Boliden AB

STO:BOL

Earnings Call Transcript 2023-Q2

[Olof Grenmark, executive]

Ladies and gentlemen, I'd like to welcome you to Boliden's Q2 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 our CFO, Håkan Gabrielsson. We will also have a Q&A session. Mikael, welcome.

[Mikael Staffas, executive]

Thank you, Olof, and hello, everybody out there. It has, for sure, been a very, very intensive and very special quarter from our side, and I'll try to go through all the things that have happened. It's, as I said, it's been a very intense quarter for us.

So if we just start going through, my one of the highlights that all you've known is, of course, the fire in Rönnskär. And I'll come back and talk more about the fire in Rönnskär in a little while, but we had the major fire. We had the total shutdown of the operations. We are now, as we're speaking, up and running, all the units except the electrolysis plant are running. We still have some curtailed capacity at some of them, but they're all running and we have good hope that we will soon be able to run all of them full and thus be able to produce anode copper at full production, but I'll come back to that.

The other big thing for us in the quarter has been the general development of the prices and terms. And as you can see, when you look at our numbers, you can see that we've been hit not just by lower metal prices, zinc prices especially have gone down dramatically. We've also been hit by lower by-product prices. And in our case, lots of people are based in Sweden, I think that we are winning from currency, but we're actually not compared to last quarter because of the strengthening of the euro compared to the U.S. dollar, we're actually having a negative development in terms of the currency effect as well.

This all led to a situation where we decided to put the Tara Mining care maintenance because the escalating cost there and the lowering zinc price, which we decided back in June, and we have now effectuated. Tara will be down. We will come back when the prices and terms have returned so that we can run Tara profitably, and we do think that we can do that. Otherwise, we, of course, have another solution in care maintenance for Tara. We are very positive that we will come back in a strong way whenever prices return.

On top of that, we've had low grades in Mines, partially this has been well communicated far in advance with the developments in Aitik. And then also, we had to -- because of rock stability issues and changing our mining plan, we also got a lower grade in Kevitsa that we announced in an extra press release a few weeks back.

Then also a very big maintenance stop in Harjavalta, one of the biggest one in many years. We went through the maintenance costed or took a little bit more longer time than we thought. So it was a little bit more expensive than first anticipated, but also feels good that we're through the majority of the maintenance for this year. On top of that, we can also say that, of course, inflation, especially if you compare to last year, is still hitting us relatively hard, although inflation quarter-on-quarter is very low now.

Our major projects are going basically -- are all the 3 going according to plan, and we're developing well both in Odda, in Aitik and in Kristineberg project that we're doing. So all in all, I will come back to that. This has led to a reduction -- a sharp reduction in the profitability for the quarter, especially compared to last year. We have a negative free cash flow. We'll come back to that because of the -- partially because of the fire in Rönnskär, we also had a higher working capital and CapEx now up at levels around what we have guided for.

So if you look at the profitability development, we had a little bit less than SEK 1 billion, SEK 833 million profit for the group. We'll come back to details around that. There are some one-offs in that number as well, especially the Mines have been struggling with the lower grades. Smelters also back mainly due to the big maintenance stop, but also the fire in Rönnskär.

On the ESG side, we've also had a struggling quarter. The LTI frequency that we for -- a number of quarters have been coming down to very low levels and of course, maybe has made us little bit spoiled. We are now having a setback in this quarter with a number, which is more like what we had a couple of years back. We still feel good about the progress that we have. We still feel good about the general safety development even though these kind of quarters do unfortunately happens now and then. The Sick Leave is going down if you compare to Q1 and we're heading down to lower levels. However, it was not quite as low as we had hoped for and anticipated, and we're working hard to see whether we can get the Sick Leave down even further.

What was good in the quarter is the CO2 emissions are continuing to develop in the right direction. And you can see here that we have a lowering of the CO2 emissions, Scope 1 and Scope 2 from 206,000 to 190,000 tonnes in the Q2 compared to last year.

The metal or the pricing terms, especially zinc with 19% down in the quarter is the one that hits us pretty hard. And you know that with our pricing model, what definitely pricing comes up to 4 months in certain cases after delivery that hits us hard, and we have a negative development on the prices and terms. We have a strong negative development on the by-product side, especially sulfuric acid. We also have declining premiums for the spot side, which is in line with this. And we have a negative currency development for Boliden as a group because of the strong euro even though the Swedish krona is weak in helping in as the strong euro is actually making it altogether a negative currency development compared last quarter.

We can also say that in part of this, this is what we see, and this is what comes from LME numbers and so on. We also see, and we've been open with this, that when we look locally at the markets where we are present, we also see clearly lower activities. We see our customers taking out less volumes normally, and we can really see that in the sectors that are using our metals, clearly, recession has entered into Europe. And this was also been a discussion as we've been talking about Tara because, of course, if you believe that the zinc prices would jump up next month, you wouldn't put Tara any care maintenance. But as we see it right now, we cannot foresee that the zinc prices will jump up really in the short term, we're probably talking into 2024 until we get a good rebound in the zinc prices.

If you look then on the prices, you can see that the prices right now, both for zinc and for nickel are down at around the cost curve, which is usually a sign that the prices don't really go that much further down, but it's also not sure that they will jump up very fast. Copper is still developing well, has had a much better development in the quarter, even though the copper price is also down, and the copper price is still well above where the cost levels in the industry are.

If you look at production, I must first say that we had a good production in our Mines, almost all the way through. We've had good throughput in Aitik, 45 million tonnes more or less. Apart from the beginning of the quarter, which we guided for, where we had problems floating over with the mill issues that we had in Garpenberg after that was solved in April, we've been producing very well, and the throughput has been very good in May and June.

Also in Kevitsa, we are having throughputs very close to the 10 million tonnes, which is our permit level around there, so throughput and also in the Boliden Area throughput is good. Tara throughput was also relatively decent with the announcement of the care and maintenance, the production went down. So looking at it for the whole quarter, it is below what it should be, but it was doing relatively well up until then. The issue that we've had has to do with grades. In Aitik, we are now down to the 0.17% that we have guided for, for the full year. We knew that we were going to come there. And we have also indicated in the Capital Markets Day that this is a level roughly what we could be expecting to stay for a couple of years before we get a -- the grades coming back up again.

In Garpenberg, we've had some issues with the grades we've been in lower areas. That's really a temporary thing and we should get the grades back in Garpenberg, and we don't have any change in the forecast for the year. Kevitsa, this is quite in line with what we communicated a couple of weeks back. We've had rock stability issues in Kevitsa, which has made it for long parts impossible to mine from the pushback #3, where the high grades are, and we've been mining from pushback #4, instead. We've been able to keep the volumes up, which is good. But of course, it's hitting the grades, and we are now at those grades as we communicated there.

On the Smelter side, well, the big thing on the Smelter side throughput is the very major maintenance shut that we had in Harjavalta, which was well communicated beforehand. It took about a week extra longer than we had anticipated, a little bit in different parts. That's the things that happens when you do these major stops, you only find out exactly the condition of the furnaces once you have cooled them down. It took extra time for us to do this, but we feel good about this. We also had a chance in the meantime to rebuild the nickel concentrate dryer, which has been causing us issues and now it looks better once we've been able to get going with that one again.

In the zinc smelters, we've had relatively good production, even though we had a little bit of issue with the electrolysis plant in Odda #4, but otherwise, the zinc Smelters have been doing well. The big thing is, of course, the fire in Odda that totally shut down Odda on June 13. It was down for about 2 weeks to most extent, we have been starting up the different parts. We have been able to start produce anodes. We have actually shipped anodes. We have developed a limited contract basis for anodes, and we are, as we're speaking, building up the book around how to sell the anodes. We're not really worried about it, but it will take some time to establish this. We are a brand new player in this market that we need to put a name to ourselves around it. But we're not, in any sense, worried that we're going to be able to sell the anodes that's going to be quite possible.

Now Håkan, I'll leave it over to you to talk a little bit about the numbers.

[Håkan Gabrielsson, executive]

Thank you, and good morning. Well, as you have seen, we have reported an EBIT, excluding process inventories of SEK 833 million. CapEx of SEK 4.2 billion. That means that we have now spent just over SEK 7 billion, which is in line with the full year guidance of SEK 15 billion. And as a consequence, that means that we have a negative cash flow of minus SEK 3.8 billion.

We look at the profit by business area. You can see what Mikael talked about. There is decline in Mines, a sharp decline in Mines related to lower metal prices and grades. On the Smelting side, we have a significant big planned maintenance. And on top of that, the fire in Rönnskär had a major impact, so those will be the main changes in the results.

If we look a little bit more in detail and start then with Q2 compared to Q2 of last year. Year-on-year, there is a big drop in prices. We have an EBIT impact of about SEK 750 million compared to last year from the zinc price reduction, also the price reductions of copper and by-product sulfuric acid is significant in this analysis. Year-on-year, the price drop is partly -- the price drop on metals and sulfuric acid is partly compensated by better premiums and better currencies. But all in all, it's adding up to a negative price impact of minus SEK 841 million.

Volumes are down SEK 2.1 billion. More than half of that is related to metal grades in Mines. This is mainly Kevitsa in line with the announcement a few weeks back and Aitik mining at 0.17% copper, which is in line with the full year guidance, so those will be the most significant ones when it comes to grades. The Rönnskär fire -- the fire in Rönnskär, we estimate that an EBIT impact of about SEK 400 million, SEK 200 million of the -- or sorry, a volume impact of SEK 400 million. SEK 200 million of that is direct production losses in the Smelter. The other SEK 200 million is related to the timing of profit recognition in Mines. When we've had one Smelter closed due to fire and the other one in maintenance, concentrate stocks -- concentrate had piled up. And that means that we have not been able to recognize the full profit of the mining production. This is a timing effect, and we expect that to normalize during the coming quarter. We also have a bigger maintenance stop this year, which has a negative impact on volumes.

Costs; the main reason to the cost increase is inflation. We have high single-digit inflation, so a bit below 10% year-on-year. In there, there is, of course, also a currency component. The Swedish krona has further weakened against the euro and dollar, which plays into this. In addition, we have slightly higher maintenance cost and higher exploration.

On the items affecting comparability, we have a few components related to Tara and related to Rönnskär. We have made a provision for early retirement in Tara, SEK 53 million. We have a provision for demolition of the cell house that was destroyed, a SEK 75 million. We have a write-down of SEK 88 million, which is the book value of the cell house, a fairly low book value as it was mostly depreciated.

If we look sequentially and compare Q2 to the previous quarter, the main components are the same, prices and terms just below SEK 800 million negative impact. Base metal prices down, again, zinc is the most important component with about SEK 0.5 billion impact compared to Q1, so significant. Also, the currencies are slightly negative. You can see SEK 120 million here, and that is related, as Mikael talked about to the euro strengthening against the dollar, meaning that the profitability in our euro-based units, Tara, Kevitsa and the Finnish Smelters has had a negative impact.

Volumes is SEK 1 billion down compared to Q1. Again, creates a significant about SEK 400 million, Aitik and Kevitsa, according to the announcements earlier on. Also here, we had a SEK 400 million impact from the fire in Rönnskär. Same order of magnitude is the volume impact from the maintenance stops, primarily in Harjavalta. But on the plus side, we had about SEK 300 million improvements due to higher milled volume compared to Q1. The costs are slightly up compared to Q1 due to maintenance stops. There is no significant inflation that we see compared to Q1. And then we have the same one-offs related to Rönnskär and Tara.

Cash flow. Well, the main difference is a lower EBITDA. We also have high investments and then we've built working capital roughly at SEK 1.7 billion. And the reasons for that are 2. We talked about already at the last quarterly report where we had a seasonal working capital build that didn't happen in Q1 and that we guided for will happen in Q2, so there's one background and the second one is, of course, the fire in Rönnskär, where a lot of concentrate stocks have piled up as we have not been able to process and ship that.

Moving on then to the capital structure. We have a net debt of SEK 11 billion. The main change compared to last quarter is a SEK 7.3 billion dividend payment, including then the redemption of shares, and then in addition, the negative cash flow I just talked about. So that adds up to a net debt of SEK 11 billion and a gearing net debt-to-equity ratio of 20%. We still have a strong balance sheet, SEK 14.5 billion in payment capacity and strong numbers.

So with that, I'll hand over to you again, Mikael.

[Mikael Staffas, executive]

Thank you, Håkan. Let me then just go through some of these situations a little bit more in detail. If we start with the fire in Rönnskär. It was happening in the cell house, we all know that. Production has already, as I said, partially resumed. The first part was resuming, I think, after 10 days, and then we have been gradually stepping up to different areas. And as I said, now, all units, except the tank house are operating. They're not -- some of them cannot operate at full capacity yet, but in a month or so, we should be able to operate all units at full capacity.

And then we have a commercial setup that needs to be handled around this. We are building a book of anode customers that is in progress. Some anode contracts are in place but most are still to be handled. I think that many of you would like to have a guidance regarding what is Rönnskär going to have as a level of earnings now that we don't have a tank house anymore. I will not guide you this time because it is linked to the commercial setup and exactly how well we'll get paid. But of course, we will have a lower profitability in Rönnskär going forward. I mean, there is a reason why you have a tank house at a Smelter -- and in our setup, it is important to have that. So it will be a lower EBIT, but by how much, we'll have to come back to you.

In Q2, we had the one-offs of SEK 88 million for the actual tank house and SEK 75 million for the cleanup after the fire. We have had 2 different impacts. One is the actual downtime in Rönnskär itself of about SEK 200 million, but then we have the impact from the fact that we cannot ship concentrates. Rönnskär is not only a consumer concentrate but also shipping port, which has backed up concentrate from the Boliden area, which has not been able to be shipped out to other units. It is also, of course, backed up some concentrate from the Aitik, but also lead concentrate from Garpenberg that has had to back up because of the fact that they were not being processed at this time.

Insurance, we are fully insured. But you know as everybody with insurance, there's always a discussion around what exactly they will compensate or not, both in terms of the actual lost property and in terms of the disruption, but we will continue to discuss this at some stage, I think we will see a nice one-off positive regarding this, but we'll come back to that once we know a little bit more.

We have also, just as I pointed out before, we have started the feasibility study for putting a new tank house in place. We don't know exactly how long it will take until we have a new tank house in place. Our ambition is that we should be able to make a decision on the tank house by the end of this year, but we'll see how quickly we can move on with the feasibility study. It should be mentioned that even though everything looks good, we should be very clear, we have not yet access to the fireside. It is still under control. There are safety issues. We're working in there. We need to do a lot of preparation before we can start [ working ] in. That is important both to understand the root cause of the fire, it's important to understand what can potentially be used of the old electrolysis plant or tank house in the new construction, and it's also important for understanding how we'll get the process inventory, i.e., the copper and gold and silver and so that is in there and get that out. We have not made any provisions. We're pretty confident that we will be able to get the full metal value out of the other tank house, but it will take some time over Q3 and Q4 to get that out and be able to put it put it back into the process and get it into anodes.

In Tara, as I said before, the main reason for putting Tara into care and maintenance is the poor profitability. As you see, we lost EUR 38 million in the quarter, which is, of course, totally unacceptable. The main reason is the lower zinc price and the higher cost levels that we have, both general cost inflation and higher zinc TCs which has been the main combination, but also energy prices play into this equation. And as I said before, we do not see a quick rebound in this, and we decided, therefore, to put Tara into care and maintenance. That is a better both short-term but also long-term option for Tara. We have in connection with this also with the union negotiations given offers for some early retirement that we have made the provision for a SEK 53 million in this quarter. Going forward, we have roughly a standstill cost of about EUR 12 million per quarter. This third quarter will be a little bit more expensive because all the costs were not gone as of July 1. So we had some higher cost in July, which means that we're roughly EUR 18 million negative EBIT from standing still in Q3.

We've also decided to put the exploration on Tara deep on hold. There are a couple of reasons behind this. One is that what we -- is on the critical line -- what is important for Tara Deep is to do exploration from underground. With having the Mine into care and maintenance, it is from safety reasons, not that easy to be able to do exploration from underground, to have people working underground when the actual operation of the Mine is not in place regarding first responders and safety and so on. But the other reason is also that, of course, while Tara is standing still, we're not taking up space into the tailing pond, and we're also not depleting the old mine, which means that we can move the whole decision making basically one day forward for every day that we stand still and thus the pressure on time for Tara Deep is also a bit less. And in that combination, we decided to also pass the development of the Tara Deep project.

Kevitsa; the Kevitsa situation we've talked about and we had the extra call around that. We've had problem with rock stability, which has meant that it's been impossible to mine from pushback 3 for a large part of the quarter, and it will continue to be difficult to mine from pushback 3 also for the next coming quarters. We have been able to increase the speed that pushback 4, which means that the total tonnage is saved, and we're going to get to 10 million tonnes for the whole year, but we will get that at lower grades. We ended the quarter to where we had guided for and the extra guiding a couple of weeks back, and we are now reiterating the guiding for Q3, 4 as we did -- as we took it out a couple of weeks back.

If we then summarize it, what does that look forward? Well, Itec is now producing well. It's producing at this 45 million tonne throughput level. But we are hitting these low grades, and we are reiterating the great guidance of 0.17% copper and [ 0.07 ] gold for the year. In Garpenberg, producing well, 3.3 million tonnes should be doable. We are -- should come back and get some positive grades around this, and we're reiterating the full year guidance of 3.3 -- 3.6%, I should say, zinc and the 100 grams per tonne of silver.

Kevitsa, we're reiterating the 0.25% copper and 0.18% nickel as we communicated a few years -- a few weeks back. And in Tara, we are giving the guidance that it's going to cost EUR 18 million, a negative EBIT for Q3 and then from there on about EUR 12 million negative EBIT as long as we keep on standing.

Maintenance shutdowns. We have done the vast majority of maintenance shutdowns for the year when we're now done in Harjavalta. We do still have some maintenance stop coming up, especially in Kokkola. And we have an impact of SEK 140 million for Q3 and nothing for Q4. As I said with Rönnskär, it's very difficult to give you an estimate of what is the earning potential in Rönnskär in its new commercial setup selling anodes rather than cathode, but it's, of course, going to be lower than what we had as a going run rate before the fire, exactly where we'll have to come back to. And regarding CapEx, we are reiterating the previous guidance of close to SEK 15 billion for the year. The projects, as I said before, are all moving on relatively well.

With that, I will open up for questions.

[Operator]

[Operator Instructions] The next question comes from Adrian Gilani from ABG Sundal Collier.

[Adrian Gilani Göransson, analyst]

It's Adrian here at ABG. A few questions from my end. First of all, on the Garpenberg, zinc grade of 3.1%. That was very low, but you still decide to keep the outlook of 3.6% for the full year. I guess how confident are you in that figure, given that it implies around 4% zinc rate for the second half of the year?

[Mikael Staffas, executive]

Well, we wouldn't put it out there if we wouldn't be confident.

[Adrian Gilani Göransson, analyst]

Sure. That's clear. And then the SEK 400 million EBIT effect from buildup of concentrate inventories, is that something you will be able to catch up on in coming quarters, some sort of reverse?

[Mikael Staffas, executive]

Well, like I said, the SEK 400 million was SEK 200 million plus SEK 200 million. The SEK 200 million that was lost because of Rönnskär standing still, that is lost. That's not going to come back. The SEK 400 million that was tied up because of slow deliveries from Mines should revert as we get the production resuming at Rönnskär and also the port resuming back to normal operations that should revert.

[Håkan Gabrielsson, executive]

Just to be clear, the SEK 200 million will revert and SEK 200 million will not revert, just to be clear.

[Adrian Gilani Göransson, analyst]

Yes. And the SEK 200 million that will revert, you should see that entire effect in Q3?

[Håkan Gabrielsson, executive]

That is my expectation, yes.

[Adrian Gilani Göransson, analyst]

And then I guess, finally, on the inflation, you didn't give us an exact number like you've done in some quarters before, you just say that it's easing. Are you able to say some year-on-year percentage figure on this and perhaps also what you expect going into Q3?

[Håkan Gabrielsson, executive]

Yes. We can give a number. It's slightly below 10%. So to give a number, if you want to be very exact, I would say, 9% year-over-year. And we see a downward trend. The components are coming down at a little bit different pace, but currently in the quarter at 9%.

[Operator]

The next question comes from Liam Fitzpatrick from Deutsche Bank.

[Liam Fitzpatrick, analyst]

Three questions from myself. Firstly, just on your zinc smelters. Can you just give us some guidance on the impact from the Tara closure in terms of how that could impact profitability for your zinc smelters moving forward? Have you been able to secure concentrate both short term and over the medium term?

Second question on Rönnskär. I know you don't want to say too much at this stage, but can you give us some color in terms of what the potential kind of CapEx ranges and time line could be in terms of rebuilding the cell house? And is it your expectation that, that will be mostly covered by insurance?

And then the third one, just on volumes, and I guess this is for Håkan. Look, it's a very complicated quarter for both the Mines and Smelters with all the moving parts. Could you walk us through on the volume front, what sort of uplifts we should be seeing into Q3? And I understood the point earlier around the concentrate at the Mines, and I think the maintenance guidance is pretty clear. But over and above that, are there other sort of key volume movements that you can help quantify for us?

[Mikael Staffas, executive]

I can start with the 2 first I'll give you the last one to Håkan. Regarding the zinc smelters, yes, I would say the following, I'll put the following that we've been able to replace most of the Tara volumes. We are still working to replace the last ones we feel relatively confident around it.

Regarding Rönnskär and the -- a new plant and insurance coverage. I have told many people before that it's a little bit like when you have an insurance for your bathroom and you get a water leak and you have to rebuild the whole thing and you have fully insured. Usually, you don't build what you had before, you built something else, an insurance company will argue that they are only liable to rebuild exactly what was there before. And then you have a negotiation how much it should cover the new thing. I think exactly the same thing will happen here. We are fully insured. We are -- we have to know that this plant that was burned down, the newest part of it was almost 25 years old. And the older part were over 50 and so years old as well. So we're not going to rebuild or we don't intend -- the intention is not to rebuild exactly what was there, but something different, reflecting new technologies and everything else around this. And of course, then the insurance company will say we're not going to pay for all of that. We will pay for part of that. How that over work out is all part of the feasibility study that I said we have started and that we hope we'll finish and be able to make a decision on how to move forward by the end of the year.

[Håkan Gabrielsson, executive]

And then when it comes to volumes, I think the main components are related to grades. We just go through the activities one by one. I mean the throughput -- the mill volume in Mines was good in the quarter. It was a good step-up from last quarter. We have reiterated the great guidance for Garpenberg and Kevitsa, which should be an improvement for the second half of the year.

When it comes to Rönnskär, we were still a couple of weeks, so we will ramp up the annual production in this quarter, so the volumes will be there but at a lower margin. And then we have about SEK 200 million concentrate that is not increase production volumes, but we will be able to recognize the revenues and the profit of those SEK 200 million in Q3. I think those are the main components that should change between the quarters. For zinc smelters, I don't foresee any major change.

[Liam Fitzpatrick, analyst]

Could I just briefly follow up on those volume points? On the Mine grades, are you able to kind of quantify that in terms of any ranges? And then on Rönnskär, where I'm struggling is, obviously, it's returning in terms of volume, but that's a lower profitability rate. So when we're thinking about Rönnskär in Q3 versus Q2, is it going to be up? Is it going to be down? Is it going to be flattish? Any color on that would be helpful.

[Håkan Gabrielsson, executive]

Okay. I don't -- not sure quite how to answer that, but I'm not sure if I can put a Swedish krona value or monetary amount to the grade profile. But I think if you look at the grade guidance that we have provided for the full year, that means a good step-up in a couple of the Mines for the second half.

And again, regarding Rönnskär, there is a big uncertainty in the exact impact until we have establish the commercial terms for this. So therefore, it is a bit difficult to guide on the EBIT impact. Volume in production, though, should be back or is back when it comes to the producing anodes.

[Operator]

The next question comes from Daniel Major from UBS.

[Daniel Major, analyst]

First one is a follow-up on Rönnskär on the insurance dynamic. I totally understand the concept you've put forward on the negotiating the absolute amount. I think the key thing from a perspective of your group cash flow and balance sheet dividend for the next few years is how the payment will be structured, i.e., would you expect to receive a proportion of the insurance claim as you rebuild the smelter? Or would you expect to have to finance the full rebuild of the tank house and then receive a lump sum payment at the end of the construction period once all of the outstanding amount has been determined?

[Mikael Staffas, executive]

I would say that we are really guessing at this stage. But if you force me to guess, I would say that once we make an agreement with the insurance company, and hopefully, we can do that in a time matter so that we don't delay their construction of the new tank house because of this, we should be able to get payout kind of in line with how we rebuild the new tank house proportionately.

Regarding the payments for business interruption, which is also substantial with this and there, I think that there is a risk that we will be negotiating for a long time and get a lump sum sometime in the future when we will get covered for the business interruption. As you know, with these kind of discussions, there could be long discussions around what would we have made in terms of money had we not had the interruption, so that one, I expect to come later after the fact.

[Daniel Major, analyst]

That's very useful. And then next question, just to be clear on some of these one-off items that you've detailed. The SEK 200 million for the locks up inventory, was that reflected in the mining EBIT this quarter and therefore, should reverse in mining next period? Is that correct?

[Mikael Staffas, executive]

It's partially mining, but it's also partially in the internal profit elimination, so it tends -- I don't know how much [indiscernible]. You know that.

[Håkan Gabrielsson, executive]

The bigger -- the main part of that, as you say, it's in both, but the main part is in the segment of the business area, other in the internal profit elimination.

[Daniel Major, analyst]

Okay. And then just a follow-up to that. If we look at the bridge on the Mining business, you did SEK 178 million of the EBIT last quarter, I think EUR 38 million is about SEK 435 million was associated with Tara. So if we sort of back that out, would a normalized earnings for the Mining business to be somewhere in the region of [ SEK 700 million, SEK 800 million ] for the quarter as a starting point. And then obviously, we've got the volume benefits that you highlighted. But is that the right way of thinking about it excluding the losses from Tara?

[Mikael Staffas, executive]

I would say that, yes, it's a good start, but there are other things involved in as well. You have to remember the Mining business was also hit negatively on the price and terms with a definite pricing when you have a relatively low price at the end of the quarter. And hopefully, if the prices remain stable or even go up, that effect will also revert.

[Daniel Major, analyst]

So can you quantify the provisional pricing impact during the quarter?

[Håkan Gabrielsson, executive]

About SEK 90 million, negative SEK 90 million, 9-0.

[Operator]

The next question comes from Viktor Trollsten Danske.

[Viktor Trollsten, analyst]

Firstly, on grades in the Boliden Area, [indiscernible] where we have seen a bit lower grades in terms of zinc this quarter and also the last, is this sort of according to plan? And how should we think about that grades going forward?

[Mikael Staffas, executive]

Well, the way you should think about going forward is, according to the R&R statement, so that's what you can look at. Yes, it's been low at this quarter has to do with the mix of different ores, which means also if you look at -- I think we believe gold has been higher than the R&R statement because we have been focusing on ores that have been slightly more gold rich and less zinc rich. And all in all, you can say that we've had a slightly weaker grades, if you take the whole thing together, then on an average, but it's maybe not too much to talk about it. It's just below some kind of par.

[Viktor Trollsten, analyst]

Yes. Okay. No, that's clear. And then maybe on just how we should think about working capital from here, given, call it, the balance that we Mine some and Smelters now, would we expect similar seasonal patterns as we see historically now? Or will -- is it possible that you tie more working capital in the second half?

[Håkan Gabrielsson, executive]

In general, I would expect a release -- I mean we typically build working capital in the earlier parts of the year and then we release it in the second half. And this year, I expect that to be a little bit, I should say, accelerated partly because we tied more due to the fire. And then secondly, the metal in the tank house, we should be able to realize that number. There is some uncertainty in the timing though, because as Mikael said, we have not yet got an access to that area, but the tendency is that rather -- I think we should be able to deliver a fairly significant release of working capital during the second half. Then beyond that, the long-term capital build, I think it's difficult to say, again, with reference to the discussions on terms for anode sales.

[Viktor Trollsten, analyst]

Okay. No, that's helpful. And then, if I may, on by-products and premiums going down, how does that look into Q3, will that be an additional headwind? Or are we more on stable levels now?

[Mikael Staffas, executive]

Yes, this is, of course, the most difficult thing to predict. If you were to ask me, I don't see by-products jumping up in terms of price in the short term. I would expect them in line with the kind of general recession that we're heading into right now to remain low or theoretically become even lower than they were in Q2.

[Viktor Trollsten, analyst]

Okay. So we could see some additional headwind from that perspective?

[Mikael Staffas, executive]

Possible.

[Viktor Trollsten, analyst]

Yes. Okay. And then finally, just to try maybe to push you a bit more on [indiscernible] and the production loss of SEK 200 million. You touched upon this, but unknown sales ramping up in Q3 and obviously, depending on how we think about the profitability level, I must say I have a hard time seeing that it will do a negative impact sequentially from the SEK 200 million. Is that completely off?

[Mikael Staffas, executive]

I would prefer not to comment on that.

[Operator]

The next question comes from Ioannis Masvoulas from Morgan Stanley.

[Ioannis Masvoulas, analyst]

Just a few questions left from my side. Starting with the first one, do you think you could place the entire copper anodes from Rönnskär to the market. And therefore, at what capacity utilization could you run the Smelter? An earlier press release said that you might not be able to run it fully, so keen to hear your latest thoughts on that.

[Mikael Staffas, executive]

I would say from a commercial point of view, we don't see any risk of being able to place the anodes as such, if you just want to have somebody who's going to accept them. But you know that with anodes, given that they're -- especially in our anodes, is a very high proportion of precious metals given that we have such a portfolio of concentrates, we, of course, need to make sure that we get well paid for those precious metals in the anodes. And that's, of course, a commercial discussion that's ongoing.

Another commercial discussion that's ongoing is linked to the question that came a little while ago, what has to do with the working capital since this is not a set business model in the sense as cathode sales was, there are still, you can say, some contracts that might give you better profitability, but we'll tie up more working capital. We are looking into tolling solutions, for example, we would told the material ourselves at third-party tank houses that will probably be more profitable but tying up more working capital compared to straight sales of anodes.

But to come back to your initial question, we don't see any reason that the -- it will be difficult to sell the anodes and such. It's just a matter of how much money we will make on them. The curtailments that we talked about, and that should be easing off during Q3 and should not be a major part, but we have had problems running certain, especially the precious metal plant full because of where it was physically at and some of the media that went into to the pressured metal plant came from the tank house. And we have established that on some level, but not fully.

[Ioannis Masvoulas, analyst]

Okay. Very clear. Second question on Kevitsa. Do you have a line of sight on next year's grade profile? Basically, the question is whether you think the challenge around the pushback #3 will be fully addressed in the second half or maybe there is a spill offer into next year?

[Mikael Staffas, executive]

Of course, there's a plan, but I prefer not to comment regarding that plan because as you can understand, we are having pretty big discussions around this internally both. The major reason why this happened is rocking stability, we had fallout in certain parts of the of the Mine, which made its safety impossible from a safety point of view to work below. Will we be able to get out of those? Are we entirely sure exactly if this is possible to happen again? And then what is happening, we prefer not to comment on that. We will get back to guidance exactly on how -- well, I mean the guidance for the life of mine is, of course, what is in the R&R statement, but how that the timing of that, what happens in '24, '25 and so on, we'll come back to that later in the year.

[Ioannis Masvoulas, analyst]

Okay. Very clear. And the last question on Tara. Are there any cost improvements or other operational improvements here that could help you boost the economics of the asset, whether it's power or labor or anything else? Or is it purely a function of a higher zinc price that will drive the restart decision?

[Mikael Staffas, executive]

I mean there's, as always, a full slate of things where the zinc price is the most important one, but we have been hit by very high power prices. If there is some way to sort out that we can get lower power prices in [ Ireland ], of course, that's going to make us sooner come to decision to restart and if we were not. We have the general cost inflation with quite a lot of the chemicals used in the process have been very high if those come down, that will also make it easier. So there are things that could make it faster, but the zinc prices, the most important part.

[Operator]

The next question comes from Richard Hatch from Berenberg.

[Richard Hatch, analyst]

Just a few questions on grades to start with. If I kind of look at the grades of what you've been doing at Garpenberg guidance this year is 3.6% reserve statements, anywhere between 3.1% and 3.5%. Over what kind of time period do you think that we move towards that level? And then the same gauge for Kevitsa, but the other way around, you're mining at 0.25% copper [ grade ] reserve statement [indiscernible] at 0.33% copper [ approved ] and 0.38% probable. So when are we going to see that grade sort of reversion for Garpenberg and then improvement for Kevitsa, please?

[Mikael Staffas, executive]

Well, regarding Kevitsa, I think we just had that in the previous question. We will come back to that later. The issue there is how do we think that these rock stability issues, these wedges that you get into the wall of the open pits, how prevalent will they be going forward and so on. That's what we're looking to, so it's going to be difficult to tell exactly.

Regarding Garpenberg, the general thing on how quickly will decline. I've said this many times that when you have an underground mine like Garpenberg, you will always mine above the reserve average because especially when you have long life of mine, you will go to the good parts first and you leave the less good part for later. That means that you're mining over the average, but the average will go down over time. We have not really guided how quickly that is likely to happen, but we said that over the next kind of 5 years, there will be nothing really kind of very big, even though we might see lowering grades but not to any -- we're not heading down close to the R&R averages for the next 5 years.

[Richard Hatch, analyst]

Okay. And then just on Kevitsa, perhaps I can just push you a bit on it. I mean -- so forgive me if I missed this, but so are you now undertaking geotech drilling to just kind of get a better understanding of the ore body and your ability to access those areas.

[Mikael Staffas, executive]

Yes. The issue, just to be very clear, is that we've had fallout from the walls and we've had fallout of when we do blasting on the upper levels, i.e., pushback 4, which has been not the way that we thought and we have had fall downs going over the side and going down and starting to roll down towards the bottom, where pushback 3 is, and thus, we cannot work there.

We are now going through the information that we have to see whether this thing that happened was just something that could not have been foreseen -- could have foreseen? Could we have done something in a different way? Could we have blasted in a different way to make sure this doesn't happen? And all those things, I think that we're now working into the new mine plan as we're doing it as we're speaking that we will finish during the fall. And therefore, I think it's a bit too early to tell exactly how that will conclude.

[Richard Hatch, analyst]

Okay. Do you think that might mean that you have to ease the slope angle there?

[Mikael Staffas, executive]

I don't think it's an issue of slope angle because you have a stability that's good over time, so I don't think that slope angle is the way to go at it. I think it's more discussion of the mine design. It's not just that we have pushback 4 on top of pushback 3. We had pushback 4 for a while right on top of pushback 3. And if you can move that a little bit to the side, you will have increased degrees of freedom even though it's also affecting the ramp what is happening now at pushback 4.

[Richard Hatch, analyst]

Okay. Right. And then sorry, just last one on Rönnskär. I think we're all trying to kind of get at it from the same -- from different angles. But perhaps if you might be able to help me in any way, shape or form on just any kind of margin differential between [indiscernible] and the cathodes that you were previously selling just so we can kind of try and get a handle on what the EBIT impact might be once you go through this period, rebuilding.

[Mikael Staffas, executive]

I will not comment on the margins at all because this is due to commercial discussions that I don't want to [indiscernible]. They're ongoing as we're speaking. And we are, of course, doing our utmost to make sure that we use the situation to our advantage and not our disadvantage by telling others what we might expect. But it's, of course, I think, as we mentioned before, this is not my number, but somebody else has said that it might cost SEK 3 billion to build a tank house. It's not my number. We haven't done the pre visibility, we don't know. But if you just do that one as a kind of mine gaming, we say that in operations in a copper smelter like Rönnskär, it surely makes sense to have a tank house. And if it's going to make sense to our tank house, you're going to have to have at least SEK 300 million return per year to meet our 10%.

If you say that's going to be by a margin, you might need to have something like SEK 500 million, and that might be in some SEK 300 million to SEK 500 million that we're losing in the meantime to be able to come back to where we were. But once again, this is not a guidance. This is just a way that you can start playing with numbers.

[Operator]

The next question comes from Igor Tubic from Carnegie.

[Igor Tubic, analyst]

Just 2 questions for me. The first one is around Garpenberg and the grades. I'm just curious to see if the lower grade that you had this quarter, primarily zinc were expected? And the second question refers to the CapEx and the stronger Swedish krona. Are all costs hedged in terms of CapEx going forward for all your projects? Or how should we think about that?

[Mikael Staffas, executive]

Garpenberg grades. We thought that we were going to come in lower than the 3.6% in Q2 which is, by the way, related to the problems that we had with already back in Q1, you know that we have a problem with the hoist. And when we have problem with the hoist we -- in order to get the tonnes up, we decided to move tonnes to the surface from close to surface and closer surface, we have lower grades and therefore, that came into there, so we would expect to be lower.

They came a little bit surprisingly low for us as well at 3.1%, but it's a little bit difficult, especially when you kind of have to deviate from your original mine plan and get into stopes that you had not to rig or plan to do. It's a little bit difficult to have full control of this, so we had expected and ourselves and our own management to have lower grades but maybe not this low.

And then CapEx and exchange rates. That's a very good question. We can spend hours on talking about this way and how it's accounted for and everything else. Regarding hedging, we hedged the big packages that are within, but we only hedge the package from where we make the decision on that individual package in an investment like other, there are quite a few big packages, and they're hedged when we step into the actual fixed contract, and then they run for that. So then you have all kind of ifs and buts around this thing, around what happens. And at one day, we'll come back and give you some kind of post calculations on the big projects. But so far, we are just reiterating the guidance that we've given before.

[Operator]

The next question comes from Angus Poland from Bernstein.

[Angus Poland, analyst]

Just going back to Rönnskär insurance. Last call, you mentioned that insurance should cover the profit losses from the fire. Are you hoping that's also going to include the lost cathode premia or is it just going to be from the loss of volumes?

[Mikael Staffas, executive]

Well, this is where insurance negotiation start is always when you have a business interruption. We will claim that this interruption made us lose this and this and this and this. And the insurance company will question those calculations and says that and that and that. And at the end of the day, we will agree to something exactly what those details are. But in theory, we should get compensated for the business interruption.

[Operator]

The next question comes from Christian Kopfer from Handelsbanken.

[Christian Kopfer, analyst]

Just a few follow-ups. So came in very late in the quarter. So sorry if you have already answered these questions. First, on Kevitsa. You keep your grade guidance for the year despite all these uncertainties. So maybe we are very certain still then on the way for the second half, that's good. But -- so grade should improve dramatically here in the second half. I hope that happen then. And then on the recovery side, recoveries came down to really low levels here in Q2. Do you also expect recoveries to come back to, say, historical averages for [indiscernible] in the second half?

[Mikael Staffas, executive]

You're asking good questions. Regarding the guidance, I don't think that we need a drastic jump out in grades to get to our annual guidance, but we need to have a little bit of a step-up. So yes, we will have a little bit of a step-up, but we'll still be mining below reserve grades. The issue that you're bringing up regarding recovery is a good question, which is a little bit separate. We have experienced, as you know, problems with recoveries and they're also continuing in -- they're not getting worse, but they're continuing into this quarter.

We have some idea what this is about, but we can say that we have it fully under control. There is talk involved in this, and there are other things around the fine grinding of this and how to make sure that you get also the fine particle and recoveries there. We have ordered some new equipment that will come during -- after the summer. So we have plans, but I'm not going to stand here and say that we have figured out the recovery problem. We're working on it.

[Christian Kopfer, analyst]

But is it fair to say still that the recoveries will come up slightly due to better grades?

[Mikael Staffas, executive]

Yes, this should come up due to that part. But -- and hopefully, it will also come up due to the fact that we've gotten our arms around some of the issues there, but that is a very, very weak guidance.

[Christian Kopfer, analyst]

Okay. But going into next year, you expect the...

[Mikael Staffas, executive]

Going into next year, things should look better. But as I said, regarding the grade, we had this question before regarding the grade profile and exactly what you expect for '24 and '25 will come back to maybe at least '24, we'll come back to later in the year as we get our mine plan in order.

[Christian Kopfer, analyst]

All right. And then for Mines in general, I think you had this question, just to sort this out to understand what is the underlying profitability of the mines here? So if you add -- so if we just say that Tara is not there, you don't have an extra cost for Tara, and you don't have any definite pricing effects. Is it fair to say that if that should be the case, mines should have been able to deliver between SEK 800 million and SEK 900 million in EBIT for Q2.

[Mikael Staffas, executive]

I'm looking at my CFO just to make sure that we get the number right here.

[Håkan Gabrielsson, executive]

I mean there are many opportunities, but we said that we had a one-off effect of final pricing of EUR 90 million, so that is one improvement. We had about EUR 38 million negative in Tara, which over time should go to EUR 12 million as long as it is in care maintenance, so that's an additional improvement. And then as your first question, both Tara and Kevitsa are looking at better grades during the second half in relation to our grade guidance. So those would be the moving parts, as I see it.

[Christian Kopfer, analyst]

Yes. Yes, I don't -- I was just talking about Q2. So if you didn't have Tara in Q2, I mean if you didn't have any definite pricing effects in Q2, just wonder what the base I should have when looking into Q3. So is that correct [ between SEK 800 million and SEK 900 million ] in Q2?

[Håkan Gabrielsson, executive]

Well, we -- the negative impact of Tara was SEK 38 million in -- sorry, EUR 38 million in Q2 and the final pricing impact was minus EUR 90 million. Then there is a small [indiscernible] that we had some comp still in the books of Boliden and Garpenberg, but that's a relatively small amount. Most of that is in the mining profit already, but not in the group profit, the SEK 200 million that we referred to earlier.

[Christian Kopfer, analyst]

Okay. And the item affecting comparability of [ SEK 50 million ], should I add that -- is that in addition to this...

[Mikael Staffas, executive]

That's part of the EUR 38 million in Tara, so you can't add it again, then you're double counting.

[Operator]

[Operator Instructions] The next question comes from Tyler Broda from RBC Capital Markets.

[Tyler Broda, analyst]

My question is probably one more of a higher level. I guess this is an elevated CapEx period, metals prices where they are, some of the operational issues going forward. I think small, we would get a negative free cash flow for the next sort of -- out to 2024. What -- how do you sort of look at the balance sheet here, obviously starting from a strong position. But can you look at the balance sheet here? And then whether there's any flex in CapEx? Or how are you thinking about the CapEx program in light of these circumstances?

[Mikael Staffas, executive]

Regarding the CapEx, there is, of course, maybe some flexibility regarding new products as we move forward. But regarding the existing projects, we do not -- we are not in a situation where there's any benefit for us in trying to be aggressive in cutting any CapEx, I think it's good that we move these projects forward. And then when it comes to that, we'll have to see what will come as we start adding up for '24.

But I would say, generally, we do have a strong balance sheet. We do believe that the CapEx that we are spending is value added. So therefore, we -- even though we have question it have come to the conclusion that it's the best thing to move ahead with it.

That I'm getting signals here that we have to wind up because the hour is finished. So with that, I would like to thank you all for listening in this morning. As I said in the beginning, this has been a very, very eventful quarter. Trust me, it's been new information, new things to deal with every day. I personally feel very good about how we have handled these difficult situation, how we very quickly came to a decision to minimize the losses in Tara, how we have been able to get back after the devastating fire in Rönnskär. I think both these things show that we have a resilient organization that can manage also and deal with also a very odd situation that we should probably not get too often.

With that, I wish you all who are now already on summer vacation, I wish you all a very good summer. Bye.