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Boliden AB
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Ladies and gentlemen, I'd like to welcome you to Boliden's Q3 2020 Results Presentation. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have a presentation led by our CEO and President, Mikael Staffas, followed by our CFO, Håkan Gabrielsson. There will also be a Q&A session after the presentation. Mikael, the stage is yours. Welcome.
Thank you, Olof, and good morning, everybody. It's -- today, it's a day that's maybe more nice to stand up here in front of you than it could be at some other time. I think we're presenting a report this morning that it's strong, very strong. We've had good production. And of course, prices and terms are heading our way, although that was no surprise to anyway. And just to summarize the quarter, we've had a quarter that's had a good profitability level, where we're up to almost SEK 2.3 billion in the quarter compared to last year, that's quite a significant step-up. The cash flow is also good in the quarter. That is, of course, good, mainly due to the underlying profitability numbers. We've also had slightly less CapEx than we would have anticipated in a quarter like this, which is due to some extent to COVID-19 that has forced us to slow down a couple of CapEx projects somewhat. This is not a major thing, but there are some parts that have been moved on. This is nothing that we would like to do, but it has been a consequence of the next one because as you say, we had a successful smelter maintenance session. And of course, these maintenance stops have taken quite a lot of footwork from a lot of people in order to get it done, both to get the maintenance stops done in a much shorter time period than we normally have, but also to manage -- to run the smelters that were on a less maintained level than normally, up until we manage to have the maintenance stops done. On the mining side, and I'll come back to that, but on the mining side, we've had a good production quarter. We've had new production records, both in Garpenberg and in Kevitsa, and I'll come back a little bit to those details. If we start it over '19, to some extent, we can say that we've had a very little impact. That is, of course, not -- it doesn't mean that we haven't worked a lot. There's been lot of footwork going into handling the COVID-19 situation, but we managed to handle the issues that come up in a way that we've been able to do our operations the way we should do. We have been able to produce. And as I said before, we've been able to handle the maintenance situation. We do have a slightly increased short-term absenteeism, not alarmingly high, but it's coming up a little bit. And of course, that's something that we've had to work around. We have had travel restrictions, both through ourselves but also to lots of the subcontractors that are working, and that's why we also have had to prioritize in certain aspects, who has been able to come, who has not been able to come, and that's a little bit where we've had to push some investment projects, CapEx projects a little bit out. We've also pointed out the supply chain risks and there have been quite a lot of supply chain risks involved with this situation. I think we -- also there we managed to handle it, and we have not been -- had stopped or do anything that we usually do in these situations. How have we done this? Well, to some extent, you can say that is not really any magic to this. There's lots of work and lots of hard work day-to-day. We have a very decentralized model. We have worked with the COVID response on a very local level, depending both on the local situation, the local regulations on how to get it done. We've done it a very close cooperation with our unions. We have, as you know, managed to reschedule maintenance stop. We have managed to run the smelters without maintenance for extra quarters and they're working for that. We have had an elevated amount of working capital that we spoke about already in the spring, but we said that we have roughly SEK 1 billion, too much working capital. We have abated or taken out about half of that. Then you can say that you don't see any difference in working capital. Well, the increased metal prices tie up roughly another SEK 0.5 billion in working capital. So SEK 0.5 billion down due to volumes and SEK 0.5 billion up due to the prices. Finances were set up. They've been robust throughout the time. We have a balance sheet that means that we don't have to be nervous about day-to-day. And I think the final point is an important one. We have not had any layoffs of any material size and we have not accepted any government support of any material level in this situation. The market, and I think that some of you always think that we're supposed to be the big predictor of the market. What we can say general is that from our side, the demand that during the spring was, to some extent, upheld by traders who would have bought material from us and put it into inventory, we can now see that during the fall, our normal industrial customers have picked up. And today, I would say we are more or less in a normal situation where we ship the material that we have to our normal customers. And then you can like, what has the trades done? Well, most of the things that they bought in the spring have most likely ended up in China, although we don't know that for a fact, but to some extent, we'll see in a little while, we talk about the prices, it's reflected in the price that there is a pretty good balance between supply and demand on a global level. On the concentrate side, there has been a pickup in concentrate availability. The shutdowns of mines that were seen, especially in South America, have eased up during the quarter, but there's still a tight concentrate market situation. It means that there's not enough choice or not -- there's not much choice as we would like to, but given that we were relatively high on inventories in the beginning, we've been able to handle the situation pretty well. If you look at the prices and start with the base metal prices, that's, of course, no surprise to you. We've seen uptick both in copper and in zinc as well as in nickel during the quarter, and we're back to, what we can say, a much more normal levels after the dip in the first half of the year. What this graph also shows, I think, is mainly interesting on the copper side, you can also see that the copper inventories, these are the official inventories that are available, have decreased, which suggests there is a strong underlying demand, especially from China, which means that the inventories are not as big as that you could have expected. On zinc and on nickel, you do see an uptick in inventory. I wouldn't call that alarming levels, but there is a small uptick there. On the precious side, well, the gold and also the silver a little bit off their peaks that we saw a few months back, but still on a very high level. And of course, these are precious levels that we consider to be higher than somewhat of an average over time. I think it's important to point out for those of you who don't know us in detail, that this, of course, helps us quite a lot. We do not have any streaming arrangements or anything similar in place. We do have the full by-product credits from the production that we have. Looking at the developments on the international markets and coming to the chart where we show what the development is on the different metal markets and how the prices and costs have developed. You can see on both on the zinc, but especially in copper, what you could perceive being a sharp cost decrease in the mines of the world as you can see that the cost level of the different percentiles here are coming down. However, this is not that the miners around the world also grading cutting costs. It has to do with the byproduct credits, very high gold prices gives that you have low cost for remaining copper, high steel prices give that you have lower cost for the remaining silver. You can also see here that despite that there's been an uptick in the price level since the really low prices that we saw earlier in the year, still the zinc price is not remarkably high. There's still some more to growth there. Copper price is higher than the cost curve, but there's also a strong demand for copper, which means that the copper price level is also probably pretty strong where it is. And then we have nickel, which is a constant discussion. We've seen for many years, nickel prices hovering around very low levels and in the cost curves, which mean that our people that don't make much money. We think that there's an upside to the nickel price as well. Now if you combine all these metal prices, you combine that with the TCs and you also combine that with metal prices, you can see 2 things from this chart. To the left, you can see that the internal truth that we've been preaching all the time, which is that there is a negative correlation between metal prices and currencies, if you start from a Swedish krona point of view, has proven to be true again. You can see that there's been a pickup in the base metal prices or metal prices and there's been a fall in the currency, but when you add those things together, there's still an uptick. And the level that we have right now as a revenue part or our market term index or price index, whatever you want to call it, is on a record level, which it has not been this high in the history of Boliden, which I think says something that we are operating in a market that is quite interesting to be in with the base metals and the precious metal credits. If you move on and go a little bit into the different business areas and start with the mines. In terms of the expansions, we have, in this quarter, achieved the full expansion rates in both Garpenberg and Kevitsa. We have not achieved it in Aitik. That's partially due to -- that we've had lots of maintenance in Aitik that was coming in, in this quarter, but also that it is a slightly slower ramp-up than we would have potentially liked to have, but we did achieve the pace, at least for the time after that we had done the big maintenance stops in August. We have here, of course, improved prices and terms. The base metal prices come through very nicely into the business area mines. You can see that CapEx is lower than last year and maybe a little bit lower than it would have been in line with the guidance that we have for the full year. We're a little bit behind with some of the expansion projects. For example, the trolley line in Kevitsa has been postponed a little bit in the situation with COVID, where we had difficulty to get the experts to come in and help us to get that one going -- get going from the start. If you look at the production levels and you look at the throughput, the throughput in the zinc side is on a very high level, and the grades are okay and we've had a good production in zinc. On the copper side, also a decent throughput level, slightly lower grades than last quarter, only to be expected as of last year -- last quarter had very high grades. And then we can see on the nickel side, where both the throughput but also the metal level is coming up as we are expanding our work in Kevitsa. On the smelter side, we've also been, I would say, successful in production. We managed to handle the maintenance situation in a good way. We also have a higher level of free metals. So we've been able to increase our yields in this. There is some timing effect into this, but it's been a good quarter in terms of that. Here, we actually have slightly weaker price and terms as the precious metals is quite important for the price and terms for the smelters and the slight downturn in gold and silver affects negatively together with the currencies. Also here, the CapEx is less than last year and maybe slightly less than our old plans. Also here, some of the ongoing expansion projects and so on are slightly delayed a couple of weeks behind, it's not more than that. It's also linked to COVID and also linked to prioritizing of internal engineering resources to manage the maintenance shut situation. If you look at the production here, we have a very good copper production, especially compared to last year, but then, of course, you remember last year, we had record maintenance stops, especially in Harjavalta, but we had a good production level there. On the zinc side, we also have a record feed situation coming in. We've had some stability with the foundry in Odda, but the foundry in Odda is normally not a bottleneck, which means that we will be able to cast all the zinc eventually, but we were having a higher inventory of cathodes as we came to the end of the quarter. The nickel matte production is much better than last year. But then we had the breakdown in Harjavalta. Nickel matte is maybe one of the areas that was mostly affected by the delay in the maintenance shutdown. It was -- we've had some issues with the nickel line over the summer in Harjavalta, but now as we've been able to go through the maintenance stop, that's in a much better situation and we are working with the expansion there. With that, I will leave the floor to you, Håkan, to go through the financials in a little bit more detail.
Thank you, Mikael. It's good to see you. It's always nice to talk about another quarter with good results. As you have seen, we released Q3 earnings with EBITDA of about SEK 4 billion. EBIT, excluding process inventory, of SEK 2.3 billion, SEK 2.258 billion; investments, slightly lower than the comparison periods; a strong free cash flow of close to SEK 1.9 billion, and that adds up to earnings per share of SEK 7.44 and a net debt-to-equity of 11%. I'll come back to some of the details shortly. Looking at the profit, the results by segment. As you can see, we have a strong development in mines. That's much driven by stronger metal prices, the expansions that we've been carrying out that Mikael talked about. Smelters in -- all through this -- the situation with COVID has been delivering strong and stable profits and also this quarter. We have a negative internal profit adjustment. It's a timing adjustments. It's a bit seasonal. As you can see, it's similar to the same quarter last year and that's pure timing then. We'll then go into the profit analysis comparing Q3 of this year as compared to the same quarter last year. We have an EBIT that is about SEK 620 million higher. Volumes are up SEK 472 million. It's about SEK 280 million in each of the business areas and the balance is inventory adjustments. On the mining side, we have higher mill production, in particular then in Garpenberg and Kevitsa. Grades were a bit lower, but strong rail production. On the smelting side, as Mikael talked about, we had Q3 last year with heavy maintenance and a breakdown in the nickel facility in Harjavalta and that explains the main improvement compared to this year, but we've also had better recoveries in Rönnskär and we also have an effect of an expanded production capacity in Harjavalta. Looking at prices and terms, plus SEK 288 million quarter-on-quarter. In particular, that's higher gold, silver and copper prices. Copper makes about plus SEK 250 million. Precious metals in total about SEK 550 million. And then that's partially offset by currency movements. So this is yet another example of negative correlations between metals and currencies that actually reduces the earnings volatility. Costs, SEK 30 million lower than last year. We have good cost control and we have a relatively low inflation that helps in that situation. Depreciation, though, is a bit higher because in mines, we depreciate part of the equipment in relation to the production volumes and with good production that also increases the depreciation. Moving on then to Q3 of this year compared to Q2, the previous quarter, similar change in profit, about SEK 620 million better. In this comparison, we have lower volumes. Grades have been down in Aitik and Kevitsa that corresponds to about SEK 100 million, but then we've compensated half of that with better throughput. And then again, on the smelting side, last quarter, we didn't do much maintenance, we had to push that into Q3, which explains the smelting part of this number. Also in prices and terms, there is a strong recovery of metal prices. There is about 300 each in copper and zinc and about 200 in silver, again, offset partially by currencies. Costs clearly lower than Q2. Here, if you have been following us a while, you know that this is partially a seasonality thing. So about half of this is seasonal -- season variations, we have typically about SEK 150 million less cost in Q3 compared to Q2, but apart from that, we are keeping it tight cost control all through this crisis. So 2 strong quarters. Moving over to cash flow then. A good step-up compared to the comparison period. We've talked about the earnings, EBITDA. We talked about the CapEx. Mikael also touched about -- on the cash flow from working capital. As you can see here, it's more or less flat. It's a SEK 95 million negative contribution from working capital. Again, there is a release of actual volumes corresponding to just below SEK 500 million, but the price increase takes that out of the equation. So we've been talking about elevated working capital, it's still above average, but not as much as where we were in the end of Q2. Looking a bit towards the future, I'd just like to comment that taxes paid. We paid preliminary taxes based on projected earnings. What's happened in the initial phase of the crisis was that, that number was adjusted down. So we have been paying about SEK 100 million to little in Q2 and Q3 and we'll catch up that -- we'll catch that up in Q4. So about SEK 200 million extra tax payments to be expected in the fourth quarter. Again, that even started over time, but just for those of you that are modeling our year-end cash flow. Balance sheet. As Mikael said, strong, we've got a net payment capacity of just about SEK 10 billion. Net debt is at SEK 5.1 billion, so a relatively low gearing. Good financing and loan durations of 3.9 years, and an average interest rate of 1.4%. We've repaid some of the short-term loans, which actually increased the interest rate a little bit, but still at a very competitive level. Mikael?
Thank you. Those of you who follow us will have read this already in the release that we had out in August that we are putting SEK 400 million, or EUR 40 million, into expansion of the nickel line in Harjavalta. This is an investment that is: number one, well profitable. It also fits well into the maintenance cycle, which basically means that had we not done this now, we would have to have maintained old equipment that it's replacing quite a lot. And therefore, we decided this was a good time for the expansion and a good time to put in new equipment. Most of this will happen -- almost all of it will happen during 2021, and we will have it up and running after the maintenance of pushes schedule for Q3 in 2021. This also, as a by-effect, lowers the CO2 emissions by somewhere between 15% and 20%. And that's from a position that's probably we're leading to start with. We're probably the most CO2 efficient nickel smelting operation in the world. Even though I should be a little bit careful because we don't have perfect benchmarking data, but that is, at least, all the indications that we have and we managed to put this one down even further. Now looking forward, we are now repeating the guidance for the rest of the year. You've seen Aitik at 0.25 of the year and we will aim to end up at 0.25. Some of you will say, "okay, you were slightly below 0.25 for the first 3 quarters on average, are you going to catch that up in Q4?" We're not that exact, but it's around 25 -- 0.25 for the quarter. In Garpenberg, we are also repeating the guidance of 3.7 and 100 grams per tonnes for silver. And we're also repeating that for the rest of the year, we will be slightly below reserve averages for Kevitsa. Regarding next year, the positive side is that we are -- as you see, there's no guidance on something below in Kevitsa, which means that we are now back to reserve grade averages in terms of Kevitsa. Garpenberg, we are guiding, as you see, slightly higher grades for the next year, maybe not by a lot. And I think you see that we're now coming down to the thing that we've talked about a long time. We will not be able to produce above the reserve average for a long time. We've done that now for 5 or 6 years. Now for next year, we're guiding for 0.21. And that is only to be expected that we will come to that point at some time. Regarding CapEx, we have not really been that clear about this year, but we said that we are -- now we're saying that we're coming in a little bit below SEK 7 billion. We're slightly vague, and this one has to do a little bit with COVID and exactly what we managed to get in on this year, and what will slide over the next year. For next year, we're slightly above SEK 7 billion. Those SEK 7 billion just to get a gist of it before you start talking all about getting these finances broken down, we're about SEK 4.5 billion of maintenance CapEx, we are with the expansions that you know about with the leaching plant in Rönnskär, with the trolley lines -- trolley assist in Kevitsa and Aitik and with now the nickel expansion in Harjavalta, but that comes in for next year, individually in the year at a little bit of above SEK 1 billion. And then you can say that there's about SEK 1.5 billion in missing. And those SEK 1.5 billion is a whole set of smaller expansion prolongation projects, but also a pretty good chunk of environmental investment that comes into that number to fill up the total. With that, yes, as Olof said, we have to make a little bit of a marketing campaign. Don't forget, we have a Capital Markets Day. It's going to be here in Stockholm on the 17th of March, physically, for those who want to join and digital or electronically for those of you who don't want to join or can't join. And then there is a scheduled visit to the Harjavalta smelter and looking at the workaround the nickel expansion and the citric acid plant that we've inaugurated about a year ago, that's scheduled for the next day. With that, Olof, I will give it to you to monitor us through the rest of this session.
Yes, ladies and gentlemen, that opens up our Q3 2020 Q&A session and we will start here in Stockholm. Christian Kopfer, Nordea, please?
Okay. 3 questions from my side. Firstly, on the CapEx then, could you perhaps tell us a little bit on the return on the CapEx? I mean, some expansionary CapEx or environmental SEK 2.5 billion, right, as you said, Mikael and what are the return on investments on this?
We do not come out with a guiding on the total package, but for most of those, there might be some environmental pieces that are below 10%. For the rest, it should be above 10%, but as always, you need to be careful when you calculate that because we always do that against our mining plans. And the mining plans are declining. So we call something that's a prolongation, we call expansion because it's expanding the mining plan. So you need to be aware that we are comparing it against a slippery slope.
And on the -- if you look Aitik, is the reserve grade still some 0.23? I mean, it was like that by the end of last year, right?
It was like that by the end of last year, and if you wait 1 quarter, you will get the new update.
Yes. But I mean, is there any reason to believe that.
There -- as you know, it's been 0.22 and 0.23 for the last few updates depending a little bit on where the rounding comes in.
And on the -- if you look at nickel in Harjavalta, it came down quite substantially. Was that only because of the maintenance work?
Now the nickel in Harjavalta came down that's partially -- I would say it's maintenance, but as I also said, that was one of our operations that was really suffering by the delayed maintenance. So we had some issues in the nickel line coming up to the delayed maintenance. And then we -- it also had the maintenance stop.
Do you expect that to come back in Q4?
Well, now we are maintained, so now we should be back.
And then finally, on Kokkola, on zinc, -- sorry, on silver, it came down quite dramatically from previous averages to 1.6 tonnes. What happened there in Kokkola?
There was no technical issues. That's the raw material mix question.
Okay. So how it looks over timing in Kokkola for silver?
Well, it will go up and down over time, depending on what concentrates are available at what prices and terms.
And then on working capital, can you still expect that to come down in Q4?
We do -- we are on a bit elevated level. As I said, at constant currencies, constant prices, we have perhaps SEK 0.5 billion more than a normal average. So we should be able to get that down. Having said that, we don't quite know exactly how COVID unfolds or will unfold. So there is a certain amount of risk to that, but I do see that Q4 will be a quarter with where we'll release working capital.
Okay. Next one is Gustaf Schwerin, Handelsbanken.
Thank you, Olof. Yes, firstly, on Aitik. Did I hear you correctly, you said that we -- after the maintenance stop that we are pretty much at the ramp-up run rate and how should we view Q4 now for Aitik?
Well, I mean, the 45 million tonnes per year is the only guidance that we've given and that's true for every quarter.
Great. And then my second question is on the smelting business. You mentioned in the report that there is some negative mix effect from lower quality concentrates in Q3? And also, you mentioned the other problem. So can you quantify the EBIT impact in Q3, please?
It's still a relatively limited impact. I'd say, 100, perhaps, probably less in the quarter. We talked earlier in the year about higher risk or we expected more disturbances due to the concentrate mix. So there has been some issues, but those are quite minor.
And on Q4, should that be close to 0?
Yes. Yes.
Ola Soedermark, Kepler Cheuvreux.
Yes. Follow-up here on the mines. The mines are really good around this quarter. Are there any so-called MAMA effects or quarterly price adjustments? And is it possible to quantify them?
Yes, exactly. That's a good question. Just before I give a number, I just want to repeat again what we mean by MAMA. MAMA, when I say that it's the deliveries that had a preliminary price at the end of last quarter and that has been finally priced this year. That was about SEK 187 million in this quarter. On top of that, of course, we have -- as we have the provisional pricing, we will have average prices that are skewed to the later part of the quarter. So we will gain on top of that, but the MAMA is SEK 187 million.
Okay. And on CapEx, I think you mentioned that CapEx for this year was slightly below -- or some projects were delayed. Is it possible to quantify how much of the CapEx for this year that is deferred to next year?
Do you want to take that one?
The quick answer is not really. I mean, as you know, we're a little bit vague on these numbers because there are some things that are up in the air, but we're talking maybe of hundreds and millions, but not more than that, that could be moved over.
And lastly, on Aitik and the guidance for next year, you highlighted that you've been above reserve grade for a couple of years. Is it fair to assume that you are going to be below for a couple of years as well? Is it a pushback there or...
No. It is fair to assume that this goes in cycle. It doesn't go from what you're up and down. So when you're above, you're above for a while and when you come below, you are below for a while. That is fair to assume.
And yes, one more on Odda expansion. Any news there and any timetable?
There's not really any news at all more than that we have submitted the application for the environmental permit. We do not know when we do not control the timing process for getting this permit. It could happen by midyear next year, but it could happen some other time. And that is -- I mean, there are other pieces to the puzzle, but that's the big piece to the puzzle.
Any other questions here from the audience in Stockholm? Yes, Viktor Trollsten, the Norske Bank.
So I'm a bit curious on the environmental investments. And I also noticed that here in the maintenance CapEx, you now include an ongoing dam raising. Is that related to Aitik, the, call it, security increasing measures in terms of the tailings there?
When I said, it is both in Aitik and in Kevitsa that we do include the annual raises of the tailing dam into the maintenance CapEx. That's something that happens every year. I mean, the dam has to be raised every year. That is getting slightly more expensive every year, both because you're coming to higher levels, but also slightly more expensive due to the fact that there are increased safety standards being implemented slowly. So that's a little bit of all of those effects that comes in. I suppose you may be asking why the maintenance CapEx has gone from around SEK 4 billion to SEK 4.5 billion. Well that's part of the puzzle, but other things as well.
So the security increasing measures in Aitik, that's only relating to the, call it, ongoing dam raising. Or are you doing anything else there that's included in the CapEx for 2021? from your website saying that you've applied for some measures there.
No, I think it -- I mean the safety measures is connected to dams. I mean that's where there is all over the world now an increase in safety standards, and every consultant in the world has gotten a new model to calculate stability of dams. And that means that the dams need to be slightly thicker, which means it costs more money.
Yes. And -- I mean, Mikael mentioned something close to SEK 1.5 billion, that is not named projects that have been in press release and there is a bit more for dams in Aitik. It's not huge numbers, but it's a little bit more.
Okay. And just conceptually, the IRR on such an investment, is that basically 0 or?
It depends how you see it. I mean we typically invest in dams environment because we need to continue the operations. So I say that the IRR is extremely good because the alternative would be to stop, if you put it that way.
Okay. And just finally, I think the environmental permit in Aitik is ending 2023. Should we expect significantly more environmental investments in order to renew that?
I mean you're asking a good question for which we don't have a good answer. Number one, you're absolutely right. The existing permit in the Swedish context, which is for about 10 years, will expire somewhere '23, '24 -- actually, '24, but we think that we need to have a new permit in place by '23. And as getting a permit for an operation like Aitik is always full of lots of discussions about all kinds of things. And dam safety is one of those issues. There's, of course, other issues as well.
Okay. Next question comes from Robert Redin, Carnegie.
Just 1 question, a follow-up on the Aitik grade guidance. So you've been above reserve grade for a couple of years. And you now guide for 0.21. I guess the expectation was for lower than -- sorry, grade average grade in '21, but it's quite a big step down. So my question would be, do you expect to be at this sort of level in this period when you produce at grades below reserve grade average? Or do you expect further steps down, 2022, '23?
We don't have any guidance for '23. So we'll keep that. I think the only guidance is for '21 that you just got. And the other guidance, of course, which is the obvious one that over time, we will be at 0.23, which is the average. Otherwise, the average is wrong.
Any other questions here from the audience in Stockholm, please? Okay. Seems to be no questions from Stockholm. No questions left here. Operator, then I hand over to you, please.
[Operator Instructions] Our first question comes from Conor Rowley from Crédit Suisse.
Yes, just 2 questions on CapEx. Firstly, I mean assuming the SEK 7 billion next year is excluding anything from order, the expansion. So on the timing, you said mid next year, it could be approved. Are we saying then there's a chance of CapEx could go up at that point for 2021? Or is 2021 now a fixed number? And then secondly, on -- sorry, go on.
I'll ask 2021 is not never a fixed number. That's the number that's related to what has been released to date. I will say the other is not in there and that's clear. And I would say that it will depend on if we get a permit, and we're really fast, it could affect the last quarters of the year, but who knows. But there is also one more thing that is not in there that you should be aware of, which is the Rävliden project, which is one that we said, it's, of course, much smaller, not so much money, but something that could happen during the year and could cost some more money.
Okay. And then just 1 more on CapEx, just on the.sustaining. I mean, the SEK 4.5 billion guidance you gave, how bare-boned is that number? I mean, you're talking about this other projects that we don't really know about environmental projects and smelters being SEK 1.5 billion. Realistically, should we just put that in every year as long as prices are at reasonable levels? And so actually, realistically, your sustaining number is SEK 5.50 billion to SEK 6 billion?
Do you want to take it?
You can consider -- it's a very good question in terms of philosophy because what is sustaining and what is not. I would say that if we were to come in a situation where we would not prolong our mines, but we come into a situation, where this is going to end sometime. Then we could go below the SEK 4.5 billion because the SEK 4.5 billion has some replacement that wouldn't have to be done. And lots of these other things that are done in order to meet environmental needs that we anticipate for the next permit and so on would not be needed. However, as we're growing as a going concern -- and we're going as a going concern where it is likely that we will continue to meet an increased pressure for environmental, for occupational health, even though we think that we are probably one of the best in world in terms of environmental performance and in terms of occupational health, that will continue to increase and we are continuing to work on an ongoing basis. Yes, it's likely that those kind of EUR 1 billion or something like that would be -- have to continue. Now I say the kind of philosophy, now you can go into the details.
Yes. I don't think there is so much more detail. I think that was a good response, but just to give one example, we do have, as long as we extend the life of the mines and we continue mining. We do have investments in infrastructure, we might have to move part of the infrastructure, might have to move a road over time, even an industrial area, change the power supply, add water pumping, add ventilation and so on. So those kind of investments will be there in a going concern perspective. So I think it's fair to assume that if we are healthy and develop the company, there will be a bit more than SEK 4.5 billion. I agree with Mikael on that.
Our next question comes from Liam Fitzpatrick from Deutsche Bank.
2 or 3 questions from me. Firstly, on Aitik. So next year, we're going to see throughput up circa 10%, growth down by 20%. Can you help us in terms of what a sort of approximate range could be in terms of the impact on unit costs at Aitik? And then secondly, on the Odda expansion, it sounds like from what you're saying, that this project is going ahead once you get and assuming you get the environmental permit, but the market is expecting a pretty substantial fall in, in zinc TCs next year. Is that potentially a key consideration in terms of whether or not you go ahead with the project next year? And then final quick follow-up. Just on the CapEx point for next year. The second project that you mentioned that is not included in the guidance. Do you have some -- a rough kind of range in terms of its size in terms of overall budget?
Let me start with a little bit. The Odda expansion, I can answer quite easily that, of course, the zinc TCs for next year will have 0 impact. I mean we -- this one will not come online for another 2 or 3 years. And what's the basis for our decision is the idea about zinc TCs for the next 10, 15, 20 years. That's the timeframe where we're going to make that money back, and it comes together with zinc prices and it comes together with cost levels and everything else. So that's the easy one to answer. Regarding the CapEx that what was not mentioned, which is a Rävliden project, we have not guided for this one, but it depends a little bit because it's one of these situations. I think I talked about also connected to Tara Deep, that there is a kind of low Capex, high OpEx version, and there is a high CapEx, low OpEx version of doing this thing, depending on how we want to produce, and what kind of shaft and infrastructure we want to build. And therefore, it could turn out that it's not so expensive, but then we might lose some value because of high OpEx, it could -- and I always tell everybody, I hope that it's going to be high. And when I say high, then we're talking maybe about SEK 1.5 billion -- SEK 1 billion, SEK 1.5 billion, something like that. That's a high CapEx version of a project like Rävliden, but there are low CapEx versions as well, but most likely giving less NPV. And then we had Aitik unit cost. Do you have any good numbers on unit cost from this. We'll have to pass that one.
We typically don't guide for that, but we are currently putting together the plans for next year, and there are a number of moving parts. Of course, there are volume advantages for -- scale advantages of ramping up. We're also looking into the inflation side, and we're also looking into the fact that we're mining deeper in the pits. So there's longer trucking distances. So I'm not prepared to give any guidance on that, but I expect all things like to see an improvement, at least.
Okay. That's all very clear. Just a final quick follow-up on the timing of the Rävliden project approval. Is it mid next year? Or is it later than that?
Put it this way, I hope it's early next year, but it's not quite sure. It's another project that has a slight COVID impact on the preparations. And as I said, it is not exactly clear exactly how we want to mine this.
Our next question comes from Krishan Agarwal from Citigroup.
My first question is on the CapEx. A lot of you said on the environmental CapEx, a higher level of sustaining CapEx, et cetera, et cetera. So I mean do you have Odda expansion coming up for next year and the year after. So is it fair to assume that this current level of CapEx, some maintenance CapEx, non-maintenance CapEx and expansion CapEx, we are looking at a CapEx level for next 3 years around SEK 7 billion? Is that a fair way to look at your CapEx needs?
I don't know if I got the question right, but if -- I mean we have guided for given what you know, it's slightly more than SEK 7 billion. What you don't know and what has not been announced will be in addition to that, and we cannot say what the number is until we are about to announce it. Did I get your question right?
Yes, broadly, but I think the follow-up is there that with a lot of good CapEx already there in the pipeline, especially with Odda, is it fair for the market to assume that there is no potential for CapEx to significantly fall from the level of SEK 7 billion, at least for next 2 to 3 years?
Well, we're not guiding for 2022 at this stage. We'll come back to that when that number is ripe and due.
Okay. Understand. My second question is on the potential for special dividends. So I mean, the debt has come down a lot. And then you're saying that there's a potential working capital release in the fourth quarter. So do you suggest that you have now enough room for the special dividends given your policy of 20%, including reclamation and the dividend itself?
I think the only thing I'd like to comment on that is to say that the policy that we have is unchanged. It is there, and we'll see once we get to the next quarter where we are. We never know what's happening between now and then with COVID and everything else.
Maybe I can chip in, yes, because it's an important question that we get a lot. So just to repeat a few things that are may be well-known to many of you. The policy is clear. We've kept more or less the same policy for almost 10 years. We have an ordinary dividend of 1/3 of net profit. And the second part of the policy is that if net debt and reclamation debt together is less than 20% of equity, we see that there is room for extra dividend. Basically, meaning that higher net profit means higher ordinary dividend. And higher cash flow means higher total dividend. And governance-wise, and it's the Board that recommends and the AGM that decides, just to be clear on that. How that has been calculated in recent years is that we started with year-end balance sheet and then reducing the equity and cash with the recommended ordinary dividend. So basically, a pro forma balance sheet as if ordinary dividend were to be paid at the end of the year. And if that is below 20%, it means that there will be a room for an extra dividend. That is how -- that has been dealt with in the prior years. And then I guess is your guess about the cash flow and the profit for the next year. Looking at a few of the reports, I think there's -- if you look at the lower end, there's probably not so much. And if you look at the higher end of some of it, there is room. So I think it's up to each and everyone to make an estimate about price development and as a result, cash flow and profits.
Okay. My final question is, I mean, given the sharp divergence in the TC for this year and the stock loses, what would be a reasonable expectation from your side in terms of TCs for the next year? Directionally, it looks clear that the TCs have been down, it's more on the magnitude of potential adjustment next year.
Yes. And I will just repeat what you said. I mean, I think the direction is pretty clear, especially on zinc TCs, maybe also on copper TCs. How much? We don't know. We're not part of those negotiations. We are a price taker in it, and we can all speculate a little bit what the balance will be once the discussions are made and as you know especially the zinc TCs are set to maybe in February or March, it's still quite a long time. Until then the market can change quite significantly.
Our next question comes from Ioannis Masvoulas from Morgan Stanley.
Just a couple of questions left from my side. The first on Kevitsa. So it sounds like the grade projected for next year. So just a tailwind for that mining in 2021. How should we think in terms of the sort of next couple of years? Because I think you already mentioned that it's a typical operation that has longer mining cycles and a great profile could persist for a few years. Is that the case for Kevitsa as well or is it quite different and maybe grades for '22 could be quite different from '21? I'll stop here for the first question.
Yes. And I will say that Kevitsa is similar to Aitik in that sense that it also will have rolling averages, and you see now, we've been below for now a couple of years. And now for next year, we're indicating stick to the average. And then at some stage, we should be above as well. Otherwise, the average doesn't work. That's the kind of simple things. And yes, it's not going to be ready up and down individual years and if you go above, you go above for a few years, if you go below, you go below for few years.
Okay. Understood. That's very helpful. And just a second question around your recycling activities, looking at your e-scrap operations, they look underutilized over the past few years. Are there any opportunities there for you to improve the margins there and ramp up volumes? And then secondly, related to recycling, in terms of your lead asset battery recycling operations, I think in the past, you were looking to potentially expand that facility. Could you give us your latest thoughts around the potential timing and CapEx?
Yes. If we start with the e-scrap operations, you're absolutely right that we have an overcapacity in the system. And the reason why we know capacity is not operational, it's commercial. We have found a level of procuring e-scrap that fits to what the market has to offer. And we are very happy for all kind of initiatives to increase collection in Europe, and we're ready to take on more. But as I said, this is a commercial decision, not a technical decision. On lead in base for those of you who speak Swedish, you will have seen that we have gotten an increased permit from 50,000 to 55,000 tonnes, which is a 10-year -- 10% increase. This is not a permanent. This is a temporary 3-year exemption, which is good. And we think we should be able to get to the 55% without any substantive CapEx. Now we have more ambitions than that. And we are working on what the appropriate level should be connected to applying for the next permanent environmental permit, which is in roughly, whatever, 2 or 3 years down the road, exactly how -- what the numbers should be and exactly what the associated CapEx is, I cannot say at this time.
And so can you comment on that temporary exemption? Is that how it typically works for that sort of operation? Or is it a unique situation that you got a temporary expansion permit?
It is relatively, I would say, rare. It's not unique as it happened before. You can say that we're happy we got it. We're not so happy that it was not permanent. So there's both a good and a bad around that.
Our next question comes from Daniel Major, UBS.
Thanks. First question, and apologies of asking the same question in a different way. But on the CapEx, just to clarify, if we think about the SEK 7 billion run rate this year beyond into 2021, but also in the sort of 2, 3 years beyond that, is it fair to assume based on the smaller incremental projects that you are likely to or would like to approve that, that sort of run rate of around SEK 7 billion would be maintained? And then CapEx for Odda would come on top of that, implying that if you approve what you hope to approve, CapEx would rise SEK 2 billion, SEK 3 billion above SEK 7 billion in the subsequent 2 years?
I will put it this way, I think that there is you can take the SEK 7 billion and you can take off the SEK 1 billion, which is linked to specific expansion projects, and then you get to a number that is maybe slightly below SEK 6 billion. If you want to use that as a base, I can understand that. And then any kind of further announcements would come on top of that, which could be Odda, which could be Rävliden, which could be something you don't even know about yet.
Very clear. So SEK 6 billion is the sort of base. Very useful.
I won't say that it is. I think that you can look at it that way.
Okay. All right. Second question, can you give us any indication on the trajectory of smelter maintenance CapEx into -- sort of smelter maintenance impacts versus the SEK 300 million this year into 2021?
We will guide for this next quarter even though maybe someone has a number, he's not going to be able to sell it. But just a principle is that we have -- this is a relatively low impact year. Next year is likely to be higher, everything else equal because we go in roughly every second year. That last year, '19 was a big one. This one is smaller. Next one is -- next year likely to be bigger both cost and production loss. And the value of production loss depends on price and terms. We've had the discussion. We're coming in SEK 30 million, which is not a big number, but we're coming in bigger now in Q3 compared to what we guided for, well, guess what, price and terms are better.
Okay. And then final one just on working capital. You mentioned that you assume that you hope to reduce more inventory in the fourth quarter, kind of all else equal, and it's 1.25 billion positive from payables. Is that your guidance that you hope to release working capital net or reduce inventories?
That is working capital net, and I think it's more fruitful to look at working capital as a totality. We have had big movements between payables and inventories in this phase where we have shifted maintenance and made the stops and moved the deliveries and so on. So I think it's easy to get lost if you get into that detail. It's much a matter of that we had a Q2 with where we were planning from maintenance stops but had to move them. So we need more concentrate, basically meaning that we consume -- we will reduce the inventory levels more than expected. And then it's a bit the other way around in Q3. So there is some movements there, but the SEK 0.5 billion number that we've given is on working capital total.
[Operator Instructions] Our next question comes from Oskar Lindstrom with Danske Bank.
Yes. First, just a quick one. I'm not sure if I got this. You mentioned the higher free metals in the smelter operation. Is that something that we should see as a new level or more as a one-off?
You should see it more as a one-off. That's a time correction. You know the way the exact yield of the smelters at every time. The way that is done is that when we get some intermediary products, and we do inventorization around them, we do testing around them and it finds out that there is some more copper in some of these intermediary products than we thought. And then we adjust the calculations for the yields that we've had. And that is what has happened in this quarter. We've had good inventorization. So you can say that right now, the balance sheet is the best it's ever been.
Our next question comes from Jatinder Goel from Exane BNP Paribas.
Just one question on your mining production profile. On a 5-year view, 2021, as a starting base could be probably the peak here because you've got full capacity expansion and no new project is probably under implementation, which can add much volumes. So before Tara guide, where do you see the volume trajectory on a 2021 production base 5 years forward? If you have any sense on being it flat or how much decline you could expect on a CAGR basis? Any guidance would be very helpful.
Well, Jatinder, we only have 1 guidance. We're simple people. We have the average in the ore reserves. That's the only thing we can guide you to at this time. So the rest is for you all to make your own judgments.
We can take last one question from -- nothing more from downstair or...
[Operator Instructions]
Okay, Operator, then we take it back here from Stockholm. Are there any follow-up questions here from the audience in Stockholm? Okay let me hand over to Mikael Staffas for the final word.
Well, I would just like to thank all of you for attending. And I look forward to seeing you all in about 3 months from now or a little bit more than 3 months, where we will release the full year numbers, and we will come back with lots of interesting information, including the annual update on the ore reserves. Thank you, everybody.
Thank you.