Transcript KCM
Menno Sanderse - Morgan Stanley
Yes good morning everybody. I have a couple, if I may, please. So let’s – the first one is with respect to KCM. It looks like you have started to stabilize the operations, but obviously, the original objective was to get us to 250,000 tonnes to 300,000 tonnes of integrated copper production versus the 135,000 tonnes you expect to do this year. Can you give us a bit more insight into, after you’ve looked at this in more detail now? How long you think it will take to get to that 250,000 tonnes to 300,000 tonnes, and at what cost level you think you can do that?
M.S. Mehta
Kishore would you like to take this?
Kishore Kumar
Yeah thank you. At this stage the entire focus has been on ramping up Konkola that you know it was completed. And as you said the mechanization process of bringing right challenges on the ground and we believe that this is not a job that will happen in just couple of quarters, it is a long journey. And we hope that this turnaround as we speak for Konkola in particular should be at least a year or two in terms of looking at stability of Konkola’s production going from the current levels of 4,000 tonnes to the higher levels. And on the side of Nchanga, obviously the low hanging fruit has been around the Tail Leach Plant and the customs smelting that has focused. And we believe that copper which has been stuck for almost now a more than a year, this year we’ll make an attempt to try and win that through operations. So overall, the journey from the current 130-140 levels of production, we see decline to be gradual and we expect to a rise of over 5% to 10% year on year in the short term.
Menno Sanderse - Morgan Stanley
Okay. Thank you. Secondly on the
Kishore Kumar
In terms of cost levels, sorry in terms of cost levels we firmly believe that we have been trying to hold at the level of $2.20 and the focus of the cost and cash flow continues to be less.
Roger Bell - JP Morgan
Yes good morning, gentlemen. Thanks very much for the call. I just wanted to touch on Copper-Zambia again. You mentioned that you’re moving towards more mechanized processes. Could you in light of that comment, give us a sense of where you expect total headcount to go over the next few years? And whether that has caused any further issues in negotiation with the local authorities etcetera? And then also, you mentioned briefly that you’ve been supporting KCM’s working capital requirements. Could you quantify how much cash Vedanta’s having to put into KCM as we stand today?
M.S. Mehta
Kishore would you take that question mechanization?
Kishore Kumar
Yeah. Sir we are taking mechanization at both the mines which is basically the Konkola mine as well as upper body of the Nchanga and mechanization involves capital equipment and larger phases in terms of mining. As we speak, the fees on any further equipment or any further manpower in addition to the company and all that we are saying with good mechanization scale of economies to come in and training and development, we need to look at the hard productivity over the existing manpower. In terms of our association with the government, we have maintained that there won’t be any layoffs which you have planned earlier and we are pleased to serve to any such at this point in time. And we continue to engage government in addressing the challenges on productivity. As regards the support that required in terms of the mechanization, we are at this point in time bringing technical experts both from Vedanta [ph] Group Companies which is based in Australia. And we are also looking at opportunities to bring in the right quality of asset and networking in mine in terms of mobility as well as managing to crack those operations. So that is as far as the mechanization of KCM goals. Now the second question that you requested was regarding the working capital challenge that we face, because of funds which were held back for reasons of documentation. We have received the support from Vedanta of funding of $65 million till date on the working capital.
Roger Bell - JP Morgan
Okay. Thank you very much. That’s very clear.
M.S. Mehta
Thank you, Roger.
Operator
Thank you. The next question is from the line of Anna Mulholland from Deutsche Bank. Please go ahead.
Anna Mulholland - Deutsche Bank
Sorry just back on KCM, I just wanted to see if you could give us a little bit of color about your cost control plans and successes there. Obviously, as we’ve gone through this calendar year, we’ve seen production guidance being downgraded from around 160 now to about 130. But you’re seeming comfortable that you can keep costs at around the 230 to the pound [ph] level. Can you just give us a little bit of color on how you’re managing to do that? And then just a very quick second question on financial number. You’re talking about a one-time charge on adoption of your fair value methodology of your stock option valuations in oil and gas. Can you just give us what that number was in terms of the impact on EBITDA, please? Thank you.
D.D. Jalan
On the KCM side the cash model was established as part of the organization turnaround effort and that included not only the management of cost, but also cash. So on the cost side, specifically to refer to the opportunity that exists on the ground number one, we have liberated the opportunities of buying and capital items on a synergy basis across Africa now with all our assets in Namibia, South Africa as well as KCM. There has been a significant support in terms of corporate capital whether it is looking at operation or buying sulfurous commodity for our sulfur both at Skorpion and at KCM. We see the opportunity of synergizing the buying has been of a significant support to the business. And as you’ll observe in addition to these supports and purchase, we also ended up shopping very expensive mining operations of [inaudible] where we incurred substantial costs in the previous prior period which has been stocked and we are looking at old mine operations and started to focus on the asset optimization within the open pits. So, overall it is the mix of commercial support from marketing in terms of the byproducts as well as the managing the asset optimization of the ground. So it has been a multi-pronged attack on managing the cost. The second question I guess was
Abhishek Shukla - Société Générale
Second question is on KCM. I know you are trying your best to sort out the operations. I was just wondering have you considered selling that operation to maybe somebody who will be more specialized in those kinds of mines. Any such thought ever crossed your mind? And also what would be your annual CapEx level at KCM over the next few years?
M.S. Mehta
Abhishek on the second question on KCM I don’t think we thought like that having of those assets, because we invested in this, we developed this asset over the last few years only the bark of the conviction that it’s a very high quality asset and can reap very good returns to shareholders. Yes it is true that it is lower than what we anticipated, but it’s not something that we can’t crack it. And as we mentioned as Kishore mentioned earlier he’s augmented the team of underground mining engineers and complete a complement of people. So that’s going to be turning point for him to start getting higher volume from the underground mining operations. As far as CapEx is concerned, there is no large projects which has been approved and right now under implementation at KCM. So there is no number to be mentioned which is worth significance. However, having said that, KCM’s historical CapEx has been above 150 million, 160 million, but it would be more efficient management of operations this number is likely to go down. Kishore would you like to take a guess hit on the number next year or late for the next year few months?
Kishore Kumar
It’s better I think just to add what you said these assets have got well invested over the last may be six or seven years. So at this point in time, we are bringing technical expertise going to recognize the mine and move to the typical modern mine. So that is going to be a support on the CapEx short term of Q3 to five years in terms of ramping up the production and we are expecting the CapEx levels around 125 to 115 levels.