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Boliden AB
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Ladies and gentlemen, I'd like to welcome you to Boliden's Q1 2023 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 followed by our CFO, Håkan Gabrielsson. We will also have a Q&A session, which will be led by the operator. Mikael Staffas, welcome.
Thank you, Olof, and good morning to all of you coming here from Garpenberg where we're going to have our AGM in a few hours as well. It's a classical Swedish spring day today. When I woke up this morning outside Garpenberg here, it was snow on the ground. We thought hopefully we would get some warm weather, but it's rainy and snowy this morning. But it feels good to be out here in the operations.
Now the results of today are, you can say, characterized by maybe not the best production quarter that we've had on the mine side. We've had quite a few of, can you say, in and of itself each of the minor production issues, but we've had too many of them in the quarter. And therefore, the production there is not what it should be.
Now, if we also focus on what has been good in the quarter, we've also had a good production in smelters, where we have really managed to establish the smelters on a level that is quite high, and if you look a few years back, on a level that we never thought we were going to be able to have sustainable.
We also have a good progress on our big projects in the quarter, and they are all on schedule to be able to deliver the way that they're expected to do. So all in all, we've had a profit and EBIT, excluding process inventory valuation, of just over SEK3 billion. We have a cash flow that is close to zero, which is not too bad given the fact that we're investing the way that we are investing.
So as we said, maybe the disappointment is the EBIT in the mines, and I'll come more into the details around that soon, whereas the smelters have had a strong EBIT level throughout the quarter.
If we talk about ESG and spend a little bit of time on that, which is also an area where we feel good and feel strong. In terms of LTI frequency, we have had the best quarter ever. By the way, followed by the Q4 last year, which was the best quarter ever at that time. So we've had two very good quarters in a row, which makes us feel very good about that we are doing that one and coming into the right direction. And we're also now up to 15-years of fatality-free operations, which is in itself unique in this industry.
The sick leave that we've had problems with during COVID is turned in the right direction. The level of 5.8% in the quarter is still a level that is too high, higher than the 4% that we have as our target, but clearly lower than last year and lower than what we saw in Q4 as well. So hopefully, we are now coming out of COVID times and getting back into track again.
CO2 emissions is doing really well as well. We've had actually a super quarter in the first quarter in terms of emissions. We are not too obsessed by every individual quarter. But of course, it's good that we're in the right direction to meet the targets that we set for ourselves for 2030. And of course, a good quarterly like this makes that we feel even stronger about the ability to be able to reach the targets as we see them coming forward.
Prices and terms. Well, prices and terms, as you all know and all have read about beforehand, are still pretty good. Even though they have been down from what they were a year back, they're still on a decent level. And the currencies are also holding up pretty strongly. And on top of that, we've gotten an improvement compared to last year of both zinc TCs and copper TCs, where the benchmarks now have been settled.
If you look into the market around our main metals, you can also see that the prices are holding up very well. And there are, as you can see, also increases in prices -- increase in cost along the cost curve. And you should also know that this is net here of the cost net by credits and, of course, the higher gold price and the higher silver price is helping to keep the cost curve down, so that you maybe don't see the exact impact of inflation. But you can say that all the price increases of the precious metals is being eaten up by inflation in this situation.
If you then start looking at our production and start looking with mines, we are not pleased with the production that we've seen in the quarter. We've had disturbances in most of our operations. We've had disturbances in Aitik, where we've had a failure in a conveyor belt during the quarter that meant that we had an unplanned maintenance stop that we needed to do. We had the same in Tara, by the way, also a conveyor belt that meant that we had to have an unplanned maintenance stop.
Here in Garpenberg, we had, had problems earlier in the quarter with the hoist. And then towards the end of the quarter, we had problems with the primary mill in the concentrator that caused us problems and we needed to take an extra unplanned maintenance stop for that as well. And in the Boliden area, we've had an unusual winter in the sense that it's been cold. That's not new. But it was also warm. And when you have warm and cold, you get melting snow coming into the ore and that then froze and we had problems getting ore into the mill in the speed that we wanted to.
And then finally, in Kevitsa, we've had problem with the primary crusher. The ore production is actually very good and it's been piling up and we have a ROM pad that is well and full now going forward. But of course, the throughput was not quite what we wanted in the quarter.
The grades, there are some ups and downs. I think it's actually better than what we have guided for, for the full-year, which is good. Here in Garpenberg, the grades are slightly lower, which is linked to the issues that we've had with the production, because it meant that in order for us to keep the production up as much as possible, we had to go to some reserve stopes that had lower grades, but they were more easily available to be able to truck up the ore when we had problem with the hoist.
On the smelter side, the situation is much better. The zinc smelters have actually performed very well, as well as the lead smelter in Bergsoe. The copper smelters have had some issues in the quarter because in Harjavalta, we have not had a perfect feed mix, and this is partially due to our sales, but also due to the transport strike that was in the Finnish ports, which meant that we did not get all the deliveries we wanted to, and we had to make do what we had available. And therefore, we had to do this on not so perfect feed mix and what we felt feeded into the smelter. But all in all, the production situation in smelters is relatively good.
So with that, I'll leave it over to you, Hakan, to get into the financial summary.
Thank you, Mikael, and good morning. So as Mikael talked about, we've released the quarterly result of just about SEK3 billion. Compared to last year, we are down about SEK1.5 billion, mainly due to grades and prices, I'll come back to that.
Sequentially, comparing to Q4, we're slightly down on the EBITDA and EBIT, excluding process inventories, but slightly up on the EBIT number. Investments are high SEK2.9 billion, in line with our annual guiding, and free cash flow slightly negative, which in itself is a bit better than we expected, I'll come back to that as well.
Looking by business area, as you can see in the chart to the left here, it is a weaker result in the mining side. And as Mikael talked about, we have established a smelting division on a profitability level, on a profit level for five quarters now that we have not seen earlier in the history.
If we dive in then to a comparison quarter-to-quarter and start with the comparison to the same quarter last year, we have a positive price and terms deviations. There is a big negative on the metal prices side, about SEK1.1 billion. A large part of that is offset by more favorable currencies. But we also have a good development of the treatment charges and the metal premium, which adds up to this number.
Volume-wise, looking at the year-over-year perspective one year back, the main cause behind the negative 663 there is lower grades. A big part of that has been guided for. We are mining at lower grades in Aitik, compared to one year back, and we are mining below reserve grades in Kevitsa as well. In addition, as Mikael talked about, there has been some process disturbances in the zinc smelters. That means that we temporarily have been mining in lower grade areas, both when it comes to zinc and silver.
Again, in a year-over-year perspective, we see a significant inflation -- or cost increase, SEK1 billion, a bit more than SEK1 billion. Of this, about SEK750 million is inflation. We look at a 16% cost increase. And in that 16% cost increase, that includes the normal inflation that we see on consumables and other purchases. It includes salary revisions, and it also includes about SEK250 million higher electricity costs.
I mean, that is price related, but also the fact that the Tara mine has a lower hedge rate right now and are more exposed to market prices. We also have invested a bit more in exploration. And as a result of the disturbances we talked about, we have somewhat higher spare parts costs in the quarter.
If we then move over to the sequential comparison and look at Q1, compared to Q4. Again, you see a positive price effect here SEK266 million. That is, in fact, primarily metal premiums that are up SEK240 million, compared to Q4. So a continued strong development of the premium and a strong European market, primarily in zinc.
When it comes to metal prices, it's slightly up. The average prices are clearly up, as I'm sure you have seen. But as many of you know, we are exposed to quarter end prices, especially for metals with long quotational periods, which is a result of our pricing method. And zinc -- or sorry, nickel and palladium are down about 20% quarter end, compared to quarter end, and that actually adds up to a negative impact of around SEK400 million between the quarters.
Volumes are down SEK800 million and in the shorter perspective, Q4 to Q1, the main reason is the disturbances that Mikael talked about and lower mill volume. We've had conveyors in Tara and Aitik and mill maintenance in Garpenberg and so on.
The smelters had a fairly good quarter. Volumes are slightly down, compared to last quarter for two reasons. One is that last quarter, we had some one-off revenues connected to a reduction of gold inventories. We talked about that in the previous call, and that has not sort of been repeated in this quarter. And additionally, we didn't have an ideal concentrate mix in the quarter in smelters. This is a result of some logistical disturbances, delayed transports in, and a part of that is the Finnish strike that has had some impact as well in the quarter.
Cash flow slightly negative, which is then an effect of the EBITDA level and the fact that we're investing this year on record levels. We were expecting slightly higher capital build. We typically do that in Q1. And as you can see, Q1 of last year, we tied about SEK3 billion in working capital. We had some big shipments that were delayed coming in late in the quarter, and that means that they were not paid at the quarter end. So we came in significantly better than our own plans in the working capital side, but we have seen that outflow in the beginning of Q2.
Finally, then the capital structure, the balance sheet and the financing. Still strong position. Net debt close to zero. We are currently also at about SEK26 billion in payment capacity, half of that is cash. So we feel that we are in a strong position when it comes to our financials.
And with that, Mikael, I hand over to you again.
Well, thank you, Hakan. I will just very quickly come to the forward-looking page and just say that this is nothing new here. We are reiterating the guidance for the full-year at Aitik on the grades and at the throughput. We are reiterating the guidance for Garpenberg regarding grade and throughput. We are reiterating the guidance for Kevitsa. The maintenance shutdown is reiterated as it was before. The inflation is the one that might be more difficult to talk about. We clearly see a tapering off of inflation.
Also, as we move forward into the year, now we will get higher quarters from last year to compare with. But exactly the speed that it's tapering off and exact level is actually pretty difficult to have an idea about right now, but we should hopefully be heading back to more normal levels regarding inflation. And on CapEx, there is no new guidance. We have the close to SEK15 billion for the full-year, out of which about half is with our three bigger projects.
So with that, I will invite you all for questions and also invite Hakan to come up to the table here.
[Operator Instructions] The next question comes from Adrian Gilani from ABG Sundal Collier. Please go ahead.
ABG. Two questions from my end. First of all, you mentioned the several sort of smaller unplanned [strikes] (ph) in the mines. Are you able to say if any of these spilled over into Q2? Or were all of them resolved during Q1?
Just everything is into Q1. The only one that was still remaining and that will have some minor impact in the beginning of Q2 is the mill here in Garpenberg. We had that maintenance shutdown to fix that right in the kind of end of Q1, early Q2.
Okay, thanks. And also, you mentioned the small impact from the Finnish strikes in Q1. Have there been any notable effects specifically on Odda from the large Norwegian strikes we've seen in April?
No. We were not affected in any material matter in the operations. Regarding the project, there were some things, but I think we can make up for those small delays that came into the project.
Okay, perfect. Thank you.
The next question comes from Ioannis Masvoulas from Morgan Stanley. Please go ahead.
Good morning. Thanks for the presentation. A couple of questions from my side. The first on cost inflation and probably one for Hakan. I think for Q1, you had mentioned annual cost inflation of around 10%. And today, you were talking about 16%. Is that -- those numbers comparable? And if so, what's driving this additional cost inflation? And maybe some indication for the second quarter if we think about the annual development, that would be very helpful.
And then secondly, on the labor negotiations. I believe for Norway, you mentioned a 4.5% increase in 2023 versus 2022. What about the negotiations for 2024? And can you also provide an update across the other regions?
And then lastly on Tara. So you talked about the higher energy costs. We've also seen zinc prices coming under some pressure. Premiums are moderating and TCs have lifted. Where does it leave us when it comes to Tara's EBITDA and cash generation? And how are you thinking about the operating run rate in today's margin environment? Thank you.
Should I start with the inflation one?
Yes.
Okay. So the 16% I talked about was an all-in number, including a significant part of energy. And Tara, for instance, had about SEK75 million higher energy cost than usual or than last year. When it comes to inflation, it is somewhat difficult to predict than it has. It did come in higher than the guidance that we talked about. And one reason is that the market prices have increased a bit more than we expected. But there is also a time lag.
We see that between development of the market until it gets into our contracts and until we've actually procured it and taken it out of our stock and used it and charted to the P&L, there is a time lag. And I think we also underestimated that time lag slightly. So it is tapering off. We will not provide a guidance for an exact number, but it is coming down from the current level that we are at. So I guess that answers the first part.
Yes. And I can just say that it is difficult with the timing effects on these things. So you have to bear with us. But as you said, we're tapering off the inflation. Labor negotiations, we do have a central agreement in Norway in place for the next year. It came in to be slightly more expensive than I think the 4.5% we had guided for before. I think when talking about ‘24 over ‘23, it's more like 5% to 5.5% rather than 4.5%. We have had central negotiations in Sweden and Finland that have all come to an end.
In Sweden, it's about 7.5% over two years. So it's about a little bit more than 4%, and then a little bit less than 3.5% for the second year. In Finland, it's about 7% for the same two-year period. We should be clear that those two are the central negotiations in Sweden and in Finland. There is still some local negotiations that needs to be done. We don't know exactly what they will cost, but not so much.
On Tara, we do have a suggested agreement with -- a tentative, we should say, agreement with the unions, that one still needs to go through a member vote, so it's not done yet. Regarding Tara in general, yes, it's right, Tara is being put under pressure in these, kind of, situations. We are, of course, working hard to make sure that we mitigate the situation as much as possible.
And of course, the question from you was, are we looking into putting Tara in care and maintenance. The answer is, like always, that we're always looking at that. But as long as the zinc price stays where they are now, we are not close to a situation like that.
Thanks very much.
The next question comes from Liam Fitzpatrick from DB. Please go ahead.
Good morning, everyone. Two or three questions from me. The first one, just, I guess, a general question on the mines. It was clearly not a great quarter. Were you just unlucky in that multiple things happened at the same time? Or could your assets be just at a stage in their life where more sustaining CapEx is going to be needed going forward just to handle some of these issues?
The second question is just on the zinc TCs, probably for Hakan. Just wanted to understand how much of both the zinc and the copper TCs is reflected in the Q1 numbers, for both the mines and the smelters. Just to give us a steer on what that could mean for -- or what that should mean for Q2?
And the final third question, just in terms of the guidance. So you have reiterated it in terms of throughput and grades. In terms of Kevitsa, just given the Q1, it looks like a stretch to get to that 10 million tonnes. Can you just give us a feel for your, I guess, your confidence level and how that can be achieved? And similarly, on Aitik, should we forget about 45 million tonnes throughput as a target this year? Or could you achieve that later in this year? Thank you.
Okay. Let me start with the first question and the kind of general questions. Of course, when we have these kind of failures and so many in the quarter, of course, we've been looking to see if there's some kind of common root cause and if there's some kind of coordination between these. But the only way that we looked at it is that these are unsynchronized events that happened to happen at the same time.
Then you can have a question, do we generally have a problem, that we are, as just you said, and we're hinting that we have an issue that we are -- we would be having a problem that we're under-maintained and we could look at these kind of things happening more frequently in the future? And the answer is, systematically, no, we have not seen that we have a systematic issue. It doesn't mean that we cannot do maintenance better. Maintenance is a constant thing to deal with. But it is -- we don't really have that feel.
Now another thing that you should be aware of that, of course, is a little bit of a downside is that we have been extremely successful, especially here in Garpenberg, or being able to expand from 2.5 million tonnes to 3 million tonnes to 3.3 million tonnes with very minor investments. While doing that, we have, of course, stretched the bottlenecks. So something like this that we're talking about right now about the mill. Had it been two or three years ago, we might never have mentioned it because we had overcapacity to catch up. Now we don't really have overcapacity in that sense in the mill, which means that when we do get the disturbances, it will be felt right away. It will be difficult to be able to catch up. So yes, to that extent, we are stretching if we don't have as much free capacity in some of these bottlenecks as we used to have.
Regarding Kevitsa throughput, I'm not nervous at all. We have actually, as I said, been mining very well. So we have a large inventory of ore on the ground. And as we come going forward here and we get more availability up on the primary crusher, that should not be a big issue whatsoever. I think throughput of 45, yes 45, is as always, a stretch. We think that had we had normal quarters, that should be quite achievable. And we should be able to achieve the 45 pace going forward in Aitik as well. And then you had the question on TCs, and I'll leave that to you, Hakan.
Sure. Starting at the mines, we had, if you compare -- if you take Q4, when we had the old TCs as a sort of base period, then we had a negative deviation of SEK74 million in mines. They pay more. And that reflects a full quarter of new TCs. So you should expect similar levels next quarter. Smelters had a positive deviation compared to Q4 of about SEK110 million, I think it was SEK111 million. That is about half of the quarter with new TCs and half with old. So you should expect basically twice that amount for next quarter.
Okay. Thank you, guys.
The next question comes from Amos Fletcher from Barclays. Please go ahead.
Yes, good morning, guys. Thanks for the opportunity. Couple of questions, the first one was on Kevitsa. Just looking at the grades, they were pretty weak. And I think the guidance implies they're supposed to be close to reserve levels this year, which implies quite a step-up. Can you just give us an update on what we should be expecting for 2023 in terms of grades? And then also just wondering if there's any update on the Laver permit process? Thanks very much.
Regarding the grades in Kevitsa, we should be able to come back to something that's more close to the reserve grade. So that should not be an issue. Regarding Laver, on the formal things, they are not much changing, but there are things happening underground -- or under the surface, as you say, not underground. Those of you who are in Sweden will know that there is a suggestion from a government investigation to change the Swedish mining code. That one will be out for circulation. And the ambition for the government has been stated clearly to change the law by next summer, so by summer of ‘24, which would fit well. And if that were to happen, we will be able to move ahead with the mining concession application well.
Now things can always happen in these legacy procedures and maybe we will not get the law changed in time. That means that we need to have plans Bs and Cs. And yes, we're working on our plans Bs and Cs as well around how to handle that and how to get a mining concession. We have a time constraint that is October of ‘24, but we need to have the new mining concession in place because the exploration rights that we have will expire. So that's the situation.
Now those of you who have been around know that this is, I want to say, just a mining concession. We have not even started even applying for an environmental permit yet. So that's, of course, a process that needs to start after that. But given what is happening on the European stage, we feel there is a good chance that we could Laver designated as a strategic asset. So if it were to be so that the European legislation moves ahead with the critical raw material act, we will qualify for that status, which means that we are entitled to get our environmental permit within 24 months of applying. So I don't know if that was a good enough explanation for you or update for you.
Yes, that’s great. Thank you very much.
The next question comes from Danielle Chigumira from Credit Suisse. Please go ahead.
Hi, there. Thanks for taking my questions. And just a couple from my side. On working capital, you mentioned the lower-than-expected build in Q1. Could you quantify for us what bills you would expect in Q2? And then maybe for the balance of the year? And secondly, I think in the text, you mentioned SEK0.2 billion additional CapEx for Kristineberg. Will this all hit 2024?
Yes, I can take the second one, and the answer is that it will not hit ‘23. So yes, it will hit ‘24. That will come in there. And that, by the way, can just mention that is clearly in line with the inflation that we've seen in other sites. We just have waited a little bit longer than we've done with the other projects for this update. Regarding the working capital build, I'll leave that for you, Hakan.
Yes. If we start with the full year, as you know, there is a seasonality. So I'm not going to give an exact number. But I can say where we stood at the year-end. On the inventory side, we had fairly low zinc inventory and low nickel inventory. So there is some build to get back to normal in inventories.
We also had clearly higher payables than what we expected, which is perhaps the big part of the build in Q2. And we were not -- I mean, first quarter last year, we had a working capital build of SEK 3 billion. That was in connection to -- or that was a combination of higher prices and build. But let's say that we were expecting, as an order of the magnitude, half of that build this quarter. That I think you should now feed into Q2 instead.
Great, there. Thank you.
The next question comes from Daniel Major from UBS. Please go ahead.
Hi, guys. Yes, thanks for taking the question. Just first one, a quick clarification, Hakan, on your comment on the earnings sensitivity on the treatment charge into the second quarter. Did you say it was an extra SEK100 million delta or SEK200 million, just to clarify that, sorry?
I said that in Q1, we had a positive impact of SEK100 million, and that was based on half of the concentrate coming with the 2022 prices and half with new prices. So I expect SEK200 million in total going forward when you have the full-year impact on the smelting side. Then you have a negative, let's say, SEK75 million on mines.
Okay. So SEK100 million higher quarter-on-quarter in smelters?
Correct.
Great. And the second question just on the smelter business kind of more broadly. I mean, if we look at the progression in either quarterly or annual EBIT or EBITDA run rates rebased meaningfully higher, if we look 2023, 2024, is there any reason to believe we shouldn't see the similar, sort of, run rates of quarterly or annual earnings from the smelting business sustained?
I mean, the answer is that -- and if you look at short-term, bearing in mind that we're going to have the annual maintenance shutdowns coming up now, but if you have that on the side now, you should be able to expect continued delivery on similar levels as we have seen. And then as we come into the later part of ‘24, this should, of course, go up as we will start to wind up the investment in Odda.
Super, thanks. And then final one, the longer-term strategic question. Obviously seeing M&A activity in the space accelerate to an extent. You've historically been acquisitive at the right times. Can you give us any insight on how M&A fits in the capital allocation sort of framework at the moment? You've got quite a high CapEx this year, but easing off next year. More zinc smelting capacity to fill with the order expansion. How are you thinking about M&A in the context of the, I guess, changing landscape in the sector?
Well, M&A has always been and will continue to be an opportunistic situation for us. We are not driven primarily by the fact that we would have a constraint on cash or have ample of cash. We're looking at doing M&A if we find the right deal that would create value, and then we will be interested in doing it. But it's not a major part of our strategy.
The major part of our strategy is the organic growth that we can create. And as you said, we are pretty busy. It's not that we need more things to do. But if there were to be an M&A opportunity showing up that would be considered by us to be value creating, we will be looking at that one disregarding of where we are in the cycle.
Alright, thanks.
The next question comes from Christian Kopfer from Handelsbanken. Please go ahead.
Yes, thanks a lot. Just a follow-up from my side. Firstly, do I understand you correctly, considering that you have had so much disturbances in the quarter, that you expect more or less all of the mines to have higher production mill-wise in Q2 versus Q1?
Hello. Yes, did you hear me?
No, I didn't hear you, Mikael.
Okay. Sorry, I think the answer is yes. I think we get some sign here from the technicians there was something happened with the connection there. But go ahead, Christian. I think, now I hear you again.
Okay. So my first question is if I understood you correctly that you expect all of the mines to produce stronger volumes mill-wise in Q2 versus Q1?
Yes, the answer is yes.
Okay. And then if we can have some guidance on what you expect. I think it was Hakan that mentioned that you had a quite big tailwind from metal premiums in smelters in Q1 versus Q4. Do you still expect some positive numbers there in Q2? Or how do you view that?
Well, there is a part that is spot, but most of that is on longer contracts. Not all of them annual contracts, but most of it is on annual contracts. So we should be able to keep a similar level going forward.
When you say similar level, so you mean basically zero impact or a bigger positive impact also to Q2 versus Q1?
Versus Q1. Well, we have most of the impact already in Q1. So basically, a continued advantage compared to last year, but not necessarily an increase compared to Q1.
Okay. And then finally, when it comes to TCRCs, what do you see in terms of impact sequentially in Q2?
I think -- we had that partially on an earlier question. And the net, I mean, part of Q1 is on last year's TCs. And we expect roughly another SEK100 million on the smelting side from Q2 and onwards to reflect the full quarter impact.
Okay. Okay, that’s great. Thanks.
[Operator Instructions] Please state your name and company. Please go ahead.
Hi, this is Krishan from Citigroup. Most of my questions have been answered. But a quick follow-up on Daniel's question on the CapEx. So you're saying that Kristineberg CapEx is going to hit the 2024 cash flow. And then in that context, I mean, I'm not asking for the guidance, but then if you look at the consensus, there is a 25% step down in the CapEx for 2024 to around SEK10.5 billion. Do you guys feel comfortable with that level of CapEx expectation for next year? Or there is a bit of a bump coming because of the general cost inflation you are flagging?
I think generally regarding the CapEx levels for ‘24, we'll come back to that in the fall. What we have said and what is, of course, true, and I think is part of those guidance numbers is that the three big projects that we have are tapering off. They have their maximum year in ‘23. And of course, naturally, if there were to be no other new projects coming online, we would see a reduction of CapEx. If it's going to be at that level that you just mentioned or not, we'll come back to later.
I think just adding to that, Mikael. Out of the SEK7.5 billion that we have for these three big projects, about SEK4 billion is expected to come for next year. So there's a reduction there. But then you're right, on the remaining SEK7.5 billion, the sort of ongoing mine-sustaining CapEx, there is an inflation component. It remains to be seen how much that inflation is when we get to the later part of the year, but we'll come back to that number.
Okay. So SEK10.5 billion, SEK11 billion will definitely have that inflation component. Understand. And then final question, if I can just push you a little bit. So you guided for 16% -- or the actual inflation in Q1 was 16%, and you're saying there are a lot of uncertainties. So would it be okay if you were to extrapolate 16% cost inflation for Q2 and then kind of a step down in the second half purely from a cost inflation point of view?
I think I would put it this way. We had an increase connected to prices that was about 16%. In there, electricity was a pretty significant one. And there, it's not only market prices, it's also the fact that we are running out of the hedge portfolio in Tara, specifically that had an impact.
When it comes to what we see on the markets on general purchases, excluding electricity and excluding personnel expenses, it is about 14% in Q1 looking back. And then on the salary side, Mikael talked about the various revisions. So that is where we stand. And given the fact that there is a time lag between market developments until it ends up in our P&L, we see it tapering off.
If you look back, for last year also, there was a pretty big uptick in inflation in Q2 of last year. So of course, we get a higher comparison quarter as we look at Q2 numbers year-on-year.
Yes. Okay that’s really helpful. Thank you.
The next question comes from Ioannis Masvoulas from Morgan Stanley. Please go ahead.
Hi, again. Just a couple of follow-ups from my side. The first one, talking about again, the operating profit bridge. I see a negative delta from byproduct prices. And I just wanted to check how much of that relates to sulfuric acid. And any indication that you could provide for the second quarter on acid?
And then secondly, Hakan, you talked about the lower hedge ratio for Tara. Can you talk about where you were in Q1 and how that energy hedge ratio tapers off for the balance of the year?
Well, starting with the number on byproducts. I don't have the exact part that is sulfuric acid, but it is the main part of this number. And it has come down a bit compared to the higher numbers that we saw last year. I'm not going to be able to give a forecast for the coming quarters. But just confirming that it's mainly sulfuric acid that we're looking at that line.
And then the question was about the hedge ratio in Tara. We have been able to lock in some parts. Mikael, do you know the exact rate that we are at?
No, we are building up. Just to be clear on Tara, we had similar situations in Tara with everywhere else, but we have a portfolio that is taking us to 80% for the next 24-months. And lots of that was tapering off. And as we came into ‘22, it was impossible to lock in any kind of prices that were at all interested. So we decided not to go into any hedges during ‘22. Therefore, we came into ‘23 basically at the market prices, which was a big problem at the beginning of Q3. It has gotten less of a problem over time. And we've also started to build the book, again, to build up to a normal hedge level as we are now more to normal prices in Ireland. Exactly where we are in that book building, I do not know. But it's coming up again.
Great. Thanks, again.
The next question comes from Liam Fitzpatrick from DB. Please go ahead.
Good morning, again. I guess, it's the danger when you let analysts ask too many questions. Two more from my side. On the working capital, I think you're guiding us to an increase in Q2 given there wasn't much of a build in Q1. Can you give us some sort of range at this stage?
And the second question is just on disclosure, and I'm sure you've had this question before. But what is your latest thinking on reporting quarterly results by mine and by smelter? It's something that most of your major peers do.
Yes. When it comes to working capital, I was comparing with Q1 of last year when we build SEK3 billion. Now we weren't expecting quite as big build this year because last year also had a price component in there. But let's assume that, that SEK1.5 billion would be kind of a normal build in Q1. That is what we've now pushed into Q2. So we should expect another release during the later part of the year.
Yes. And I will just finish off by saying that we do not have any, at least not for now, any plans to change any of our disclosure or any of our forecast guiding going forward. I think that we, at least for the time being, going to stick to the formula that we have used so far.
With that, I think that we have come to an end. I'm looking at the technicians there just to make sure I haven't missed anything. I think that we're at the end of the line. Thank you all very much for listening. I hope that you will have a very good day. Hopefully, better weather where you are compared to where we are, but we're going to enjoy having an AGM here.
Anyway, I think that we've just passed the quarter where things have been very good regarding the projects and also regarding smelters, but where we have had some challenges on the production on the mining side. We look forward to being able to talk to you all guys in a quarter from now with some more better news than this time. Thank you, all. Bye-bye.