Boliden AB

STO:BOL

Earnings Call Transcript 2019-Q1

[Olof Grenmark, Director Investor Relations]

Ladies and gentlemen, I'd like to welcome you to Boliden's Q1 2019 Results Presentation. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have a results presentation led by our President and CEO, Mikael Staffas, and also our CFO, Håkan Gabrielsson. Mikael, the stage is yours. Welcome.

[Mikael Staffas, President & CEO]

Thank you, Olof, and pleasure seeing you all this morning. We are today not in Stockholm as we usually are, but we are in Boliden. We are here today because we will have our annual meeting here later this afternoon. And I'm right now in what is our new core archive. We have built a big new core archive to be able to handle our cores better and to be able to continue the exploration that we've done before. This is right now an empty building. And in this empty building, we have built up a stage to have our AGM in and also a very nice exhibition. And this exhibition's been built up as part also of our continuous cooperation with the local society. And we have had over 3,000 people visiting us here during the last week as we've been preparing for this day today which will be the final day of our event week. So I'm very happy to be here, I'm very happy to talk to all of you. Now let's see if we can get this one going as well. You've seen the numbers, you've seen them coming out. We had a, what I would consider a, good quarter. We've been producing according to plan. We have lower grades in our comparison, but that's nothing new, we've told you all that beforehand that that was going to happen. We have a negative free cash flow, and Håkan will talk more about the details. I'm personally not too worried about that. We do have a working capital situation that goes up and down over quarters, and we should not worry too much about that. We are in a business where working capital is extremely liquid if there were to ever become a problem. So the tie up in working capital is not something that we are overly concerned with. Then we do have high investment, but that is also totally in line with the plans, as we have communicated to you beforehand. If we look into the markets, this is of course something that's been prepared, and looking over what happened in Q1, it's of course an interesting day today as we've seen the copper price and other metal prices go down significantly over the last 2 or 3 days. But even without that, we can say looking at Q1 that we did have a slowdown in industrial production. We didn't see it in prices during the quarter. We actually saw that copper and nickel demand was quite stable and zinc also stable even if it was not growing during the quarter. And the metal prices were up compared to Q4. So, so far we didn't see any kind of signs of any slowdown.In the concentrate market, what has really been the news is the change that we've seen in the zinc market, where zinc concentrates have become readily available. For us who own a smelter, this is very good. We've seen the new benchmark coming out with significantly higher TCs than historically.What happens in a quarter like this, and then Håkan Will take you through the numbers, is that for us, the higher TCs are an immediate negative impact on our mines, but the positive impact on the Smelters is a little bit slower because the way that we work through the inventories and the Smelters, and we're still during Q1, we've treated quite a lot of concentrates that would have the terms and conditions as of Q4. The concentrate market for copper has been quite stable, you can say. The TCs are slightly down but it's a relatively good situation anyway.As we said, looking at the metal prices, they were up during the quarter, and they were at quite healthy levels both for copper and especially for zinc. Nickel prices still in our mind a little bit too low, but hanging on pretty well and doing an improvement in the quarter.If you look at precious metals, they've also been holding up pretty well, especially on the gold side. Silver is down a little bit, and so is lead. When we look at where we are, and I'm coming back a little bit to how we look at our price levels in general, you can see here that both zinc and copper for the quarter were pretty significantly above the cost curves, which is always, of course, an indicator that there is a downside risk in case something were to happen. Whereas nickel is right down in the cost curve. We see a very low downside potential in the nickel price, rather an upside potential.When we look at this altogether and also mix in the exchange rates that we have, you can see here that we've had probably one of the best quarters ever in -- and we're -- on this index that we have combined at around 140, which is a very healthy level for us, and of course, we are helped by the exchange rates that have been helping us through the quarter and the increased metal prices of such. If we then go and were to look into how the operations have done and look into Mines first, what we have said already is that the grades are down. This should be no news to anybody, we have been guiding pretty clear that, that were to happen and expected to happen, and now it happened in Aitik, it happened in Tara and it happened in Kevitsa, so they happened in 3 of our big mines. However, we've been good at production. Production throughput is in general at a good level. At Garpenberg you put a record with the highest throughput ever and the Tara production stability has increased from previous quarters. And if you look at that, what that spells into, you can see on this one pretty clear that the throughput levels, especially in zinc but also I would say in copper are pretty good. In nickel, they were a little bit down because in Kevitsa we've had some issues in keeping the throughput on a level that we would like to have. But in total, you can also see the metals are not doing quite as well because of the lower grades as had been well guided for.If we go to the Smelters, which is probably the very nice thing to talk about this quarters, as our Smelters have had a quite a good run. The prices and terms have been helping and this is despite the fact that the full TC effect of zinc has not come through yet. We've had stable production, we didn't have any big maintenance stops in the quarter. And thus, we've been having good results going through altogether, and thus also seen a good result. If you look at in terms of production, yes, you can see that copper is slightly down compared to previous quarter but very much in line with the typical Q1 as of last year. And zinc, you can see has quite strong throughput, especially on the feed side but also metal production has been quite stable there. And in terms of nickel, and nickel in matte, we had a record production in Harjavalta, which is also of course helping us as that is a quite strong market as of right now.If we look into the financials, I'd like to invite you, Håkan, and you'll take us through that.

[Håkan Gabrielsson, Chief Financial Officer]

Thank you, Mikael. Good morning. So as you've seen, we reported an EBIT, excluding process inventories, of just above SEK 2 billion. It is a good number. And it's the third consecutive quarter that we are roughly at that level.Just going to get the slide as well. CapEx is SEK 1.6 billion. We repeat the guidance of close to SEK 8 billion for the full year and this number is in line with the guidance and the key projects are on track. Free cash flow is negative, minus SEK 300 million, I'll come back to that in a minute.And net debt-to-equity is stable at 6%. Looking then at the profit comparing Q1 to Q1 of last year. We had SEK 676 million lower profit and the main reason for that is grades. You can see here on this slide just above SEK 500 million negative volume impact. The impact of grades is actually higher than that, it's roughly SEK 900 million and then it's compensated by good throughput in the mining side. Prices and terms is a fairly limited impact. We can see the negative correlation here with the stronger dollar compensating for the lower metal prices. And as Mikael indicated, the impact of new zinc TCs, new stronger zinc TCs is very limited in this quarter as the smelting division has mainly been producing out of inventories that were sourced to last year's levels.Cost is up SEK 205 million in constant currencies. Going back 1 year, we have had a fairly high inflation as we've been talking about in earlier quarters, in energy and in consumables.So I think those were the main components of the change Q1 to Q1.Moving over to a sequential comparison, Q1 to Q4. As you can see, most numbers here are -- the deviations are smaller. It's a slightly stronger result. Volumes are down again due to grades compensated by good mill production and higher free metals in Smelters.Prices and terms helped a lot sequentially, SEK 322 million up. And in this quarter, we saw both metal prices and currencies moving in the same direction, strengthening the result. And again, the impact from new TCs is fairly limited.Depreciation is also higher than Q4, and are mining in capital-intensive areas and this is done primarily stripping in our open pit mines. And this number is representative of what you'll see during this year. We'll have a slightly higher depreciation level.Moving then over to cash flow, which is down compared to last year. We've talked about the earnings with lower grades being slightly down compared to -- or being down compared to Q1 of last year. The CapEx is well known, it's in line with what we've been guiding for. And for those of you that has been following us a while, you know that our working capital from time to time varies quite a lot. In this quarter, we're down SEK 1.5 billion compared to the end of Q4. The main part of that is inventories. The inventory variations is a regular part in our business, and I think the main thing is the timing of deliveries of concentrates. The value of 1 individual shipload can be up to a few hundred million SEK and of course the timing of when we get those shipments around quarter end has a big impact.Last quarter presentations, we talked about inventory levels being very low. We've now increased them to a more normal level and that has had a negative impact on working capital.Additionally, we have been building a slight -- some stock, quite small number in Harjavalta ahead of the upcoming maintenance shutdown. And we also have a smaller negative impact of the increased prices and currencies on the working capital. But again, this is something that if you've followed us a while, you see that it can swing between quarters and Q1 is typically a fairly weak quarter in cash flow. So we're not concerned about that. Concluding then by looking at the balance sheet, the capital structure and the financing. It's a stable and strong balance sheet. We're at 6% gearing. We have a strong payment capacity of close to SEK 10 billion. And we still have a competitive financing with a good interest rate of 1.3%. So we feel that we're in good shape.So Mikael, some concluding remarks?

[Mikael Staffas, President & CEO]

Thank you, Håkan. Maybe I should also point out regarding this slide that you just showed that what has also happened after the end of the quarter is that we have prolonged our main facilities with an extra year, as you can read in the report and thus if you were look at the day to day, we have even better duration of our average facilities.Going forward, this is going to be very much repeating what we've said before. We have no new guidance at all. Aitik will have lower, yet lower grades than what we saw in Q1 for the coming quarters, there's nothing new around that. And the 45 million tonnes guiding for next year is still in place. In Garpenberg, we have no change either in guidance regarding grades or in guidance regarding the volume for next year. And in Kevitsa, it's also no change from what we said last quarter. We will have a tough year this year where we will have low grades, even substantially lower than the average for the reserve. But we're still guiding for 2021 or end of 2020 at the pace of 9.5 million tonnes. But for 2021, the first full year of 9.5 million pace.We do have something new, which is a negative information for those of you who have not followed the Swedish internal domestic politics. There is now a proposal to change the diesel tax for mining, that's in the new budget. It is, of course not a done deal in terms of done deal, but it's very likely to go through. That will have an annual impact on us of around SEK 120 million per year, out of which SEK 100 million is in Aitik and the SEK 20 million is for the rest of the business. That would come into effect as of August 1, so of course we wouldn't have the full effect for this year, but it will be a full annualized effect coming right away. The maintenance stops are still very large for this year as has already been guided before, and we'll see a big chunk of that already now in Q2. But we have no change in the guidance.And the same thing regarding CapEx, we still stand with the guidance for the full year of SEK 8 million (sic) [ SEK 8 billion ].I'd like to summarize, and you will recognize this slide from many times, but I think it's worth repeating. We feel that we're well positioned in this market. We have Mines and Smelters. We know that that's a strength when it comes to financial stability as the price and terms do not vary absolutely the same way. We do have base metals and precious metals where we have not streamed away any of the precious metals, they also tend to be weakly correlated and helps us to get us get stability.We do have a high productivity, and we have a stable production as we've proven now again in the quarter that we've had.We have a high profile corporate responsibility. That's also nothing new. We have a long life-of-mine of our key mines. And we are in stable jurisdictions. We have a strong balance sheet even despite the fact that we are going to have a sizable or most likely, I should say, as the AGM has not happened yet, most likely we'll have a sizable dividend and share redemption program going. We still have a strong balance sheet despite that. And we'll have several growth opportunities that we are working very systematically through. And you know about them that we're in the midst of coming through our expansions in our key mines. And we are still also working, even though we don't have any specific news right now, on the potential new projects that we have regarding Tara Deep, regarding cobalt in Kylylahti. And generally we are keeping exploration going, that's also something that we don't talk too much about, but we're keeping a good pace and a good progress in our exploration program. With that, I will give the floor open to maybe to you first, Olof, who will now monitor our question-and-answer session.

[Olof Grenmark, Director Investor Relations]

Yes, please. Ladies and gentlemen, that opens up our Q1 2019 Q&A session. So operator, could you please go ahead with our questions, please?

[Operator]

[Operator Instructions] So the first question is from Krishan Agarwal from Citigroup.

[Krishan M. Agarwal, Analyst]

I have 3 questions, if I may. You mentioned that there is a limited impact from the higher zinc TC settlement in the first quarter, so I was wondering if you can give us an idea as in how much of the volumes you have on the spot TC basis for the zinc? And then how much of the impact we should build in the model in the second quarter as in the cumulative for the first 6 months or just second quarter? That's my first question.

[Mikael Staffas, President & CEO]

Do you want to take that?

[Håkan Gabrielsson, Chief Financial Officer]

So in the mining division, there's a full impact from day 1. In the smelting division we have produced roughly 2/3rd of the production out of concentrates that was acquired 2018 to 2018 levels. So the last third and then going forward, we will see the 2019 benchmarks. It's not a significant part spot, but we have a strategy that we have -- I mean basically most of the production is in long-term contracts and about 10% is the spot and that is stable through these quarters.

[Krishan M. Agarwal, Analyst]

Okay. Quite clear. Second question is on the operating expenses. If I look at the number for both the mines and the Smelting Unit, the year-on-year increase is running at close to 8%. Can you please give us a little bit of color as in is it the kind of the cost inflation running high? Or how should we see these operating expenses going forward in the rest of the 2019?

[Håkan Gabrielsson, Chief Financial Officer]

If you compare Q1 to Q1, in the earlier part of 2018, we had a quite significant inflation in energy, in consumables, and so on that we've been reporting quarter -- at the quarter. And in the comparison Q1 to Q1, you still have that fairly big number. We talked about an overall inflation of about 6%. On top of that, in this quarter, we have a slightly higher cost in our Rönnskär smelter due to higher consumption of chemicals and higher energy, and that's related to an -- it's an issue that will be sorted out in the upcoming maintenance stop. But the main part is the inflation that we saw in the beginning of last year. And again, if you look sequentially to Q4, the inflation has come down significantly, so we see a much more normalized level there now.

[Krishan M. Agarwal, Analyst]

Okay. And finally, I'm in working capital. So second quarter is seasonally that quarter where you see no reversal of the working capital as in the release of the working capital? Do we expect a higher magnitude of release in this quarter, in the second quarter '19, given that we had higher outflow in the first quarter?

[Håkan Gabrielsson, Chief Financial Officer]

I didn't quite hear the question but I'll answer what I think I heard. So please come back if you don't get the right answer. We have significant variations in working capital. And typically towards year-end, we finalize the year or we end the year at quite low inventory levels and this was no exception. This was very low inventory levels at the end of the year. We've increased that to more or less normal levels at this point in time, and thus the negative impact on working capital. So the main part of the change is more a normalization compared to the end of the year. However, there is a small part that is a buildup in relation to maintenance stops that will happen in Q2. And that, of course, will swing back. But it's -- there is no sort of structural change in that we're tying capital, increasing the inventories overall or having longer payment terms or something like that, so it's purely stock balances at the end of the quarter that is the issue here.

[Operator]

And next question is from Alain Gabriel from Morgan Stanley.

[Alain Gabriel, Equity Analyst]

Just one question from my side is on the management changes in Smelting. Clearly, you will have a new incoming management team in the smelting business. What are the priorities and what is the mandate of the new management team? Is it more pro-growth? Is it more focused on the operations and stabilize it or consolidate it where it is? And what are the qualities that you look for in the new management team of the smelting division?

[Mikael Staffas, President & CEO]

Yes, I can take that one. As you all know, last week, we went out that Kerstin Konradsson will leave this summer, that's of course a basis on discussions around lot of things, including the fact that she's been around for quite some time, and we were looking maybe for making sure that we have now somebody that can start on a new way of doing things. Now is there going to be a very focus on something very different? No, I mean we are a conservative company, do basically the same thing. So the product -- I said product, sorry about that, so the person spec for the person we're looking for, and we don't have a person yet, is quite similar, somebody who is very good at operations, who can make sure that we continue the good operation, very good at developing brownfield projects so that we can extract value out of existing operations, somebody who has a good strategic vision who can handle the changes that we will see in the markets going forward. But that's no big change from what it used to be.

[Operator]

The next question is from Liam Fitzpatrick from Deutsche Bank.

[Liam Fitzpatrick, Head of European Metals and Mining]

Three questions from myself. Firstly, just on Garpenberg, it is a very strong quarter in terms of throughput. Just interested to know whether you think that level would be sustainable through the rest of this year. Secondly, I just wanted to come back to working capital. What we saw last year was a seasonal build in Q1 and then the entire amount unwound through the rest of the year. Based on your comments earlier, I mean is that what we should expect? Or is there an element of the build that we've seen in Q1 that won't fully unwind through the rest of the year? And then finally, just on the CapEx, can you remind us how much is non-SEK-based and what the underlying SEK assumption is in your SEK 8 billion guidance.

[Mikael Staffas, President & CEO]

Let me start with the first one and I'll let Håkan take 2 next ones. Regarding Garpenberg, yes it's a very strong production and we had a very, in that sense, a good quarter with basically very low maintenance stops. Regarding levels, we haven't really guided for this year, so you'll all have to make your best efforts on that, but maybe we're not quite ready for the levels that we've seen there quite yet. Some of the investments are coming through during the year. But regarding what's important for you, what will happen in 2020 and going forward, the guidance on SEK 3 million is still standing. And then I'll leave it to you for the other 2 ones.

[Håkan Gabrielsson, Chief Financial Officer]

Working capital, it's not unrealistic to expect a similar development as last year with the difference that stock levels at the end of the year were lower at the end of '18 than at the end of '17. They were at a very low level in the end of December. So maybe the effect will be slightly smaller. When it comes to CapEx and currencies, the exchange rate is based on the time when we announced the deals over Q3 last year. And then it's roughly or slightly below 50% euro based or 50% non-SEK based.

[Liam Fitzpatrick, Head of European Metals and Mining]

Okay. So just to clarify it was based on a SEK assumption of around 9 to the dollar, is that right?

[Håkan Gabrielsson, Chief Financial Officer]

Yes, although I mean in this case I think it was the euro rate that was perhaps more interesting.

[Operator]

And next question is from Luke Nelson from JPMorgan.

[Luke Nelson, Research Analyst]

Just the sense for you to group level pieces, which you provide. Does the Q2 run rate you've given -- I'm sorry that Q1 run rate you've given reflect the lag between mines versus smelting contracts? And more generally, I know it's a small but do the sensitive or should we adjust the sensitivities for the impact from the diesel tax or are they already reflected in that? And then secondly, just a more general strategic question. Some estimates that European smelting peer obviously going through restructuring at the moment. How do you see that progressing? And is there any potential for you to participate in any way if assets were to become available?

[Mikael Staffas, President & CEO]

Well, I can start with the second one. Of course, we cannot really comment what happens to our dear friends in the market. I think they will answer for that for themselves. We don't really know. The second part of your question, what if opportunities were to arise, would we be ready to look at them? Yes, we're ready to look at them. We'll see if there are any opportunities that will arise. Regarding the first one, I'll give it back to you Håkan.

[Håkan Gabrielsson, Chief Financial Officer]

The sensitivity analysis, it reflects, I mean, the current run rates. But the diesel -- the impact of diesel is not included in the sensitivities yet.

[Operator]

And next question is from Daniel Major from UBS.

[Daniel Edward Major, Director and Analyst]

Two questions. Firstly, on the grade profile. Clearly quite strong grades across a number of assets in Q1. Firstly, can you clarify whether the grade guidance of 0.25 is for the remainder of the year or average for the year, i.e., would you expect grades to dip below the 0.25 at some point during the rest of the year? And secondly, you don't provide guidance explicitly for the other assets, unless I've got that wrong. I mean would you expect to normalize towards reserve grades at Garpenberg this year in zinc? Or are we going to remain above that around the 4 level that you previously guided? And then Kevitsa, you noted you expect grades to go below reserve. Is that an average for the year this year? Or just dip below at some point?

[Mikael Staffas, President & CEO]

Thank you for the questions. Let me just step back one stage and say when do we guide and what kind of precision do we have in guiding for grades. Because that's not an easy one. Just to be clear, we have a plus/minus 10% precision in terms of looking at grades because it's not that easy when you're looking at a relatively short-term.So then comes the question how should you look at Aitik given that we were a little bit above 0.25 for Q1? Should you correct that and do the rest of the year a little bit lower? Well, it's still within the plus/minus 10% if you take the average that the fact that we were a little bit higher in Q1. So you shouldn't really change it and it's kind of within the margin of error. But answering the other part of your question is, yes, you can expect that maybe at some stage during this year you will see below 0.25 as well. And that is perfectly plausible.And regarding the other ones, Kevitsa, there the answer is that we have guided that we're going to be below -- that we will be below reserve grades. What does that mean then? Well, it's at least 10% below otherwise we wouldn't have said anything because it would have been within the kind of normal margin of error. That is something that we will expect throughout the year. We are in that transition between pushbacks number 3 and 4 when you get into relatively weak areas. So the pushback number 4 that doesn't -- that has low grades and this is going to take until the end of this year to get through that.And then you asked about Garpenberg and the Garpenberg is a little bit different. There we have guided for this year at 4%. We have not yet guided for next year, but with an underground mine, especially one with such a long life-of-mine as Garpenberg, it is not to be expected that we will go directly back to reserve grades. We will have some sort of decline around that because, of course, we're trying to get to better grades first. And in an underground mine you can have a little bit better look at that. So if I were to guide for anything on grades, which we haven't really done yet, we'll do that once we know more. But anything, you should not expect it to fall as drastically as down to 3.1, 3.2 quickly, but there is of course going to be a direction towards reserve grades.

[Daniel Edward Major, Director and Analyst]

Okay. And just second question on the diesel tax. You said it is proposed, are we assuming that this is almost a certainty that it's coming in? Or is there any reason why it wouldn't be introduced?

[Mikael Staffas, President & CEO]

I mean if you read the Swedish newspapers, I think you will come to the conclusion that this is very high certainty that it will happen. But we have -- we do have a relatively, what you'd call, an interesting political situation in Sweden and the budget is not going to be a done-deal until it's a done-deal. But it's clearly looking like this will be included.

[Operator]

Next question is from Oskar Lindstrom from Danske Bank.

[Oskar Lindstrom, Senior Analyst]

I have one question remaining here and it's about the inflation side. You mentioned some cost inflation in Rönnskär that would be fixed sort of in the upcoming maintenance stop. What has been the size of this negative impact? And should we expect that to sort of reverse then in Q2 or Q3?

[Håkan Gabrielsson, Chief Financial Officer]

What I said was if you look at Q1 compared to the Q1 of last year, the vast majority is the inflation that we've been talking about, a general inflation in energy, in consumers and so on. We talked about an overall inflation rate of about 6% comparing to Q1 of last year. In addition, there is a minor part that is related to Rönnskär, which has a slightly higher consumption, not inflation, consumption of consumables right now, and that will be corrected in the maintenance stop. So -- but that's a small part.

[Mikael Staffas, President & CEO]

Which indicates that Rönnskär is actually Q3.

[Håkan Gabrielsson, Chief Financial Officer]

Yes, but that's a small part. The main thing Q1 on Q1 is the inflation we've been talking about over the last quarters.

[Oskar Lindstrom, Senior Analyst]

And just to ask again. That inflation, the sort of energy and consumables, has that slowed or stopped? Or how should we view that? It's a bit difficult to understand it.

[Håkan Gabrielsson, Chief Financial Officer]

It has slowed down. As long as we're looking at comparisons a year back, you will still have it in the numbers. But looking comparing to Q4, we do not see any un-normal inflation, it's fairly stable at this time.

[Oskar Lindstrom, Senior Analyst]

So we should expect that it's sort of underlying cost inflation is 1% to 2% or?

[Håkan Gabrielsson, Chief Financial Officer]

Yes.

[Operator]

Next question is from Johannes Grunselius from Handelsbanken.

[Johannes Grunselius, Research Analyst]

I have 2 questions. First one is back to the higher TCs for zinc, and you were very clear that they had a negative impact on the mining division here in Q1. Is it possible for you to sort of give any quantification on this impact? And then how should we see this effect more for the full year or running 12 -- next running 12 months? We have the sensitivity tables, which is very helpful, but what should we think about the magnitude in higher TCs? Is the global benchmark a good proxy here? What would you suggest?

[Mikael Staffas, President & CEO]

Yes, I can yes, the global benchmark is a very good proxy we use to benchmark for our internal trade, which is the majority of our zinc sales from the mine division goes internally, and we use benchmark.

[Johannes Grunselius, Research Analyst]

Okay. And the first part of the question here, what sort of negative impact did you see from the mining side everything else equal?

[Håkan Gabrielsson, Chief Financial Officer]

I think you have it in the report, the negative impact that we see in each comparison period in mines. But the sensitivities are valid on a 12-month basis. It's just that this transition that we get to the impact at slightly different speeds in the 2 divisions in Q1.

[Johannes Grunselius, Research Analyst]

Yes, but in the comparison quarter-over-quarter or year-over-year, that's for the full group. I'm sort of after the isolated impact on the mining division on how you're seeing TCs.?

[Håkan Gabrielsson, Chief Financial Officer]

Okay. So if you look at the EBIT bridge that we do for mines, you will see that we have a negative impact compared to Q1 of last year of SEK 77 million. That is, of course, across all metals, but you've got the numbers in there.

[Johannes Grunselius, Research Analyst]

Okay. Yes, I see it now.

[Mikael Staffas, President & CEO]

It is zinc that is varying, copper is very stable.

[Johannes Grunselius, Research Analyst]

Yes, okay. That's very helpful. And then I also have a question on Aitik and how the new crusher is progressing. Looks to be very good given the volumes you are presenting. But how should we think about the unit cost here? What you have seen in Q1 and more on a 12-month rolling basis? Is the unit cost coming down here in Aitik so it has a material impact also on the mining division? Or can you elaborate on that one, please.

[Mikael Staffas, President & CEO]

It will be difficult to elaborate that in detail. I can answer first that the crusher is working fine. We don't see that the crusher is now a capacity limitation. Now we have moved the bottleneck to other places in the production chain, in Aitik we foresee the point. Then it's a question what will happen to maintenance costs around this unit cost, and let us come back to that over time as we're getting some more stability around that situation. But of course, this should help downwards, the question is by how much.

[Operator]

Next question is from Ola Soedermark from Kepler Cheuvreux.

[Ola Soedermark, Equity Research Analyst]

Yes, sorry for coming back to questions about the working capital. You're indicating that you're going to release some over the coming quarters. Is it possible to quantify how much working capital you're going to release if you assume stable prices on a normal level?

[Håkan Gabrielsson, Chief Financial Officer]

Okay. Just to put -- try to put some numbers to it. If you take the full amount of roughly SEK 1.5 billion negative in the quarter, out of that, I would describe 50% as normal variations in the inventory levels and timing of deliveries, and so on. The starting point at the end of the quarter was very low inventory levels, and we're not necessarily wanting to go to back to that because that was on the border to create some production issues. We managed to get through that position. So we've normalized the inventory level. I mean from time to time, we'll be lower. But anyway that's one part. The second half of the increase is related to roughly equal part, one, being stronger metal prices and stronger currencies that lifts the value of working capital and the other part, an inventory buildup ahead of the maintenance stop. But of course, that will be reversed, for sure.

[Ola Soedermark, Equity Research Analyst]

Okay. Very helpful. And you're writing in the report that you have signed a new agreement with the miners at Tara. And Tara was well above 600,000 tonnes in this quarter, it was actually for quite a while it seems you had kind of normalized production. Can we expect to be above 600,000 tonnes throughput at Tara coming quarters as well if it's a good situation now with the workers at Tara?

[Mikael Staffas, President & CEO]

We do have a collective-bargaining agreement that we're very happy with that, I think also that our counterparts are happy with it. We've seen improvement in the working relationships there, which have been quite good and you see the results. We don't really guide anything more than that, but we're quite pleased with the level that we had in Q1.

[Operator]

Next question is from Amos Fletcher from Barclays.

[Amos Charles Fletcher, Director]

Coming back to the question on zinc TCs. If we look at the EBIT bridge for the smelting business, there was SEK 140 million uplift against Q4 from treatment charges. Can you answer how much of that was done to the new zinc contracts and is it reasonable to assume that we get roughly double that benefit Q-on-Q in the second quarter given you are saying that 1/3 of the volumes are priced from the new contract in the first quarter?

[Håkan Gabrielsson, Chief Financial Officer]

Let's see, just going to find the numbers here. But 2/3 -- I mean the main part of the change is in TCs compared -- to the comparisons is zinc TCs. We were actually a bit lower on copper but that is in relation fairly small amounts. So the main part of what you see in the bridge is zinc. And we've taken 1/3 so far. So you could expect 2/3 additional going forward. But do look at the sensitivities as well.

[Amos Charles Fletcher, Director]

Okay. And then just a follow-up. I guess with respect to energy costs, you're saying inflation from energy is slowing down a bit, but the oil price is up quite meaningfully year to date. Should we expect acceleration in inflation rates as we go forward through the year?

[Håkan Gabrielsson, Chief Financial Officer]

It's difficult to predict actually the inflation in oil, energy, chemicals, and so on. I don't think we'll guide specifically for that going forward.

[Amos Charles Fletcher, Director]

Okay. And then last question, just to ask, have you seen any progress with the Laver permit under the new government in Sweden?

[Mikael Staffas, President & CEO]

There is no formal change of opinion, it's still on the back-burner. We hope with some of the general remarks that has been done by the new government, that it will be moved from the back-burner to the front-burner and there will be some action going on. But we don't have any kind of classified information above what we read in the statements that have been put out by various new ministers.

[Operator]

Next question is from Olivia Du from Bank of America.

[Xiaofei Du, Analyst]

I just have 2 brief follow-ups to what has been discussed before. So the first is that on your grade, and now we understand that of course the mines have been heading toward the reserve grade, but how about the pattern of grade change over the long time, i.e., is there any potential for us to go back to higher grade areas over some period? Or it's more like a gradual decline towards the reserve grade?

[Mikael Staffas, President & CEO]

Let me take that one. I think there's a difference between, clearly here between the open pits and the underground mines. If you take the open pits like Aitik, where we have been at very high grades for a while, where we're heading down, here you go in kind of in a cycle. So we will go down heading towards the reserve grades and then we will also come below the reserve grades for a while as we shift we will then in whatever 5, 7 years we'll be shifting pushbacks there as well and coming to low grades and then we'll come up again. So that's more going on a cycle. In terms of the -- in underground mines, you don't really have a cycle. You, of course -- there will be a decline because you can't beat the average in the long run. But it's not that it has to go down and then come up again. So there's more of a kind of slow down towards the average. And then as you do that over time, the average for that should go down because the average of the remaining will become less as you're mining nicer parts. But you might always be mining above the average or whatever is remaining. I don't know if I'm clear in my comments, but I think that's, that. So underground mines, a slow decline heading down, not necessarily ever coming under the average but the average might go down. In the open pit, the average doesn't really change that much, but you will be circulating around the average, also being below the average.

[Xiaofei Du, Analyst]

Good. And then the second question is so far that we understand the crusher has been working well in Aitik. And then going forward, if everything goes well, when would be the earliest time that you also roll out a similar upgrade initiative at other mines, continuing your electrification program?

[Mikael Staffas, President & CEO]

Well, first of all, crushers, hopefully we'll never have to do one of those again. That was a one-off in Aitik with a specific situation with the old crusher that did not work. However, we will -- but that's a totally different thing, we've been clear about that, that as we're expanding the pit, we will have to do something about the in-pit crushing going forward, but that's still a few years out until we'll do something about that. And then it comes to the other thing, what are we doing about all the other pieces on the program? Well, the big thing for us right now is to make sure that we secure the expansions of the 3 big mines that we're doing, Aitik, Kevitsa and Garpenberg. And as we said early today, there are no changes in what we've said before regarding those. And then comes to your next question, okay, what about more things? Are we ready to take on the challenges of electrification programs and so on? And there, the answer is we will tell you once we're ready to tell you. We have lots of things that we're working on in the background, nothing that we're ready to talk about today.

[Operator]

And that was our final question for today, so I hand back to the speakers for any closing comments.

[Mikael Staffas, President & CEO]

Well, thank you and thank you very much all for attending. It's been a great day. I hope that you're having a great day wherever you are as well. And we will now step out and start mingling with some of the shareholders who are physically here at the AGM. Thank you very much.

[Håkan Gabrielsson, Chief Financial Officer]

Thank you.