Q4 2016 Results - Earnings Call Transcript
Let's talk a little more specifically about some of the cost initiatives we've taken over the course of the year. We reduced our fuel, our chemicals and repair and maintenance costs by 23%. Given the power crisis in Zambia, we reduced our power consumption by 6% during the year and targeting a total 10% reduction. We're laying out a lot of emphasis on innovation through the Zambian operations and at KCM we're working on an elevated temperature leach project to improve recoveries at the Tailings Leach plant. And the first phase of this project is expected to be complete in this first quarter and we will consider the second phase in the second half. In order to optimize the power costs, we're also installing boiler capacity at our Nchanga refinery which will enable us to ramp up the refinery and reduce its overall energy consumption.
So, moving to the next page, let's talk about regulatory developments in Zambia in a little more detail. The parliament, just yesterday, approved the sliding-scale royalties that are linked to copper prices. On VAT, we're receiving now regular VAT refunds, with effect from March 2015 and we're working closely with the government on the previous receivables. The power crisis had deteriorated in the fourth quarter and the government had increased power tariff by 29% in January of 2016. However, we're beginning to see some improvement in the water levels in the Kariba reservoir. Water levels have increased about 23% in April, from the lows of about 11% in January, although this still remains significantly below last year's levels.
So, talking about outlook, we've always maintained our outlook for long term potential at KCM with 50 years of probable mine life. For FY '17, you can see on the slide, we expect higher production and much lower costs. For the next year, the key focus areas will be the Konkola turnaround, processed stockpiled refractory ores, exploring means for re-mining and re-entering the Nchanga underground profitably at these market levels and maximizing custom smelting production
Vedanta has infused about $100 million in KCM during last year
Yes. Sorry, Tom, did you say [Technical Difficulty]. The increased production at the Konkola mine year on year from 42,000 tonnes to just over 49,000 tonnes. So, that was a 23% increase. And this year, we're looking at a much higher increase which is all backed up by individual projects that need to be -- that are all leading to productivity, in the end, in terms of the cost per tonne of copper. So, that's on the Konkola side. On the Nchanga side, as well as trying to increase the recoveries which are going to be coming through either the [indiscernible] material or the [indiscernible] mined out of the open pits or from the stockpiles, we're looking to increase the recoveries and, therefore, for the same throughput, increase the tonnes of copper.
So the reason [Technical Difficulty] we're not being optimistic there. We will be generating cash flows. Part of it or rather [Technical Difficulty] cost reduction initiatives and we had a very good result during the last year in achieving these sustainably. But I would say about 70% to 80% of the positive cash flows which are going to be coming in FY '17 are going to be purely based on production increases. And those production increases will be mainly driven out of the Konkola increased volumes.
I think on 2018, I think it's fair to say that even with the guidance we're giving for this year, in terms of 2017, that that's not enough for KCM.
We do need to continue to look for improved production out of the Konkola side. I do want to get back in to Nchanga side, but we've got to do it in a more efficient way and more productive way, than we would have been in the past. And I'm quite excited by some of the metallurgical projects that we have in place, that the elevated temperature leach project which will only be kicking in to its second stage in the second half.
And we're looking the heap leaching and other things which I think there's a trajectory for additional sources of production that go beyond 2017. So I think the overall attention that is being put on the business to improve it is certainly to reinforce that meeting what we're targeting for 2017 is nowhere near enough. But, maybe support that, Steven, with more detail.
Steven Din
Yes, sure, Tom. It's a very good question. What we're seeing in the guidance for the C1 cost at $1.50 to $1.70, this is what we're giving in the guidance. We have put some conservativism around the production numbers. And we're running at a much more aggressive rate internally at KCM and we're hoping to either achieve what you're seeing in the guidance or to exceed it. Now, the reason that we do need to exceed it is because there's quite a bit of capital required upfront during the period 2017 and 2018, just to finish off some development at the Konkola mine. So we have got to find that level of capital and eventually the [indiscernible] tonnes which come out of it will reduce the $1.50 that you're seeing to a much lower level.