Due Diligence of Hindustan Zinc

1. Due Diligence of Hindustan Zinc PSU Disinvestment through Stratergic sale

2. Overview of the presentation • Brief Snapshot of Hindustan Zinc Limited (HZL) • Analysis of mines/smelters, assets, employees • Past Financials • Zinc Industry • Investment Perspective • Valuation • Time table for future • Transaction Details • Transaction Documents

3. Brief Snapshot of HZL • Only integrated primary producer of zinc & lead in the country • Accounts for almost 80% of the country’s zinc production • Headquartered in Udaipur • Owns 6 mines (operates 4) and 4 smelters

4. Capacities & Production

5. Financial Highlights

6. Mines & Smelters

7. Mines - Details

8. Global Mining Cost Comparison

9. Smelters - Details

10. Global TC/RC Comparison

11. Employees

12. Employees

13. Employees (as on 1/3/02) – Break-up

14. Other Assets

15. Other Assets

16. Other Assets

17. Past Financials

18. Summary P&L Accounts – Past

19. Summary Balance Sheet - Past

20. Cashflow Statement - Past

21. Key Ratios

22. Realisations – 2000-01

23. Realisations – 31.12.2001

24. Unit-wise Profitability

25. Unit-wise Profitability Production of RD & Zawar mines can be substituted by increasing RA production from 18 lakh tonnes to 23 lakh tonnes

26. Zinc Industry

27. Major World Capacities – Refined Zinc

28. Consumption Pattern

29. Current Global Scenario • USA is the single largest consumer of Zinc ( 1.6 mn. tonnes) • Europe is the single largest continent which consumes Zinc ( 2.3 mn. tonnes) • World Production has grown by 6.4% in 2000 and 2.4% (in 2001) • World Zinc Consumption which grew by 6.3% in 2000 has reduced by 1.1% in 2001 • Zinc prices continue to slide. In real terms, the lowest level since the early 1940s

30. LME Price Progression - Zn

31. LME Prices (Current Levels) • Cash = $ 813 / MT • 18 mth Forward = $ 883 / MT • 27 mth Forward = $ 913 / MT

32. Current Indian Scenario • Zinc consumption in India higher compared to production • 70% met internally, rest imported • Lower per capita consumption implies potential for growth (0.24 kg compared to 0.8 kg in Brazil and 4 kg in USA) • HZL & Binani Zinc, the only domestic producers, with HZL being around 6 times the size of Binani

33. Zinc - Production in India

34. Expected Global Scenario • Demand for Zinc is expected to remain stagnant • LME price to remain depressed in the short-term due to surplus production and stocks • Future Outlook bright Source: Barclays Capital

35. Expected Indian Scenario • Indian Zinc demand expected to remain in line with the economy though in the future it is expected to increase due to infrastructural projects taking shape. • Supply-demand scenario unlikely to affect production unless domestic prices continue to fall, in line with LME price

36. Overall Assessment of Investment

37. Investment Perspective • Strengths • Track record of profit making • Ore grade in Rajpura Dariba and Rampura Agucha mines fairly high compared to grades available internationally • The Company has sites where preliminary exploration work has commenced and indicates quality reserves • The Rampura Agucha mine has substantial reserves of high quality and the cost of mining is also low • Debt-free company

38. Investment Perspective • Strengths • Has net working capital exceeding Rs. 4000 mn. • Assets are available when Zinc LME at historical low • Reasonably professional management with fair commercial orientation • Conservative accounting practices maintained • Unforeseen liability unlikely – write-backs possible • Huge other properties in terms of offices, residential premises/housing colonies • The staff members have not exhibited any overt signs of hostility towards the process of privatisation

39. Investment Perspective • Concern Areas • Zinc industry highly dependent on steel industry • Demand forecast for Zn not encouraging • Scattered locations of mines and smelters • Analysis of cost structures reveals that only RA mine is viable at current LME levels • Profitability of the company sensitive to changes in import duty structure (reduction) or fall in world prices • Quality of rock at the RD mine • The availability of water in Rajasthan dependenton annual rainfall.

40. Investment Perspective • Concern Areas • Power costs are high • Salaries and wages is a large component of the total costs • Sargipalli and Maton mines are being closed. The non-VRS costs of the closure, if any, would need to be examined in detail. Agnigundala mine and Tundoo smelter are also in the process of being closed. The closure costs of these have to be examined. • Company produces significant amount of PW grade zinc which has low demand and lower margins • Company’s equity base is very high

41. Assumptions Underlying Future Projections and Valuation

42. Assumptions • Production – Based on capacity • Pricing • LME-based, landed cost • Insurance & Freight etc is assumed at USD 30/t • Import Duty Structure as below • Clearance and domestic costs have been assumed at Rs. 1500/t • CVD and SADD assumed at flat 16% and 4% respectively in the calculation of effective duty • INR to depreciate at 5% p.a. against the USD

43. Assumptions • Costs – Projections based on historical reference. Reductions assumed where applicable • Interest at 11% p.a. in case of any loan in future • Balance Sheet items linked to P&L, Actuals or Levels of previous year as appropriate • Projections over a 7-year period with cash flows to perpetuity from the 8th year at 2% growth rate

44. Valuation

45. Valuation • Book Value • Discounted Cash Flows • Comparable multiples • Market Price • Other qualitative factors • Intangibles • Contingent and hidden liabilities

46. DCF Valuation • DCF Valuation Parameters • Risk free rate = 8.00% • Market rate of return = 14.39% • Stock Beta = 1.2 (or 120%) • Growth rate to perpetuity = 2.00% • Cost of Equity = 15.67%

47. Transaction Details

48. Shareholding on offer • GoI disinvestment in HZL – 26% • Open offer to be made subsequent to acquisition of GoI stake – Minimum 20% • Buyer’s Call Option: 6 months from Closing Date for a period of 1 year - Upto 18.92% • GoI’s Put Option: 30 months from Closing Date for a period of 1 year – Upto GoI stake of 26% • Buyer’s Second Call Option: 5 years from Closing Date – All remaining GoI shares

49. Share Purchase Agreement • Non-disposal Undertaking of 3 years • Lock-in of shares for 3 years • Subsequent to successful bid, Open Offer for a minimum of 20% stake mandatory • Buyer’s Call Option - 6 months after closing date upto 18 months (Upto 18.92%). {at higher of Bid Price or Market Value} • GoI’s Put Option - 30 months after closing date upto 42 months (GOI retaining stake of 26 % to 31%). {at the higher of Bid Price or Market Value}

50. Critical clauses in the Agreements… • SP Second Call Option – 5 years after closing date – all remaining shares of GoI {Fair Market Value as determined by independent valuer} • “Right of First Refusal” continues between SP & GoI for 18 months from closing date • No Tag-along or Drag-along clause • Post Closing adjustment removed. (Existing in BALCO) • GoI’s right to inspect accounts removed