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Boliden AB
Earnings Call Analysis
Q3-2023 Analysis
Boliden AB
The company reported an EBIT of nearly SEK 2 billion, with capital expenditures amounting to approximately SEK 3.6 billion and a negative cash flow of SEK 1.2 billion. The Mines segment improved significantly compared to the previous quarter, marking a profit of SEK 750 million, mainly due to reduced losses in Tara thanks to care and maintenance decisions and better results in other locations. Smelting also saw betterment after overcoming the detriments of the Rönnskär fire and a quarter full of heavy maintenance.
Compared to the same quarter last year, metal prices were lower, but a stronger dollar and higher metal premiums kept the overall impact on terms of trade relatively flat. The cost of energy and consumables was lower, balancing out inflation. Volumes decreased, with the care and maintenance in Tara and the burnt-down cell house in Rönnskär being significant contributing factors. Sequentially, from Q2 to Q3, costs were down by SEK 1 billion, but some of this decrease was attributed to reduced expenses from maintenance and lower prices for energy and consumables. The company targets a capital expenditure of SEK 15 billion for the full year and has provided guidance for SEK 14 billion for next year.
Certain operational challenges, including dealing with the aftereffects of the Rönnskär fire, were successfully managed, translating into a smooth transition in sales from cathodes to anodes. The feasibility study for a new tank house is underway, and the company expects to complete it by Q1, with the decision on CapEx and timing to follow. On the production end, guidance for Aitik and Garpenberg has been set, factoring in expected grades of various metals, and in Tara, care and maintenance costs stand at EUR 13 million per quarter.
The Rönnskär fire's impact on revenue is evident, as the switch to an anode business model has led to a decrease of about SEK 1 billion in annual earnings potential. The company has no specific end date for Tara's care and maintenance but acknowledges the increasing difficulty of restarting operations over time.
Zinc demand in Europe has weakened, indicative of a recession, as indicated by the reduction in volume required by the company's typical zinc customers. On the growth side, expansions and projects such as Rävliden and the Aitik dam project are on track, with the former already in production through old infrastructure and expected to transition to new, fossil-free infrastructure by Q1'25.
The company's focus is on improving free cash flows while continuing to invest in high-value projects. It expects to release a typical amount of working capital in Q4, estimated between SEK 1 billion and SEK 2 billion. However, increased working capital due to higher zinc deliveries is not included in the CapEx guidance.
Despite limited free cash flow, the management reaffirms its commitment to maintaining the company's long-standing dividend policy. There is not a specific leverage threshold where regular dividends would be reconsidered, but the focus remains on project profitability and cash generation in everyday operations.
The company remains open to mergers and acquisitions opportunities but maintains that M&A is not a central part of their strategy. They are continuously searching for viable acquisitions, particularly in a market where mine closures have softened zinc prices, thereby possibly presenting favorable terms for deal-making.
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Ladies and gentlemen, I'd like to welcome you to Boliden's Q3 2023 Results Presentation. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have a results presentation and led by our President and CEO, Mikael Staffas; and our CFO, Håkan Gabrielsson. We will also have a Q&A session, which will start here in Stockholm.
Mikael, the stage is yours.
Thank you, Olof, and welcome everybody out there as well. It's good to have you here. It's good to have you in a rainy Stockholm today, and it's good to be able to present the results that we have here today.
So if we start with the key highlights, I mean, just not to forget that we are in a situation where the prices and terms are challenging. They're actually challenging for the Mines given the relatively low metal prices and also relatively high treatment charges. For the Smelters, of course, the lower metal prices also play in, but the relatively high treatment charges make things relatively easier from a prices and terms point of view for the Smelters.
Otherwise, we've had a stable mining rate going in our Mines with the exception of Aitik. Aitik has had an extra long maintenance stop that was unplanned and then there's also a problem rope shovel. But apart from Aitik, the production throughput is good in the Mines. The grades are low, and they are low as guided and also in Garpenberg, may be lower than perceived, but it's still within, what you can, normal differences.
We've had very strong nickel production in Harjavalta. We're pleased that the nickel production has come back up to speed again after the expansion that we did that had a long time to ramp up. Now we're fully ramped up, and we'll see when we come in to the Smelter part around exactly how good that has gone.
The production in Rönnskär has also ramped up nicely during the quarter. Of course, it started very low after the fire, but we've been able to ramp that up and I'll come back to that.
The projects that we have, our big projects, are all doing well. They're all, more or less, on budget and on time. We'll come back a little bit to them later in the presentation, but things are generally going well there as well.
On the financial performance, we do have a profit of almost SEK 2 billion. That's, of course, much lower than it was last year, but it's a good pickup and recovery from what we had last quarter. The cash flow is negative, and that's a situation where you're doing big investment projects that we're doing right now. We are, as you can say, also in these market conditions, almost able to fully finance that from internal cash flows, which we are also happy about. And the CapEx is moving, as I said, according to plan of about SEK 3.5 billion or SEK 3.6 billion in the quarter.
So altogether, as I said, the -- altogether, the EBIT is at SEK 1,940 million, the Mines at SEK 750 million and the Smelters at SEK 1,303 million.
If you look on health and safety, we are also having a good development. The lost time injury frequency in the quarter was low. And as you start looking at rolling 12 numbers here, we are on record low levels, which we feel good about. The sick leave rate is not really coming off as quickly as we would have hoped. After the pandemic, I don't think that we're the only company around that has challenges to get the sick leave down again. We're working hard on that topic around how to see that we can get that down to levels that we saw before the pandemic.
The CO2 emissions in absolute numbers look very good. This is, of course, partially due to the fact that we have put certain operations in care and maintenance. But also, if you look at our CO2 program and how we are working to get our CO2 emissions down in line with the science-based targets until 2030, we are performing well and progressing well in our program there.
On the market side, the year-on-year, of course, we have a clearly lower prices and terms, especially on the zinc side, which is hitting certain aspects more than others. We have strong premiums and have declining by-product prices, which is also playing into this role. And by-products that we, of course, we mean is sulfuric acid. But we have a positive currency, and that's mainly the weak Swedish krona, which is helping the operations in Sweden specifically.
If you look at what's happening in the world, you can see there are actually quite a lot of changes going on right now. On the copper side, you can see that the cost level of the 90th percentile is coming up relatively sharply. It's probably due to evasion and other issues that are helping this one coming up. And will provide, at some stage, a floor also to copper prices. On the zinc side, you can see that the zinc prices are now down to levels where you're approaching the cash cost curve at the 90th percentile.
The 90th percentile looks like it's going down. It looks like zinc mines around the world are doing lots of good things to cost down. That's probably not the case. This is due to the fact that silver prices are actually pretty strong compared to last year, which cuts down the cash cost of zinc.
And then on nickel, you can see the big diversion. Number one, you can see -- you see also that the price level is clearly down into the cost curves on the nickel side. And you see especially that the high-cost nickel mines have increasing cost levels.
If you then look at the Mines, we've had a 10 million tonne (sic) [ 10.1 million tonne ] production in the quarter in Aitik, which is lower than it was last year and lower than it was last quarter as well. As I said in the beginning, we've had challenges with a maintenance stop that took longer than it should have in the mill, and we've had issues with one of the rope shovels. Those things are now under control, and we should be moving on relatively well forward. We are at low grades at 0.17. This is exactly as guided, and we feel good about -- generally about the guidance here of the grades in Aitik.
In Garpenberg, we also had strong volumes. We are clearly producing to the 3.3% pace that we are supposed to do. We've had some rock mechanical challenge in the quarter, which meant that we had some high-grade stopes that we could not access. We've been able to replace that tonnage by other tonnage that we had in the mine to be able to get the strong throughput, but that has hurt grades. So the grades were down to 3.0% in the quarter.
In Kevitsa, we've also had a very strong production quarter, 2.7 million tonnes through the mill, which is on a higher pace than our 10 million tonnes per year environmental permit, which has all been good. The grades are low. They are -- but they are in line with what we guided for in the last result.
Boliden Area has strong production and Tara has been in care and maintenance. With this, all in all, of course, our zinc production goes down with Tara being in care and maintenance. Otherwise, you can see the nickel production picking up from the pickup in the Kevitsa mine production.
On the Smelter side, of course, in Harjavalta, the really positive thing is the record nickel production that you see here. You see it down to the right, of course, it's by far margin, the best quarter ever. This is a combination of the fact that we have now gotten the expansion project that was done -- ramped up and is working really well. We've also had quite good feed in here with relatively high nickel content that has also helped to bring this nickel in matte up very high.
While nickel was doing good, we've had some challenges with the feed of copper in Harjavalta. We've had some unplanned maintenance that we've had to do there to both to handle it, and we lost production there. But then we also have increased utilization rates in the tank house in Harjavalta because we do have some overcapacity there or have had, and we're taking our anodes from Rönnskär to Harjavalta and thus, the production of cathodes is very strong.
In Rönnskär, the ramp-up and production has gone very well. Of course, the cell house is not producing. It's down and is burnt down. I'll come back to that later. But the rest of the operations have gradually, during the quarter, picked up to more or less full production of anodes. And this you can see in the picture up to the right, of course, you see cathode production coming down as we don't have any cathodes coming anymore from Rönnskär. It's only the Harjavalta cathodes that are shown there.
But if you look on anodes, you can see a pickup again from the lower levels in Q2, where we've gotten more anode production now starting up in Rönnskär and in Harjavalta. So we feel good about that. And we will start talking more about anode production going forward as that is also now a more relevant number for the total production level.
In the zinc smelters, we've generally had good production. There has been some challenges with getting the right feed in there. There's been a combination of the fact that Odda fell away. And of course, you need to get the replacement, you need to get a replacement of the right quality. We've got that but maybe there was some delay. We also had a challenge that we had problems in the Panama Canal, some of the things coming from South America, and we had a delay of zinc concentrate deliveries during the quarter.
So with that, I will leave it over to you, Håkan, to talk about the financial summary. Welcome, Håkan.
Thank you, Mikael, and again, welcome. It's good to see you all. So let me dive in a little bit more and give some flavor on the financial results.
As you've seen, we reported an EBIT, excluding process inventories of just shy of SEK 2 billion, capital expenditure of close to SEK 3.6 billion and a negative cash flow of SEK 1.2 billion.
Looking at this per segment or by business area, Mines reached a profit of SEK 750 million. That's clearly up compared to Q2. And this is due to reduced losses in Tara as a result of the care and maintenance decision and also improved results in Garpenberg, Boliden and Kevitsa.
On the smelting side, again, that's an improvement compared to Q2. We had some one-offs related to the Rönnskär Fire, and we also had a quarter of heavy maintenance. And all in all, that adds up to SEK 1,940 million.
Looking at the changes quarter-to-quarter then and starting with Q3 of this year compared to Q3 2022, prices and terms, when you put everything together is more or less flat. We have lower metal prices, but we have a stronger dollar and we have higher metal premiums offsetting that. In this, of course, we don't include the impact of the cost inflation that is further down on the chart.
Volumes are down significantly. Out of that, a big part is explained by the care and maintenance in Tara and the burnt-down cell house in Rönnskär. Those two together makes up about SEK 850 million in quarter 3 this year to quarter 3 last year. And then grades is -- represents SEK 750 million here.
Costs are actually lower than previous year. Again, Tara and Rönnskär makes up a big part, about SEK 300 million positive due to the care and maintenance decision there. But we also have lower cost for energy and consumables. And if you add everything together, purchase materials, when you look at energy, consumables and other purchase material, inflation, quarter 3 this year to quarter 3 last year is close to zero. We then, of course, follows a number of quarters with very high inflation.
Moving on to a sequential comparison, Q3 to Q2. Again, relatively limited movements on the price side. We have a stronger dollar that helps us. But all-in-all, fairly small changes.
Volumes are slightly down. Tara and Rönnskär more than express the full change. But apart from that, there are some moving parts. We have lower grades in Garpenberg. We have slightly lower mill throughput in Aitik, but we have better throughput in a number of sites. And we have a lower impact from maintenance stop.
Costs, SEK 1 billion down compared to Q2. Again, half of that amount is explained by Tara and Rönnskär. The remaining SEK 0.5 billion, that is evenly distributed between a lower impact from maintenance stop, lower energy and consumable prices and seasonally lower costs that we do see in Q3. We also, in this comparison, have a positive impact due to the one-offs that we took in Q2.
Cash flow, as you saw on the first slide, minus SEK 1.2 billion, and that is a function of a high investment level and earnings level that is slightly lower. Working capital was fairly stable in the quarter. As you know, we had a challenging situation where material piled up in late Q2 as a result of the fire in Rönnskär. We have -- and that continued in the earlier part of this quarter.
But towards the end, we've been able to release more of that as Rönnskär have picked up in production. So this minus SEK 400 million working capital here that is basically a function of currencies and prices for those relevant products. All-in-all, inventories are still on an elevated level.
The capital structure is strong. We have a gearing of 22%, and we have a payment capacity of SEK 12 billion. So we feel good about the balance sheet also in this period of high investments and unexpected events in Rönnskär. So good shape.
And with that, I think, Mikael, if you take the investments, right?
Thank you, Håkan. On the investments, we've spoken about the SEK 3.6 billion CapEx in the quarter. Otherwise, the expansions are on track. We are still working on the -- on that to have a commission on the second half of next year, and we're still working on the EUR 850 million budget. The Aitik dam project is also on track. And here, what is [ drawback here ] means that we are be able to do it fast enough so that we will not get any interruption, and we will not have to stop the production in Aitik. That's working fine.
Although the project itself is going slower than initially planned, which in this case is good, because we've gotten some other leeways, that means that we don't have to do all the activities as we thought until mid '24. We can probably work all of '24 to get them out and we have thus reduced activities somewhat compared to original plans.
The Rävliden project is also on track. It has already started to produce from Rävliden going through the old infrastructure. And then we are ready with the new infrastructure in Q1 of '25 for fossil-free mining there.
Now the full year CapEx expenditure, we are #1. We are repeating the SEK 15 billion for the full year as we've had before. Just to get some flavor on that, that SEK 15 billion, given that we are now measuring this in Swedish krona, we have quite a lot of investments that are done locally in Norway, actually in Europe because that's the base currency that we have there and also then in euros in Finland. So that SEK 15 billion would have everything as equal just due to currency, it would have been SEK 16 billion, but we have roughly SEK 1 billion that we have pushed out that was not -- that's not been done this year or will not be done this year as originally planned. And a part of that is actually in Aitik.
For next year, we are now guiding for SEK 14 billion. We'll come to that in a later slide. And that SEK 14 billion should be seen as SEK 1 billion being pushed over from this year. And then, of course, also we will continue to have and now we will take that into account a worse currency situation that was maybe we originally thought. So generally, a very good situation in the projects.
On the Rönnskär, as I've said before I'm, number one, extremely pleased with how this has worked given the situation that we had in the end of last quarter. The transformation from selling cathodes to selling anodes from a commercial point of view has gone as smooth as anybody could have thought. We have basically managed to handle the fact that all of our customers who take cathodes don't get any cathodes anymore. We've been able to handle that from a customer relations point of view. We've been able to handle that sometimes buying cathodes and selling it to our customers to keep them supplied, sometimes helping them to find other solutions without, I'd say, any kind of big upheaval.
We've also managed to find new customers for anodes, which is a totally different set of customers, being able to build up a book around that, that is stronger than we would maybe initially have feared regarding this.
The redundancies will be there. Redundancy negotiations with the unions are still ongoing at this stage, and we will come back once they are finished with more details regarding them.
There is a loss of refining charges, of course. There's a loss of free metals with the commercial terms being different for selling purified metals. Premiums are also being lost. It's, of course, partially offset by lower variable costs, but that's, all-in-all, a negative, which is roughly SEK 1 billion per year of Swedish krona, worst situation in Rönnskär compared to, if you would have had a tank house. So about SEK 250 million on average per quarter.
The working capital level will also be increased all-in-all because of the fact that you don't have a situation where you can take an anode from the casting directly into a tank house next door and have very short delivery terms. Now, we will have to store the anodes. The anodes have to be shipped. The customer who takes the anodes, might get a bigger shipment that they can feed right away and that needs to have an inventory on their side. So there is naturally a bigger inventory in the supply chain. And we will roughly carry SEK 1 billion extra of working capital because of the new setup with the new supply chain.
We are also having metal in the burnt-down tank house. We have, as of end of Q3, not recovered any of that. We're still pretty confident we will recover all of that metal or, at least, enough metals on the book value so that we will be able to get that back without having any impact on our inventory evaluation.
That recovery is starting in Q4, and we hope to be done by the summer. It has turned out to be a -- from an occupational health point of view, a quite difficult things to get into the burnt-down tank house to get all the half-used anodes and all the half-built up cathodes in place and then how to manage them to handle them and get the metal value out. And that, of course, then slowly over time, has the possibility to release some capital.
The insurance claim is ongoing, and it's going to be ongoing for still a while, but it's going very well. It's no kind of strange discussions with the insurance company. We feel that they've done in a very professional way. The cap that we have in insurance is SEK 3.4 billion. And since this is covering both the loss of property, but also the business interruption cost, our cost will be bigger than SEK 3.4 billion. So we are very likely to get that money. However, timing-wise, it is still unclear exactly when we will have the final deal with the insurance company.
Feasibility study for new tank house is ongoing. We started that one right after the summer. We have an ambition to finish this feasibility study by Q1. And then in Q1, potentially take a decision regarding a new tank house. But we cannot say anything about either the CapEx level nor the timing of that until the feasibility study is done.
Just jumping into more of administrative point of view. We will have a Capital Markets Update this time, and where you can call a Capital Markets Day light. It will be fully online. It will be in March of '24 and you have the date here on March 18. It's for all of you to mark in your calendars around that.
If you then look at the outlook going forward. For 2023, in Aitik, there is no change. We have the 0.17% that we have already guided for before. We are now also adding the guiding of 0.17% for next year, which I think is in line with what we talked about.
In Garpenberg, the guidance for the full year is reduced from 3.6% to 3.3%, but that's losses that has already occurred in the previous quarters with the lower grade. So for Q3, individually, there is no change around this. It should be around similar, what we had before. For '24, we are now guiding for 3.5% and 100 grams per tonne of silver.
In Kevitsa, we are keeping to the revised guidance for this year, as we gave last quarter of 0.25% and 0.18%. For '24, that will be increased to 0.28% and 0.20%. In Tara, the care and maintenance cost of standing still is EUR 13 million per quarter as long as we're standing still there. We have, for Q4, a very small maintenance shutdowns, so about SEK 30 million. And as we said, CapEx, we're repeating the close of SEK 15 billion for this year, and we are now adding the SEK 14 billion for next year. And I just gave some flavor of how that SEK 14 billion is built up.
We should also maybe also say and I think we may get some question on that, in that SEK 14 billion, we do not have a new tank house, partially because we have no clue what is going to cost. And also, if it were to come to a decision, we don't think it's going to impact '24 that much. The majority of the cost for a new tank house will come in '25 or later.
So this is Boliden. We have a purpose to provide the metals essential for generations to come, and we want to be the most climate-friendly and most respected metal provider in the world.
With that, I think we open up to questions.
Ladies and gentlemen, that opens up our Q&A session post Q3 2023. And the first question comes from Adrian Gilani, ABG Sundal Collier.
Two questions from my end. First of all, after the Q2 report, you were fairly confident that zinc grades in Garpenberg were going to be around 4% for the second half of the year. And now, the full year is expected to be 3.3%. Can you just give some color on what has changed between now and then?
Well, we have not been able to access some of the higher-grade stopes that we would have put into the mix, and we have -- that is coming slower than we had anticipated. Therefore, we now have lower grades for this year.
Okay. And the second one for me is on the working capital release. You still have elevated inventories and some still stuck in Rönnskär. What kind of working capital release should we expect for Q4?
I guess, I'll take that. Again, that -- it is a bit difficult to evaluate since we're still towards the end of the ramp-up. Q4 is typically a strong quarter for us when it comes to working capital.
Out of the metal that is stuck in the tank house, it's a pretty limited release in Q4. But we typically have, let's say, SEK 1 billion to SEK 2 billion release in the course of our normal business in the fourth quarter. I expect something similar this year.
Ola Soedermark, Kepler Cheuvreux.
Coming back to Garpenberg. How confident are you that the grades are bouncing back now in the fourth quarter? Do you see it already?
Well, the fourth quarter is not that old yet, so it's a bit early to tell. But we do see that we are having -- we're more and more accessing the parts that we want to access. So yes, we have a good start.
And going back to Rönnskär, at the last quarter, the vision was or the projection was that new tankers could be up and running in during 2026. Is this still the ambition when you are saying that major of the CapEx are coming in 2025?
I think that we can still have an ambition that we get it up and running in '26. But as I said, we need to wait for the feasibility study to be done to be able to determine this timing.
And the costs, ballpark number. I know that you are having the upcoming feasibility study, but is it still SEK 2 million, SEK 3 billion? Or is it more?
No, I haven't -- it depends on many things. It depends also how big we're going to build.
Alexander Vilval, Pareto.
To continue on Rönnskär, given the performance in the anode sales, now that you're up and running towards the end of the quarter, has this in any way changed your view on anode sales versus cathode sales and impacting perhaps investment decisions concerning the tank house?
I mean, we are guiding for that with this setup, even though we think that we've done a very good job. We're earning SEK 1 billion less per year. So that gives you a little bit of the kind of earnings potential of having a tank house.
Also when it comes to Tara, do you have any sort of outer time limit when it comes to care and maintenance in that asset?
Kind of specific end date. We, of course, know that if we were to stay too long, it will become more and more difficult to start again, but we don't have a specific end date as such that we have set.
And just a final question. When it comes to what you see in the market regarding zinc demand in Europe, can you say anything on that, broader perspective?
Yes, we can make a broad perspective. I think it's a good question. And we can say that even though we don't have any problem selling our zinc, because we can always find zinc customers or customers in general for our metals. It is clear that our normal industry of zinc customers are demanding less. They are all, more or less -- more as all of them are taking out less they would normally do.
So if that is an indication of whether Europe is in a recession or not, I think that's a good indication that Europe is in a recession, because our customers -- our customer base is, of course, Europe. We don't have really any knowledge outside Europe.
Viktor Trollsten, Danske Bank.
Maybe first on zinc concentrate availability. Has this proven more difficult than you may be initially thought given the closure of Tara? And just looking on the zinc smelting side, the zincs are down in both Kokkola and Odda.
Well, I'm always been on the point of view that zinc concentrates is available to anybody who wants to buy. This is a very freely traded commodity that you can always get a hand off. Now if we do need to do things quickly, then there were a couple of obstacles. One is, of course, that our own Tara mine was not producing. There are also quite a few other zinc mines in the world that are going into care and maintenance. We are not alone. So that is playing on to it.
And then on top of that, the issues in the Panama Canal is impacting this. We had one boat that came 1 month later than initially planned. It came up into the Panama Canal but could not get out because of low water situation. So all these things, all-in-all, meant that we could not feed exactly when we wanted to during the quarter, that is now already in place for next quarter.
And then also on the zinc side, the Tara Deep exploration stopped, maybe I need to refresh my own mind, but is that what you have communicated previously? Also...
We said at last quarter as well.
And does that impact how you think about the timing of reopening Tara?
No, it does not really. The reason why we stopped that is, of course, one thing that is a cost. But also when you stop Tara, that also means that the existing Tara mine will have long life of mine and the existing tailings facility will also last longer. So we have more time. So therefore, we're not in such a time pressure over Tara Deep, and therefore, we decided to postpone that cost.
Super. And then just finally on my side, recoveries in Kevitsa, I think we touched upon that topic last quarter also. Nickel, steel are quite in a low levels. Is that a structural problem or should we think about that going into next year? That's it.
That's another good question. And the mineralogy in Kevitsa is tricky for many different reasons. It has to do with things like talc and things like magnesium oxide and other things in there. We are in areas that are tricky because of these kind of disturbing elements, if you want to use that term.
We are looking into whether we can do some investments to handle that better. We're also looking into what it will be like when we go forward if we're getting out of some of these tricky elements. So there is an insecurity regarding recoveries on the nickel line in Kevitsa, but we have good hopes that it can improve.
And sorry, just a follow-up. But into next year, will you still be in the same phase of the mine in 2024? We're looking at higher grades, of course, but...
No, the pace will be very much the same. We have a 10 million-tonne per year environmental permit. In the Finnish context, you can go a little bit over that some here, so we had 10.2 million tonne last year. But over time, we cannot be more than 10 million tonne over time average.
Any other questions here in Stockholm? Kopfer, Handelsbanken, please?
First, on Kevitsa. You are lagging quite meaningfully behind the mine grade this year, next year. When do you expect average mine grade therefore that to be realized?
As always, sometimes over time, we don't really have the exact mine plan for '25 and forward is not yet in place. But of course, over time, we should get out what is in the R&R statement.
You don't have any mine plan for 2026, I mean, unofficially, sorry?
We don't have an official mine plan and we don't have enough visibility to talk about that. We'll talk about 2025 later.
On mill volume for 2024, you still expect that will be roughly 45 million? Or...
Well, we expect it to be at 45 million pace in Q4. That means that we're not going to catch up the ones that we have lost.
'24, I think...
No, no, for '24, yes. For '24, yes. I'm sorry, I missed the year.
All right. And then for silver production, taking quite a lot of beating in the last couple of quarters. When do you expect that to be recovered, in the smelters?
In the smelters, that's mainly higher at issue. It's good that spotted. We think that, that 1 can recover relatively fast. We are doing an investment in the precious metal plant in Harjavalta. And while that one has been done, we've had problems with the silver production. That one is coming online as we speak. And then we have an ambition to, of course, get silver out of the system. This is also part of releasing working capital to get silver to the system.
[ Harold Lydian, ] Lydian Asset Management.
I noticed that there are a number of huge projects going on in your area, be it Green Steel, [ Time Steel ] or North Wall, et cetera. How much will does that create for you, if any, in terms of demand from labor, general inflation in the area, trouble to find apartments, et cetera?
We do have a clear challenge, which is not really due to the projects you mentioned. But in the Aitik area and also somebody said in the Kevitsa area, there is a clear demand for these kind of services that is bigger than the supply. So we are constantly working around getting subcontractors in place for those -- in those areas.
In the kind of Skellefteå area, yes, there is a high activity with North Walls and others. That tends to affect us less because to some extent, yes, they are stealing our resource, I don't know what, use that word in terms of mainly in terms of contractors that we use, but they're also attracting more contractors. So they are, in that sense, I would say, balanced -- on balance, not affecting us that much.
Okay. If there are no more questions here in Stockholm. Operator, please open up for international questions.
[Operator Instructions] The next question comes from Liam Fitzpatrick from DB.
Three questions from me. Firstly, just on strategy and CapEx. Just interested in how you -- how you're thinking about this? Because we've been in a phase now for several years where CapEx has been revised up quite materially. And now, the group is delivering very limited free cash flow. So how focused are you as a management team on improving the cash flows of the business over the next couple of years?
And then on '25, I know you're not going to give this guidance, but I think it would be helpful if -- can you kind of outline what CapEx would fall to if we exclude Rönnskär, and we also -- once you complete all of your major projects that are currently being built?
And third and final one is just on Rönnskär, in terms of the inventory that's in the cell house currently. Can you put a value on that?
I can start with the Rönnskär inventory. The value there that we have, which is the kind of normal running, which is part of the process inventory is about SEK 2 billion in order of magnitude. About half of that is copper in [ run ] and the other half is all other things that flows through a tank house.
Regarding the CapEx numbers for both this year and next year, Håkan, do you want to give some light on it?
Well, I think we can start with a breakdown of '24. I think that will answer your question for '25 and onwards. Out of those 14 that we have, last year, we talked about a split, 7.5, 7.5 between ongoing CapEx in three big projects, Aitik, Rävliden and Odda. For next year, there is close to SEK 6 billion that remains in these three projects. And that means that the remainder, the sort of ongoing CapEx in that sense is just above SEK 8 billion.
In there, the mine sustaining, which is stripping in the open pit mines, normal raising of dams, adds up to about 4.5. So basically, we're looking at an SEK 8 billion run rate if you exclude these big projects. Then of course, to that, I mean, we do hope that there will be some additional projects, for instance, around tank house. I think that might be -- that might give you a flavor on where we stand in that sense.
And I can also answer your more general question, what's the focus on cash flow. Of course, focusing on both costs and cash flow is extremely important. But the products that we're doing, we're doing them because we have -- they have a very strong internal net present value and a very strong value creating. And we will continue to look for value-creating projects going forward as well. And we will try to do them as we find them.
So if you want to say that, that's not a focus on cash, I wouldn't say so. We have focus on cash in everyday operations, but we also have a focus on developing the business.
The next question comes from Daniel Major from UBS.
First question on the working capital. You mentioned you expect to release some working capital in Q4. Is there any way of quantifying that? And if we look into 2024, you'll be targeting completion and ramp-up of the Odda smelter in the second half. Will there be a working capital build associated with this? And is this included in the CapEx guidance? That's the first question.
Shall I take that one?
You can take the working capital release and...
Yes, the working capital, typically, we released about SEK 1 billion to SEK 2 billion in the fourth quarter every year, and that's something in that order of magnitude we expect right now as well.
Yes. And regarding -- now, the working capital is not included. So the working capital increased due to increased zinc deliveries and so it's not included in the CapEx.
Any quantification of what that might be, or else equal?
No, I don't want to really guess on that one. It all depends on lots of things.
That's -- I don't -- I'm not prepared to quantify that right now, but I think we can say that the main working capital build that we have in the group is in the copper smelter side. That's where we have the big values.
Okay. And second question perhaps relates to the sort of free cash flow debate subject around next year. I mean, if we look at your balance sheet now, you've obviously highlighted, you've got SEK 12 billion of liquidity, but your absolute level of debt is probably highest it has been. Your leverage of 0.8x net debt-to-EBITDA is, I guess, reasonably comfortable. But we don't know where metal prices, et cetera, will go into next year. Is there a threshold leverage on a net debt-to-EBITDA basis that you would see the regular dividend under that?
I would say, no. You're talking about the metrics that we don't really use because our EBITDA is dependent so much on metal prices. I wouldn't say that, of course, that it would never happen, but we are very far away from a scenario where regular dividends would be -- or I'll put this way, very far away from the scenario where we would change the dividend policy that we've had for many years, and we feel have served us very well.
So you'd clearly allow net debt to continue to increase to pay the regular dividend?
Yes.
The next question comes from Amos Fletcher from Barclays.
Just a couple of questions. First one was just around the SEK 1 billion of working capital associated with the anode business model. Where are we now in that sort of SEK 1 billion working capital accumulation?
Second question was just following up on what Liam was asking around the breakdown of CapEx for 2024. You mentioned SEK 6 billion of sort of large project spend in '24. How does that number trend into 2025 if we ignore the tank house CapEx?
And I just wanted to ask on M&A. Obviously, zinc price is pretty weak. Mine capacity is being closed. You've actually got quite a lot of payment capacity. Is that something you'd be to look at, at the moment?
I can take the -- I'll leave the investment one for you, Håkan. On the working capital from the new business model in Rönnskär, that building is basically in place because we have set up that already. So that's not going to be negative in Q4.
On the M&A side, not really much to comment apart from what we always say that M&A is not maybe a whole part of our strategy, although we are quite willing to do it if we were to find good opportunities. And yes, good opportunities are more easily available, readily available at bad market terms. But I wouldn't really say anything more than that. We are constantly looking and we will tell you once we find something.
Okay. And then the question on working capital build and whether the extra SEK 1 billion...
That one I already took.
You took that, okay.
Any more in the investments?
Okay. On the investment side, how much it will spill over to 2025 out of those big projects? They are mostly done. Odda will be done, there will be some relatively small amounts in Aitik and Rävliden, but we're talking about significantly below SEK 0.5 billion for '25 for those three.
The next question comes from Richard Hatch from Berenberg.
Just got three questions. The first one is just on that working capital release. I mean, we've been kind of guided to a working capital release the past couple of quarters that perhaps hasn't materialized as much as we'd have thought. So are you confident this time around that SEK 2 billion that you're guiding to release in Q4 is fair? And are you able to give us any kind of steer on any kind of working capital views as we move to 2024 as well, please? That's the first one.
Okay. Well, if we start with the working capital side, I think what has been a bit difficult in the last quarter about working capital was to get visibility on how the fire in Rönnskär would hit. There were inventories piling up. There were new business model being created. There was an uncertainty on how much we would be hit in working capital and how much we would take in the EBIT side. So that was a difficult quarter to do.
Right now, I mean, we've taken also the effect from the Rönnskär fire. So now it's more a matter of the regular business and that we can release primarily in Harjavalta. I would say, I'm about as confident as a typical Q4 for that. It doesn't take much to shift something over. We could have a very large amount in one vessel. If that is delayed, it would sort of shift a couple of weeks over a quarter end. So that's always a risk, which is kind of normal in our kind of business. But apart from that, I feel confident in that number.
Okay. And for '24?
For '24, it is a bit difficult to predict. I mean, with that number, we still have a slightly elevated number. And we, for instance, in the metal that is in the tank house, we are just starting that recovery, and it's a manual process, getting the anodes and cathodes of -- for that -- from that tank house. And the timing is a bit uncertain. But we do have an opportunity to release about a couple of billion from that as well.
Okay. The next question is just on Garpenberg. Can you just give us a little bit more color as to why you're struggling to get into that high-grade stopes? And perhaps, is there any more detail you can give us on the grade progression next year? That's the second one. I've just got one more.
I will say that the grade progression over next year, we have given you guidance for the full year and exactly how that plays into quarters is going to go up and down and vary.
To give you a little bit of a flavor of why we are, there are two things in this. One thing that we did have earlier in the year, not now, but earlier in the year, we did have a breakdown of the hoist in Garpenberg. That was part of the lower volumes that you saw earlier in the year. When that happened, we decided to go for quite a lot of spare stopes that we have relatively close to surface and truck the ore to keep the operations going.
That ore has a lower grade. And it then ended up on surface, in inventory, and we have fed it over time. We also had lower knowledge of the actual grade of those stopes than we would normally have or something that was planned to be produced. That's one thing.
Then there's the second effect is that we have a few high-grade stopes down in the mine where we've had rock mechanical issues and we were waiting -- did you hear me? Sound...
Yes, yes, yes.
Where we were then waiting to take those stopes because of rock mechanical issues, the way that this whole pyramid of stopes works out in order to keep the stresses in the mine in place, and we have decided to wait for them a little bit because of that. And they will come. So I don't know if I answered your question, but those are the two main reasons why the grades have been lower.
Okay. That's helpful. And then the last one is just on the Boliden area. You haven't given us guidance in terms of grade there, but are you able to give us a bit of a steer on tonnes mine? You've got your new initial production from Rävliden and coming online in the fourth quarter. So can you just give us a bit of steer on volumes coming out of that mine just in terms of ore and then we can take a view on the grade, I guess.
On the Boliden Area, we usually don't say much more than that is the -- normally the mill is a bottleneck at the 1.8 or what is it now that we get through the mill. That is the point. So the volumes that we will get out of revenue then will be replacing other volumes that we have is not going to be a volume increase. It's going -- it's more like a prolongation for the Boliden Area, just to have that in case -- having that said.
And then guiding for grades in the Boliden Area is almost impossible because we have so many different mines and so many different ore bodies within those mines that have very different grade profiles. So suddenly, in a quarter, you can have high gold, because you've done lots of tanks there or you could have higher zinc because we win in some of those high stopes in Renström and so on. So therefore, on average, it should be very much close to the R&R statement.
The next question comes from Johannes Grunselius from DNB Markets.
I have two questions. So Mikael, you said here, you're hoping to sort of get most of this cap on the insurance for Rönnskär, SEK 3.4 billion. But you said timing is uncertain. Can you give some flavor on that? What do you expect, though, in terms of quarter or year when you can recover this money?
I think it will come during '24.
Okay, 2024. Okay. That's fair enough. Then also a question on grade progress. I appreciate you gave us grade for the full year. I don't -- I know you don't want to go into the details. But should we see 0.17% and I guess that's the sort of bar bottom? How should we think about 2025? Just to get some color on that sort of change year-over-year.
I will refer you back to what we call the -- this thick line graph of the last Capital Markets Day where you will kind of see, because we don't want to go in detail, but kind of 0.17% might be a kind of low point. It should not necessarily go so much below that. And that you could kind of look at the lengths that we're talking, maybe about 3 years, maybe a little bit more than that. And now, we are doing our first year of that now in '23. We are guiding for it in '24 and maybe '25 could, from that graph, at least look that it will be similar before we start heading north again.
Anybody else out there? Operator?
The next question comes from Tyler Broda from RBC Capital Markets.
My question is on Rönnskär, talking about the feasibility study there. Do you know when you would be kind of this [indiscernible] at this point you would be able to announce the results [indiscernible]? Or sort of how are you thinking about that at this point?
We heard you extremely poorly in this end. So the only thing that I could make out, you were asking about when we will be able to have some more color on the Rönnskär tank house, new investment. And I think the answer to that is in Q1, we expect to come back with an answer to that, which will be both a -- just if you want some color on it. But of course, we're looking at is where exactly to put it.
We cannot put it where the old tank house was because that one is going to still be under recovery of metal and so on for quite some time. So we don't want to lose that time. So we're looking for a new place to be. We are looking at things like what size should it be. We have a much larger environmental permit in Rönnskär than the present. The present tank house was, or the old tank house was the appropriate size of it. We are looking to different degrees of automation, what is the appropriate degree of automation. And we're also looking into certain things like what about by-products from electrolysis plants, how much do we have, what about copper sulfate, what about other things that we have not historically produced as much.
All those things are issues that this feasibility study are taken care of, and that will come into a number about what to do and what it will cost and what the time frame will be. I don't know if I answered your question. I didn't hear much of the question, but I answered something.
Apologies for the bad line. Thank you.
The next question comes from Ioannis Masvoulas from Morgan Stanley.
Most of my questions have been answered. Just a couple left from my side. First on Kevitsa. Is the open pit now where you want it to be? Or is there more [indiscernible] stability? In other words, is it realistic to expect something closer to reserve grade by 2025? Or is it too early to tell?
It is too early to tell, but the pit is not where we want it to be. I mean, the grades for '24 are lower than we would have liked them to be. We still have issues with the pit in Kevitsa, even though things are getting better.
Very clear. And then a question around Smelters and the Q3 operating profit, which was -- which was actually pretty strong. When I look at the bridge quarter-over-quarter, you do indicate higher TCs and premiums. I find it a bit surprising on the treatment charges side, especially as you had to source more zinc concentrates from the spot market after this Tara shutdown. Can you perhaps elaborate on this development and if there are any one-offs to keep in mind here?
Well, there is about SEK 50 million of one-off in the premium side. We do have one contract with a true-up that comes in, in Q3 that is not sort of ongoing business, SEK 50 million roughly. Apart from that, I don't think that there are any one-offs in the places that you talk about.
Okay. So given that now Tara shut down, and I guess when you buy concentrates, you don't get anywhere near the benchmark terms, are we going to see more impact on the TCs in Q4? Or we say that Q3 is the reasonable run rate for the rest of the year?
I think Q3 is a reasonable run rate.
Operator, we have time for one final question before it's time for our President, CEO, Mikael Staffas, to conclude. One more final question, please.
The next question comes from Krishan Agarwal from Citigroup.
I have two, if I may. The first question is on the tank house impact. And you've given the impact of around SEK 1 billion annualized impact. Is there any kind of a potential for you to further optimize this SEK 1 billion impact, or SEK 250 million a quarter as you produce more [indiscernible] gas from your other smelter tank houses?
There is, yes. The SEK 1 billion negative on Rönnskär does have a -- there is also a small positive on Harjavalta that we haven't talked about here. There's, of course, much less. But of course, there is a positive, although small effect on Harjavalta being able to run that tank house, which we historically don't do because there's a little bit overcapacity. So yes, there is that.
Apart from that, of course, we are always trying to work on the commercial terms. And we will see where they go. There are lots of things that impact commercial terms in the anode market.
I understand. And the second question is on the cost. I mean, the costs have gone down because of the Tara and Rönnskär looking out. But then Rönnskär has commented that the cost inflation from the consumables and electricity have been close to zero. So is that kind of a fair assumption to see that the run rate, the cost in the Q3, which is significantly lower versus last quarter, becomes a kind of a normal run rate going into the Q4 and for 2024? Or there, the costs can come down further?
I would say that there is one thing that's seasonal around that we have cost there always about SEK 200 million lower in Q3 compared to other quarters. Otherwise, given the situation we have now with Tara in care maintenance and Odda running -- sorry, Rönnskär running the way it's running, this is a cost level that you can say is the basis for, at least first half of next year before we start getting the Odda ramp-up in place will, of course, also impact costs.
One additional comment on that is that in the quarter, we see a couple of hundred million negative impact from lower electricity prices and some consumables, which then compensates for a small inflation in other areas. And of course, the impact of electricity prices is always significant on our cost level going forward.
So it's fair to assume that electricity prices, which have been a headwind probably will be a small tailwind going forward?
It all depends on what you compare with. If you compare year-on-year, there will be a tailwind from many prices most likely. If you compare quarter-on-quarter, who knows?
Thank you very much. And thank you, everybody out there who have been listening. And I would like just to summarize this, that I think that we've had a strong quarter. We've had a quarter where we have been able to continue our big projects in -- according to time and according to budget. We also have a quarter where we've been able to stabilize and build a new business model around Rönnskär. We also have a quarter where we have gotten the nickel line in Harjavalta up to full speed. Thank you all very much, and I look forward to seeing you all again next quarter.