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Boliden AB
Earnings Call Analysis
Q2-2024 Analysis
Boliden AB
In the second quarter of 2024, the company navigated a diverse set of circumstances to deliver notable financial performance. Key highlights include a substantial insurance income due to a major fire at their Rönnskär facility, record production in some of its operations, and the commencement of new strategic projects. Notably, the company reported an operating profit of SEK 4 billion, bolstered by one-off insurance income and restructuring costs.
The company posted an operating profit of SEK 4 billion, excluding process inventory revaluation, which was significantly influenced by one-off items such as SEK 2 billion from insurance income related to the Rönnskär fire and SEK 350 million from restructuring in Tara. Including process inventory valuation, the operating profit was SEK 4.8 billion. CapEx for the quarter stood at SEK 3.7 billion, aligning with full-year guidance. Free cash flow amounted to SEK 400 million, aided by SEK 600 million in insurance proceeds. Earnings per share (EPS) came in at SEK 13.20, also reflecting the impact of the insurance claims.
The company’s various business segments showed mixed performance. The mines segment reported a profit of SEK 1.1 billion, an improvement from previous periods primarily due to recovering metal prices. The smelters segment achieved a profit of SEK 3 billion, although excluding insurance income, the segment's results were only slightly better than the previous quarter. Strikes in Finland impacted the previous quarter, and the ongoing issues in certain processes and lower metal premiums affected the current results.
Operational performance had its ups and downs this quarter. The Aitik mine had a weak quarter due to operational challenges, particularly in open-pit volumes and the availability of equipment. However, there were highlights, such as record mill volume in Garpenberg and good production stability in Harjavalta’s nickel operations. The company is also actively addressing operational hurdles with ongoing projects and improvements.
The company is making strides in several key projects. The expansion of Aitik is progressing as planned, aiming to meet budget and deadline targets by the end of this year. Similarly, expansions in Kristineberg and Rävliden are proceeding well, with expected increased production in early next year. At Odda, infrastructure developments are on track, moving towards commissioning by year-end. The company is also keen on exploring M&A opportunities, though any potential acquisitions would depend on favorable financing conditions.
Base metal prices, particularly for zinc and copper, have been favorable, contributing positively to the company’s finances. However, nickel prices remain volatile, presenting challenges. As the company continues to navigate these price fluctuations, its strategic focus remains on optimizing production and cost efficiencies across operations.
The quarter also highlighted some ESG-related challenges, particularly in terms of increased CO2 emissions due to significant trucking activities and elevated sick leave ratios, which are still higher than pre-COVID levels. The company aims to address these through better project planning and improving health and safety measures.
Looking forward, the company maintains its CapEx guidance for the year and expects minimal additional planned maintenance. However, there are anticipated cost impacts related to the ramp-up of Tara and the Liikavaara satellite pit affecting Q3 and Q4. The overall future outlook is stable with continuous efforts in operational improvements and strategic expansions.
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Ladies and gentlemen, I'd like to welcome you to Boliden's Q2 2024 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.
Thank you, Olof, and good morning to all of you out there as well. Now the camera, I think, is moving along as well. As I said, good morning to all of you from sunny Stockholm. I hope that you're having equally nice weather wherever you are this morning.
Let's jump into the quarter and look at the highlights of the quarter. And there's been lots of moving parts and many interesting things happening during the quarter. So let me try to jump into them right away. The big thing is, of course, that we've had a big one-off insurance booking coming into our accounts of SEK 2.4 billion related to the Rönnskär fire. We've also had improvement in the prices. We had stable currencies, and we've had somewhat of a negative development on the treatment charges.
We've had a very good production quarter in the smelters in general. We've had a big maintenance quarter. And the maintenance activities have more or less all of them been on time and on budget, which is a big relief, and we're now set for operating for another year. We have only very limited maintenance left for the season coming into Q3.
We have, on the negative side, low mill volumes in Aitik. I'll come back a little bit to that later. But in essence, we've had problems and issues with the ramp-up of the Liikavaara satellite pit, and we've also had issues with the availability of equipment, and to some extent, competition between the project in Aitik and the operations for the hauling capacity that we have.
In Garpenberg, we're very happy. We have record throughput production coming out of there. We've made a decision to reopen Tara, and we've been handling lots of administration around the reopening of Tara in the quarter and getting a plan together, and now we will ramp up in the sense of getting people back and getting people retrained during Q3. And then, we will eventually see some production in Q4.
Our key projects are all doing quite well. We have a very good development on the Aitik project, scheduled to land on expected budget and expected time by the end of this year, well in time from next year's dam raising season, which is the one that we need to make. Also the Kristineberg extension and Rävliden is doing well. We are producing already from the Rävliden extension, but we're doing that through the old infrastructure. The new infrastructure development is well underway to get production coming through in Q1 of next year.
In Odda, we are in a very intensive part of the project. We have gotten quite a few things done in the quarter. We have, for example, gotten all the infrastructure around the power coming into the site. That's all been commissioned, and we are now moving ahead with the different units for commissioning later this year in production by the end of this year.
On the financial performance, we've had an interesting very even number of SEK 4 billion of profit, excluding the process inventory revaluation. We've had one-offs, which are almost SEK 2 billion, in that we have the positive from the insurance booking that's come to the P&L and then the negative from the one-off related to the restructuring in Tara. We have a cash flow of SEK 400 million positive despite the very intensive investment phase that we're in. Håkan will come back and talk about that a little bit more. And CapEx is moving ahead according to plan with about SEK 3.7 billion in this quarter.
The key projects, just an update on it, I spoke about the Odda expansion already that we have the infrastructure in place to have all the power coming in, and we're now starting to commissioning slowly the different parts, and we're still also working on installations, and it will be busy times towards the end of the year. Dam reinforcement in Aitik is moving ahead very well. The Kristineberg expansion is set very well. In the Rönnskär tankhouse, we have started the groundwork, a physical around this one is still very much on plan for production in the second half of '26.
The Boliden Area extension, we have started some groundwork there as well. And also there, we'll expect to get production coming out of that by mid '26. And the Tara reopening, as I called upon before, we have gotten a new agreement with the unions. We're implementing that agreement. We are starting in about a week. We will start getting the first people coming back, and we will start a training program where people will be trained for their -- at least some will have new work chores coming back. For those who haven't read the details, we will reduce the workforce in Tara from about 600 people to about 400 with a slightly lower production, but this means that we also need to get the productivity increases to make that work and that we feel also very good about.
On the ESG side, it's been a challenging quarter in terms of lost time, injury and safety. We are -- I don't know if we can say that we are -- any specific things to point to, but we are in a negative trend regarding that right now. We are, of course, working very hard to reduce this as much as possible and try to come back on track to get this ones -- number coming down again. We have CO2 emissions that look relatively high in a quarter, but this is a little bit of accounting in this because when we're doing the big Aitik project, there's quite a lot of trucking going in there. And the trucking requires diesel, and the diesel gets CO2, but it doesn't give any production as such.
I think that over time, there will be lots of discussion around how should we actually account for the CO2 from an investment project like that. But the way that it works for us right now is that it comes straight through as a P&L item if you want to use that word, which means that we have high CO2 in this individual quarter. That should then be reduced once we're back again and done with the Aitik project.
Sick leave, very much similar to what it's been for the last couple of quarters and the last year. It is still on an elevated level compared to pre-COVID. Here, we are similar to the society at large, where we are operating, where we do see higher sick leave ratios. And we're working hard to try to get that back again, also to the levels that we saw pre-COVID.
On the market side, the base metal prices have been helpful to us and has been going up. They were especially going up in the beginning of the quarter. Nickel, not so much, even though nickel also went up initially. Nickel has come down towards the end of the quarter. And the way that we price in things with the MAMA effect or I would say not -- well, the MAMA effect, but also the quotation periods. With a very long quotation period on nickel means that when we have negative development towards the end of the quarter, that also affects the total profit that we can report to the P&L for that particular quarter.
Precious metal prices are nice and doing things that are good for us. So that's helping us a lot, whereas the PGM, which is also an important revenue base for us are weaker in this one. There are weak spot TCs. As you know, we are not that exposed to spot TCs. It's there for a part of our mix, but we have mainly benchmark TCs in the way that we operate, but we have seen some negative development from this in the quarter that also comes a little bit into our numbers. And then we have a slightly weaker krona compared to the previous quarter.
If you look at where we're standing in the industry compared to where the cash costs are, and if you start from the left on this chart, you see that copper is actually performing very well. We have a price level that is way beyond the cost level in the industry. Everybody in the industry more or less makes money at these levels. And you can also see there's a relatively good cost discipline in the industry. Cost levels are relatively flat towards the end here. That's a little bit cheating because the gold price has gone up and there are many copper mines with gold credits, which means that actually costs should go down. And that we see on the zinc side, where we have costs coming down quite a lot from increased silver prices that comes as a negative and reduces cost down. But also the lower TCs also plays in. This is a miner point of view -- miner's point of view on where the costs are.
You can also see that the zinc price has come up and is now at somewhat decent level, and it's coming above the cost curve compared to where we were earlier in this year or where we were last year, but nowhere near to where copper is, which means that I would say that there is an upside risk on the zinc price, whereas you could argue that at least short-term, there could be a downside risk on the copper price given the relatively high margins that there are right now.
Then looking to the right and looking at nickel, we have the biggest challenge, I think, for the general industry. You can see that nickel prices are now on levels where there are lots of people in the industry that don't make any money. There are announcements that nickel capacity are being withdrawn. At the same time, everybody wants nickel for the electrification society going forward. This is a little bit of an enigma for everybody to understand how this will work out as we move forward.
If we then look at our numbers, we can say that on Aitik, we had a low throughput of about less than 10 million tonnes in the quarter. We had a slow ramp-up, as I said, in Liikavaara. We've also tried to put automated hauling system in place in Liikavaara. It's a very good place to do that in principle, but we had some teething problem in getting that to work. We've also had lower equipment availability than we would like to have, also in other parts of the mine, which has been part of the challenges here.
The copper grade is at 0.17%, which is around where we have guided for. And as I said last quarter, I hope that the 0.15% that we had then will be the lowest in this kind of cycle, and it feels good that we're now up to at least the decent levels. But as we said, as we come over the next few years, we should see that climbing up slowly.
Garpenberg, record mill volume. Very proud about that. We've had a good trimming of infrastructure in general to be able to achieve this. The zinc rate has been slightly lower than was guided for. This also then should come up a little bit towards the end of the year in this situation.
In Kevitsa, grade is much better than last year, but you remember the issues we had last year and in line with what we have guided for. Milled volume in line with what we typically have for a quarter like this. Boliden Area has had a very strong production, especially strong gold production and a favorable ore mix coming out there. And Tara was in care and maintenance for this quarter.
On the smelter side, we've had maintenance stop everywhere except in Odda, which, of course, plays into these numbers. The maintenance is this year -- it's not a super maintenance year this year. It's actually lower than the average maintenance if we look on the cycle, but it has been, for different reasons, very much concentrated to Q2. And, therefore, we are -- apart from a little bit of maintenance in Odda, we're done with a big part of maintenance.
In Rönnskär, we have improved the feed. And in the copper, anode production has gone up in the quarter. In Harjavalta, we've also had a very strong nickel production where we've gotten an improved process stability coming out of that one, also good copper production coming out of there. Kokkola has also produced strong and according to plan without any major issues. The challenging part is Odda, but it's related to -- it's not that easy to operate a zinc smelter when you have a major project going on at the same site at the same time.
Comparing to last year, you also know that we have taken -- as part of the Odda project, we've taken Tankhouse 4 out of operation. So we are down in tankhouse capacity while we're waiting for the new Tankhouse 6 to get into operation as well. Bergsöe has also had a maintenance stop and has also worked out well according to plan.
With that, I'll leave it over to you, Håkan, to go through the financial numbers.
Thank you, Mikael, and good morning. Well, as you have seen, we have reported an operating profit, excluding process inventory, of SEK 4 billion. That includes SEK 2 billion one-offs. That's insurance income related to Rönnskär and that's restructuring in Tara. Both of them have been covered in press releases during the quarter, and there is also some more detail in the report in case you want to go into more detail about that.
It's also worth noting that the operating profit, including process inventory is SEK 4.8 billion. We have a significant positive contribution from process inventory this quarter. As you might recall from the year-end, we have increased the process inventory, not least because we have taken in more precious metals in the feed and have a higher amount of gold in the process inventory, and that adds to the result this quarter.
CapEx SEK 3.7 billion, in line with the full year guidance. Free cash flow is SEK 400 million. Now that includes SEK 600 million insurance proceeds, but it's also an improvement of the operational working capital that is coming in there. Earnings per share, SEK 13.20. A significant part of that is, of course, related to insurance, but nevertheless, a strong number.
Looking at the profit by business area, we can start with mines, report a profit of SEK 1.1 billion. That includes the restructuring of Tara, which is just above EUR 30 million, so SEK 350 million. It's an improvement compared to both comparisons periods, primarily due to the recovery of metal prices that we've seen over the last quarter. Sorry, going back, looking at smelters, there, we have a profit of SEK 3 billion, and that, of course, includes the big insurance income. If we back out the insurance income, the result is slightly better than last quarter. It is better than last quarter, which, as you recall, was impacted by political strikes in Finland. It's slightly down compared to last year as a result of lower benchmark TCs and metal premiums.
Going into the deviation analysis, there will be a lot of moving parts, as Mikael talked about. There is insurance. There is restructuring. There is care and maintenance. Last quarter, we saw the strikes in Finland [indiscernible] so on. I don't think there should be any surprises in those areas, but you will also see that Aitik had a weak quarter.
But let's start by diving into the comparison of Q2 of this year, this quarter to Q2 of last year. Profit has moved from about SEK 800 million last year to SEK 4 billion this year. Higher metal prices contributes. That's primarily zinc, copper and gold. It is though partially offset by lower benchmark TCs and lower metal premium. Volumes are up, and this is largely internal profit this time.
As you recall, in Q2 of last year, we had just had the fire in Rönnskär, inventories piled up, and we made quite large internal profit elimination that had a negative impact on that quarter, comparing them to Q2 this year where we have a positive impact and have released inventories. Apart from that, there is, of course, a negative impact from Tara being in care and maintenance and Rönnskär after the fire and a weak quarter in Aitik. But year-on-year, that is largely compensated by better production in other units, for instance, Boliden Area, Kevitsa and also Harjavalta.
We have, well, some saving on costs. We have depreciation pretty much in line with last quarter, and then, we have the big impact from the one-off items that I just mentioned. Looking at the sequential comparison instead, we are moving from SEK 1.2 billion to SEK 4 billion. Again, prices are up. And as a reminder, when we have higher prices, that means that we eliminate a bit more on the internal profit side so that that's on the negative side. And we also see a negative impact of lower benchmark TCs and premiums, the full quarter effect on that. But net, there is almost SEK 1 billion contribution from better prices.
Volumes were up despite the maintenance stop that we've had in smelters in this quarter. So smelters are improving, and that is, of course, largely due to the fact that Q1 was impacted by strikes and also severe winter conditions. Mines, on the other hand, are slightly negative on the volume side, and that's primarily due to volumes in the open pits, primarily Aitik that came in lower than the last quarter.
Costs are up compared to last quarter, half of that is in smelters and the other half is in mines. In smelters, the main explanation is the maintenance stop that we have done. And in mines, we have had higher costs related to the issues that Mikael talked about in Aitik.
Looking at the cash flow then, I'd like to start to talk a bit about how the insurance proceeds affects the cash flow side. We have SEK 600 million payments received in the quarter. On the first line here, we have SEK 2.4 billion from the income statement, SEK 600 million of those flows down all the way to the free cash flow. And then we have a negative of SEK 1.8 billion in the working capital, which is then the receivable on the insurance company.
So it is a clear improvement. The insurance proceeds of SEK 600 million is one part, but also backing out the insurance effect on working capital, it is a good development in the quarter of the operational working capital. And we've also seen a normalization of the paid tax that was unusually high in Q1. So a good development in the cash flow.
Looking then at the capital structure. I think the main difference is that we've increased the net debt by SEK 2 billion, and that is entirely related to the dividend that was paid out during the quarter of SEK 2 billion. Apart from that, this is fairly similar numbers and a healthy net payment capacity.
So with that, I hand back to Mikael.
And I will just very briefly touch upon 2 short issues. First of all, we have a Capital Markets Day that we have now scheduled for March 18 to 19, and we will have the actual presentations in [indiscernible] in Norway and then build that then with an excursion to the other smelter and you also get to see, then will be, the newest, brand newest, probably most cost-efficient zinc smelter in the world around that. Save the date, there will be official invitations coming out in September.
On the outlook side, it's very simple. There is no change. The CapEx guidance remains the same for the whole year. The planned maintenance is basically all done. There is about SEK 50 million left that is coming now in Q3. Tara operating profit will be slightly worse for Q3 and Q4 since we're taking in people and starting to deliver, get costs that we don't have the same revenues for until the revenues start coming a little bit in Q4, but mainly in Q1, and there are no changes to the guiding regarding grades.
With that, I think we will open up for questions, and let's see how this -- who will be first.
Mikael and Håkan, 2 questions. The first one on acquisitions.
Do you hear me -- excuse me, do you hear me? We've had some issues here, so we didn't hear the beginning of your question. So please start over again.
Okay. Can you hear me now?
Yes.
Okay. So 2 questions. The first one on acquisitions. Would just be great to hear your latest thinking. Are you actively looking at opportunities to add additional copper or zinc mining exposure? And do you think you've got the balance sheet to do deals at the moment?
And the second question is on Aitik. We haven't seen the asset operate consistently at that 45 million tonne per annum throughput target. I think the last 12 months was around 40 million tonnes. So looking ahead, what do you think is a realistic annual average level for that mine? And if it is still 45 million tonnes, what's going to get you operating at that level consistently?
Yes. If I start with the second question, it is a good observation that you're making and that we've had challenges with Aitik. And of course, it hasn't been helped by the fact that we have a big SEK 5 billion project going on at the same time, to some extent, competing for resources. We've also had been ramping up the autonomous hauling system that we also need to get in line. So our ambition is clearly to get to the 45 million tonnes. It might not come directly now in Q3, but as we move in further around, we should get -- be able to get the autonomous hauling in place, and we should get less competition on trucking capacity from the project. That should make things become better as we move forward.
Regarding M&A, nothing has changed. It's the same thing. M&A has always been an option for us. It hasn't been needed. It's not that we need M&A to make our strategy work. It's not that we are too small in any sense the way we're standing. And I'll leave that with that comment.
Okay. So just to follow up briefly on Aitik, is it from 2025, you'd be more confident that you can operate at the 45 million tonne level?
Yes, we will feel more confident as we get to '25.
Please state your name and company.
This is Adrian here at ABG. 2 questions from my end as well. First of all, you mentioned you received SEK 600 million in the insurance proceeds already. Have you received any more clarity on the rest of the payment timeline? And also, if I remember correctly, you still have an outstanding claim of SEK 1 billion for Rönnskär. And what's the status on that as well then?
Should I take that?
Yes. Take that.
Well, if we start with the primary insurance that we have taken to the P&L, we have -- basically, the insurance proceeds will follow the spend in the rebuild project. An indication, which is also then connected to the speed of the Rönnskär project is that we'll spend -- or we will get about SEK 200 million per quarter for Q3 and Q4 of this year. So that adds up to SEK 1 billion for the full year. And then the remainder will be fairly evenly distributed between the quarters next year, again, depending a bit on the project spend.
We -- discussions are ongoing with the secondary insurer, where the obligation sort of -- so to say, kicks in when the primary insurance have been fully used. It's -- I think we're confident about that, but there is some time until we can come back with more information on P&L bookings on that. So we'll have to come back to that.
Okay, I understand. And then my second one is regarding the pushback-5, decision in Kevitsa. It's next year that, that decision is supposed to be taken. And presumably on the current nickel price levels that might not be viable for you to invest in. So can you talk a bit about roughly what kind of a nickel price you would need to actually take the investment decision for pushback-5?
You're absolutely right that the nickel price is extremely important for the pushback-5 decision. Exactly what we need to put as a long-term price is something that we will look upon, but we will use in our calculations the long-term prices that we have, and they are published in our annual report. But of course, we will look into adjustments of that before we make a potential decision.
We are also looking into -- and you know this that for different reasons, it would be good to make a decision next year because it makes things a little bit smoother. But it's not that we absolutely have to make the decision already next year because we could scale down a little bit and then scale up later if these things come to fruition. And then, of course, when you're doing these things, there is an environmental permit linked into this because we will need the new tailings facility and all these kind of things that are played into this part.
So the short answer is, we'll come back to you regarding the exact nickel price we need once we are close to making the decision. We will try in the meantime, especially with the nickel markets being where they are, try to postpone the decision further out, if possible, and try to smoothen out things in other ways anyway. And also, we need to work on the environmental permit in parallel.
The next question comes from Ioannis Masvoulas from Morgan Stanley.
A few questions from my side. First on Aitik, can you talk about the ramp-up issues at Liikavaara and the low equipment availability during the quarter? And to what extent have these been resolved going into the second half?
Second question around the Odda smelter expansion. Do you have good line of sight and concentrates availability at this stage? And have you secured sufficient material for the expanded footprint? And then lastly, the reported EPS includes the SEK 2.4 billion insurance income and potentially more if you do get the additional SEK 1 billion insurance. Will this form the basis of the dividend calculation for the full year?
Let me take this one a little bit one by one. I can start with the last one that you're absolutely right that according to our dividend policy, the proceeds will book into the bottom line and thus becomes the basis for paying dividends. We do not have any decision or any discussions so far to deviate from our dividend policy, although this is, of course, subject to discussions as we come to the end of the year. But I would say that the basis is not, you can say that you as a shareholder got a lower dividend last year. Even though you had the accident, but you did not get the benefit of the insurance then. Now you get the benefit of the insurance a little bit later. So I would say that our plan A is clearly that we are part of dividend payments.
Other concentrates, we are -- we have a very good and balanced book for other concentrates going forward, no big challenges at all. Apart from that, of course, if you talk to some commercial people trying to balance, the ramp-up curve is always a little bit of a challenge, but it looks quite good. Aitik, and what to expect and how to get further into the -- looking forward, I can just say that we've had a number of issues in the quarter in Aitik, some of which should disappear relatively quickly, some of which will not disappear right away.
I talked about the ramp-up in the Liikavaara satellite pit that has to do with some rock mechanical issues getting through the first benches. That is typical when you open a new pit that you get problems in the first benches. That should come out relatively quickly. We have, as I said, decided to try to get the driverless, the autonomous trucks working on the Liikavaara transportation. This is a 3-kilometer transportation, very good for not having drivers sitting on a relatively long distance. We've had some teething issues with that, that we're working through, that should be able to be sorted out, but it might take a few months. So it could affect Q3 as well.
And then we've had some general, both availability issues and competition issues between operations and the project. And as the project finishes towards the end of the year, thus competition for resources should alleviate.
The next question comes from Amos Fletcher from Barclays.
2 questions from my side. First one was on Kevitsa. We saw throughput going down there despite the fact that we didn't have a strike and we had better weather compared to Q1. Can you just explain what was going on there?
And then I guess, the second question is just to clarify on the secondary insurance proceeds of SEK 1 billion. Just regarding what Håkan was saying, is it fair to assume that we don't get the proceeds from that until 2026?
I can take the first one and say that for the -- we had -- we usually don't talk about the maintenance in the mines because it's a little bit erratic. But we had a very -- despite we had strikes, we had relatively good maintenance situation in Kevitsa in Q1. Q2, we've had some maintenance and also a little bit of rock stability. But I would say that a throughput that we've had now is quite in line with the 9.5 million tonnes that we should get through the year. So it hasn't been good -- anything to talk about now. I think it may be -- you can say, it was rather strong to have the 2.4 in Q1 despite winter and strikes. Now regarding insurance, I'll leave that one to you, Håkan.
Yes. And I'm not going to give a certain response as to which year we're going to book it on the P&L. We book it on the P&L when we get a firm commitment from the insurer that the claim has been accepted and that they are committed to pay. I mean that may happen before 2026 for sure.
That should happen maybe in '24 or '25.
Yes, exactly. But it's difficult for me at this point to give an exact date. We have been focusing our discussions with the primary insurer and to get the investigation of the cause of the fire ready and published, et cetera. And it's the same investigations that are used by both insurers. There is more detail about the cause of fire on our website, et cetera. So we'll intensify our discussions with the secondary insurer within the near future to put it that way.
But you could also say it's fair that -- as I said, these are not done yet in negotiation, but the secondary insurers basically have the right to not pay anything until the first SEK 2.4 billion has been paid. That's a little bit how they work. So that means if your question was, when are we likely to see the cash flow from the secondary insurance, it is probably at '26 rather than '25, the physical cash flow. And that's, of course, one reason why the secondary insurance is not in a big hurry to sort this claim out because they feel that they have time.
The next question comes from Daniel Major from UBS. Daniel Major, UBS, your line is now unmuted. Please go ahead.
The next question comes from Viktor Trollsten from Danske Bank.
So just a couple of questions on the Liikavaara ramp-up. And if you could just perhaps help me first understand, it sounds like you have issues with mining volumes in Liikavaara in the mining process. Why did that impact the milling process and milled volumes? Couldn't you fill that up with Aitik volumes? Could you just help me understand that, please?
It is not that easy to do that. And you can understand that if you move these equipment around, it's not that easy to move them back and then when you have the issues you have to kind of use the equipment where you are. So, unfortunately, mining is not that flexible to use resources on a very short notice, especially excavators and so on.
Okay. So equipment availability -- and on the slow...
It's also blast availability and so on. I mean it's lots of things that are planned very much in advance, and you don't always have the freedom to quickly move around.
Okay. And on the slow ramp-up of Liikavaara, and has that sort of changed your view on how much can be blended from that piece in 2025? Or is it still -- I don't remember if it's 8 million tonnes or what...
That's still roughly 20%, and that remains. I mean, this -- you could maybe say that we were a little bit naive in getting up quickly. Anybody who has started up an open pit know that the first benches usually have some surprises.
And then on grades because that was actually up quarter-on-quarter. And obviously, I guess volumes wouldn't have been super high in Q2 from Liikavaara, and it was, but still up quarter-over-quarter. But with slower ramp up, has that sort of increased the risk on the full-year guidance for growth in Aitik? Or how should we think around that?
No, I think that the full year guidance of 0.17% is relatively robust.
And excludes Liikavaara...
No, it is still -- it's the guidance for the whole complex together.
Regarding the grades, we had 0.16% year-to-date in Aitik, and we have guided for 0.17%, and we're still -- it still looks good to catch up and finish the year on exactly the guided levels.
The next question comes from Johannes Grunselius from DNB.
Yes. It's Johannes here. Just a bit of a follow-up on Viktor's previous question on Liikavaara. Can you share with us what the grade is in Liikavaara in the deposit and the size of the deposit because I can't see that in the most recent annual reports anyway.
Okay. Well, the average grade in Liikavaara in total is 0.26. And it's -- and I think it's about 60 million tonnes, the way it's been defined, but that one, you have to don't make that too exact, but it's around that order of magnitude. Schedule -- but that's now scheduled for about 8 million tonnes per year for 8 years. That's roughly the scheduling from -- of it.
Okay. A bit of a question on P&L dynamics, but April prices was a lot higher than prices at the end of Q1. I might have missed this, but what kind of sort of preliminary price effect was included in the Q1 results?
Okay. That's -- again, when I get this question, I typically remind that there are 2 parts of this definitive pricing impact. If we start with the open positions that were preliminary priced at the end of last quarter and that has been finally priced in this quarter, what we referred to sometimes as MAMA, that's about SEK 280 million -- I think SEK 280 million positive in the quarter. But you shouldn't forget also that since we have provisional pricing, all of the nickel produced in a given quarter is in the closing priced at the prices in the last day of the quarter.
For nickel though, the quotation period is 3 months; for gold-silver, 2 months; for copper-zinc, 1 month; and for PGMs, 4 months. So that means that we had an impact also from the fact that the increase of the end-of-period prices is clearly less than the increase of the average prices. So in short, the -- when doing the modeling, you cannot only look at average prices because then you will end up slightly wrong. And in this case, this preliminary pricing had a negative impact. I haven't quantified that, but just so that you're aware.
But net-net, maybe SEK 150 million, SEK 200 million or something.
It depends on what you compare about. But I think that for example if I recall it correctly, copper is up about -- or copper, gold, nickel, et cetera, are up about 10% to 15% average prices. But if you look at the end of period prices, it's only 2%, 3%. So it is a sizable downside on that comparing to an average price scenario.
Okay. Helpful. My final question is on Tara, where you are explicit on losses for Q3, Q4. But do you -- when do you expect to sort of go above breakeven for that asset?
Q1.
Q1, Q1, okay. Clear.
The next question comes from Richard Hatch from Berenberg.
Great. Just one question. I wonder if you can just help us a bit with treatment charges. If we kind of look at the smelters on a 12-month basis, can you just sort of help us with how much treatment charges are locked in on an annualized basis versus how much of those treatment charges you're seeing on a short-term basis, just please?
The general answer to that one is even though it vary a little bit over time is that we have around 15% to maybe 20%, we'll say 15% at any given period that is treated on spot terms. And then we have another then 80% to 85%, which is on annual contract. So that's a quick answer around that.
Okay. That's super helpful. And then just perhaps a comment would just be just on the insurance proceeds. I don't know if it's possible at all, but it would be helpful if you were able to, I don't know, maybe towards the end of the call or just after the call or end, just perhaps just give the market a steer as to what insurance proceeds you've received during that period just because it's helpful from our net debt modeling and just a feedback comment.
We'll see. Thank you.
The next question comes from Daniel Major from UBS. So Daniel, are you there now?
Hello, can you hear me okay?
Now, we hear you.
Okay. I'm not sure the issue was there. Yes. A couple of follow-up questions. The first one, just around the insurance proceeds again. I believe you incur tax on those. Can you give us any indication on the timing of that? Or is that included in the projections of sort of SEK 200 million a quarter this year or next year?
Well, that's a very good question. And yes, you're right, there is a tax on that. We are looking into some allowances in the Swedish tax laws to push a bit of the tax payments further out. In the accounting, we have assumed that it's a straight tax payment already until we know that those allowances can be used. So it's a bit -- this is work in progress, and it's, therefore, a bit difficult to guide. But we are -- it's looking good that we will be able to push the tax payments more to reflect where we actually get the project in place and do the depreciation. But I cannot be too precise on that. We need to make sure that we understand the tax regulations correctly and that we're aligned with how it should be done to put it that way.
Okay. So I guess, for our modeling purposes, we should include some additional taxation in, say, like 2026, 2027. Is that the way to think about it?
Yes.
And then perhaps a follow-up question to Liam's question on M&A. So you've indicated it's part of your -- it's a part of the strategy, nothing much has changed there. If opportunities were to arise, your balance sheet has not got a huge amount of flexibility now. Would you consider raising equity to take advantage of opportunities that might come in the market?
I mean it's a very speculative question, but it's -- if we find something that is interesting and we were to be interested in it, we'll have to figure out how to finance it, and we'll sort it out then.
Right. Because you wouldn't rule out raising equity for the right opportunity?
No, for the right opportunity, we would not.
The next question comes from Amos Fletcher from Barclays.
Just a couple of follow-up questions. I just wanted to ask on working capital. Can you just, I guess, discuss what you were saying, the underlying kind of operational working capital performance is pretty good? Can you just give us some more detail on that and then your expectations for that over the course of the second half of the year?
And then secondly, I just wanted to ask about cost inflation and the sort of rates that you're seeing on an underlying basis at the moment.
And then the final one was on smelting. We saw the treatment charge impact quarter-on-quarter sequentially, quite low, sort of SEK 102 million negative compared to what you've been saying previously. Why was it so low? Was that just because you were going through maintenance? Or is there some other issue there?
Yes. I don't know. I can start with the cost inflation. We are right now basically in a flat cost inflation on anything that we procure. The labor inflation is around 3% for many of our markets right now. So I can say that around inflation, then leave you to Håkan to discuss the working capital development and the smelting TCs impact.
Okay. So the working capital development, there is a strong focus in our smelter division to reduce working capital intermediaries and to work with capital efficiency, and we have been successful during the quarter. So there is some good work done there. And, therefore, I mean -- so that's a quite general statement on why Q2 is looking pretty good.
Going forward, I would expect a more or less normal seasonal pattern. We have Q3, which is typically flat on working capital at constant prices assumed. And then we release capital as we have a good cash flow effect from release of working capital in Q4, and I would expect something similar also this year.
Regarding treatment charges, if I recall it correctly, compared to last quarter, we have SEK 100 million negative impact on treatment charges. And I think that's pretty normal. We had basically half of the quarter impacted by the new benchmark TCs in Q1, and now, we get the full quarter effect. A lot of that is, of course, the right pocket and left pocket -- I mean, moving revenues between mines and smelters, so the external exposure is perhaps less than assumed. But I would say that the SEK 100 million is a fairly normal number there.
Okay. I guess as we go into Q3 and we come out of maintenance, you've got bigger external exposure to spot purchases. So could we expect another kind of negative effect in Q3?
Possibly slightly. But in principle, we should have the full effect of lower TCs in the books already in Q2.
The next question comes from Igor Tubic from Carnegie.
Yes, one question from me. I just wonder in terms of grades when it comes to Garpenberg, I can see that the grade has come down in Q2 and that you reiterate your guidance of 3.5%. But can you please help us was this something that you expected because in the report I can see that you had difficulties to access high-grade stopes. And have you been able to do that lately?
No, you're absolutely right. We did have problems to access some of the high-grade stopes, and we have now in our plans to be able to access these stopes that we've missed in the second half of the year instead solving some rock mechanical issues. So then we had to turn to some reserve stopes, and they typically have lower grades.
Okay. And just one question also to Mikael in terms of costs in mines. I can see that they have increased a lot. And of course, it's partly due to the restructuring costs in Tara. But have you seen anything else? What has affected that this cost increase compared to Q1?
I'll leave that for Håkan.
It's more or less entirely Aitik and related to the issues that Mikael talked about. It's unplanned maintenance. It is extra cost related to the ramp-up problems of the Liikavaara pit. So basically, we have subcontractor costs. We have consumables. We have spares in Aitik. That explains the difference. A large part of it anyway.
The next question comes from Liam Fitzpatrick from DB.
2, hopefully, quick follow-ups. Håkan, you slightly lost me on the kind of provisional pricing comments there. I understood the comments around kind of quoting prices lower than the average or the percentage increase. But you mentioned a provisional pricing benefit of SEK 280 million in Q2. I just wanted to make sure I heard that correctly.
And then second one on order, I think you said at the CMD that the uplift from the expansion, once it's fully up and running, is EUR 150 million. Could you give us a steer based on kind of current terms, what that uplift would be?
Shall I start with the...
You can start with the [indiscernible] pricing and how it works.
I'm sorry if I wasn't fully clear on that, Liam. But what I was trying to get across anyway, I'll try to do better this time, is that we have one thing -- one part that we measure actually that we typically talk about, which is the so-called MAMA effect. That's SEK 280 million in Q2. And that relates to the contract or shipments that we had done during Q1 that were preliminary priced at the end of the quarter, and that has been finally priced during this quarter, during Q2. So that's SEK 284 million (sic) [ SEK 280 million ].
And then my second comment was that, in addition to that, you shouldn't forget that we are not pricing any given quarter at straight average prices. There is a tilt so that the end of period prices actually become quite important in how we report things. And that part, I haven't quantified specifically. So that was my comment.
No, no, it's my understanding, don't worry. Is the net effect positive still? Or do they largely cancel out?
And here, you have to be careful what you compare with. But what we're saying is that when you're looking at the production and the shipments in Q2, if you're taking that one at average prices in the quarter like this, when there were relatively low end of period prices, you're going to overestimate the value. If you take everything at end of period prices, you're also going to underestimate a little bit because some shipments have actually been priced -- finalized priced during the quarter. So that's what we're saying. Just be aware of shipments in any given quarter is very much skewed to the prices in the end of the quarter.
And that is particularly true for nickel and PGM.
And precious as well. So yes, so that was the kind of educational part of it. Now, you said the order uplift of EUR 150 million that we have guided for, that is linked to our long-term prices and terms. If I were to look today, TCs are probably lower than our long term, but they are lower than our long-term prices and terms. You have to remember that both silver and gold, which will come through the leach product that we're taking at Odda are clearly higher than our long-term prices and terms. We have a better exchange rate than we have in our long-term prices and terms. And we have a slightly better zinc price. Again, zinc price is more on the long-term level. How that whole mix turns out, we're going to get back to better once we are getting closer to starting. What I'm also saying, in other words, is don't forget that TC is less than 50% of the revenue...
[Operator Instructions] The next question comes from Krishan Agarwal from Citigroup.
One follow-up from Amos' question on working capital, sort of a clarification. So you're saying that out of the SEK 2.4 billion insurance claim, you received SEK 600 million, and then, SEK 1.8 billion has gone into receivable. So is it a fair way to look that off the net working capital, which you are showing at SEK 0.6 billion, the underlying operational working capital was a release of SEK 1.2 billion in the quarter?
Yes. Yes, because the insurance compared to the number that you see in the cash flow statement, included there is a negative of SEK 1.8 billion on the working capital side. So the operational side of it is clearly positive, and the numbers are correct that you're stating.
Okay, fantastic. And then going forward, as and when you receive the insurance claim, that would also contribute to the release of working capital.
As we -- exactly, there is a SEK 1.8 million receivable. And as we get those payments, then the receivable will decrease quarter-over-quarter.
There are no more questions at this time. So I hand the conference back to the President and CEO, Mikael Staffas, for any closing comments.
Thank you very much, and thank all of you for -- out there for listening. I hope that you got some more clarification than you had in the beginning of this call. I would like to take this opportunity to wish you all who haven't yet have been having the ability or the chance to experience the summer that you get the chance to have some summer time and summer time off. And I look forward to meeting you all again as we come into the fall. Bye-bye, everybody.