Boliden AB

STO:BOL

Earnings Call Transcript 2020-Q4

[Olof Grenmark, Director Investor Relations]

Ladies and gentlemen, I'd like to welcome you to Boliden's Q4 interim and year-end report 2020. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have a presentation led by our President and CEO, Mikael Staffas; and our CFO, Håkan Gabrielsson. There will be a Q&A session. And you also have the possibility to ask questions via the web, which I will see on the screen. So we hope to have a good Q&A session as well. Mikael, the stage is yours. Welcome.

[Mikael Staffas, President & CEO]

Thank you, Olof, and welcome, everybody, to this show. Well I called it a show, maybe that was not a perfect word to use, but anyway, this presentation. We've had a very good quarter, and I think that you've all seen that. And it's one of -- of course, a very big pleasure for me to stand here and present it. And if you just jump into it straight, let's see if we get this one to work as well. We've had a very good quarter, and the quarter has been good in terms of prices and terms, but that you all know, because pricing and terms are well-known beforehand. And both the precious metal prices and the base metal prices are on very good levels. And even though we've had a somewhat headwind on currencies, when you mix this all together, it's still a very good price and terms situation. On top of that, we've done very well on the things that we can influence ourselves. We've had a very good production quarter, both in general in production, and we've also been able to take down some of our inventories and intermediate inventories, which means that the cash flow has also been very good. On top of that, I will also come back and talk a little bit about our update in terms of reserves and resources, which we also feel is a strong message that we're sending out today. We also have a dividend proposal. The dividend proposal is right in line with our dividend policy. We have not changed that to any bit. We have 1/3 payout ratio in terms of ordinary dividends and we also have an extra dividend when the cash situation is good enough or when the balance sheet situation is good enough and that we do have and we are proposing a redemption share scheme of an additional SEK 6 per share. On top of that, these 2 of the 3 projects that we have had very big focus on during the year in Kevitsa and Garpenberg are now full year capacity, especially Kevitsa has ramped up very nicely. Aitik is still ramping up a little bit due to COVID, a little bit due to other issues. So we still have something more to deliver for the year going forward. On the other expansion projects we're doing right now, both the copper expansion in Rönnskär and the Harjavalta nickel expansion are on plan. If you then just look to the EBIT, we're over SEK 3 billion. We have, I think, one previous quarter back in history, you see it here, was Q4 in '17 when we were close to that level. Now we've passed the SEK 3 billion for the first time. The Mines have had a very good quarter based on better grades and better volumes than we've had in the previous year. But also smelter production has been very good. I would say that all of our smelters have performed very well across the board. If you look into the ESG, which is, of course, an important part first, we've had not such a very good development during the year, as you have well known who followed us. We've had an LTI frequency that's been too high. The LTI frequency is now down in Q4. So it's better than the previous year and it's better than most quarters during 2020. The level is still too high, and we're working hard to get it down. The only thing that I can say in defense is that we have had another year of fatality-free operation. And you know that in our industrial areas and our mines, we now have 13 years fatality-free operation. Sick leave is higher, 5.4% is much more than 4.4%. This is very much COVID-driven. And actually, the COVID effect is probably bigger than that 1 percentage point because out of all the things that we do for COVID, the normal flus and colds that we all get in the northern climate in the winter has been less prevalent. So COVID is an issue. We've had -- I would still say that we've been quite successful. We've been able to operate more or less without any closures. But of course, the extra sick leave and precautions around that does take a toll, and it makes it a little bit more cumbersome. But overall, we've been able to produce well. If you just then look at one other metric that we use, it's the CO2 intensity. You all know that we have a CO2 target to reduce our CO2 intensity by 40% till 2030 compared to the base year 2012. Also the CO2 intensity is down well year-over-year, and we're working hard to achieve the goal of getting even better in terms of CO2 intensity. If you go then to prices and terms, here, you can see quite clearly that the metal prices have gone up. You see that from the gray number on the top. And you also see that the currencies have worked against us. But when you mix them all together, you see on the bottom graph that we have the highest level that we've had since we started measuring this Boliden Index and probably the highest level that we've ever had. The Boliden Index has been measured for about -- since 2009. And you'll see in this graph that we are in a better level now than we were back in 2011. So very good price and terms for us. Then you can also see when you look at the actual prices, you can see here that the zinc prices have well recovered and well come up. You can also see that the prices are pretty -- with a pretty good margin above the cost levels in the industry, on the 90th percentile. You can also see that it looks like the cost levels are coming down. We all know that, that's a little bit inflated or a little bit the wrong numbers because it's actually just designed that the silver prices are up as much as they are and that becomes a buy credit to many zinc mines in the world, and it lowers the zinc mining cost. On copper, you can see that we are on a very high level, one of the highest levels that we have seen. You can also see that we, even here -- also here have a -- what you can think is a very good cost improvement in the industry overall, but that's mainly due to the high gold price that comes as a buy credit to copper mines. And on nickel, we have now come up to levels that are actually pretty healthy after -- as you can see, for many years, nickel prices were very low and very closer to cost curves. I think nickel mining is now becoming what we've always said it would be, a business where you make money if you do things well. If we then go over and look into the mines. We've had especially positive development in Kevitsa, where we have record production. That's, of course, in line with the investments we've done, but a very good the way that we've been able to scale that up. That's mainly seen in the bottom graph to the right, with the increase in nickel production that's picking up with the increased throughput and also with, to some extent, with the increased grades. Although the grades are not as good as they were back in '17 and '18 when we have very high grades. Now we're more on average grades. Garpenberg, very stable production, not much to say. But of course, we should be very proud of that because Garpenberg delivers and delivers quarter after quarter and had a good production this time as well. I think it's maybe the unit that we're a little bit -- not quite satisfied with. We're not quite there at the 45 million tonnes, we were more at a 42 million tonne level. There are some winter issues. There are some COVID issues around here, and there are some other things, especially in the mine where we're struggling to debottleneck it fully. But we're working on that. The grade in the quarter was right in line where -- what we had told everybody, at around 0.25%. The Boliden area, very strong production in Renström and Kankberg, both of those mines have seen records. There are some challenges in Kristineberg and the Kristineberg Mine. But overall, it's a strong production profile and a very strong gold production that comes out due to the ore mix. Tara has had some production challenges, partially related to COVID, partially related to the fact that this is an old mine that tends to get some breakdowns now and then. But overall, relatively good position. And we did mine out Kylylahti during the quarter. The last ore went into the mill in December. We have now stopped the operations. We are in the process of decommissioning and after treating the mine, that will be finished by the summer. And we're putting the mill into care and maintenance to have it ready for potential future exploration successes. If you move over to the Smelters. Well, the Smelters has been a great quarter. We've had some minor planned maintenance that was also guided for. We had that in Rönnskär, and we had that in Kokkola. But apart from that, the production has been very good. Stable production in Rönnskär. Harjavalta, a good production and also very good for us, a good feed mix where we can utilize the precious metal capacity in a very good way, which means that we have a very good gold production. We have also, in the copper smelter, managed to get down some of the intermediate inventories to lower levels. Kokkola and Odda on the zinc side, also stable production across both lines. In Bergsöe, we've had during the year, an issue with getting the raw material, the spent batteries, into place. That situation has gotten better in the quarter. It was bigger problem earlier in the year. And it looks better going forward. The main reason why we're short on supply is partially due to COVID, but also due to the fact that last winter was, in the Scandinavian countries, a very mild winter and then the lead acid batteries survive for longer in the cars. Now this winter is a cold winter and with all the normal logic, we should get much more supply into our system. So when you look into the group for the whole year, we've now had way over SEK 8 billion, SEK 8.4 billion of EBIT. We have higher volumes across the board due to the expansions that we've done in Kevitsa, Aitik and Garpenberg. We have a very good, improved process stability in the Smelters compared to previous years. We also had less extensive maintenance stops, which is part of the scheduling, the way that it works, and we'll come back looking forward. You know that both '19 was a very big maintenance year and also '21 will be a big maintenance year. We've had improved prices and terms. And we've had, I would say, good cost control, limited cost increases despite the increased volumes. If you look over to the mines -- well, the mines for the full year, and here you see the numbers, have produced well in most of the places. You also see here now the main difference that in Tara has made a loss for the whole year. That's basically due to the first half of the year, where you know that we had big production issues and also big COVID issues. That has recovered over the year. But of course, Tara being a zinc mine with no silver credit, has -- is struggling when zinc TCs are on the level that they have been. Also very happy with the performance of Kylylahti. That's performed very well all the way until the closure. And also very happy with the performance at the big mines. Moving over to the Smelters, you can see that basically all smelters except Bergsöe have improved from last year. You can see that we have a small loss actually for the full year in Bergsöe. But that, I would say, all related to the issues that we've had with raw material supply during the year. And in the other areas, you can see that the Rönnskär is the one that is sticking out. Now of course, part of this is that Rönnskär had a very big maintenance year last year, but also the fact that Rönnskär has been able to increase volumes and also been able to get a good and favorable feed mix and also been able to utilize some of the internal intermediate production -- products that we have in storage. When you use those, you get a good P&L effect. Let's move over to exploration. Exploration costs are down a little bit due to the year before, and that has to do mainly with COVID. We had to restrict the exploration activities during the year. The drift into Tara Deep is completed to about 75%. That one continues on well now during the first year. And we've now started -- as we speak right now, we've started to do also some underground exploration drilling in Tara. But all the exploration so far on Tara Deep has been done from surface. We've also introduced new partnerships during the year. These are no news to you, you've heard this before, with Norden Crown Metals in Norway and with Buchans Resources in Canada. You can also see the reserve life. This is now not comparing to last year, but it's comparing over 10 years. And I think it's important to take a look at these numbers. You can see the Boliden area, after 10 years of hard mining, it's still a 6-year mine. We have this year, as for many, many years before, done the usual trick that we've been able to extend the life-of-mine for 1 year for every year. And thus keeping it a 6-year mine. The same is true, as you can see, in Tara. That is also a 6-, 7-year mine, and it's been so for the last 10 years, and we continue also this year to add 1 year. The mines have gotten longer, and we now have 30 years life-of-mine in both Aitik and in Garpenberg, also with the ramp-up in production. We've had successful exploration this year, but this is also due to the fact that, generally speaking, when you have successful mines that make lots of money, there are marginal mineralization that become ore and that comes in, and that's why we've been able to extend the life-of-mine so well. At the Kevitsa mine, we didn't have 10 years ago. So there's no good comparison. In the Kevitsa mine, we have lost some volumes in terms of ore, which we're, of course, not happy about, but there's lots of good development in terms of resources. So we're still very happy for the Kevitsa site going forward. If you just go through then the different areas. Aitik, we have a slight decrease in grade. It's basically a rounding issue, the 0.23% becomes 0.22% when we've mining for many years above grade point average or grade average. In the long run, the average will go down. And then we have Nautanen. This is a new update. We haven't updated Nautanen for the first -- for the -- we've done a really good study for Nautanen for 4 years. It has now increased another 5 million tonnes at good grades. So Nautanen is an interesting satellite that we're looking into, from the Aitik point of view. In Garpenberg, we have now extended up to 2050. By the way, I didn't say for Aitik. But Aitik is also extended to 2050, Garpenberg extended to 2050. It comes a little bit at the cost of the zinc grades and also, to some extent, the silver grades. But these changes are many years out. And in the short term, they will not have much of effect. In Kevitsa, we have still then to 2033 in terms of life-of-mine with the reserves. The grades on nickel are down a little bit, which is due to that we have had to do -- redo the modeling there and coming down a little bit, but we still feel relatively good around this. Tara, the new reserves now covering full production in the old mine till 2027, which is good for us as an extra year compared to what we said last year. But we're very happy with the Tara Deep going from 22 million to 26 million tonnes. And the grade is going up as we continue to explore down into the Tara Deep, which we are also very happy about. And as I said before, we have not even started yet to do exploration from underground. This is all surface exploration on a target that is between 1,200 and 1,900 meters deep, which is -- has its own technical challenges. The Boliden area, as I said, has also been able to extend 1 more year from '26 to '27 or a bit under the normal trick of extending life-of-mine for 1 year. What it doesn't say here, but those of you read the details, will also see that the update on the Rävliden project also looks good. We've got increased tonnage on Rävliden also at good grades. So if we then take a look into the financial summary, and I will ask Håkan to come in and take that for us.

[Håkan Gabrielsson, Chief Financial Officer]

Thank you, Mikael. Good morning. As Mikael said, it's a pleasure to talk about a good quarter. As you can see on this slide, and as you've seen what we've released, we've got an EBIT excluding process inventory that exceeds SEK 3 billion, and that is actually the first time. Above all, that is due to good production, but we've also been helped by good metal prices. Moving on to the next line, investments, SEK 1.7 million. That is perhaps a bit lower than some expected. Looking at the full year, that adds up to SEK 6.3 billion. Last quarter, we talked about a bit below SEK 7 billion for the full year. And we also highlighted some uncertainty due to COVID. We are lower than that number, and that is primarily due to lower stripping in the open pit mines. When we have had challenges due to COVID, we have prioritized ore, which means then that we spend a bit less on CapEx. Cash flow also, that is a very good number, SEK 2,750 million, clearly above the comparison periods. I'll come back to that in a while on a separate slide. Moving in then by business areas. As you can see, it's a second consecutive very strong quarter for Mines at close to SEK 1.9 billion. Also Smelters very strong, coming out of maintenance a bit and up to the same level that we saw in Q1, SEK 1.1 billion. And then other/eliminations at a positive 76. We have been able to process intermediate stocks to reduce inventories. And we also had a situation with Aitik not achieving the 45 million tonne pace and the Smelters having a very good production. So we ended up with inventories at a quite low level, and that translates to a positive number here. Looking a bit more into details about the development of EBIT compared to Q4 of last year. As you can see, we've increased the profit by about SEK 1.3 billion. We have been helped by better prices, about SEK 0.5 billion, but the main thing here is, of course, higher volumes. Overall, as Mikael talked about, we have had a stable production across all or most sites. Grades have been higher in Mines. That adds about SEK 0.5 billion to that number. We've also had a situation in smelters, where we had a good feed mix, and we've been able to process material with the high precious metal contents. And together with good recoveries, that adds up to a good contribution to the P&L. And finally, we have reduced inventories, and that is visible in both business area results and then also in the internal profit elimination. On the cost side, we are a bit up compared to last -- to the same quarter last year. We have normal inflation in the personnel costs. We also have some higher variable costs in smelters due to the high production, that is consumables, transports and so on. And then we have slightly higher cost for oil production in Mines. As I said earlier, we have prioritized ore ahead of stripping and waste rock in -- when we have seen challenges due to COVID. And that means all things like that means a bit higher cost and a bit lower CapEx. Finally, we have depreciated stripping costs at a higher rate compared to last year, and that's related to the metal production. So that is in line with normal accounting principles and so on. If we then make a sequential comparison, Q4 compared to Q3. Again numbers are a bit smaller since it's a shorter time span, slightly up on prices, but a good addition in volumes. Again, higher grades in Mines, less maintenance, and a very good feed mix in Smelters. As you recall, in Q3, we had a slight negative impact due to a negative feed mix, and that's come out to the opposite in this quarter. And then reduced inventories also works in this slide. Cost-wise, we have a seasonal change. We usually say that we add about SEK 150 million between Q3 and Q4, and that happens this year as well. And then on top of that, we have had a bit higher variable cost above all in Mines. Looking then at the cash flow. I think we've covered the earnings and we've covered the investments. We were able to release SEK 400 million from working capital. In this quarter, we've had increasing prices. So if you adjust to the underlying volume change, that release is actually a bit bigger than it might appear on this slide. Now we have been talking a while about adding extra working capital to handle potential disruptions due to COVID. That extra capital is now out. We are at inventory levels, both for concentrate and finished metals that are below where we were 1 year earlier, and we're also below our target level. So this, I would say, came out probably a bit better than we anticipated when we stood here last quarter. Adding up to a strong SEK 2.7 billion CapEx number -- or sorry, cash flow number. That, of course, translates into a strong balance sheet. We've got capital employed of SEK 51 billion and a net debt of just over SEK 2 million. That translates into a financial net debt to equity, a financial gearing number of 5%. And then the net reclamation liability is an additional 5% of equity. Interest rates have been coming up a bit, and that's mainly due to the strong cash flow, where we have repaid some short-term loans with a lower interest rate. So this reflects our long-term lending rate at this time. Net payment capacity close to SEK 13 billion, so really a robust financing and a strong balance sheet. Then a final comment for those of you that are modeling our results, and in particular, the process inventory. We have increased the process inventory with 1,500 tonne in copper, and that is related to the expansion in Harjavalta, above all. And this is then the inventory that we do not hedge so that will be valued at each quarter according to market prices. So for those modeling, you'll have the numbers here. And with that, I hand over to Mikael again.

[Mikael Staffas, President & CEO]

Thank you. Thank you, Håkan. Just a quick comment on Laver. Those of you who read the Swedish newspaper and maybe some of the international will have heard this already. We got the news on December 23, and that the Laver appeal that we had done to the government was rejected, i.e., we would not get the mining license or the mining concession the way we thought. This is, of course, lots of politics going around this. We have -- it says here in the trial that we intend to request a judicial review. We actually had requested it yesterday. So we have requested a [ judicial ] review with the Swedish High Administrative Court around that. And it's a legal question about how to handle Natura 2000 permits in the mining process and where the mining licensing process and where they should be done. This is, of course, a setback. This will push the Laver project out by a few years. It's a little bit unclear exactly how long. But we're continuing to working with the project and see and work -- see how we can develop it forward. And hopefully, we'll get the right decision from the court. But even if we don't, we will then try to see whether we can get it permitted in some other way. This one says process inventory. That's not what I wanted to say. I want to talk about this. Just for everybody's information, we have applied for membership to the ICMM. Many of you who listen to us know what the ICMM is. We are expecting to become a member sometime during the first half of the year. With that, we, of course, undertake to follow ICMM principle and guidelines, including their new guidelines on tailing standards. This is -- I shouldn't say that it's totally easy because there's always something new to learn, but we have not had a big issue to fulfill the guidelines of ICMM, and we look forward to joining, not just to have a seal that we are also following the guidelines of ICMM, but also to be able to be part of the group and be able to influence their decisions going forward, as we will say, to be able to excel and even further strengthening the sustainability work in the mining industry. Outlook going forward. There is nothing really new in this one, either. We told you over the last quarter that the grades in Aitik will come down. What I should maybe stress a little bit clearer is that sometimes you might think when it goes down, it will come gradually over the year. That's actually not the case because we have now more or less mined out the pushback N6 that had been in our -- [ if you want to say, it was the gold and ] pushback, that's been able to keep the grades up. And thus, we're remaining with the other 3 pushbacks that we're working on, which have lower grades. So the lower -- the grades will be pretty abruptly lower than the 0.25% you saw in Q4 and then we will get to the 0.21 very soon. It's actually even so that we will probably have lower grades in Q1 compared to the 0.21 as well and the 0.11 gold. In Garpenberg, I think this is fully in line with -- both what we had in 2020 and what we have guided for before, with the 3.8% in zinc and 1.10% for silver. The maintenance stops are at SEK 550 million for the next year compared to SEK 375 million (sic) [ SEK 345 million ] -- or let's say SEK 550 million this year compared to SEK 375 million (sic) [ SEK 345 million ] for last year. And I think that's also line what we said before. And the CapEx is slightly above SEK 7 billion, also in line with what we've said before. So with that, I've been told by Olof, I need to make a little bit of commercial for those of you who are around this table who have yet not decided whether you're going to attend our Capital Markets Day on March 17. It's going to be a great day. We still intend to have it live in Stockholm. For those who can attend, then we will have it electronically for everybody else. We, of course, will very closely monitoring what happens with the COVID and the COVID development. Our plan B is that it will be a fully electronic event. So we will have the event at any rate, but we will keep you all updated, and the ambition is that we will be able to also have it physically for those who can attend. With that, for those of you who haven't seen that before, I'll just remind you on this slide, we have upgraded and updated our purpose, our vision and our values during the year. This is what we're working with internally. This is what you'll see when you start talking about our website. We have made very clear that the purpose of Boliden as a company is to provide the metals essential to improve society for generations to come. Our vision is to be the most climate friendly and respected metal provider in the world. And our values are care, courage and responsibility. We've had -- and we are actually very, very proud of this as well. We managed to get these numbers -- these words down. It's not done by a top-down approach. This is very much a bottom up. We had initiated a process already late 2019, and we had come a little bit on our way when COVID hit. And of course, having these kind of work shows with people that everybody should feel good about the purpose, the vision and the values is quite difficult when you get into COVID. But we managed to keep this process going with all the means that we had and we launched this in the fall and another thing that I'm very happy that we managed to do during the year. Now with that, I will leave it to you, Olof, to take care of our Q&A session.

[Olof Grenmark, Director Investor Relations]

Thank you very much, Mikael. Ladies and gentlemen, that opens up our Q&A session this time. And let me please remind you that besides and asking questions over the phone, you now have the possibility to ask questions via the web, which I will then take care of via the screen at the end of the session. So operator, please let's start the Q&A session.

[Operator]

Our first question comes from the line of Gustaf Schwerin from Handelsbanken.

[Gustaf Schwerin, Research Analyst]

Yes. A couple of questions from my side. Firstly, on the IT production initiatives you had during the quarter, if you could indicate sort of a ballpark effect on -- the negative effect on throughput? And how we should view Q1 as well with the weather and everything in Sweden at the moment? I'll take them one by one.

[Mikael Staffas, President & CEO]

Well, it's always difficult to separate what is COVID, what is winter, what is other things that happen. But we can clearly tell you that the 10.5 million tonnes that we had is below what our own expectation and below what we had guided for. Regarding Q1, the guidance is still for 45 for the year, but it is winter, and winter is always tricky and COVID has not eased yet. But I will not say anything more than that.

[Gustaf Schwerin, Research Analyst]

Okay. Secondly, on the Garpenberg throughput, exactly at the environmental permit now for 2020. If we look at the run rate you have in Q2 and Q3, both of those are about SEK 3 million. Of course, you had some maintenance in Q4. But I mean how much are you holding this back? Because you want to avoid the penalties? And how much could you increase those investments if you get the new permit for 3.5?

[Mikael Staffas, President & CEO]

Well, just everybody now, we have applied for a new permit for 3.5. That will probably take a while until we get it, but we're hopeful we will get it. And yes, if we get the permit, we will use that to be able to increase production at some stages, but we're not there quite yet. But you're absolutely right, as somebody who does look at the numbers, we did hit the permit. Just for everybody's sake, it's not a question of a fine to go over the permit, it's just simply not an issue. So if we were to be ahead of the permit and we come December 15, we will have a closure for 2 weeks. So it is not even possible to go above the permit.

[Gustaf Schwerin, Research Analyst]

Great. And then lastly, on the Laver project, just if you can mention what the latest is on the time line there?

[Mikael Staffas, President & CEO]

Well, we did have the hearing in the court, the lower Environmental Court in Sweden, 2 weeks ago. We are expecting to get that ruling maybe in April. And then we have to take it from there. We'll see what their ruling says. And if it will get appealed or not to take the next steps. We still have an ambition to get it into production in 2023. But that could be delayed if it's appealed or if it's not approved the way that we want it to be approved.

[Operator]

Our next question comes from the line of Luke Nelson from JPMorgan.

[Luke Nelson, Research Analyst]

Firstly, just on CapEx for 2021 and in the context of Q4 CapEx, obviously, being below probably the expectations even at the Q3. Can you just give an indication of maybe how much of the delta from Q4 and the spend will be pushed into your prior expectations for 2021 CapEx? That's my first question.

[Mikael Staffas, President & CEO]

As you would have seen, we have not changed our guidance for the 2021 CapEx. You're right that we are below. And the reason why we're below in Q4 and also you can say below for the whole year is that we have not been able to keep the stripping up in both of our mines, big open pit mines. The reason why we have not increased the guiding for next year or for this year, I should say, is that we don't expect to be able to strip more than we had originally planned for this year. So we will not do additional stripping. But of course, down the line somewhere, we'll have to catch up. But these are stripping-intensive years, and we simply do not have the capacity to strip more than we already had in the plans. And thus, we have not foreseen any extra CapEx.

[Luke Nelson, Research Analyst]

Okay. That's very clear. Then secondly, maybe one for Håkan, just on the earnings waterfall. Can you just give an indication from the pricing element how much of that was an effect from provisional pricing relative to underlying strength in headline prices?

[Håkan Gabrielsson, Chief Financial Officer]

Okay. I'll do that. Just again, I just like to be clear what I include in the numbers I mention. Provisional pricing or MAMA as we sometimes call it. What I refer to then is the open positions in the beginning of the quarter that has been set to final prices during the quarter. And that is a fairly low amount, it's about SEK 25 million plus. And then, of course, there is always a difference between average prices. And the realized prices were a bit skewed to the later part of the quarter, always with the provisional pricing model. But SEK 25 million is the real revaluation, so to speak, in the results.

[Luke Nelson, Research Analyst]

Okay. Great. And my last question is just a clarification on Aitik grade and your comments at the end, Mikael, on the step change lower to 0.21. And I think you mentioned it could be below 0.21 in Q1. Could I just confirm that that's what you said, as this could be unclear.

[Mikael Staffas, President & CEO]

That is what I said.

[Operator]

And the next question comes from the line of Viktor Trollsten from DNB.

[Viktor Trollsten, Analyst]

So 2 questions from my side. Just firstly, on cost inflation. The way I see it, at least, it seems that costs are coming up quite a bit in Q4 year-over-year. Could you just talk a bit more about what has been driving that? Yes, I haven't been along for so far, but with reference to 2018, when you talked about higher external material prices and stuff like that. Are you seeing sort of the same trend now? Or how should we think about that going forward?

[Håkan Gabrielsson, Chief Financial Officer]

I can take that. That -- it's a few things in there. I mean if we begin with the easy part, perhaps, we do have normal salary revisions and so on. And that is about 1/3 of the increase. There is an element in there as well, which is regarding variable pay. We have a profit-sharing program in the group. And as we've seen stronger prices in the end of the year, we have -- we've increased the reserves in our books for that. So that's one thing, a regular inflation, let's say, about 2% on the salary side. Inflation in the material that we procure, the external material is more or less nonexistent. We don't see much inflation there. What we do see on the smelting side is that we have produced more and we have more volumes or variable costs. We have more consumables. We have more transport services and so on. And then the final part that has an impact on the cost is the fact that we prioritized oil production. And just to give an overview of that, we have our resources. We have our personnel. We have our trucks, et cetera. And normally, we deploy those resources to produce ore, which means OpEx, and we produce waste rock, which means CapEx. And as we have not always been able to keep up the efficiency due to COVID, we have prioritized the ore production. And that means that we charge a bigger part of our total base to the cost side, so to speak. So that is -- I mean, we spend more of our resources to produce ore. So that is not an inflation as such. That's -- and those three, I think, are the main changes Q4 to Q4. I think it's about 1/3 each.

[Viktor Trollsten, Analyst]

Okay. No, that's very clear and maybe answered my second question there. Just in terms of OpEx per tonne of ore milled, maybe focusing on Aitik, at least the way I look at it, OpEx per tonne is up 8% at Aitik, which is, yes, significantly more compared to Kevitsa and Garpenberg and other key mines. Is lower stripping the main reason for that? Or is it something else in -- particularly Aitik?

[Håkan Gabrielsson, Chief Financial Officer]

I think it's -- stripping is an important part. I mean the main thing is that we have not reached the 45 million tonne pace. That is due to COVID. That is due to winter. For those reasons, we've been spending more resources in ore and less in CapEx. So I see that is a temporary increase. But that is a correct observation for Q4.

[Viktor Trollsten, Analyst]

Okay. And just finally on my side, in terms of working capital, at least in my view, very impressive management this quarter. Just how should we think about that going forward? As you mentioned, levels are below maybe what you were looking for and also prices are also increasing quarter-over-quarter. Should that have a negative effect on revaluation of inventories or...

[Håkan Gabrielsson, Chief Financial Officer]

Well, if you look at the cash flow and the working capital release, we typically are at fairly low levels seasonally at the end of Q4, and that is the case also this year. So Q4 is below average for each normal year. And this year, we're actually lower than what we were at the last year-end. And what we typically see is that it bounces back to some extent in Q1. So I think my expectation is that Q1 will not be as strong in cash flow. That's a typical seasonal pattern. Then if you're modeling, I guess, the tricky part is to keep track of the price developments, because that has a big impact as well. I should also mention that we have a diesel tax impact on the cost side that I forgot to mention that we talked about some time back.

[Operator]

Next question comes from the line of Christian Kopfer from Nordea.

[Christian Kopfer]

Just a follow-up on Laver. I just want to understand a little bit what your options are here as to see -- is it possible for you to just align with the, call it, government decision here and work with a Natura 2000 permit? And if so, how much would that cost approximately?

[Mikael Staffas, President & CEO]

The answer is yes, Christian. We can align and do a Natura 2000. There is, of course, a couple of buts, and that's why we are not doing it quite yet. The first but is, just to be clear, you do a Natura 2000 impact assessment with the kind of installation that you're planning to build. The problem for us and for anybody at this stage of any kind of projects that we don't know what installation we're going to build. We don't know exactly how big the mine will be. We don't exactly know where we're going to put the waste drops, we don't know exactly how we would use the tailings facility. So we cannot do it. It's physically impossible. Now what we can do is that we can invent, we can say that if you potentially want to do it this way, then this will be the impact. And that, we could theoretically do, that will cost money, will cost time and it would set the precedent that we don't like. Because in the end of the day, which is fully fair, we should have a full impact -- environmental impact assessment of the actual facility they want to build. And that's what you always have when you're doing the environmental permit. So the question is, yes, we could do it. Yes, we could do a, what do you call it? Fake impact assessment? Or an assessment of a mine that we will build differently. You all understand that this has some other implication because we will be criticized at some stage for having changed our mind. Why is it different the second time from the first time? Don't you know what you're doing? And all these other issues. That's why we are challenging the legality.

[Christian Kopfer]

Right. Okay. But just a follow-up on that. How long would it, in theory, take and how much money is it for you?

[Mikael Staffas, President & CEO]

It would maybe take a year or 2 and maybe cost SEK 50 million or something, just to put an order [ in like it ]

[Christian Kopfer]

Right. Right. And then on the electrification projects that you have, I think, ongoing in Aitik and Kevitsa. How are -- sorry if you already talked about it. But how are those progressing? And when should we start to see the impact? Because I guess it starts to be more important now because ore prices have come back, and that should take down your cost per tonne.

[Mikael Staffas, President & CEO]

Without going into details, I will say that the Aitik part is doing quite well, and it's going forward according to plan. The Kevitsa part is actually behind the original time schedule that we did. It is, you can say, COVID-impacted. We have decided not to start the actual developments on the electrification in Kevitsa. We postponed that a few quarters to get the COVID situation under control before we start it.

[Christian Kopfer]

Right. And then maybe finally, it's a very small part of your asset base, but just wondered Bergsöe, it seems -- it's running at negative free cash flows now. Just wondering if you had any specific plans to take that back to profitability here?

[Mikael Staffas, President & CEO]

Well, yes, we do have plans. We have actually already implemented some cost savings there. But at the end of the day, cost savings will not turn around. What will turn around is the prices and terms, which for Bergsöe have been very bad, a, because of the lack of feed, lack of the quality of feed that you want. And also when there's lack of feed, of course, the people that sell the used batteries are using that as a way to also increase their margins and reduce the Smelters' margins. So it's been a very tough year commercially. Our sense is that all the competitors in this market have had an equally tough or even tougher year. Although it might be difficult to see that yet because they're not public in the same way as we are. We can say that in Q4 and also looking right now, as we said, it looks much better. The cold winter is something that we like. People have to change their batteries more often in their cars.

[Operator]

Next question comes from the line of Oskar Lindstrom from Danske Bank.

[Oskar Lindstrom, Senior Analyst]

Yes. Gentlemen, I have 2 questions. The first one is on the Smelters, which have performed very well for quite some time. And you've had an improving performance throughout this year. And per my calculations, I think, it was the highest ROCE ever adjusted for maintenance now in the fourth quarter, at least in the past 10 years. But you say that internal intermediate products impacted the -- or boosted the result in the fourth quarter. What was this impact? And how much of these intermediate products are left? And I think you also talked a little bit about the better feed mix. And I was wondering how sustainable is that going forward?

[Mikael Staffas, President & CEO]

I can take some principles and Håkan can get to the numbers. But generally speaking, we always produce intermediate products. And when you have challenges, especially as we did during, say, '17 and '18 and so on, you tend to build up a higher level of internal products, i.e., products that have gone through some stages of production, but they haven't gone all the way through. At this situation, you tend to be conservative in terms of how you value those intermediate products for different reasons. It could be that you had some technical challenge and you didn't -- weren't really sure exactly how you're going to treat them, then you sort that out and then you can treat them. So there tend to be, I would say, healthy conservatism around how you count the value for intermediate products. And then at certain times, things go very well, and they have done right now, and then you have better confidence that you can feed some of these intermediate products into the mix, and that's always good financially. And that's, of course, a trick that you can't do all the time. You could do it sometimes, and Håkan can get back to the numbers. Now I will say then, regarding the mix of concentrate, that's been favorable during the quarter. And hopefully, we can keep that going, but that's a constant commercial discussion about what to get. And for us, favorable has meant that we've been able to get material that contain more precious metals. We do have precious metal capacity. And when we get material with more pressure metals, we tend to make more money of them compared to materials for less precious metals. Now this is not a universal truth, because the people who sell the material don't want to get charged for the content of precious metals because they know that there's a value to us. But we have better capabilities in this than many of our competitors, and thus, it becomes very attractive to us. Now Håkan can do the numbers.

[Håkan Gabrielsson, Chief Financial Officer]

So numbers. As you've seen by the profit bridge, we're about SEK 300 million, SEK 400 million up in volumes in Smelters, depending on which quarter you compare to. And if we start with the feed mix, I mean, what we have there is precious metal rich materials. We have had higher revenues for gold, platinum, palladium and so on. If we use the Q3 as a baseline, we talked then about having a slight negative impact of feed mix, and we talked about the negative impact of below SEK 100 million, but somewhere in that range. I think that has translated to a positive impact of about SEK 150 million in this quarter. So there, you get the order of magnitude. And of course, we are constantly working to extend it, to continue with that, our commercial team. Then I guess it would always be a bit prudent to model that. When it comes to the intermediates, I'd say it's the same order of magnitude, say that we talk about SEK 100 million or something in that range.

[Oskar Lindstrom, Senior Analyst]

All right. That's great. I just wanted to follow up also on Christian's question about the electrification program. Will this have any meaningful impact on OpEx in Mines in the coming years? You said it was a little bit delayed. Or should we more see it as something that offsets future higher fuel prices?

[Mikael Staffas, President & CEO]

Well, it offsets higher fuel prices going forward, but it also -- there is a saving because, of course, electricity is cheaper than having fuels, especially with the diesel taxes that we do pay in Sweden. So it does have an effect. Now I'm not on top of the number. Are you on top of the number?

[Håkan Gabrielsson, Chief Financial Officer]

I'd like to refer back to the original press release. I mean, there are details there on how much fuel it will save. And then, of course, the payback largely depends on what you assume for electricity prices and what you assume for long-term diesel prices. And then, of course, we also have a diesel tax that's in, I think, about SEK 100 million per year, right, which will be impacted by this. I don't have the exact number off the top of my head.

[Oskar Lindstrom, Senior Analyst]

All right. No real change -- no sort of change in the rollout of the program compared to a -- to that press release.

[Mikael Staffas, President & CEO]

Apart from that, as I said, we're slightly late in Kevitsa because of COVID. But otherwise, it's still the same ambition. And it's not a big secret. We do have ambitions to continue after that. This is not the end of the road. This is not fully implemented, but we are not there yet to talk to you about exactly how we would like to take it further.

[Operator]

The next question comes from the line of Liam Fitzpatrick from Deutsche Bank.

[Liam Fitzpatrick, Head of European Metals and Mining]

Three questions from me. First one, probably for Håkan, just on the numbers. If I look at the Smelters bridge, it looks like there was a pretty positive or upbeat positive volume impact in Q4. Was that related to higher sales over production and, therefore, is one-off type in nature? Or is that a sustainable improvement as we look into 2021? That's question one. Question 2 and 3 are more on projects and growth. So on Odda and Tara Deep, can you just give us a bit more color in terms of the potential time lines there in terms of approval? And then third question, just looking at your balance sheet, it's very strong at the moment. Can you comment on M&A versus organic opportunities? Do you expect to focus primarily on internal? Or are you actively on the lookout for assets?

[Mikael Staffas, President & CEO]

I can start from the end. So Håkan gets a few minutes to think about how to answer the first one. Regarding M&A, it's a very simple question or very simple answer, I should say, is that, yes, we're always looking at things. And if we find something that's attractive, we're willing to do it, but it's not our primary strategy. Our primary strategy is to develop the assets that we do have already or develop other assets from scratch. That tends to be much more financially attractive. So that's a standard one. Regarding the projects you mentioned, Odda is, I would say, the main part there is that we're waiting for is the permits. And just -- those of you who speak Norwegian, you can read about this. To some extent, we have a permit, but we don't have all the details of the permit. We expect all the details of the permit to be figured out sometime during the first half of the year. And then as you know, with all these kind of projects, that it's only once you really have a date that you can aim for that you can get all the suppliers lined up, and you can make sure that you have a good cost estimate for everything. And some of these things, you always have to make sure that you have a -- not just an estimate, but even a contract before you go live because that's the only time you have good leverage to negotiate with the supplier. You can't negotiate after you said you're going to do it. And all this is expected to happen during the first half of the year. And we -- hopefully, that we will be able to come to some kind of decision in the summer. Regarding Tara Deep, it's a much longer time line. We've said many times that around '23 or probably most '24 is the time that we will have to make a decision on Tara Deep. That is in line with, as you've already seen, that the existing Tara mine is likely to be until '27 or even beyond that. And that still gives us enough time to get Tara Deep in place to take over as original Tara depletes. And we want to use as much of that time to really get all the exploration going. Now we went from 22 million to 26 million tonnes. That's only surface drilling. Now we're going to be able to finally get to do underground drilling. We are quite hopeful this thing is open in every direction, and it's going to make a big difference on how we will plan the mine and how we do it. If it is, say, 30 million, if say it stops at 26 million to 30 million or whether it's 50 million or whether it's 70 million or whether it's 100 million, that makes a big difference, and we do not know. The only thing we know is it opens in many directions.

[Liam Fitzpatrick, Head of European Metals and Mining]

Okay. Could I just briefly --

[Mikael Staffas, President & CEO]

Yes. I'll take the follow-up on that before then Håkan gets a go.

[Liam Fitzpatrick, Head of European Metals and Mining]

Yes. It was actually just on Odda. Just in terms of the CMD in March. Will you be in a position to give us some more detailed numbers around the project? Or are we going to have to wait until the approval point around the summer or later?

[Mikael Staffas, President & CEO]

We will -- we said that we're going to try to provide some more flavor around it. It might not be that you will get what you really want, which is a CapEx number, because we will wait until that -- until we have it. But we're going to explain what the project is more in detail because I think what we said many times for many people have not understood quite thoroughly is that, yes, this is an expansion, but it's not really an expansion. It's a total revamp we're talking about. It's totally different yields they would have going forward. We'll be able to recover things that we don't recover today, et cetera, et cetera. So those are things that we'll talk about more in March. Now I'll leave it over to Håkan.

[Håkan Gabrielsson, Chief Financial Officer]

Thank you. Okay. So the question was how much of the volume increase in Smelters is sustainable over time. And if we start with Q3 to Q4, we've added SEK 300 million profit due to higher volumes. Now there is one element in there, which is lower maintenance. We had a little bit more maintenance stops in Q3. And of course, that is sustainable because we don't have maintenance all quarters. We talked about favorable feed mix with more precious metals, higher free metals from gold, palladium and so on. That is something that we always try to achieve. And I cannot say that it's impossible to sustain that for another quarter or so. But typically, when we are extremely successful in one quarter, I think it's going to be a tough challenge to reach this level of feed mix going forward. So not impossible, but a good challenge. And I think it's a little bit the same for the intermediates. There are more intermediates that we can process. But we feel that we've been very, very successful in this quarter and not technically impossible to repeat, but it's not going to happen every quarter, for sure.

[Operator]

And the next question comes from the line of Ioannis Masvoulas from Morgan Stanley.

[Ioannis Masvoulas, Equity Analyst]

There are 3 questions from my side. The first on the Aitik grade profile. How does this change with and without the Liikavaara? And can you talk about the associated CapEx if you were to develop that satellite deposit? Second question, you mentioned the normalization of the working capital at the end of Q4. Can you remind us how much exposure you now have to spot in zinc and copper [ grades ] in today's environment where we've seen much lower spot terms? And lastly, and apologies if you have already mentioned it, what's the latest update on the Kevitsa grade profile for 2021?

[Mikael Staffas, President & CEO]

Okay. Let's start with Kevitsa. We didn't say anything about Kevitsa, which is -- means that we don't say anything, you should work around the average grades, which means that we will not be materially off the average grades for 2021. If we then talk about the Liikavaara, as I said, if we're lucky, we'll have it in production in '23. So Liikavaara will not affect anything in '21 or '22. The years after that, it's, of course, a bit difficult to comment because there are lots of things that are moving. But the Liikavaara average grade is higher than the average grade in the rest of Aitik. So it does help the situation, say, in '24, 25, 26, that we get that as part of the mix. I don't know if I stand -- if I answered your question. In terms of investment, I would say that, yes, there are investments. The main investments are, in that particular case, mainly into stripping, which we have all the time. So it's not a massive investment. We'll come back with the number once it's clear and once we have the environmental permit. But the way that we right now envision mining Liikavaara, it will be able to utilize the investments already done in Aitik in terms of taking care of the sulphur-containing waste rock and other things in a relatively CapEx efficient way, put it that way.

[Håkan Gabrielsson, Chief Financial Officer]

The last one was about TCs and working capital

[Mikael Staffas, President & CEO]

And the benchmark.

[Håkan Gabrielsson, Chief Financial Officer]

Should I take it well, first, we have normalized the working capital. So if anything, it's lower than average at this point. Our exposure to spot is about 10%, 15%, somewhere there.

[Ioannis Masvoulas, Equity Analyst]

Okay. Understood. And so just a follow-up on Liikavaara. So is it fair to assume that if you get a permit, you could be closer to reserve grade for Aitik by 2023, assuming it's up and running by beginning of '23?

[Mikael Staffas, President & CEO]

We haven't really guided for the grades around that. I will say that assuming we get it, we will be in a better situation. On the other hand, and I think I said that many times, we've been for, I think, 5, 6, 7 years above average, and these cycles are relatively long, and we are going to be below average for a while, but exactly how that will impact, we will take it some other time.

[Operator]

The next question comes from the line of Daniel Major from UBS.

[Daniel Edward Major, Director and Analyst]

Two questions. First question, when do you expect to approve the Rävliden mine expansion in the Boliden area? And does this offer upside risk to the CapEx guidance you provided for 2020?

[Mikael Staffas, President & CEO]

You mean 2021, I suppose. Rarely, that's a good question, a good question. My ambition is still that we will get a go-ahead for Rävliden in the first half of the year. It's been slightly [ delayed ]. I think I might even have spoken to some of you that I would have hoped to be able to announce it now. But I am not. It's been slightly delayed. In terms of CapEx in 2021, it will have a very limited impact. I think that any CapEx related to Rävliden will be more in '22. So that should not impact too much.

[Daniel Edward Major, Director and Analyst]

Okay. And just a quick follow-up. Am I right, the CapEx, that's about SEK 1.5 billion.

[Mikael Staffas, President & CEO]

Well, number one, we haven't guided, but I've said to people, and it's not a big thing that we can do Rävliden in 2 different ways. We can do it with high CapEx, low OpEx, and we can do a low CapEx and a high OpEx, because we haven't yet decided on exactly how to design the mine. And that has to do with what kind of infrastructure we put in there. And as you know, the Kristineberg Mine, as such, has not been able to afford big CapEx for many, many years, and thus has become a very high OpEx mine, which is unfortunate. And the way that we continue to find more and more ore has made this decision back in the '70s and '80s and '90s that were very rational when they were made, has, over time, become irrational. I said many times that I want to make sure that we develop this product as much as possible so that we can motivate high CapEx because that will, in the long run, be -- I'm certain the best thing to do. But as you can kind of feel from my answer, we haven't really figured that out yet, so exactly how that will be best done, and thus, the amount of CapEx is unclear. But SEK 1.5 billion is a potential number. That will be, by the way, on the high side. That's related to kind of the high CapEx option.

[Daniel Edward Major, Director and Analyst]

Right. Okay. Cool. Second question on tax. The cash tax was kind of in line or slightly below the P&L tax. I think you guided to a SEK 200 million release or higher cash tax versus P&L tax in the quarter. Where are we with that? And do you expect cash tax to be higher than P&L tax in Q1 or in 2021 as a whole?

[Håkan Gabrielsson, Chief Financial Officer]

I expect there is a bit of delay there. There's always a timing thing. So I do expect a slightly higher tax in Q1.

[Olof Grenmark, Director Investor Relations]

Operator, time is running out. I think we have time for one more question over the phone, and then I'd like to conclude by one question from the web. We have got many questions over the web, but I have one question from the web as well. But one more questions over the phone, operator, please.

[Operator]

And the last question comes from the line of Tyler Broda from RBC.

[Tyler Anson Broda, Director, Global Mining Research]

Great. So 2 questions for me. The first one is just on the CapEx in terms of the spending happening in the open pit mines. So they were lower in Q4, which can't catch up this year. I guess, just in terms of the -- I just would like, if possible, some more color perhaps on the underlying flexibility in terms of the Mines from here, especially if we are to see further constraints on that stripping over the course of 2021. And then secondly, just a follow-up to Ioannis' question. I guess, just in terms of the current situation for the TC market, the spot as low as it is. Could you give a little more color on where you expect things perhaps to come out?

[Mikael Staffas, President & CEO]

Okay. If I'll take the first one. This is, of course, a very good question, which is a little bit difficult to answer, is the fact that we have been stripping less than we said we'd strip, is that going to reduce our flexibility in how to do things in Aitik. The answer is yes, it is reducing. It is less than we would have liked it to be. Is it critical? No, it's not. We came from a situation where we had a relatively good flexibility. But of course, this cannot continue. As you continue to walk down this path, you will come to dead end. We need to continue to strip well in advance so that we do have flexibility, especially if odd things happen or whatever it could be, we need to have more flexibility. But I would say short term, it's not a big issue. We started from a relatively good point of view. The other one is on TCs. And I suppose you're talking about zinc TCs where the spot is quite different from the benchmark. As you know, we are not at this table. We are, in this case, very much of a price taker or TC takers. We don't know -- I mean, it's, of course, obvious that the benchmark will come down. It will not remind it -- remain at the [ SEK 300 ] or [ SEK 299 ]. But by how much it will come off I don't know. There's going to be an interesting discussion to be at those tables, as I said, that we are not.

[Olof Grenmark, Director Investor Relations]

Okay. Okay. Ladies and gentlemen, that concludes our Q&A over the phone session. For those of you who didn't have the chance to ask questions, please come back to us. You have the contact details at our home page. And then the final question over the web is to Mr. Staffas and it's from a gentleman called Anthony [ Leiderdrampf ]. And the question is, what is your view on the metal prices development going forward?

[Mikael Staffas, President & CEO]

That's a very good question. And of course, almost impossible to answer and whatever you think is going to be is the opposite. I cannot really answer that in any way that we do publish. We published last year, and you will see our annual report in a few weeks out, where we do publish what our long-term prices are. They are not, in any way, differing from what you will find that many other of our competitors or at financial analysts predicting future metal prices. So that's saying one thing, and that's, of course, what it is. Now having said that, in the shorter term, it looks good. I mean, everybody knows that base metals are needed for the transition away from the fossil economy into the nonfossil economy or renewable economy and mines don't open very fast. On top of that, COVID has some supply issues coming out, I think that especially in copper, but also in the other base metals. It's a relatively good place to be as a supplier right now. But just as I say that, of course, it will go the other way around. That's what always happens.

[Olof Grenmark, Director Investor Relations]

Okay. Mr. Staffas, please conclude this session.

[Mikael Staffas, President & CEO]

Well, thank you all. It's been, as I said, a very great quarter for us. It's much more pleasant to stand here on a day like this than it is some other days. It's been a great quarter. It is a great company. Thank you all.