Management Discussion & Analysis

Vedanta Limited is a diversified natural resource company with portfolio of large, world-class, low-cost, scalable assets, located in proximity to high growth markets. The Company operates in the Oil & Gas, Zinc, Lead, Silver, Copper, Iron Ore, Aluminium and Commercial Power sectors.

The Company’s zinc business in India is owned and operated by Hindustan Zinc Limited (HZL) in which the Company has a 64.9% interest and 29.54% is owned by Government of India. HZL’s operations include five zinc-lead mines, four zinc smelters, two lead smelters, one zinc-lead smelter, seven sulphuric acid plants, one silver refinery plant and six captive power plants in the state of Rajasthan. It also has zinc, lead, silver processing and refining facilities in the State of Uttarakhand. The Company has wind power plants in the States of Rajasthan, Gujarat, Karnataka, Tamil Nadu and Maharashtra.

The Company’s international zinc business comprises of Skorpion mine and refinery in Namibia operated through THL Zinc Namibia Holdings (Proprietary) Limited (Skorpion). It also has Black Mountain Mining (Proprietary) Limited (BMM), whose assets include the Black Mountain mine and the Gamsberg mine project located in South Africa. The Company has 100% ownership in Skorpion and 74% ownership in BMM. Our Zinc project in Gamsberg is progressing well and on track for first production by mid CY2018.

The Company’s oil & gas business is owned and operated by Vedanta Limited, one of the largest independent oil and gas exploration and production companies and the largest private producer of crude oil in India. It has a world-class resource base, with interest in five blocks in India and one in South Africa. Cairn India’s resource base is located in four strategically focused areas namely one block in Rajasthan, one on the west coast of India, three on the east coast of India and one in South Africa.

The Company’s iron ore business is wholly owned by Vedanta Limited and Sesa Resources Limited and consists of exploration, mining and processing of iron ore, pig iron and metallurgical coke and power generation. The mining operations are carried out in the State of Goa and Karnataka. On February 7, 2018, the Supreme Court of India passed its final order wherein it set aside the second renewal of the mining leases granted by the State of Goa. The Court directed all lease holders under the second renewal to stop all mining operations with effect from March 16, 2018 until fresh mining leases (not fresh renewals or other renewals) and fresh environment clearances are granted.

The Company’s copper business is owned and operated by Vedanta Limited, Copper mines of Tasmania Pty. Ltd. (‘CMT‘), Australia, and Fujairah Gold FZE in the UAE. Its custom smelting assets includes a copper smelter, a refinery, a phosphoric acid plant, a sulphuric acid plant, a copper rod plant and two captive power plants at Tuticorin in Southern India, and a refinery and two copper rod plants at Silvassa in Western India. In addition, the Company owns and operates the Mt. Lyell copper mine in Tasmania, Australia through its subsidiary, CMT, which is currently suspended and is under care & maintenance since July 2014, and a precious metal refinery and copper rod plant in Fujairah through its subsidiary Fujairah Gold FZE.

The Company’s aluminium business is owned and operated by Vedanta Limited and Bharat Aluminium Company Limited (BALCO) in which Vedanta Limited has a 51% interest and balance is owned by the Government of India. Vedanta Limited’s Aluminium operations include an Alumina refinery and a 90 MW captive power plant (CPP) at Lanjigarh, two smelters (500 kt & 1,250 kt) and two CPPs (1,215 MW & 1,800 MW) at Jharsuguda, both at Odisha in Eastern India. BALCO’s operations include two bauxite mines, three CPPs (270 MW, 540 MW and 600 MW), and two smelters (570 kt) and fabrication facilities at Chattisgarh in central India.

The Company’s power business includes Talwandi Sabo Power Limited (TSPL), a wholly owned subsidiary of the Vedanta Limited TSPL had signed a power purchase agreement with the Punjab State Power Corporation Limited (PSPCL) for the establishment of 1,980 MW (three units of 660 MW each) thermal coal-based commercial power facilities.

The other power operations include Vedanta Limited’s 600 MW thermal coal-based commercial power facility at Jharsuguda, a 600 MW thermal coalbased commercial power facility at BALCO, 274 MW of wind power plants commissioned by HZL and 100 MW power plant at MALCO Energy Limited (MEL) situated at Mettur Dam in Tamil Nadu in Southern India. 100 MW MEL power plant has been put under care and maintenance effective from May 26, 2017.

The Company’s other activities include operation of its Vizag General Cargo Berth Private Limited (‘VGCB’) in which the Company owns a 100% interest. The Vizag port business includes coal handling facilities and general cargo berth at the outer harbor of Visakhapatnam port on India’s east coast.

In December 2017, Vedanta Limited’s wholly owned subsidiary, Cairn India Holdings Limited acquired a 51% stake in AvanStrate Inc. (ASI), a Japanese manufacturer of LCD glass substrate for US$158 million.

Vedanta Limited was declared successful resolution applicant by the Committee of Creditors for Electrosteel Steels Limited under the Corporate Insolvency Resolution Process of the insolvency and Bankruptcy Code, 2016 (IBC). Subsequently, The National Company Law Tribunal, Kolkata Bench, has approved the terms of the Resolution Plan submitted by the Company, to acquire Electrosteel Steels Limited (‘Electrosteel’) on April 17, 2018.

Finance review

We recorded a strong
operational and financial
performance in FY2018.

Delivering
growth year
over year

Arun Kumar
Whole Time Director and Chief Financial Officer

Executive summary:
A strong operational performance complemented by firm commodity prices.Favourable price environment coupled with volume growth resulted in EBITDA of ` 25,470 crore, up 19% y-o-y with a robust margin of 36%. (FY2017: ` 21,437 crore, margin 39%).

A strong volume performance contributed to an incremental EBITDA of ` 2,161 crore, primarily driven by record volumes at our Zinc India and Aluminium businesses, following a ramp-up of capacities.

Market factors resulted in net incremental EBITDA of ` 2,277 crore compared to FY2017. The increase was driven by improved commodity prices, but partially offset by an increase in input raw material inflation and unfavourable foreign exchange impacts.

Gross debt as on March 31, 2018 was ` 58,159 crore, a reduction of ` 8,512 crore since March 31, 2017 (excluding repayment of temporary borrowings at Zinc India and preference shares issued pursuant to the Cairn India merger in April 2017). Net debt increased to ` 21,958 crore at March 31, 2018 from ` 8,099 crore at March 31, 2017, driven by significant dividend payments from Zinc India and Vedanta Limited, in April 2017 and March 2018, and the acquisition of AvanStrate Inc. The balance sheet of Vedanta Limited continues to remain strong with cash and liquid investments of ` 36,201 crore and Net Debt to EBITDA ratio at 0.9x.

Consolidated EBITDA
EBITDA increased by ` 4,033 crore to ` 25,470 crore in FY2018. This was driven by a strong operating performance and firm commodity prices, but partially offset by input raw material inflation and unfavourable foreign exchange impacts.

Consolidated EBITDA

a) Prices
Commodity price fluctuations have a significant impact on the Group’s business. During FY2018, we saw a positive impact on EBITDA of ` 7,955 crore.

Zinc, lead and silver: Average zinc LME prices during FY2018 increased to US$3,057 per tonne, up 29% y-o-y; lead LME prices increased to US$2,379 per tonne, up 19% y-o-y; and silver prices decreased to US$16.9 per ounce, down 5% y-o-y. The collective impact of these price fluctuations and premium increased EBITDA by ` 3,705 crore.

Aluminium: Average aluminium LME prices increased to US$2,046 per tonne in FY2018, up 21% y-o-y and higher premium, positively impacting operating profit by ` 3,857 crore.

Oil & Gas: The average Brent price for the year was US$58 per barrel, higher by 18% compared with US$49 per barrel during FY2017, but partially offset by a higher discount to Brent during the year (FY2018: 12.3%; FY2017: 10.8%). This positively impacted EBITDA by ` 907 crore.

Iron Ore: Iron Ore Goa’s price realisation for FY2018 was lower 33% y-o-y, mainly due to the widening discount for our 56% Fe grade material, compared to the benchmark price of 62% Fe iron grade. This was partially offset by higher realisation at our Iron Ore business in Karnataka, which primarily caters for the domestic steel industry in the state. The collective impact resulted in a decrease in EBITDA of ` 472 crore.

Our usual policy is to sell products at prevailing market prices and not to enter into price hedging arrangements. However, during the period, Zinc India entered into a forward contract to sell 220,000 tonnes of zinc and 30,000 tonnes of lead at average prices of US$3,084 per tonne and US$2,418 per tonne respectively, for the period from January 2018 to June 2018. As at March 31, 2018, open quantities stood at 70,000 tonnes of Zinc and 15,000 of lead, at average prices of US$3,075 per tonne and US$ 2,374 per tonne respectively for the period from April 2018 to June 2018.

b) Direct raw material inflation
Prices of key raw materials such as alumina, thermal coal, carbon and metallurgical coke increased significantly in FY2018, with an adverse impact on EBITDA of ` 4,073 crore.

c) Foreign exchange fluctuation
Our operating currencies, both Indian Rupee and South African Rand, appreciated against the US dollar during FY2018. Stronger currencies are unfavourable to the Group, given the local cost base and predominantly US dollar-linked pricing.

Adverse currency movements decreased EBITDA by ` 1,718 crore compared to FY2017. Information regarding key exchange rates against the US dollar

Employee at operational site, Cairn Oil & Gas

d) Profit petroleum to GOI at Oil & Gas
The profit petroleum outflow to the Government of India (GOI), as per the production sharing contract (PSC), decreased by ` 247 crore. The reduction was primarily due to the higher capital expenditure over the previous year.

e) Regulatory
During FY2018, the Group encountered increased regulatory headwinds, with an additional entry tax provision created at BALCO for ` 64 crore, pursuant to a Supreme Court order, and higher electricity duty (ED) in our Aluminium business. This had an adverse impact on operating profit of ` 134 crore.

f) Volumes
Higher volumes contributed to the increased operating profit of ` 2,161 crore, generated by these key Group businesses:

  • Zinc India (positive ` 1,488 crore). FY2018 was a year of records, with an all-time high in integrated metal production of 960 kt in FY2018, an increase of 18% over FY2017, and record silver volumes of 558 tonnes, up 23% on the previous year.
  • Aluminium (positive ` 1,216 crore) Our Aluminium business achieved record production of 1.7 mt and exited the year with a run-rate of c. 2 mtpa, driven by the steady ramp-up of capacities at Jharsuguda and Balco.
  • Iron Ore (negative ` 431 crore) Sales were down due to a low pricing environment and a state-wide ban on Goa mining operations with effect from March 16, 2018.

g) Cost and marketing
Higher cost and lower premia adversely impacted EBITDA by ` 403 crore over FY2017, primarily due to lower ore grade at Zinc India and incremental aluminium production being sold in export markets, which realise lower premiums than the domestic Indian market. This was partially offset by volume-led absorption, mainly at HZL.

Income statement
(`crore, unless stated)

1) Excludes custom smelting at Copper India and Zinc India Operations.
2) Exceptional Items gross of tax
3) Tax includes tax charge on Exceptional Items of ` 2,074 crore in FY2018 (FY2017: charge of ` 34 crore); DDT included in Tax Expense in FY2018 is credit of ` 1,536 crore (FY2017: charge of ` 196 crore)
4) Previous period figures have been regrouped/rearranged wherever necessary to conform to current period presentation.

Revenue
Revenue for the year was ` 92,923 crore, up 22% y-o-y. The increase was mainly on account of ramp-up of capacities at Aluminium, record production from Zinc India and improved commodity prices partly offset by unfavourable foreign exchange movements and lower sales at Iron ore.

EBITDA and EBITDA Margin
EBITDA for the year was ` 25,470 crore, up 19% y-o-y on account of record production from Zinc India and Aluminium and improved commodity prices. This was partially offset by raw material inflation, unfavourable foreign exchange movements, and, lower sales at Iron ore Goa. We maintained industry leading robust EBITDA margin of 36% for the year (FY2017: 39%)

Depreciation and Amortisation
Depreciation for the year was ` 6,283 crore compared to ` 6,292 crore in FY2017 on account of lower depreciation charge at oil & gas business. This was due to the change in method of calculation of Unit of Production (UOP) charge to ‘Proved and Developed Oil and Gas Reserves’ (1P) in accordance with the Guidance Note on Accounting for Oil and Gas Producing Activities, which was effective April 1, 2017, compared to the earlier approach of ‘Proved and Probable Reserves’ (2P). This was mostly offset by increase in depreciation at Aluminium business on account of capitalisation of aluminium pots and relining expenses, higher depreciation at Zinc India driven by higher production.

Net Interest
The blended cost of borrowings was 7.8% for FY2018 as compared to with 8.3% in FY2017.

Finance cost for FY2018 was `5,783 crore was marginally lower compared to ` 5,855 crore in FY2017 on account of de-leveraging during the year and lower interest rates, partially offset by dividends on preference shares issued to the shareholders of Cairn India pursuant to the merger with the Company in April, interest cost on temporary borrowings at Zinc India and capitalisation of pots at Aluminium business.

Other Income for FY2018 was at `3,574 crore lower by `1,007 crore primarily owing to lower investment corpus due to special dividend payments by Zinc India and Vedanta Limited and deleveraging during the year, lower return on investments due to sharp rise in G-Sec yields resulting in mark-to-market losses on investments.

Exceptional Items
The exceptional gains during the year was `2,897 crore mainly on account of reversal of previously recorded impairment of `7,016 crore at our Oil & Gas business following the progress on the key growth projects which are expected to result in enhanced recovery of resources; partially offset by impairment of Iron Ore Goa assets of ` 2,329 crore due to suspension of mining operations from March 16, 2018 pursuant to Supreme Court Order dated February 7, 2018 and reclassification of foreign currency translation reserve of ` 1,485 crore relating to subsidiary investment companies under liquidation.

Taxation
Tax expense (before exceptional items and DDT) for the year FY2018 was at ` 5,339 crore, implying tax rate of 32% compared to ` 2,103 crore and a tax rate of 15% in FY2017.

Effective tax rate was higher on account of phasing out of investment allowance claims, change in cess rate from 3% to 4% as per Finance Act, 2018 and change in profit mix.

Attributable Profit after Tax (before Exceptional Items and DDT)
Attributable PAT before exceptional items & DDT was ` 8,025 crore in FY2018 compared to ` 7,323 in FY2017 (up 10% y-o-y).

Earnings per Share
Earnings per share before exceptional items & DDT for FY2018 were ` 21.96 per share as compared to ` 24.70 per share in FY2017.

Dividend
Considering the record interim dividend of `21.20 per share, the Board has decided not to declare a final dividend in FY2018. The total dividend for FY2018 is `21.20 per share which will be `7,881 crore.

Shareholders Fund
Total Shareholders fund as on March 31, 2018 aggregated ` 63,508 crore as compared to ` 60,500 crore as at March 31, 2017. The increase was primarily on account of profit during the year partially offset by special dividend payout.

Net Fixed Assets
The net fixed assets as on March 31, 2018 were ` 112,334 crore. This comprises of ` 16,140 crore as Capital work-in-progress as on March 31, 2018.

Balance Sheet
We continue to have a strong balance sheet with cash and liquid investments of ` 36,201 crore as on March 31, 2018 which is mostly invested in debt related mutual funds, bank deposits and bonds.

Gross debt as on March 31, 2018 was ` 58,159 crore, a reduction of ` 8,512 crore since March 31, 2017 (excluding repayment of temporary borrowings at Zinc India and preference shares issued pursuant to the Cairn India merger in April 2017). Gross debt comprises term debt of c. ` 33,200 crore and short-term working capital loans (including preference shares) of c. ` 25,000 crore. The loan in ` currency is 93% and balance 7% in foreign currency. Average debt maturity is c.2 years as at March 31, 2018.

In April 2017, Crisil upgraded the credit rating of the Company to AA/Stable and further improved the same to AA/Positive in March 2018.

Employees at Raageshwari Gas Terminal, Barmer, Cairn Oil & Gas

Operational review/Oil & Gas

Vision to contribute
50% of India’s domestic
oil production

Note: Map not to scale
Note: PR-OSN-2004/1 block in the Palar-Pennar basin was relinquished during the year

Mangala Processing Terminal, Barmer

We exited FY2018
with a gross
production run-rate of
over 200 kboepd
along with the which, upside
from growth projects, will
trigger significant volume
growth for FY2019.

Sudhir Mathur
CEO, Oil & Gas Business

Production – Average Daily Gross
Operated Production (boepd)

EBITDA
(` cr)

The year in summary
During FY2018, we delivered a strong operational and financial performance alongside the award of key contracts to reactivate the capital expenditure cycle.

In pursuit of our vision to contribute 50% of India’s domestic crude oil production, we have targeted investments in a highpotential set of projects comprising enhanced oil recovery, tight oil and tight gas and exploration prospects.

We exited FY2018 with a gross production run-rate of over 200,000 boepd in March which, along with the upside from these growth projects, will trigger significant volume growth for FY2019.

Safety
We made significant progress towards the goal of zero harm by reducing our lost time injuries (LTIs) to five, from the previous year’s seven. The LTI frequency rate stood at 0.19 (against 0.30 in FY2017).

Building on several safety improvement initiatives, the Oil & Gas business received recognitions for excellence in our safety management systems:

  • Vedanta Limited: Cairn Oil & Gas received the Golden Peacock Award for Sustainability for the year 2017.
  • Mangala, Bhagyam, Aishwariya and pipeline operations each achieved a Five Star Rating in the OHSMS Audit by the British Safety Council (BSC).
  • The Ravva offshore asset received first prize in the CII-SR-EHS Excellence Award 2017, as well as a 5 Star award and the Golden Peacock Occupational Health & Safety Award for the year 2017.
  • The Mangala field in the Rajasthan asset received the Oil Industry Safety Award 2015-16 from OISD, MOPNG in the Oil & Gas Onshore asset category.

Environment
We have initiated co-processing for all types of non-recyclable hazardous waste, which can be used in cement industries as an alternative fuel and raw material. This completely eliminates the need for incineration and ensures that zero-waste is sent to landfill. To date, around 4,592 mt of non-recyclable hazardous waste has been safely and sustainably handled using the co-processing route.

The Oil & Gas business has also carried out a fugitive emission monitoring study for all its operating assets. This revealed that there has been no significant leakage of fugitive emissions to the atmosphere, and that we are succeeding in minimising our greenhouse gas emissions.

Production performance

Prices

Financial performance
(`crore, unless stated)

MBA Polymer unit, Cairn Oil & Gas

Operations
Average gross production for FY2018 was 185,587 barrels of oil equivalent per day (boepd), 2% lower y-o-y primarily due to natural field decline, partially offset by volume ramp-up from infill wells in Mangala and Cambay and continued effective reservoir management practices across assets. All three blocks – Rajasthan, Ravva and Cambay – continued to record a plant uptime of over 99% (FY2017: 99%).

Production details by block are summarised below.

Rajasthan block
Rajasthan block production was 2% lower at an average rate of 157,983 boepd. This reduction was due to natural decline in the field. However, the decline was partially offset by encouraging results from the new wells added as part of the Mangala infill activity, the ramp-up of Raageshwari Deep Gas (RDG) Phase I and the continuing efficacy of our reservoir management practices.

At Rajasthan, the drilling programme of 15 infill wells at the Mangala field started during Q2 FY2018. Of these, 13 wells have been brought online with the remaining two wells to be completed in Q1 FY2019.

In order to boost volumes from satellite fields, we began an eight-well drilling campaign. Four wells in NI and NE have been brought online and the remainder are expected to be completed in Q1 FY2019.

RDG Phase I ramped up fully to 45 million standard cubic feet per day (mmscfd) during FY2018. Gas production from Raageshwari Deep Gas (RDG) in Rajasthan increased to an average of 37 mmscfd in FY2018 (44 mmscfd in Q4), with gas sales post-captive consumption of 22 mmscfd from an average production of 26 mmscfd in FY2017, with gas sales post-captive consumption at 10 mmscfd.

Ravva block
Production from the Ravva block was down by 8% at an average rate of 17,195 boepd, owing to natural decline. Closing of the water-producing zones in two wells, and gas lift optimisation, has helped to enhance production rates from the field, partially offsetting the natural decline.

Open Acreage Licencing Policy provides an opportunity to acquire acreages from all open sedimentary basins of India. We have submitted bids for all the 55 blocks on offer.

Cambay block
Production from the Cambay block was up by 7% at an average rate of 10,408 boepd. This was primarily due to the start of the infill drilling campaign, together with effective reservoir management practices.

At Cambay, we began the four-well infill campaign in January 2018 to enhance production volumes. Drilling of the first well was completed successfully and production began in February 2018. Drilling and completion of the remaining three wells also completed till date.

Prices
The latter half of FY2018 saw a substantial recovery in crude oil prices, with Brent peaking at US$71 per barrel in January for the first time since December 2014. The increase was supported by healthy crude demand during the winter season and consistency in OPEC-led output cuts. Brent crude oil averaged US$58 per barrel, with a closing rate of US$67 per barrel as at March 29, 2018. The year ended on a positive note as OPEC looked set to continue withholding output for the rest of the year.

Financial Performance
Revenue for FY2018 was 16% higher y-o-y at `9,536 crore (after profit and royalty sharing with the Government of India), supported by a recovery in oil price realisation. EBITDA for FY2018 was higher at `5,429 crore, up 35% y-o-y, due to higher revenue. The Rajasthan water flood operating cost was US$4.6 per barrel in FY2018 compared to US$4.3 per barrel in the previous year, primarily driven by increased interventions and production enhancement initiatives. Overall, the blended Rajasthan operating costs increased to US$6.6 per barrel during FY2018 compared with US$6.2 per barrel in the previous year, due to the ramp-up in polymer injection volumes.

In Q4 FY2018, reversal of previously recorded non-cash impairment charge of ` 7,016 crore (` 4,257 crore net of taxes) was taken, following the progress on the key growth projects which are expected to result in enhanced recovery of resources in a commercially viable manner leading to a higher forecast in oil production and savings in the cost.

In FY2018 capital expenditure was US$127 million, which was primarily focused on growth projects including the Mangala infill, the liquid handling upgrade, and the RDG and CB infill campaigns.

Exploration and development
Exploration
Rajasthan – (BLOCK RJ-ON-90/1)
The Group is reactivating its Oil & Gas exploration efforts in the prolific Barmer Basin. The basin provides access to multiple play types, with oil in high permeability reservoirs, tight oil and tight gas. We have engaged global partners to reveal the full potential of the basin and establish >1 billion boe of prospective resources.We have awarded an integrated contract for a drilling campaign of 7-18 exploration and appraisal wells to build on the resource portfolio, and well spud is expected by Q2 FY2019.

Krishna-Godavari Basin Offshore – (BLOCK KG-OSN-2009/3)
A two-well exploratory drilling campaign commenced in April 2018 to establish the potential of the block.

Open Acreage Licensing Policy (OALP)
Open Acreage Licensing Policy (OALP) provides an opportunity to acquire acreages from all open sedimentary basins of India. The GOI had invited bids for 55 blocks based on receipt of expression of interest. Cairn Oil & Gas submitted bids for all the 55 blocks on offer. These blocks were assessed based on the resource potential, chance of success and proximity to infrastructure in prioritised sedimentary basins of India viz. Barmer, Cambay, Assam and Krishna-Godavari offshore. The Government is expected to award the blocks by June 2018. We intend to increase our exploration portfolio significantly to continue building the resources base.

Development
The Oil & Gas business has a robust portfolio of development opportunities with the potential to deliver incremental volumes. In order to execute these projects on time and within budget, we have decided on a fundamental change to our project execution strategy. We have devised an ‘integrated project development’ strategy, with an in-built risk and reward mechanism to drive incremental value from the schedule and recoveries. This new model is being delivered in partnership with leading global oil field service companies.

Mangala infill – 45 wells
We are embarking on a significant drilling programme of an additional 45 infill wells in the prolific Mangala field, with an estimated ultimate recovery of 18 million barrels. The contract for the project has been awarded, with first oil expected in Q1 FY2019.

Enhanced oil recovery (EOR) projects
The valuable learning we gained from the successful implementation of the Mangala polymer EOR project, is being leveraged to enhance production from the Bhagyam and Aishwariya fields. The contracts for these EOR projects have been awarded and preparations are on track with first oil expected in Q1 FY2019. We are targeting incremental recovery of 40 million barrels.

MBA alkaline surfactant polymer (ASP)
Following a successful pilot test at the Mangala field, the way is now clear to implement the world’s largest alkaline surfactant polymer (ASP) project. The work, which will enable incremental recovery from this prolific field, entails drilling wells and developing infrastructure facilities at the Mangala Processing Terminal.

The drilling contract for the ASP implementation has been awarded, and the contract for facilities will be awarded in due course. With full-field implementation of ASP in the MBA fields, we estimate potential incremental recovery of around 200 million barrels of oil, with first oil expected in Q3 FY2019.

Tight Oil & Gas projects
Tight oil: Aishwariya Barmer Hill (ABH)
The Aishwariya Barmer Hill (ABH) stage I production from seven existing wells began during Q2 FY2018. ABH stage II consists of drilling and fracking 39 new wells, creating new surface facilities including well hook-ups, pipeline augmentation and installing a de-gassing facility. The contract for tight oil wells and facilities has been awarded, and work is ongoing on the surface facility for ABH. We expect to start drilling in Q1 FY2019 with first oil expected in Q3 FY2019.

Employees at operational site, Cairn Oil & Gas

Raageshwari Deep Gas (RDG) development
Gas development in the RDG field in Rajasthan continues to be a strategic priority. Phase I of the project, to ramp up production to 45 mmscfd, was completed in December 2017. Phase II is being executed through an integrated development approach to ramp up overall Rajasthan gas production to ~150 mmscfd, and condensate production of 5 kboepd. We have awarded contracts, both for the drilling of wells and the gas terminal. Drilling will begin in Q1 FY2019.

Tight oil appraisal fields
We had made 38 discoveries in the Rajasthan Block, with some comprising complex tight oil reservoirs. In order to monetise them, we will carry out appraisal activities through global technology partnerships over the next 12-15 months, prior to conceptualising and developing a full-field development plan. Contract for appraisal of 4 fields targeting 190 mmboe of resources has been awarded.

Other projects
Surface facility upgrade
In order to maximise production at the Mangala Processing Terminal (MPT), we are focusing on increasing liquid handling capacity to handle additional volumes. We are planning a series of measures to increase the liquid handling and water injection capacities in a phased manner.

Outlook
The Oil & Gas business has reactivated its capital expenditure programme with the objectives of enhancing the exploration portfolio, executing development projects to add incremental volumes and maintaining robust operations to generate free cash flow post-capex.

For FY2019, we expect to achieve a significant growth in production volume, with total volumes in the range of 220-250 kboepd through executing our growth projects, with opex of sub-$7/boe. We estimate the net capex commitment at US$600-800 million.

Strategic priorities
Our focus and priorities will be to:

  • evaluate further opportunities to expand the exploration portfolio through OALP and other opportunities;
  • execute growth projects within schedule and cost;
  • further progress on execution on growth projects to deliver 275-320 kboepd in FY2020;
  • continue to progress towards zero harm, zero waste and zero discharge; and
  • continue to operate at a low cost-base and generate free cash flow post-capex.

Operational review/Zinc India

Vision of 1.5 mtpa
production capacity

Sindesar Khurd mine, HZL

During FY2018, we
continued our robust
performance with
record production,while
also maintaining our first
quartile cost position.


Sunil Duggal
CEO, Hindustan Zinc Ltd and Lead, Base Metals Group

The year in summary
During FY2018, we continued our robust performance with record production from our mines and smelters, while also maintaining our first quartile position in the global cost curve. The journey that started in 2013, towards a goal of 1.2 million tonnes of production in FY2020, continues apace with a quarterly sustainable production run-rate of 0.3 million tonnes in sight. In parallel, we are focusing on silver and targeting a production of 800+ tonnes, in addition to the 1.2 million tonnes target.

EBITDA
(` cr)


Production
Refined Zinc/Lead (kt)

Production
Saleable Silver (tonnes)


We have now successfully transitioned to fully underground mining operations and are looking for another record year of production in FY2019, on our way to the FY2020 goal.

Safety
We were deeply saddened to report two fatalities at the Rampura Agucha underground project site and Fumer project site during the year. Both incidents were thoroughly investigated, and the resulting learnings were shared and implemented across the businesses to prevent such tragedies in the future.

These incidents ran counter to an otherwise continuing improvement in injury reduction, which has fallen by approximately 69% over the last five years. During FY2018, lost time injuries (LTIs) fell to 0.27 (FY2017: 0.30). In particular, senior leadership undertook a special drive to increase ‘line of fire’ awareness.

Hindustan Zinc was awarded the Safety Innovation Award 2017 by the Institution of Engineers (India) for its safety performance and efforts to strengthen safety culture.

Environment
The business improved its performance in conservation and maintained recycling performance. During the reporting year, waste recycling rose to 95% compared to 93% in FY2017, and our water recycling rate was 32% (FY2017: 33%).

With the success of the 20 million litres per day (MLD) Sewage Treatment Plant (STP), Phase II of 25 MLD STP is under construction and Phase III is in the pipeline. On completion, it will reduce our fresh water intake at the Rajpura Dariba complex to negligible levels.

The Company is also committed to the Science Based Target initiative, with the goal of reducing GHG emissions by ~23 % by 2030, against a 2016 baseline.

Our sustainability activities received several endorsements during the year, including the Sustainable Plus Platinum Label award by the Confederation of Indian Industries (CII), as well as awards for Best Sustainability Practices, Best Carbon Foot-printing and Best Sustainability Report from the World CSR Day. Zinc India’s sustainability performance was ranked No. 11 in the Dow Jones Sustainability Index (Metal and Mining) globally, and No. 3 globally in the Environment category.

Operations
In FY2018, mined metal production stood at a record 947,000 tonnes, in line with the mine plan.

Ore production was 12.6 million tonnes for FY2018, an increase of 6% compared to FY2017. Although this was impacted by lower production at the Rampura Agucha open cast mine (1.76 mt, down by 47% against 3.30 mt in FY2017), this was more than offset by a 27% y-o-y increase from underground mines in FY2018.

Production performance

1. Excluding captive consumption of 6,946 tonnes in FY2018 vs. 5,285 tonnes in FY2017.
2. Excluding captive consumption of 36.438 tonnes in FY2018 vs. 27.396 tonnes in FY2017.
* Including custom production of 2 kt.

Prices

Unit costs

Financial performance
(` crore, unless stated)

Cumulative MIC production was up by 4% due to higher ore production and treatment, partly offset by lower grades. Performance from underground mines remained robust with Q4 FY2018 underground production setting a record and attaining best-ever ore and MIC production. MIC production from underground mines was up by 52% in FY2018.

Integrated metal production increased by 18% to 960 kt from 811 kt a year ago, due to consistent availability of MIC throughout the year and higher smelter efficiency. Integrated saleable silver production grew by 23% to a record 558 tonnes, compared to 453 tonnes a year ago, in line with higher production from the Sindesar Khurd Mine.

We closed the fourth quarter of the year with the highest-ever quarterly production of lead and silver. Integrated lead metal production attained a record 50,000 tonnes, 11% higher y-o-y. Integrated silver production also attained a record 170 tonnes, 22% higher y-o-y. These increases were in line with the availability of mined metal and enhanced smelter efficiencies.

In Q2 FY2018, the Group sold 220,000 tonnes of zinc and 30,000 tonnes of lead, forward at a price of US$3,084 per tonne and US$2,418 per tonne respectively. Of this, 165,000 tonnes were for the period January to March 2018 with the remainder for April to June 2018.

Prices
Zinc and lead were the leading LME performers in FY2018 with zinc prices up 29% and lead up 19%. The year was marked by a sharp decline in finished goods stocks and a reduced zinc supply from China for part of the year. The combination of scheduled mine closures, strategic production cuts and the impact of environmental inspections in China depleted global stocks of zinc concentrate/ mined metal. The consequent constraints on refined production, together with global demand growth of ~2.5%, depleted stocks of refined zinc and ensured that the price rally that started in 2016 was sustained during the year. Similarly, the refined lead market was in deficit during the year, driven by a shortage in mine supply.

Silver experienced a 60% uptrend in CY2017 in industrial demand while supply remained constrained; 70% of annual silver production is as a by-product of copper, zinc and lead extraction processes, for which the mine supply remained subdued in 2017.

Unit costs
The unit cost of zinc production (excluding royalties) increased to US$976 per tonne, up 18% y-o-y. The increase was due to higher input raw material prices (primarily imported coal, diesel and metallurgical coke), lower overall grades due to mine mix and Indian rupee appreciation. This was partially offset by higher production.

Including royalties, the cost of zinc production increased to US$1,365 per tonne, 18% higher y-o-y.

Of the total cost of production of US$1,365 per tonne, government levies amounted to US$423 per tonne (FY2017: US$339 per tonne), comprising mainly of royalty payments, the Clean Energy Cess, electricity duty and other taxes.

Financial performance
Revenue for the year was ` 22,147 crore, up 20% y-o-y, primarily due to higher metal volumes, and increased commodity prices, partially offset by rupee appreciation. EBITDA in FY2018 increased to `12,258 crore, up 29% y-o-y. The increase was primarily driven by higher volumes, improved zinc and lead prices, but was partially offset by the higher cost of production.

Projects
The mining projects we have announced are progressing in line with the expectation of reaching 1.2 million tonnes per annum of mined metal capacity in FY2020. Capital mine development was 38,501 metres during the year, an increase of 65% y-o-y.

Rampura Agucha
Rampura Agucha underground reached an ore production run-rate of 3.0 mtpa towards the end of the year. The main shaft hoisting and south ventilation shaft systems were commissioned during the year, while off-shaft development is on track. Production from the main shaft is expected to start as planned from Q3 FY2019.

Sindesar Khurd
Our Sindesar Khurd mine achieved its target capacity of 5 million tonnes towards the end of the year and is gearing up for higher production. The main shaft was equipped during the year and winder installation work has begun. Production from the shaft is expected to start as scheduled in Q3 FY2019. Civil and structure erection for the new mill is ongoing and expected to be commissioned in Q2 FY2019.

Towards the end of the year, orders were placed for paste fill plants for both the Rampura Agucha and Sindesar Khurd mines.

Zawar mine
Our Zawar mine achieved record ore production of 2.2 million tonnes during the year and production capacity has been ramped up to 3.0 mtpa. The existing mill capacity was debottlenecked to 2.7 mtpa. Civil construction work for the new mill is progressing well, with commissioning expected by Q4 FY2019.

The Ministry of Environment, Forest and Climate Change (MoEF) has given environmental clearance for the expansion of ore production at the Kayad mine from 1.0 to 1.2 mtpa. The Kayad project is now operating at its rated capacity of 1.2 mtpa.

The Fumer project at Chanderiya is progressing as scheduled and expected to commission in mid-FY2019.

Exploration
During the year, gross additions of 19.5 million tonnes were made to reserves and resources (R&R), prior to depletion of 12.6 million tonnes. As at March 31, 2018, Zinc India’s combined mineral resources and ore reserves were estimated to be 411 million tonnes, containing 35.7 million tonnes of zinc-lead metal and 1.0 billion ounces of silver. Overall mine-life continues to be more than 25 years.

Outlook
Mined metal and refined zinc-lead production in FY2019 is expected to be higher than in FY2018, filling the gap caused by completion of open-cast production. Silver production will be around 650-700 metric tonnes .

Cost of production (CoP), before royalty for FY2019, is likely to be in the range of US$950–975 per tonne.

The project capex for the year will be around US$400 million.

Next phase of expansion announced
Based on a long-term evaluation of assets and in consultation with global experts, the Company is evaluating plans to increase its mined metal capacity from 1.2 mtpa to 1.5 mtpa. The Board has in principle approved Phase I of this expansion, which will increase mined metal and smelting capacity from 1.2 mtpa to 1.35 mtpa, through brownfield expansion of existing mines at an estimated capital expenditure of around US$700 million.

Based on a long-term evaluation of assets and in consultation with global experts, the Company is evaluating plans to increase its mined metal capacity from 1.2 mtpa to 1.5 mtpa.

Phase I includes incremental ore production capacity of 0.5 mtpa each at the Rampura Agucha, Sindesar Khurd and Rajpura Dariba mines, bringing the total capacity to 5.0 mtpa, 6.5 mtpa and 2.0 mtpa respectively. The capacity of Zawar mines will be increased by 1.2 mtpa to 5.7 mtpa. These projects will take total ore production capacity to 20.4 mtpa and mined metal capacity from 1.2 mtpa to 1.35 mtpa. Phase I will be completed in three years and will be executed concurrently with the ongoing expansion, which is now in its final stages.

Strategic priorities
Our focus and priorities will be to:

  • progressively ramp-up underground mines to achieve target run-rate of 1.2 mtpa;
  • commence work towards expansion to 1.35 mtpa;
  • successfully commission Fumer;
  • continue our focus on adding more reserves and resources than we deplete, through exploration;
  • bring down the cost to top decile with the focus on operational and commercial efficiencies; and
  • improve silver recovery and production through Fumer plants and tailings retreatment.

Operational review/Zinc International

Gamsberg Phase I
(250 kt) on track

Note: Map not to scale

Note: Lisheen had safe, detailed and fully costed closure after 17 years of operations in November 2015


Gamsberg mine, South Africa

With full ramp-up of
Gamsberg Phase I and
the Skorpion Pit 112
expansion, volumes will
restore to 400 kt over
the next two years.


Deshnee Naidoo
CEO, Zinc International and CMT

The year in summary
FY2018 was a strong year, in terms of stable production and good progress made at our Gamsberg project and Pit 112 extension at Skorpion. The performance was further supported by an improvement in zinc and lead prices due to supply constraints, making these major investments particularly well-timed.

EBITDA
(` cr)

Production
Refined Zinc/Lead (kt)

Production
Saleable Silver (tonnes)

The Gamsberg project represents one of the largest zinc deposits in the world with reserves and resources of 215 mt (16 mt zinc) and the potential to ramp up to 600 ktpa of zinc production. Indeed, Phase I of the project only exploits a quarter of the full resource potential. The first production from Gamsberg is expected to commence by mid-CY2018.

With full ramp-up of Gamsberg Phase I to 250 ktpa and the Skorpion Pit 112 expansion, Zinc International will restore volumes to over 400,000 tonnes per annum (tpa) over the next two years.

Safety
With deep regret we reported a fatality at Skorpion Zinc during the year, which occurred during a dewatering drilling operation. The lessons learned, following a thorough investigation, have been shared across the business. This incident ran counter to an otherwise improving trend at Zinc International: lost time injuries decreased to 16 from the previous year’s 18, and the frequency rate showed a significant decline to 1.36 (FY2017: 2.24), despite the increased activities of the Gamsberg project.

Zinc International has further strengthened its efforts in managing risk across its operations with emphasis on business partner selection, on-boarding and management, robust risk management systems and safety culture programmes aimed at achieving our goal of ‘zero harm, zero waste and zero discharge’. We achieved a significant improvement in dust control and monitoring, as well as a reduction in lead in blood levels – indeed, zero cases above legal limits were reported for the year.

Production performance

Unit costs

Financial performance
(` crore, unless stated)

Environment
There were no Level 3 and Level 4 incidents reported. The water recycling rate improved to 38% compared to 22% in FY2017. A total of four properties (21,900 ha against a compliance target of 12,900 ha) were purchased in accordance with the Gamsberg biodiversity offset agreement.

Operations
Production for FY2018 stood at 157,000 tonnes, in line with the previous year. Higher production at BMM, due to higher grades and improved recoveries from process improvements were partially offset by the planned maintenance shutdown at Skorpion’s acid plant in Q1 FY2018, and lower levels of ex-pit ore.

Skorpion’s production was slightly down on FY2017, impacted by a combination of the planned maintenance shutdown of the acid plant in Q1 FY2018; early closure of Pit 103 for geotechnical reasons; and blending challenges to make up the required plant feed grade (from lower zinc grade stockpiles and high calcium ore).

At BMM, production was 3% higher than the previous year. The increase was due to higher grades from mine plan resequencing, improved drilling accuracy, and higher than planned recoveries from plant flotation optimisation.

Unit costs
The unit cost of production increased by 13% to US$1,603 per tonne, up from US$1,417 in the previous year. This was mainly driven by a combination of reallocation of capitalised stripping costs of Pit 112 at Skorpion due to early ore production, unfavourable local currency appreciation, higher usage of purchased oxides and sulphur at Skorpion, higher maintenance costs at BMM and lower than planned Copper credits at BMM. This was partly offset by the improvements in energy cost and TCRC savings.

Financial performance
During the year, revenue increased by 55% to ` 3,446 crore, driven by higher sales volumes and improved price realisations, partially offset by rupee appreciation. The same factors lifted EBITDA to ` 1,415 crore, up 53% from ` 927 crore in FY2017. This was partially offset by a higher cost of production.

Projects
At Gamsberg, we are on track for the cold commissioning of the concentrator plant in Q1 FY2019. The ore extraction from the South Pit is also on schedule, till March 2018 we completed 80% of pre-stripping and excavated 56 million tonnes of waste. Completion works of mechanical equipment erection, and infrastructure for power and water pipelines for the concentrator, are in progress. We are targeting 500 kt of ore stockpile ahead of the first feed to the concentrator plant.

The first phase of the project is expected to have a mine life of 13 years, replacing the production lost by the closure of the Lisheen mine and restoring volumes to over 400,000 tpa at Zinc International. First production is on track for commencement in mid-CY2018, with 9-12 months for ramp-up to full production of 250,000 tpa. Cost of production is estimated at $1000-1150 per tonne of MIC. Indeed, Phase 1 of the project only exploits a quarter of the full resource potential. We see Gamsberg reaching a potential of 600 ktpa through modular expansion in future through Phase 2 and Phase 3 projects. Gamsberg Phase 2 can start immediately after completion of Phase 1 and will have some synergies with Phase 1. The mine plans have been developed and an expanded mega pit design has been completed to enable a faster and efficient Phase 2 execution. In terms of output, we can expect to add another 200 to 250 ktpa metal in concentrate in 2-3 years.

At Skorpion, the Pit 112 extension project is progressing well, and waste stripping has ramped up to its peak run-rate. ~45% of waste stripping was completed by the end of Q4 FY2018 and is expected to be fully complete by Q4 FY2019, on schedule. To execute Pit 112 and ensure no interruption in ore treatment, Skorpion Zinc restructured the business by outsourcing mining to a Tier I mining contractor. This also resulted in the successful secondment of some owner-employees into the contract. Further optimisation of Pit 112 is in progress to reduce waste stripping by ~8 million tonnes and optimise the project cost. This project has increased Skorpion’s mine life by another 2.5 years and will contribute 250,000 tonnes of metal over this period.

Exploration
During the year, we made gross additions of 1.3 million metal tonnes to reserves and resources (R&R), prior to depletion. As at March 31, 2018, Zinc International’s combined mineral resources and ore reserves were estimated at 304 million tonnes, containing 20.5 million tonnes of zinc-lead metal.

Outlook
In FY2019, we expect production volumes to be around 250 kt. The cost of production excluding Gamsberg is expected to be around US$1,850-1950 per tonne, with Skorpion’s CoP expected to be higher due to reallocation of pre-stripping costs at Pit 112, lower grades coupled with higher royalties at BMM, and input price inflation.

Strategic priorities
Our focus and priorities will be to:

  • successfully commence Gamsberg in FY2019, with targeted first production by mid-CY2018 and progress towards ramp up to Phase I production of 250 kt in FY2020;
  • carry out a project study for Swartberg Phase II and Gamsberg Phase II to extend the life of the Black Mountain complex; and
  • complete the feasibility study for an integrated smelter-refinery with 250 ktpa metal production.

As at March 31, 2018, Zinc International’s combined mineral resources and ore reserves were estimated at 304 MT.

Skimming of final metal ingot production

Operational review/Iron ore

Electrosteel to
complement Iron
Ore business through
vertical integration

Note: Map not to scale




Pig iron plant, Amona, Goa

We continue to
engage with the
Govt. for potential
restart of our Goa
operations.


Naveen Singhal
CEO, Sesa Goa - Iron Ore Business

Production (MT)


EBITDA
(` cr)

The year in summary
FY2018 was a challenging year for our Goa operations, due to a low pricing environment and the cancellation of mining leases by the Supreme Court of India. During the year we successfully revisited our product strategy for high-grade production from Goa to improve realisations, but the full benefit will only accrue if mining resumes. Significant uncertainty over the resumption of mining at Goa under the current leases led to non-cash impairment charge in March 2018. We continue to engage with Government for the potential restart of mining operations at Goa.

At Karnataka we achieved our full permitted allocations of 2.3 mt in FY2018, and with the increase in the mining cap for the state of Karnataka, allocation has increased from 2.3 to 4.5 mt in May 2018.

Safety
With deep regret we reported two fatalities during the year at our Goa operations. These were thoroughly investigated, and learnings are being implemented towards our journey of zero harm. We continue to invest time, effort and resources to make our business and behaviours safer.

Separately, we are pleased to report a further decline in lost time injuries to 0.13 in FY2018 (FY2017: 0.41).

Environment
We recycle all of the wastewater generated at our operations in Goa. They are classified as ‘zero discharge operations’, with the exception of the blow-down of the power plant’s cooling tower, which is treated and discharged according to the consent’s conditions. During the period, waste recycling stood at 117% (FY2017: 90%) due to the additional recycling of waste previously stored at the site.

Operations
Production at Goa stood at 4.9 million tonnes and sales were 5.4 million tonnes during FY2018. However, production and sales were impacted by a low pricing environment. During the year, we revisited our product strategy and produced a higher quality ore through beneficiation and blending to improve our realisations per tonne.

However, on 7 February, the Honourable Supreme Court of India issued a judgement directing that all mining operations in the state of Goa were to cease with effect from March 16, 2018. Pursuant to this order, we halted our mining activities. We have an inventory of 0.9 million tonnes, which will be sold in Q1 FY2019.

At Karnataka, we produced and sold 2.2 million tonnes during FY2018, in line with the allocated environmental clearance (EC) limits. The Honourable Supreme Court has increased the cap on production of iron ore for the state from 30 to 35 million tonnes, and accordingly increase in our allocation for Karnataka from 2.3 to 4.5 million tonnes in May 2018.

During the year, pig iron production was 9% lower y-o-y at 646,000 tonnes. This was due to lower metallurgical coke availability, caused by weather-related supply disruptions in Australia in Q1 FY2018 and a local contractors’ strike in Q2 FY2018.

Prices
Prices for 62% Fe grade averaged US$68.43 per tonne on a CFR basis, which was flat compared to the previous year. The net realisation for our grades at Goa was 33% lower y-o-y, primarily driven by the widening of the discount.

Our Iron Ore business in Karnataka, which primarily caters to the domestic steel industry in the state, saw a 49% increase in net realisations where the prices are discovered through e-auctions.

Financial performance
In FY2018, EBITDA decreased to `460 crore compared with `1,322 crore in FY2017. This was mainly due to lower volume and realisations at Goa, partly offset by higher realisations at Karnataka.

In light of the Supreme Court of India judgement above, the Company has taken an impairment (non-cash item) of `1,726 crore net of taxes (`2,329 crore gross of taxes).

Outlook
The Company continues to explore all legal avenues to secure the reinstatement of mining operations in Goa.

At Karnataka, the production is expected to be 4.5 mt.

Production from Karnataka is expected to be 4.5 mt in FY2019.

Production performance

Financial performance
(` crore, unless stated)

Strategic priorities
Our focus and priorities will be to:

  • enhance environmental clearance limits in Karnataka, and ramp up to full capacity;
  • bring about a resumption of mining operations in Goa through continuous engagement with the Government and the judiciary; and
  • increase our footprint in iron ore by continuing to participate in auctions across the country, including Jharkhand.

Operational review/Copper – India

Government and
community engagement
to restart operations

Note: Mt Lyell mine in Australia is under care and maintenance

Note: Map not to scale

Copper smelting, Tuticorin

FY2018 was the
third successive
year of recordbreaking
output.


P Ramnath
CEO, Sterlite Copper

Production (KT)





EBITDA
(` cr)

The year in summary
The reporting year was another strong one for Copper India, achieving an all-time-high production of copper cathodes. Indeed, this was the third successive year of record-breaking output.

The year also marked the next phase of growth at Copper India with the expansion of the copper smelter capacity from 400 ktpa to 800 ktpa. On completion, this project will rank Tuticorin as one of the world’s largest single-location copper smelting complexes.

Smelting operations at Tuticorin are halted, pending renewal of consent to operate (CTO) and we continue to evaluate our next course of action.

Safety
With deep regret, we recorded a fatality in the course of our operations during the year. As a result, and following an investigation, we instituted changes in operating procedures.

This incident ran counter to a significant underlying improvement in our safety performance. Our lost time injuries fell to 1 (FY2017: 4) and our frequency rate dropped to 0.08 (FY2017: 0.37).

A number of safety initiatives, following a practice of single point accountability, have made a significant contribution to enhancing our safety performance. By using a robotic crawler for measuring the thickness of the storage tanks (thereby eliminating the need for scaffolding), and by using drones to measure the thickness of the stacks, we have achieved the lowest injury frequency rate for five years.

Our progress was recognised when Sterlite Copper-Tuticorin received the British Safety Council’s Five Star Rating and also secured its Sword of Honour recognition. Additionally, implementing ‘bow tie’ software analysis to risk-assess critical activities, and training employees on making better risk decisions, have also contributed to putting our safety performance on a firmer footing.

Environment
During the period, our water recycling rate decreased from 16% to 12% y-o-y. The overall disposal of copper slag and gypsum for sustainable applications stood at 104%, due to the additional use of waste stored previously on the site. Sterlite Copper-Tuticorin received the highest CII-EHS Five Star Rating award for excellence in EHS practices.

Operations
In FY2018, we achieved a record 403,000 tonnes of copper cathode production through in-house technological upgrades and debottlenecking, albeit with a few unplanned outages spread over the year. This represents consistent improvement in operational efficiencies and record production year after year. Our plant achieved average utilisation of 95% throughout the year with overall equipment effectiveness (OEE) of 85%. The installation of bag houses before the scrubbers led to a significant reduction in hazardous cake generation, which also extends the life of the secured land fill (SLF). Further, we continued to remain focused on improving our safety and environmental performance, with encouraging results. During the year, there were zero liquid discharges, and we recorded our lowest-ever lost time injury frequency rate (LTIFR).

The 160 MW power plant at Tuticorin operated at a plant load factor (PLF) of 43% in FY2018, compared with 56% in FY2017. This was mainly the result of a lower offtake due to weaker demand in Southern India. The Group continues to explore viable supply options to enter into a power purchase agreement.

Smelting operations at Tuticorin were halted as part of a planned maintenance shutdown for approximately 15 days, with effect from March 25, 2018. At the same time, we made an application to renew the consent to operate (CTO) for the smelter. However, this was rejected pending further clarifications and the shutdown was therefore extended as we evaluate our next course of action.

Our copper mine in Australia has remained under extended care and maintenance since 2013. However, we continue to evaluate various options for its profitable restart, given the current favourable government support and prices.

Prices
In CY2018, copper LME touched a four-year high of US$7,216 amid global growth in demand. Data from the International Copper Study Group showed that there was deficit of 150,000 tonnes in CY2017, driven mainly by the Chinese property market.

Wood Mackenzie also reported that the world mined production of copper is estimated to have risen by 0.6% to 20.22 million tonnes, while refinery production is estimated to have increased by 1.9% to 23.49 million tonnes, compared to projected demand of 23.47 million tonnes in CY2018.

Average LME copper prices increased by 25% and treatment and refining charges (TC/RCs) were down by 5.3%, compared with FY2017.

TC/RC for CY2018 will be lower at 82/8.2. This would be approximately 11% down y-o-y, mainly due to mine disruptions resulting in a decline in concentrate availability. Global mine supply is expected to grow slowly, but by enough to keep the market in balance. The potential for labour disruption in 2018 was again thrown into focus with the recent (brief) strike action at Escondida and Southern Copper’s mines, as well as violence at Grasberg.

Unit costs
At the Tuticorin smelter, the cost of production increased from US cents 5.0 per lb to US cents 5.7 per lb, mainly due to higher coal and fuel prices, and currency appreciation, but this was partially offset by higher by-product credit. Sulphuric acid realisation was influenced significantly with Abu Dhabi National Oil Company (ADNOC) increasing prices from US$84 per tonne to US$124 per tonne y-o-y.

During the year, EBITDA was ` 1,308 crore, a decrease of 23% on the previous year’s `1,693 crore. The reduction was mainly due to lower TCs/RCs, lower premia, higher cost of production and local currency appreciation, but partially offset by favourable macro factors.

We received the highest CII-EHS Five Star Rating award for excellence in EHS practices.

Production performance

Prices

Unit costs

Financial performance
(` crore, unless stated)

Employees at operational site, Sterlite Copper

Projects
In Q3 FY2018, the Board approved the expansion of the copper smelter at Tuticorin from 400 ktpa to 800 ktpa. All the required statutory approvals have been obtained and we envisage the project being executed on an EPC basis; this includes engineering, procurement, supply, construction, commissioning and demonstration of complete performance guarantees.

In November 2017, we awarded the EPC contract for three packages – the smelter, refinery and sulphuric acid plant. The site mobilisation and civil works began in January 2018. In the case of the oxygen plant, 60% of the major civil foundations had been completed by March 2018, as scheduled. An EPC contract for the phosphoric acid plant has also been awarded and mobilisation will start shortly. Contracts for other packages such as the effluent treatment plant and sewage treatment plant/desalination plant are expected to be awarded by May 2018.

Total capex commitment at March 31, 2018 was US$424 million, against the approved capex of US$717 million. The expansion project is expected to be completed by Q3 FY2020.

Outlook
Production is expected to remain at around 100,000 tonnes per quarter.

Strategic priorities
Our focus and priorities will be to:

  • progress towards expansion to 800 kt production capacity by FY2020;
  • engage with government and relevant authorities to enable the restart of operations at Copper India;
  • sustain operating efficiencies, reducing our cost profile; and
  • continuously upgrade technology to ensure high-quality products and services that sustain market leadership and surpass customer expectations.

Operational review/Aluminium

Ramp-up on track;
Focus on costs

Note: Map not to scale

Jharsuguda smelter and power operations


Samir Cairae
CEO,
Diversified Metals (India)


Abhijit Pati
CEO,
Aluminium Jharsuguda


Vikas Sharma
CEO,
BALCO


Ajay Kumar Dixit
CEO,
Alumina and Power

Production (KT)





EBITDA
(` cr)

FY2018 was a milestone year as we achieved record production of 1.7 mt and exited with a production rate 2 mt as ramp-up at Aluminium nears completion


Samir Cairae
CEO,
Diversified Metals (India)

The year in summary
FY2018 was a milestone year for our Aluminium business, as we achieved record aluminium production of 1.7 million tonnes, with ramp-up at BALCO complete and ramp-up at Jharsuguda nearly complete, despite a pot outage at Jharsuguda I at the beginning of the year. We now have a strong base to target production of 2 million tonnes in FY2019; indeed, our annualised exit run-rate in March 2018 was already broadly equivalent to that figure.

There were headwinds in terms of the cost of production (CoP), primarily due to input commodity inflation and temporary coal shortages in the domestic market. Input commodity prices continue to be volatile. Therefore, as a strategy, we have looked at ways to optimise our controllable costs, while also increasing the price realisation in order to improve profitability in a sustainable way going forward.

We continue to explore the feasibility of expanding our alumina refinery capacity. Our vision is to expand from 2 to 4 million and then up to 6 million tonnes per annum, subject to bauxite availability and regulatory approvals.

Safety
The business faced safety challenges during the year and, with deep regret, we recorded a fatality due to a vehicle accident. After a thorough investigation, the lessons learned were shared for implementation across all our businesses. Lost time injuries rose to 22 (FY2017: 15), and the frequency rate increased to 0.39 compared to 0.32 in the previous year. We do not regard the year’s safety performance as acceptable and are targeting measurable improvements as the result of enhanced safety programmes that we have put in place.

These include equipping site safety leaders with tools for more robust risk analysis, such as ‘bow tie’ software and experience based quantification (EBQ), to help them identify the need for critical controls. We have also delivered specialist skill and competency training in areas such as crane and forklift operation, rigging and rescue.

On a positive note, the Lanjigarh refinery achieved zero-LTIs for the second consecutive year, and we seek replicate its success across the business.

Environment
We recycled 11% of the water we used in FY2018. In Lanjigarh, as part of waste management, a total of 2,226.3 mt of vanadium sludge, and 100% of fly ash and lime grit, has been recycled. Red Mud utilisation for FY2018 stood at 246.3 kt.

In August 2017, a partial collapse of a section of the ash dyke wall at Jharsuguda resulted in the State Pollution Control Board (SPCB) directing temporary closure of five power units in Jharsuguda (3x135 MW, 2x600 MW). Orders to restart three of the power plants were issued on September 20, 2017, followed by an order to restart the remaining two units on November 13, 2017.

Alumina refinery: Lanjigarh
At Lanjigarh, production was flat y-o-y at 1,209,000 tonnes. We had expected to achieve a higher production, but lower bauxite availability from our mines at Chhattisgarh, as well as temporary issues with rail logistics, meant constraints on bauxite supply from other sources. We continue to evaluate the possible Lanjigarh refinery expansion, subject to bauxite availability.

Aluminium smelters
We ended the year with record production of 1.7 million tonnes (including trial run) and exited it with a run-rate of around 2 million tonnes per annum. Production excluding the trial run totalled 1.6 million tonnes.

Jharsuguda I smelter
Production from this smelter was 16% lower y-o-y; this followed a pot outage incident in April 2017 that affected 228 pots of the Jharsuguda I smelter. However, these pots were fully restored by Q3 FY2018.

Jharsuguda II smelter
Jharsuguda II smelter continued its ramp-up during the year. Line 1 was completed during Q3 FY2018. Line 2 was completed in Q4 FY2017, which delivered steady operations throughout the year. At Line 3, 220 pots were powered on as of March 31, 2018, and the full ramp-up was delayed due to infrastructure development works undertaken by the railway authorities for capacity enhancement. It is expected to be fully ramped up by H1 FY2019. We continue to evaluate Line 4.

BALCO I & II smelters
The BALCO I smelter continued to show consistent production, delivering 259,000 tonnes during the year; this comfortably exceeded its rated capacity of 245,000 tonnes.

Ramp-up of the BALCO II smelter was completed in Q1 FY2018 and the plant continues to operate consistently with production of 310,000 tonnes – an increase of 81% y-o-y.

Coal linkages
We continue to focus on ensuring the long-term security of our coal supply, and at competitive prices. We secured 4 mtpa of coal through linkage auctions during FY2018, ending the year with total coal linkage of 10 mtpa.

During the year we experienced temporary disruptions in the domestic coal supply from Coal India. The disruption, both in terms of quality and quantity, resulted in an increase in the cost of captive power.

Prices
Average LME prices for aluminium in FY2018 stood at US$2,046 per tonne, an increase of 21% y-o-y. It also reached a six-year high of US$2,266 per tonne before moderating back towards the end of the year. Prices were driven by the antipollution supply reforms in China, increases in raw material prices and trade tariff announcements by the US.

Unit costs
During FY2018, the cost of alumina production was 16% up y-o-y at US$ 326 per tonne, mainly due to input commodity inflation (principally caustic soda), and currency appreciation.

In FY2018, the total bauxite requirement of about 3.8 million tonnes was met from three sources: captive mines (29%), domestic sources (41%) and imports (30%). In the previous year, the bauxite mix was captive mines (31%), domestic sources (23%) and imports (46%).

The CoP of hot metal at Jharsuguda was US$1,867 per tonne, up from US$1,440 in FY2017. The increase was primarily due to input commodity inflation (imported alumina and carbon), higher power cost and currency appreciation. The power cost was higher due to disruptions in domestic coal supply from Coal India resulting in procurement of coal and power from alternative sources at higher prices. We also incurred one-off costs related to pot outages in April 2017, and temporary power imports as a result of the ash dyke incident.

The cost of production at BALCO increased to US$1,923 per tonne from US$1,506 in FY2017, up 28% y-o-y. This was primarily due to input commodity inflation (imported alumina and carbon), higher power cost due to coal shortages and rupee appreciation.

Financial performance
EBITDA was higher at `2,904 crore (FY2017: `2,306 crore), driven mainly by volume ramp-up and increased LME prices. This was partially offset by the increase in the cost of production.

Outlook
Volume and cost
In FY2019, aided by the full ramp-up of the third line of Jharsuguda II, we anticipate aluminium volume of 2 million tonnes.

As input commodity prices continue to be volatile, we have looked at ways to optimise our controllable costs, while also increasing the price realisation in order to improve profitability in a sustainable way.

Alumina and Bauxite
During FY2019, we expect production of around 1.5-1.6 million tonnes. We are working towards a step change in local bauxite sourcing to feed the alumina refinery. We have entered into a long-term contract with Odisha Mining Corporation (OMC) for supply of bauxite.

We secured 4 mtpa of coal through linkage auctions during FY2018,
ending the year with total coal
linkage of 10 mtpa.

Production performance

(1) Including trial run production of 61.8 kt in FY2018 vs. 95 kt in FY2017
(2) Including trial run production of 16.1 kt in FY2018 vs. 47 kt in FY2017
(3) Jharsuguda 1,800 MW and BALCO 270 MW have been moved from the Power to the Aluminium segment since April 1, 2016.

Prices

Unit costs
(US$ per tonne)

Financial performance
(` crore, unless stated)

Employee transporting aluminium wire rods

Power
In FY2019, we aim to improve the realisations from the 10 mtpa of coal linkages already in place, and increase linkages further. We are also hopeful that the disruption in coal supply experienced in FY2018 will not continue into the next reporting year.

We are also working towards reduction in GCV losses as well as improvement in plant operating parameters which should deliver higher PLFs and reduction in non-coal costs.

Marketing
We are targeting an increase in value-added production in FY2019 to 1.0 million tonnes. We will also be focusing on increasing the domestic and OEM sales further.

Cost of production
We expect a reduction in COP by c.US$120-170/t in FY2019 by optimising controllable costs and through elimination of one-offs. This will imply a COP of US$1,725-1,775/t, assuming costs of imported alumina, coal e-auctions and carbon at average FY2018 levels. We are targeting a medium-term COP target of US$1,500/t with continued focus on sourcing of low cost bauxite, alternate sourcing of alumina, improved plant operating parameters, an increase in linkage coal mix and strategic partnerships with carbon suppliers.

Strategic priorities
Our focus and priorities will be to:

  • achieve steady state production of 2 mt in FY2019;
  • reduce controllable costs in the aluminium business;
  • firm up bauxite sourcing and the supply chain, and diversify imported alumina sourcing;
  • improve coal linkage realisation (10 mtpa) and further increase coal linkage;
  • improve power plant operating parameters and reduction in non-coal cost; and
  • improve realisations through gaining a higher domestic market share, and by increasing our value-added product (VAP).

We expect a reduction in COP by c. US$120-170/t in FY2019 by optimising controllable costs and through elimination of one-offs.

Operational review/Power

3.6 GW of commercial
power generation
capacity

Note: MALCO is under care and maintenance since May 26, 2017

Note: Map not to scale

BALCO power plant

We achieved
consistent
availability of
over 85% at TSPL
post Q1


Ajay Kumar Dixit
CEO, Alumina and Power

Production (KT)
 

EBITDA
(` cr)

The year in summary
FY2018 was an important year for the Talwandi Sabo Power plant (TSPL), where we achieved a consistent availability of over 85% from Q2 onwards. The entire operational and maintenance activities were transferred to a single contractor in order to enhance operational efficiencies.

However, the plant load factors for the Jharsuguda and BALCO IPP were impacted, primarily by domestic coal shortages.

Safety
We recorded one lost time injury during the year (FY2017: 1). The frequency rate of 0.20 compared to 0.25 previously.

Separately, in April 2017, TSPL experienced a fire incident in the conveyor belt of the coal handling plant (CHP). This was due to the spontaneous ignition of coal dust, impacting our operations in Q1 FY2018. Full operation was restored, and is now protected by comprehensive fire detection, protection and suppression systems, complete with dust extraction and dust suppression capabilities.

Environment
One of the main environmental challenges for power plants is the management and recycling of fly ash. We recorded an improvement in our overall waste recycling rate, from 55% in FY2017 to 67% in this reporting year. Water reuse and recycling rates remained broadly consistent at 10% in FY2018, compared to 11% in the previous year.

Operations
TSPL achieved significantly higher power sales in FY2018, due to full operation of the 1,980 MW power plants. However, this was partially offset by the fire incident mentioned above, which resulted in 65 days of shutdown in Q1 FY2018. The power purchase agreement with the Punjab state compensates us based on the availability of the plant. Average availability for the full year was 74%, in line with previous guidance.

The Jharsuguda 600 MW power plant operated at a lower plant load factor (PLF) of 25% in FY2018 (FY2017: 68%), due to disruptions in coal supply in the domestic market.

The 600 MW BALCO IPP operated at a PLF of 44% in FY2018 (FY2017: 58%), due to the temporary coal shortages and weak external power demand.

The MALCO plant has been placed under care and maintenance, effective from May 26, 2017, due to low demand in Southern India.

Unit costs and sales
Average power sales prices, excluding TSPL, remained flat in FY2018 due to continued weaker prices in the open access market.

During the year, the average generation cost was higher at `2.36 per unit (FY2017: `2.10 per unit) due to temporary disruptions in the coal supply.

TSPL’s average sales price was higher at `3.49 per unit compared with `3.27 per unit in FY2017, and power generation cost was higher at `2.54 per unit compared with `2.28 per unit in the previous year, driven mainly by increased coal prices.

Financial performance
EBITDA for the year was 2% higher y-o-y at `1,669 crore. This includes a one-off revenue recognition of `226 crore and `139 crore at BALCO and at Jharsuguda IPP respectively.

Outlook
During FY2019, we will remain focused on increasing the plant availability of TSPL (80%) and achieving higher plant load factors at the BALCO and Jharsuguda IPP.

Strategic priorities
Our focus and priorities will be to:

  • resolve pending legal issues and recover aged power debtors;
  • tie-up for the balance capacity under open access for BALCO;
  • achieve high plant load factors for the Jharsuguda and BALCO IPP; and
  • improve power plant operating parameters to deliver higher PLFs/availability and reduce the non-coal cost.

We recorded an improvement in our overall waste recycling rate, from 55% in FY2017 to 67% in FY2018.

Production performance

Unit sales and costs

(1) Power generation excluding TSPL
(2) TSPL sales realisation and cost of production is considered above based on availability declared during the respective period

Financial performance
(` crore, unless stated)

* Excluding one-offs

Operational Review/Others

Port business
Vizag General Cargo Berth (VGCB)
Vizag General Cargo Berth (VGCB) During FY2018, VGCB operations showed an increase of 31% in discharge and 22% in dispatch compared to FY2017. This was mainly driven by an increase in zonal imports volume in the second half of FY2018. This was partially offset by restrictions in handling road-bound cargo, imposed by a High Court order in April 2017. However, these restrictions were removed in September 2017.