidance and thereby maintaining our leadership in the global zinc cost curve. Further, as mentioned by Mr. Misra, with the new RE power tie-ups coming in, it was not only further improve the cost predictability, but will also contribute towards the incremental cost structure in the longer term.

With that, I will now open the floor for the questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Amit Dixit from ICICI Securities. Please go ahead.

Amit Dixit — ICICI Securities — Analyst

Yeah, hi, good evening, everyone, and thanks for taking my questions. I have couple of questions, the first one is on the brand and the strategic management services to Vedanta, that agreement at 2% of consolidated turnover. So just wanted to understand what was the need of this agreement at this point in time? And how will Vedanta contribute more meaningfully than it was already doing? And if you can highlight the broad contours of the agreement, that would be great. Does it carry any escalation clause and all, well this is the first question.

Arun Misra — Chief Executive Officer

So, if you look at it, is was long overdue. Not that it was at this point of time, we are beginning something, it is long overdue. While Hindustan Zinc has been benefiting from the acquisition of Vedanta, not only as per the brand of Vedanta is concerned as a global resource company, as well as various strategic services that it receives from Vedanta, including management assurance systems services, which is very comforting for all shareholders, while also all the growth trajectory of Hindustan Zinc has been always guided by the risk taking ability of Vedanta. So that, the true factor those two and also induction of more and more digital, more and more automation, completely revamping the management structure, ensuring various generally guided management control systems has taken Hindustan Zinc to the level at which we are operating today. And so, this in my opinion was long overdue. We have got the approval today, and I think this is in line with the practices adopted by most of the multinational for the bigger companies where the strategic services and benefit of association with the principal brand, which we as the Group is known for.

Amit Dixit — ICICI Securities — Analyst

Is there any escalation clause also, that this 2% can move to a certain bit after few years or something, if you can share some growth contour with timeline of the agreement if there is any, that would be helpful.

Sandeep Modi — Deputy and Interim CFO

So, Amit, this is Sandeep here. As of now it is 2%. As and when anything Board approved, it will be — we will come to you which will be more comfortable you.

Amit Dixit — ICICI Securities — Analyst

Okay, the second question is essentially subscription of shares and PHL ratings. Now if I look at the contribution that is being paid and the EBIDTA that is subscription rate, it looks that it is at a higher valuation compared to global peers. So, while I understand the synergy part, I mean, but just wanted to understand that is the synergy — and there wouldn’t be any synergy between the official because you operate in different territories altogether. So just wanted to understand, what kind of synergies we are looking at to pay a premium of according to my calculations, and in the EV EBITDA works out without 8.5 times. So just wanted to understand it a little bit more.

Arun Misra — Chief Executive Officer

So right now, we are principally operating one underground mine and one big open-pit mine. This is also known as the biggest open-pit mine in the world with zinc ores in it, and this is — at this time, we are entering almost, we can see the equivalence between what Hindustan Zinc was some time around 2006 — 2007 or 2007 — 2008. So, we have got resource for open cast mining for some more years. While at the same time, there is heavy, good grade resource which has to be developed in the manner of underground, and Hindustan Zinc keeps bringing the expertise of high-volume underground mining in the most modern methodology and also Hindustan Zinc brings in with it the capability for concentration of the ore as well as smelting of ore, which will be the value addition to the property that we try to acquire. The resource base of Hindustan Zinc gets doubled by this acquisition, and also the potential of production capacity gets doubled up to 2 million tons with 1 million ton from India and 1 million ton on South Africa, two different geographies, but two have been fully-integrated operations, which almost nobody has. And with this kind of the capacity with independent markets wherein India, we will be in India and Southeast Asia, Africa would be more on the U.S. and Europe territory or Middle-East territory. So, with that put together we will be controlling a large part of global market. At the same time, we will be utilizing the capability that Hindustan Zinc has developed over the last so many years of operation of concentrated and smelters, and also Hindustan Zinc will help this new unit to transition into underground mining in a very safe and very productive manner. So, if I look at it in other way, almost 31 million tons resource base with Hindustan Zinc, market cap of about $17 billion to $18 billion, so we are similar resource there, and similar production potential is there. So that’s why to me, it is strategically one of the best decisions that both would have taken.

Amit Dixit — ICICI Securities — Analyst

Sir, just a comment, the potential was always there and there were challenges in developing this resource. Now paying a premium, paying the valuation 8.5, as I mentioned, look little bit bleak and [Indecipherable]. And then, while I understand the overall potential of the resource, but how much time you will take to kind of bring it online and the benefits basically on both, plus the premium part makes it a tad uncomfortable, nothing else.

Arun Misra — Chief Executive Officer

So, almost all factors were duly considered while taking this decision, just to give better comfort. The current operations at that unit is about 300,000 tonnes of metal and concentrate production and they are — already the projects have been commissioned on the ground to double this capacity in next two years’ time. And parallelly, we are working on the smelting capacity, so very soon the capacity can be doubled at that place, and while we launched further projects to take it up to 1 million ton in that region. And that’s why I’m saying it is at the inflection point, what we — what Hindustan Zinc was sometime in 2006, 2007, 2008 or so window when the new acquirer were planning for expansion of this mine, which was hardly at one-ninth or one-tenth of the capacity as it is standing today. All factors have been duly considered while doing this approval.

Amit Dixit — ICICI Securities — Analyst

Okay sir, thanks a lot and all the best.

Arun Misra — Chief Executive Officer

Thank you.

Operator

Thank you. I request all the participants, please restrict to two questions per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Pinakin Parekh from J.P. Morgan Chase. Please go ahead.

Pinakin Parekh — J.P. Morgan Chase — Analyst

Yeah, thank you very much. I have two questions — my first question is, given that it’s a related-party transaction, how will government’s stake be considered in the voting cum visit of the minority stake, as they would have to approve the transaction, or is that approval not required? I’m just trying to understand.

Operator

Your voice is not very clear. May I request to come in on a better reception area please.

Pinakin Parekh — J.P. Morgan Chase — Analyst

Yeah, I’m just now, am I audible now?

Arun Misra — Chief Executive Officer

Yes, yes.

Pinakin Parekh — J.P. Morgan Chase — Analyst

[Technical Issues] how will the government [Technical Issues] and have been given their in-principle approval for this transaction?

Arun Misra — Chief Executive Officer

We have this is approved by the Board. And of course, the Board approval follows approval or recommendation by the Audit Committee, and further for cost of excellence all due approvals will be sought wherever required as per the law.

Pinakin Parekh — J.P. Morgan Chase — Analyst

So the government nominees on the board have approved the transaction. Would it be fair to say, because the government nominees are there?

Arun Misra — Chief Executive Officer

When we say Board approval, we don’t see individually which Director opined what, but we can see overall the Board has approved it.

Pinakin Parekh — J.P. Morgan Chase — Analyst

Okay, and how does Hindustan Zinc plan to fund this transaction? I mean, how much debt will the company be taking to fund this transaction?

Arun Misra — Chief Executive Officer

So at this point of time, if you see the contribution has been, the timeline has been put at 18 months and it will be [Indecipherable] with certain milestones. So, I believe most of the transaction will get funded for approval.

Pinakin Parekh — J.P. Morgan Chase — Analyst

Okay, fair enough. Thank you very much.

Arun Misra — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Prashant Kumar Godha from Emkay Global. Please go ahead. Prashant, may I request you to unmute your line from your side and go ahead with your question, please.

Prashant Kumar Godha — Emkay Global — Analyst

Hello, Sir, thanks for the opportunity. Sir, I would like to know more about this transaction. On a scale of 1 to 10, how confident are you in terms of getting that and bringing these assets — the assets being acquired. So, 1 million ton per annum output, and [Indecipherable] On a scale of 1 to 10, if you could express your confidence, that will be really helpful to us and the industry.

Arun Misra — Chief Executive Officer

So, from my long experience 30 years’ experience in mining, and since that time we’ve moved this together to Board, and the discussions that we had, and my own personal involvement in due diligence, I can tell you apart from the factoring of 10% uncertainty which is there in any mining project, I am absolutely 90% confident.

Prashant Kumar Godha — Emkay Global — Analyst

Nice sir, thank you, that is really comforting. And sir, secondly, you’ve spoken about the milestones being met. If you could broadly, briefly tell about what are the milestones that has been made apart from the regulatory approvals.

Arun Misra — Chief Executive Officer

So there are certain milestones like there are certain approvals which are required from the government for some pretax assumption kind of thing. So, the deferment has been there on account of that. The deferred consideration will be payable mix, so there are certain milestones which they will do.

Prashant Kumar Godha — Emkay Global — Analyst

Okay, so the broad ‘ the deadline is 18 months, do you think this will be completed within that, or it is [Technical Issues] what is your best guess, sir?

Arun Misra — Chief Executive Officer

The audio is not clear, we could not understand. You repeat.

Operator

Prashant, may I request you to speak through the handset, please.

Prashant Kumar Godha — Emkay Global — Analyst

Okay, sure. Sir, what is your best guess on the timing needed to consummate this.

Arun Misra — Chief Executive Officer

So, if you read it carefully, it talks about the 18 months for completion of the transaction, which will be like acquisition, regulatory approval, payment in the trenches. The total 18 months have been put up. In the face of that, there will be a premium.

Prashant Kumar Godha — Emkay Global — Analyst

Sure sir, that is the outer end, so if it is possible that it could be closed within [Technical Issues].

Arun Misra — Chief Executive Officer

We are expecting the shareholder approval by Feb end.

Prashant Kumar Godha — Emkay Global — Analyst

Understood. Okay, thank you and all the best.

Operator

Thank you. Participants using speaker phone, please pickup your handset while asking your question. This is required to ensure optimum audio quality on the call. Next question is from the line of Rahul Jain from Systematix Group. Please go-ahead.

Rahul Jain — Systematix Group — Analyst

Yeah, hi, thanks for taking my question. Sir, once again coming on the transaction, so what are the key assets over here in terms of size-wise, and what kind of any number on volumes you can throw, say, you can see a one year after the transaction of five years after transaction. I mean, what kind of further investment would be required?

Arun Misra — Chief Executive Officer

So, there are two, three things to be seen here. One, let me also give the strategic perspective. If Hindustan Zinc is to grow to 2 million ton with Indian resources, it is next to — it is not possible because our current mine, if you look at the expansion programs altogether will limit at around 1.2 million ton. But traditionally for last five years, we have been stagnating at around 1 million ton only, and for last about two, three years we have been following up, there has been no new zinc mine that has been opened up or put up for option in India. World over also, there is no more such property of that size which is available for acquisition. So, in that case, this makes a right choice for Hindustan Zinc to grow. That’s what I’d said, in two different geographies. Property wise if I look at it, it has got about 35 million ton plus RNR, main properties are located in Gamsberg in South Africa in the Aggeneys — is the name of the area in the Northern Cape and close to it is original deep and short work mines, and also it is called the Scorpion zinc in Namibia. These are the three biggest properties around with all the ores and RNR is available. Today, the open cast mine is fully operational with four underground mines in both deep and short work are operational and are on the expansion path.

The Gamsberg mine where the four pits are already operational, so there altogether, we are producing about 300,000 tonnes of metal in concentrate. The projects are on just now as we speak for expansion of Gamsberg mine, to take it to 600,000 tons in two years of time, doubling the capacity, and also looking to put up a smelter in Gamsberg as well as the restart the smelter in Namibia property already has a smelter. Little bit of modification has to be done. So those will be done to add both these capacities to convert 600,000 tons into metal, and then third phase of expansion will be by adding another 400,000 tons. When you open up the underground property in Gamsberg, and then take good grade ore which is there, and add another 400,000 tons.

Rahul Jain — Systematix Group — Analyst

Right, right. Today already we are doing about INR2,000 crore EBITDA in the asset, is it the right way to look at it?

Arun Misra — Chief Executive Officer

[Technical Issues] you are asking the current one or you are asking for the future?

Rahul Jain — Systematix Group — Analyst

Current, in the sense these assets that you say which you have elaborated, you already have…

Arun Misra — Chief Executive Officer

Yeah. I got it. So, last year they closed with $200 million of EBITDA of the FY ’22, but currently looking at the run-rate, we are going to do between $250 million to $300 million.

Rahul Jain — Systematix Group — Analyst

Right. So how would you break up the acquisition cost in terms of the producing assets, as well as the second — the under-development assets. So is there any split on this number of $3 billion.

Arun Misra — Chief Executive Officer

So, total valuation considered all that aspect. You have to look at it has a 35 million ton of the RNR. So if you see the [Indecipherable] 8 billion ton of the proven reserves remaining in the major indicated and inferred category. So, while the valuation has been done, the value of all the relevant aspects have been taken into account, and of course, we are focusing more on the JEDI project and their growth and obviously their cash-flow will also have to be taken into account. We cannot look at only the historical EBITDA [Speech Overlap]

Rahul Jain — Systematix Group — Analyst

Yeah, yeah, no, I absolutely understand. My point is that in terms of the multiple that you would have given for the assets which is already existing and for assets which are under development, can you give a breakup of that?

Arun Misra — Chief Executive Officer

I think at this point that I would like to avoid. We were just talking about overall 2981 million [Phonetic] of the RNR, so 35 million ton of the RNR for which we are deciding the [Speech Overlap]

Rahul Jain — Systematix Group — Analyst

[Technical Issues] currently you can reach to 600 and then what is the timing, what is the number in mind?

Arun Misra — Chief Executive Officer

Overall, 1 million ton is the number in mind right now [Speech Overlap]

Rahul Jain — Systematix Group — Analyst

By 2027 or, what is the timeline you are looking into.

Arun Misra — Chief Executive Officer

By 2025, it will be 600,000 tons and by 2027 or 2028, it will be 1 million tons.

Rahul Jain — Systematix Group — Analyst

And where would you place it in terms of the cost curve, where we are at Hindustan Zinc India? Was it a similar or parallel.

Arun Misra — Chief Executive Officer

Hindustan Zinc cost of around at one million ton, it will be around $1,000 per ton.

Rahul Jain — Systematix Group — Analyst

Right. Thank you. Thank you very much, very helpful.

Operator

Thank you. Next question is from the line of Pallav Agarwal from Antique Stock Broking. [Technical Issues] We move onto the next participant. Next question is from the line of Sumangal Nevatia from Kotak Securities, please go ahead.

Sumangal Nevatia — Kotak Securities — Analyst

Yeah, good evening. Just some clarification. I got disconnected in between, so development of the management fee now being faced to Vedanta? [Technical Issues] and is there any shareholder or at any other approvals required for this decision.

Arun Misra — Chief Executive Officer

So, this matter does not fall into any shareholder agreement. And as per the company, they can the [Indecipherable] is required to audit committee and board approval.

Sumangal Nevatia — Kotak Securities — Analyst

Okay, okay, so what is the limit of transaction with related [Indecipherable] for the shareholder approval.

Arun Misra — Chief Executive Officer

So, any shareholder approval required, if it is beyond the 5% of the turnover.

Sumangal Nevatia — Kotak Securities — Analyst

Got it, got it. And this agreement has been signed for how long? I mean, when is the next revision if at all it has to happen?

Arun Misra — Chief Executive Officer

So, this agreement will be signed now after the Board approval.

Sumangal Nevatia — Kotak Securities — Analyst

And for what time period?

Arun Misra — Chief Executive Officer

Time period is three years.

Sumangal Nevatia — Kotak Securities — Analyst

Okay, got it. Secondly, with respect to this acquisition linkage. I mean they’ve mentioned the payouts will be staggered based on milestone. Just wanted to understand what sort of milestones are these operational, the volume-related milestone or some other regulatory approval milestones.

Arun Misra — Chief Executive Officer

So, these are largely regulatory approvals related milestones. But lots of the payment will go in the next three to six months.

Sumangal Nevatia — Kotak Securities — Analyst

Okay and shareholder approval we are expecting [Technical Issues]

Arun Misra — Chief Executive Officer

So, we are hopeful to get shareholder approval by February end.

Sumangal Nevatia — Kotak Securities — Analyst

Okay, and what are the other approvals, apart from the shareholder approval, that would be required?

Arun Misra — Chief Executive Officer

I think this is a normal acquisition, it will require only shareholder approval to execute the transaction. I don’t think any further approvals required.

Sumangal Nevatia — Kotak Securities — Analyst

Okay, so, but we still expect over 18 months payout. Is that the right understanding?

Arun Misra — Chief Executive Officer

Because we have the deferred consideration, which has been considered, so that’s why it has been written 18 months.

Sumangal Nevatia — Kotak Securities — Analyst

Okay, got it. All right. And next year we are expecting tax to be 25%.

Arun Misra — Chief Executive Officer

We are expecting next year tax rate to be 25% as we will move to the new regime.

Sumangal Nevatia — Kotak Securities — Analyst

Got it and just one last clarification. We are continuing with our full-year cost guidance and the volume guidance because this press release does not mention anything.

Sandeep Modi — Deputy and Interim CFO

Of course, we are maintaining the same thing of volume. As Mr. Misra said, we are in the right path and we should be in that range or may be marginally better. In terms of cost, as of like nine months 1273 [Phonetic], and we are expecting in the Q4 with the lowering the coal index and better [Indecipherable] linkage coal, we should be ‘ we are 100% confident we will be in the range which we have given to the market for 12.25 million to 12.75 million.

Operator

Thank you. Sumangal, I will request you to come back in the question queue for a follow-up question. I request all the participants, please restrict to two questions per participants. If time permits, please come back in the question queue for a follow-up question. Next question is from the line of Alok Deora from Motilal Oswal. Please go ahead.

Alok Deora — Motilal Oswal — Analyst

Hi sir, good evening. Sir, just if you could repeat what’s the cost of production we are looking at for the fourth quarter, and is that number actually?

Arun Misra — Chief Executive Officer

I think for the fourth quarter, we cannot specify, but overall what market guidance you had given 12.25 million to 12.75 million is within that.

Alok Deora — Motilal Oswal — Analyst

Sure. and also sir, on the acquisition, so how much debt we are looking at to take from the market for that because you mentioned in the press release of some external debt as well.

Arun Misra — Chief Executive Officer

At this point of time, as I say, it’s largely funded by internal accrual. And it is simple. If I give the answer, then some other analyst ask us, so it will be largely funded to the internal accrual. We’re just putting it as an enabling thing.

Alok Deora — Motilal Oswal — Analyst

Sure, and sir, just one more thing…

Arun Misra — Chief Executive Officer

If you see on the overall balance sheet size, INR16,482 crores is there and we are having the Q4 cash-flow will also be there. So, it means at the net-debt level will be obviously exiting the numbers.

Alok Deora — Motilal Oswal — Analyst

And sir, just last question on this coal linkage, so how long the situation there now and what can be expected in Q4.

Arun Misra — Chief Executive Officer

We have seen slight improvement in the coal linkage from quarter three, but still not up to our satisfaction. We believe that from February onwards, we will get — that the indications are from the Coal authorities that the linkage numbers are going to increase, number of rigs that we get per month. So Q4 numbers will be better than what it was in Q3. At the same time, our high costs stock of the imported coal is almost over by January end, so really March we should be getting more of low-cost imported coal. So, we should get the benefit.

Alok Deora — Motilal Oswal — Analyst

Okay, okay. One that you follow-up question, sir. So, with this acquisition, assuming it goes through, so next say three to four years, what kind of numbers we are looking at on the mining side? I mean, how much can we do with that because that ramp-up everything which you were talking about will take its own time. So any number for FY, you know, say three to four years down the line, we can look at.

Arun Misra — Chief Executive Officer

Four years down the line, see [Indecipherable] will stagnate at about 1.1 million tons metal level. And in two years’ time, I should look at somewhere around 300,000 tons of current production, will go to 600,000 tons in case of [Indecipherable] in their MIC, and in four years’ time they should be close to 1 million ton.

Alok Deora — Motilal Oswal — Analyst

Sure, so combined 2 million could be achieved in four years.

Arun Misra — Chief Executive Officer

Combined 2 million could be achieved.

Alok Deora — Motilal Oswal — Analyst

Sure, okay, sir, that’s all from my side. Thank you and all the best, sir.

Operator

Thank you. The next question is from the line of Ritesh Shah from Investec. Please go-ahead.

Ritesh Shah — Investec — Analyst

Hi sir, thanks for the opportunity. First, congratulations for the master stroke, Sir, I just have a couple of queries. One is, if I read the press release right, basically its overseas entity transacting with a wholly-owned subsidiary, which is also overseas entity. So would it be fair to assume that there won’t be an element of long-term capital gains tax.

Arun Misra — Chief Executive Officer

No.

Ritesh Shah — Investec — Analyst

Okay and that helps. Sir, second clarification. I think in one of the prior questions, it was asked that there is no majority of minority required, and you did indicate that it is not quite. Did I hear it right?

Arun Misra — Chief Executive Officer

Majority of the minority would be required in the shareholder approval, we said shareholders approvals will be required as per the SEBI law, since the related-party transaction will be required a majority of the minority.

Operator

Thank you. A request to all the participants, please restrict to two questions per participant. The next question is from the line of Kiran Mehta from BOB Capital Markets. Please go ahead

Kiran Mehta — BOB Capital Markets — Analyst

Thank you, sir for this opportunity. And we want to go back to the transaction. In terms of approvals, while you said that the shareholder approval is targeted in February, and at the same to understand will there be a deferred consideration, which is linked to the regulatory milestones. Which are these regulatory approvals, which we envisage over 18 months. Could you elaborate more on this?

Arun Misra — Chief Executive Officer

I think we are not talking about regulatory approvals off in India, we have taken certain regulatory approvals. We feel these entities would require in their respective geographies. Once they receive it, then it will be received.

Kiran Mehta — BOB Capital Markets — Analyst

So this is basically the approval in South Africa and Namibia related to stocks that are ownership to another subsidiary, is that correct.

Arun Misra — Chief Executive Officer

Correct.

Kiran Mehta — BOB Capital Markets — Analyst

Right sir. In terms of — would you also sort of give us a proforma net-debt number, net cash number for Hindustan Zinc after completion of this transaction [Technical Issues].

Arun Misra — Chief Executive Officer

So, if you see like $2.4 billion is the immediate cash consideration, and Hindustan Zinc is sitting as of now almost INR16,500 crores. And in the Q4, whatever the numbers I cannot estimate and predict, but as of this point of time, if you say that given the performance which we have, we will be having — we should be having a good amount of balance. And even after paying-off this, we will be having a very good asset in our books, so net pro-forma numbers, obviously when we purchase any asset, the cash will go, but at the same time will get asset which is not available globally at such kind of larger $35 million of RNR. So I will pay the cash and I will get such a beautiful asset which will add to Hindustan Zinc and make Hindustan Zinc totally almost 13% of the market share globally and maybe number one in production company.

Operator

Thank you, Mr. Mehta, I will request you to come back for a follow-up question. Next question is from the line of Ashish Kejriwal from Nuvama Institutional Equities. Please go ahead.

Ashish Kejriwal — Nuvama Institutional Equities — Analyst

Yeah, hi, thanks for giving me the opportunity. Sir, just one clarification. In this transaction, whether the government will be considered as minority or it’s a part of the promoter group?

Arun Misra — Chief Executive Officer

So, we are as of now, we have only got the Board approval and we will go for shareholders’ approval and we will see it at that point of time. As of now, we are not making any opinion on such things which are subject to legal opinion, and perhaps me and Sandeep are not in the best place to comment on such things.

Ashish Kejriwal — Nuvama Institutional Equities — Analyst

Okay. Okay, and secondly, when you are saying that all money of this $2.9 billion that will be paid to Vedanta only or there is some inclusion into Zinc International also on account of this. This is entirely different from the other capex we are talking about.

Arun Misra — Chief Executive Officer

So, if you adjust the total valuation, it has been done on the DCF method for the end of 20% of the payment is deferred, and majority payment will be paid immediately after the shareholder approval as I said, and the payment will go to obviously the Vedanta Limited and whatever the future projects are there, it will be like funded by Zinc International itself as they will be having their own cash division. Lot of projects are coming on the line.

Ashish Kejriwal — Nuvama Institutional Equities — Analyst

Thank you. And sir, when you are talking about up to 2.98.

Arun Misra — Chief Executive Officer

Also note that, that entity is a largely debt-free entity, but from balance on that side also to drop cash fund in their own business.

Ashish Kejriwal — Nuvama Institutional Equities — Analyst

Sure sir, so when you are talking about up to $2.98 billion, so what’s the possibility of coming down or something because it’s a big transaction. So is this somewhat variable attached to it.

Arun Misra — Chief Executive Officer

So, as I said, $2.4 billion roughly is the immediate cash conciliation as remaining $550 million is up to the milestone. While these milestones are achieved, that time it will be paid, so that’s why you see the transaction timeline going to 18 months.

Operator

Thank you very much. Ladies and gentlemen, that will be the last question for today. I now hand the conference over to Ms. Jhalak Rastogi for closing comments.

Jhalak Rastogi — Associate Director, Investor Relations

Thank you, everyone. With this, we close today’s earnings call. For any follow-up questions or clarifications on the results, please feel free to reach out to Investor Relations team. Thank you.

Operator

[Operator Closing Remarks]