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Boliden AB
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Ladies and gentlemen, I'd like to welcome you to Boliden's Q4 2021 Results Presentation. 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. We will also have a Q&A session, which will start here in Stockholm. Mikael, welcome.
Thank you, Olof, and welcome from me as well to all of you in there and to everybody here in the room. Presenting these results, of course, a little bit easier than other quarters sometimes are. We've had a really good quarter, especially in the mining division, and I think you've all seen that. On top of that, we have the price and terms, which are all helping us, not unknown to anybody because you've all seen that before. We have an inflation pressure on us. We'll talk a little bit more about that when we come into the numbers. And that is also, I think, nothing new. I think that we're seeing that in large part of the society right now with that pressure going up. We had announced beforehand that we've had issues in both Tara and Harjavalta. I'll give a little bit flavor to that later down in the presentation to what really happened. So the financial performance was good. We've had a profit of SEK 2.8 million in the quarter and a free cash flow of about SEK 2 billion. The CapEx also came down lower -- came out lower than what we had guided for and also lower than we expected. We've had COVID issues in our CapEx side -- or COVID issues in our operations. And thus, we have focused on the operations and had to take some resources away from some of the maintenance CapEx that normally goes on. The dividend proposal is also out, and you've all read that. It's all in line with our dividend policy. Nothing has changed regarding the policy. And when we apply the policy to the numbers, we get a cash dividend of SEK 10.5 per share, the ordinary dividend, but we also have extra space in the balance sheet for an extra dividend that will come in the form of redemption shares of SEK 15.50 per share as well. So the total the total dividend or the total payout to the shareholders will be SEK 26 per share. Regarding the projects, well, we have commissioned the nickel capacity in Harjavalta. That all sounds good, but we've had challenges with the nickel line. I'll come back to that. Regarding the Odda expansion, we have signed a long range of key contracts during the fall, and we have, as of when I'm saying this right now, as of early January, we're full speed with all the groundworks in Odda. And so far, everything is looking fine. Tara Deep, and we'll come back to that when we speak to Tara as well, but of course, the Tara Deep has been delayed by the water inflow in Tara. And we've had, on projects, generally COVID-19-related delays, both from suppliers not being able to supply in time but also from ourselves, focusing the resource that we have on operations rather than on the project at this time. So once again, the group profit was at SEK 2.8 billion. What's interesting here is, of course, Mines, SEK 3 billion. So we make more in Mines than we make altogether. The Mines has had a very good quarter. Apart from Tara, which was well-known, we have produced on record levels. I'll come back to that. The Smelters have had a somewhat a more challenging quarter. The zinc smelters have done reasonably well, but the copper smelters have had challenges, not just the nickel issue in Harjavalta. And all in all, when that happens and you have Mines running very well and you have Smelters not running quite as well, you build up inventory. And when you have a situation like right now, where we're making lots of money in the Mines, that inventory turns into a negative internal profit elimination. Both because of the high prices but also because of the high inventory, we had record negative internal profit elimination. This is, of course, all a timing issue. It will eventually flow through to the P&L. But as of now, that can put it all back. Regarding the ESG, you all know that we're very proud of our ESG profile. The quarter was not the best from an ESG standpoint. We've had relatively high lost time injury frequency. We end up the total year of 2021 on around the same level as 2020, which is a level that is too high. It's a level that we don't like and we want to go down. We can blame part on this on COVID and part of this is, of course, always with injuries. You can also blame the kind of unlucky factor and so on. But we're continually focusing very hard on it. I should, however, also point out that we have, with the end of 2021, we are now 14 years fatality-free strike -- or streak in Boliden, which I think is totally unique to the industry. The sick leave, as you can see, is high. It's higher than the kind of 4% that we normally want to see. It's also higher than what we had the year before. The sick leave linked to COVID has, of course, gone a little bit up and down. It started in the quarter quite high back in October. It was getting better in November and up until mid-December. And of course, late December, it all went the wrong way, and we've had actually some challenging times in January as well with very high sick leaves in coming to COVID. The carbon intensity also went, you can say, the wrong way. We have increased carbon dioxide intensity in the quarter compared to last year. This is partially due to the fact that we last year had very good grades. And with high grades, you get a better profile automatically. But it's also due to the, you can say, the unfortunate event that we've had and the kind of not-so-perfect production in Smelters and also in Tara that gives a higher footprint on CO2. This is nothing that really changes anything regarding what targets we have and what we're doing forward. We all feel very good about the targets that we do have. Price and terms, I'm not going to go too much into detail. You all know this one before. Base metal prices on increasing and a very good level. Precious metals, although they're not increasing, they're stabilizing. They are on a high level. And from our point of view, we also had help with a relatively good dollar exchange rate. And we multiplied this altogether, we've had probably one of the best price and terms quarters in the history of the company. If you start looking a little bit more into detail on the prices and terms, this slide, to some way, captures it all. Number one, you can see that the prices both for copper, zinc and nickel are way above the cost curves, i.e., there is already a very high price level priced in because, yes, it is a very high demand situation going forward, and we see that and there are limited supply. But a lot of that is already priced into the price. What you can also see here about the cost, I think, is interesting. You can see, on the copper side, that all the different percentiles on the cost curve goes up. This is inflation that has started hitting the copper industry. You can also see that it's relatively worse if you look at the 90th percentile. We also see some new marginal capacity coming into the industry, which also drives up the cost, especially at the 90th percentile. This is, of course, also one thing that is long term helping the kind of bottom levels also in downturns in terms of where the copper price will be. You can see that even more in nickel, where you can see that there's come in quite a lot of marginal capacity in the nickel industry with very high marginal cost. You can see the 90th percentile really kicking in, in the nickel side. On the zinc side, you might be a little bit fooled and think that all the zinc miners in the world are the best ones in managing costs. Despite the general inflation in the world, these guys seem to also be able to reduce the cost. Well, that has basically one big explanation. And that's the lower zinc TCs, which benefits the miners in these calculations. But they can't really do much about. So the actual cost inflation, apart from TC, has probably prevailed also pretty much in zinc mines. Also, the relatively strong silver price during the year of '21 compared to '20 is also helping the cost as that is counted as a credit in the calculations. If we then start talking about our mines, we've had record production for a quarter in Aitik. We have reached the 45 million tonnes, which we are very pleased that we have been able to prove that we can do. We also had better grades than anticipated, which is, of course, also very happy. You know that we have a plus/minus 10% situation. And this is right on that margin, plus 10%. And that happens sometimes. It's good when it happens on the positive side. Garpenberg, also very strong general production profile, right in line with where we were guiding and where we thought we were going to end up. Kevitsa has now finished the year at 9.5 million. They were all over that speed for the fourth quarter. But for the full year, we have 9.5 million. We have now really been able to achieve what we have promised to do on the capital side. Boliden Area, very stable in terms of milled production, very good quarter. Now Tara, I'll come back to that later, has had a challenging due to the water inflow. If we go and look at the Smelters, well, in Harjavalta, there's been quite a lot of things. We've had a planned maintenance stop, which was in there. But there was also a delay and an increase of that in terms of days and also delayed ramp-up in the nickel line after that. This was installing the new capacity in the nickel line and we had that. We've also, for Harjavalta, had a negative raw material mix that is especially clear compared to last year, where we had a very strong raw material mix in the Q4 of 2020. We had the explosion, I'll come back to that, in the nickel line. On top of that, if you clear out all these other things, the actual throughput on the copper line has been pretty strong. Also, Rönnskär has been affected by the negative raw material mix. That's both a question about exactly which concentrates we had available during the quarter and also the amount of e-scrap that we've been able to source at that. And we also had a delayed ramp-up of the expansions in Rönnskär. We are not quite there where we want to be in terms of throughput in the copper line with the double converter operations that we have installed. We don't have that fully up to speed in this quarter yet. The zinc smelters, basically stable production, nothing much to talk about. In Bergsöe, our smallest units, we are hampered by the environmental permit on sulfur emissions. That means that we have to curtail production there as we go forward. You can also see here, I think, graphically, just looking at the nickel, not so much on copper, you can see graphically on the nickel how relatively little production we've had. And of course, when you have a Kevitsa mine producing full, you get inventories. And that's part of the internal profit elimination situation that we do have. Looking at the full year as we presented here once per year. We do have a record profit for the full year. And if you compare the full year to the full year of '20, where we had very strong price and terms. We've had decreasing volumes because of lower grades, which has been well communicated. But we also had disturbances in Aitik in the early part of the year; in Tara, both in the early part of the year and the later part of the year; and in Harjavalta in later part of the year. It was a big maintenance year in Smelters. And of course, we also closed Kylylahti in the end of 2020. That's also affecting the numbers. The inflation is coming to kick in here. We've had roughly a 4% inflation full year 2021 over 2020. SAG is stronger towards the later end than the earlier end and power prices is part of that. But that's the number that we have been able to calculate to figure out what our own inflation rate has been. If you look at the different units, we are, of course, very happy, generally, on the mining side that we are producing good profits in all of our units, apart from Kylylahti that was closed down. And on the Smelters side, the zinc smelters have had a tough financial year with the very low zinc TCs that we've had for the year. That has hit them relatively hard whereas the copper smelters are producing profits on a relatively high level throughout the year. And that's all despite the fact that we've had pretty strong price increases here as well, more linked to chemicals and the power situation. Exploration. We're also today releasing our R&R statement. And I think just to get a highlight, number one, we are increasing exploration cost. That's nothing new. I think we had an ambition to go even higher than this number in the early part of the year. But we have been slightly hampered by COVID also in the exploration area. Garpenberg is, of course, a really positive news. We've had a strong uptick in mineral resources. And we're very happy about that. Kevitsa though, we have a decline in mineral resources as we've been doing some infill drilling in some of the areas in -- which is outside the existing final pit closure. We've not gotten quite as good results as we had anticipated, and we have a negative number there. The Boliden Area. Well, Strömfors was well announced beforehand, that's now in -- the new discovery is now in as a mineral resource. And Rävliden, we've been able to convert now from resource to reserve, at least part of that mineralization, with the investment that we're doing there. On the Tara, the Tara Deep side, we have had a delay in several stages. That's partially due to what happened really towards the end of the year with the flooding. But also before that, we've had challenges with water and other things in our exploration drilling in Tara Deep. If you look at the numbers, you see the graph to the right, it's not readily saying so much about the sector this year as we're comparing the reserve life of 10 years back with the reserve life now. But it's important to point out, as you can see, that our short-lived mines in Boliden Area and Tara are still keeping up. After 10 years of hard production, they're roughly at the same levels as they were before. And I think Garpenberg have, as you know, increased. If you look at this particular year on the research side, there's not so much new to say on the Aitik side. There's not so much new to say on the Boliden Area, even though we've extended it for a year. Garpenberg, not so much to say, it looks like a reduction here. But that has to do with the increased production compared to what we said last year, now with the 3.3 million tonnes put into place. And Tara and Kevitsa, not really much change there in terms of reserves. It's more on the resources side that we see things happening. We've seen that in the Boliden Area, and we see the major increase that we have in the Garpenberg site. We've also had positive news on Tara Deep. We've been able to continue and explore, and we're finding the similar grades. The uptick in tonnage has not been as big as we would have liked in the beginning of the year. It's not really because of the fact that we haven't been able to find it. It's more that we haven't been able to drill as much as we would like to. And once again, all this drilling is done from surface. We have not been able to drill anything from underground yet. The Kevitsa is a disappointment on this one with the reduced resources that we do have. I have to point out that this is outside the final pit. So there's nothing of this that was ever in any production plan. So with that, I'll leave it over to you, Håkan, to take us through the financial summary.
So thank you, Mikael, and good morning. Well, as Mikael talked about, we have reported an EBIT, excluding process inventories, of SEK 2.8 billion. That is roughly SEK 200 million lower than Q4 of last year and SEK 400 million better than Q3. I will come back to that as usual. Investments are close to SEK 2 billion in the quarter. That's higher year-on-year and higher sequentially, but it's a good bit lower than the number we were aiming for. Free cash flow, SEK 2 billion, also lower than last year but above Q3. And then finally, on earnings per share of SEK 9.27, which is a historically strong number. Looking at the profit business area-by-business area. I think it's obvious that Mines have had a good quarter, a profit of SEK 3 billion, which is a good step up to both comparison periods. Prices were high. Prices were also helped by the definitive pricing that what we sometimes refer to as MAMA, month-after-month of arrival, which contributed by about SEK 240 million in the quarter. On the negative side, in Mines, we've had the water inflow in Tara. And we closed Kylylahti compared to last year. But we have had strong production in our key mines: Aitik, Kevitsa and Garpenberg. Smelters, SEK 553 million. And then other/elimination, a large negative number of SEK 721 million. Out of that, the internal profit elimination, which Mikael referred to, is SEK 660 million. And just to give some order of magnitude, about 2/3 of that number is connected to higher prices. The sensitivity that we have at unchanged inventory levels and so on is that a 10% increase in metal prices will lead to roughly SEK 300 million effect on EBIT. And during this quarter, we have seen prices on average come up with about 15%. So 2/3 is related to prices, but 1/3 is an inventory buildup, primarily in nickel concentrates. The inventory buildup will, of course, release during the first half of the year. And the prices will -- the price part will continue to move with market prices. Comparing Q4 of this year to -- or Q4 of '21 to Q4 of '20. We are SEK 200 million down. Starting with prices and terms, we were helped by about SEK 1.7 billion. Both metal prices and currencies have moved in the same direction. We have a stronger U.S. dollar. The main impact though is higher base metal prices, primarily copper and zinc. Volumes are down SEK 1.5 billion. And here, it's about SEK 500 million for each 1 of the 3 segments that we are reporting. And starting with Mines, most of the SEK 500 million -- or it's SEK 460 million to be exact, most of that number is lower grades. And I think that is well-known to the market. And Aitik is, of course, a big component in there. In addition, we've had the water inflow in Tara and the Kylylahti closure, compensated by strong production in all other mines. On the Smelting side, the SEK 500 million is largely connected to a lower performance in the nickel line in Harjavalta. As you heard earlier in this presentation, we had a slower ramp-up after maintenance and we've had an explosion in the nickel line around Christmas. In addition, we've had higher maintenance than last year, both planned and unplanned, and unfavorable raw material mix. For those of you that recall the Q4 presentation of last year, we made something of a point that we had an unusually strong material mix, especially a lot of gold-containing material in Harjavalta. And then finally, the internal profit, also about SEK 500 million negative. This was a quarter when we built stock. The same quarter last year, we released a lot of stock. The costs are up SEK 366 million. Inflation is the main component here. To give one example, we were up SEK 210 million in energy. Energy here includes electricity and diesel. In addition, we've got higher maintenance costs and about SEK 60 million one-offs related to reclamation. That's an accounting change. I'll come back to that briefly in a while. And Q4 to Q3, again on the pricing side. We've been helped by stronger metal prices and a stronger dollar. Volumes, compared to last quarter, we had very good production in Mines, higher milled volume and higher grades. And then on the negative side, lower performance in Smelters and higher internal profit elimination. On the cost side, roughly the same factors, higher production, costs connected to production disturbances in Tara and Harjavalta. But there is also a fairly big seasonal component here of about SEK 150 million. Cash flow. Let's see, cash flow is SEK 2 billion. And that's SEK 750 million lower than last year. And I think the main components here are slightly lower EBITDA and higher investments. Even with higher investments, as Mikael talked about, the full year CapEx is lower than we expected. We have not reached the tonnage of stripping in our open pit mines. We've prioritized ore production. And we also have some delays, partly COVID-related in other projects. Working capital is in line with last quarter. This is in a context of increasing prices. So we released the tonnage in the working capital a bit. Capital structure. Strong balance sheet, which is the one of the reasons to the dividend payouts. And net payment capacity of SEK 16 billion, net cash position at year-end of about SEK 900 million. And all in all, a robust financing in place. Then there is also a comment in the report that we've updated the discount rate for the reclamation reserves. This is a pure accounting change. There is no change in our reclamation plans and the actual cash flow that we plan to incur. One point to take away from this is that going forward, '22 and onwards, we will have slightly higher depreciation, about SEK 60 million, and the corresponding improvement in the financial net. So hence, no change in net profit. With that, Mikael, something about our low carbon offering?
Yes. Thank you, Håkan. Earlier in the week, we announced what I think that you all anticipated for quite some time. We also announced our new low carbon zinc product. To the right here on the slide, you see curves that you will recognize from our Capital Markets Day, although they're slightly updated. They're basically saying that when you're looking at Scope 1 and 2 of zinc production, either if you look on Mines on top or you look at Smelters on the bottom, we are very well positioned. And we've known that, there's nothing new. And we also know that, with the Odda investment, we will, number one, get better in Odda, even though we're really good to start with, and we'll have more production in that low end. Now Scope 1 and 2 is only Scope 1 and 2. And I think we've said many times that if you're going to talk about the environmental footprint of the base metal, you need to include also Scope 3. Otherwise, it becomes silly. And in our case, we've included Scope 3 in the cradle-to-gate sense, i.e., we've taken everything into account that it takes to produce the metal, starting with what it takes to produce the explosive and what it takes [indiscernible] and all the chemicals that goes in and everything else to also take in the Scope 3 position all the way up until we have a finished metal. We have now introduced the low carbon zinc. It is a zinc that comes from our Odda smelter, which has a lower CO2 footprint in our operations and is produced by Boliden's own mine. We have also gotten third-party certification that this is below 1 kilo of CO2 per kilo of zinc. All 3 scopes included in that calculation. We think that this is a very good number. We should, by the way, say, we've also introduced another product at the same time. And that one is called recycled zinc because we do recycle zinc. That one has a very high, compared to us, CO2 footprint of about 3.8, also externally verified. And it's interesting with zinc is as you can find out that actually recycled zinc does not have a better CO2 position, rather a worse CO2 position. Now there are certain customers who want recycled zinc anyway because it fits with their profile to make sure they have recycled material. And of course, we're committed to try to get that 3.8 down over time. And then we have the rest, which will vary over time. We will push that down as well. But that's around 2 to 2.5 kilos. All these numbers are extremely good. We think that the general part of the industry is somewhere between 3 and 4. But we don't really know because nobody else publishes their Scope 3 emissions the way that we do, at least as far as we know. We have contracted the first volumes already for this new product. It is similar to what it was on the copper side. We do get a premium for it already. The premium is small. And we clearly hope that the premium will get bigger over time. That is not going to happen in a linear fashion. It's going to happen one day, when there will be suddenly a rush to get to the low carbon material, maybe around the time we're talking about zinc, maybe around the time that we will have low carbon steel. Because how can you produce low carbon steel and then dip it into high CO2 zinc? But we'll see when that will happen exactly. But as I said, we already have sold the product. And we've done that with a premium, even though the premium is not that big. Tara. Tara had a water inflow. And you've seen that in separate announcements. We were working to get a ventilation shaft into the Tara Deep area of the mine. We had the pilot hole coming through, 15-inch pilot hole coming through. And we had a massive inflow of water with that. That you get some inflow is not unusual. I mean, this is Tara, it's a wet mine. But this was massive. It was -- if we normally have, in all of Tara, just to get a sense, maybe about 400 cubic meters per hour inflow from all sources that we have, we suddenly get this one source with over 2,000 extra cubic meters on top of the 400 we get in otherwise. And we have a pump capacity around 750. You all understand that, that pump capacity did not help anything. Also, on top of that, we have an environmental permit that we're not allowed to release more than about 750 to the river either. So the pump capacity is linked to the environmental permit. And by that total situation, the mine got flooded. The whole Tara Deep drift got flooded and started pouring into the rest of the mine. We've used service providers from the oil industry to be able to use similar technology as the oil industry has done historically when it comes to getting oil leaks from oil wells under control, environmentally. This time, there was no environmental risk as this was water, by the way, very pure water. But we managed to use the same technique. And after about 12 days, we managed to plug the hole, 12, I would say, very intense days for everybody who were involved with it. Once it was plugged, we've been able to do security parts around it. We've been able to start pumping. And then also, as we got it under control, we could also start producing from certain parts of the Tara mine that was not the deeper parts. And we could increase in some more way the positions that we had in the shallower part. But we will not be able to have full production until we get the bottom of the mine pumped out and reinstalled and that is likely to happen around March time this year. So we still haven't pumped it out. And once we pump it out, we'll have to see that how the infrastructure that came underwater has survived. Also, we do have the higher grade ore in the bottom part. So the ones that we are replacing with on the side is a lower grade ore. Also, on top of this, just to make everything worse, because one accident doesn't really come along, we actually had a pretty big fire in Tara in December 27. This fire started in one of the underground conveyor belts. Nobody got hurt. We got everybody out, nobody was affected. But it was a relatively big fire that was taken under in about -- it took about 6 hours to get it under control by our local internal fire brigade. Now you can say that it was bad that two things happened at the same time. And another way, it was also relatively good because this is the conveyor belt that's usually used to convey or take out the material from the bottom of the mine. Well, the bottom was already flooded. So there was not so much use for it right now. So if it was ever going to burn at some time, this was not such a bad timing. So we hope to have the whole conveyor restart in about a week from now, so mid-February. And this should be ready also to be in place when the ore starts coming from the bottom part of the mine. The Tara Deep drift, we have done prioritizing this thing. We are focused on production. So once we have everything done and all the production areas dewatered, we will start focusing on Tara Deep drift and get the water out of the Tara Deep drift. That is going to take an additional couple of months. And maybe somewhere towards June, we'll be able to have the water out and then we have to start assessing what's happened to the infrastructure in the Tara Deep drift, and when we can get back sometime in the second part of the year to start the exploration from underground, which is the kind of next activity. And then of course, we are looking very much into what to do with this ventilation shaft that's caused all the problems to start with. We do need to have the ventilation shaft, not urgently as kind of right away, but we will need it relatively soon in order to be able to do all the things that we want to do down in the Tara Deep drift. We will look into the situation. Our ambition is still to be able to rescue the existing hole. But there are clearly engineering challenges in doing that. But we have probably lost, in terms of getting ventilation into Tara Deep, we've lost a year. Harjavalta. Well, as I said, if we had two accidents happening in Tara relatively shortly, we also had a series of mishaps, if you want us to call that, on the nickel line in Harjavalta, which is unfortunate because this is right now a very high earner if it were to work perfectly. Now you all know that we're expanding the capacity of the line. We had a maintenance stop in October, when this was supposed to be put in. And it was put in, so [indiscernible]. But it took quite a lot of extra time. So we were late already starting. The ramp-up of the production was also not going quite to schedule. We've had issues with some of the new technologies. As you know, this is a line that uses a totally new technology for the concentrate dryer, going away from fossil fuel burning in the dryer to using heat exchangers. We had some teething problem with that. And it was not really working for full. And then on top of that, we had this steam explosion on Christmas Eve. What happened was that we got, due to the, I would say, human factor but also maybe due to organizational factors, we should not blame any individual, but we had a situation where a slag from the electric furnace in the nickel line was mixed with water in a way that should not happen. And we've got a big steam shock out of that. Once again, nobody got hurt, which is the important part. But we were down for almost a month until we could resume the production again. As I'm standing right now, the line is there, the line is running. We're back to, what I would say, the original ramp-up curve. We're not running at exactly 100% of the production right now but maybe more like 90% production, which is part of the normal ramp-up curve as we had envisioned when we were supposed to start out the project. With that, Olof has told me I need to make a big pitch that we have a Capital Market Day scheduled for November. It will be here in Stockholm, and it will be followed by a site visit the day after. So it's November 15 for the production -- for the presentation in Stockholm and November 16 with the site visit. Going forward, I think we have not really anything new to say. Regarding Aitik, we have the same guidance regarding the 0.20% grade and 0.10% gold grade. In Garpenberg, no change in guidance, also not for Kevitsa. Now in Tara, we will have an effect of water in Q1, both affecting throughput and affecting the grade. This will be in the order of magnitude of maybe 20% less metal production than would have been a normal one. Now you know that Tara, also in normal terms, goes up and down quite a lot. So I don't know how much it should help by that, but just to get the order of magnitude, it's not half, it's around 20%. In Harjavalta, we still have an effect in Q1 due to the nickel explosion. As I said, we didn't start anything up until late January. Maintenance shutdowns for '22, it's a lower maintenance year, but this was also known before. COVID, I just want to reiterate that even though we are, as I speak today, maybe kind of heading down the COVID infection in our part of the world, it's gotten much better just in the last week, we've had a pretty challenging January to say the least in terms of making sure that we can get all the production running. Inflation pressure, we talked about that. I talked about the 4% roughly inflation that we saw year-on-year '21 over '20. As we look to '22 over '21, it's difficult to say because lots of this is dependent on raw materials, metals, but also we're still using quite a lot of power and quite a lot of diesel. But it's pretty obvious that there is still a high inflation pressure in the economy in general. The CapEx guidance is not changed. It's still at a little bit more than SEK 10 billion for the full year of 2022. Thank you all.
Ladies and gentlemen, that opens up our Q4 2021 Q&A session. And we will start here in Stockholm. We have a question from Christian Kopfer of Handelsbanken.
I have a few questions from my side. Firstly, on the electrification, which you are working with, pretty high speed still, I would guess. And you typically say that the electrification strategy should stand on its own merits with regards to economics, right? So my question is how does it stand on merits with regards to that electricity prices have more or less flied away up, even though diesel prices are much higher as well? But if you take everything into consideration, how does it look right now?
Everything into consideration is diesel prices are high. But also, the -- whatever you call it in English, the fact that we have to mix a certain amount of renewables into the diesel that we're using, so this mixing factor is making diesel much more expensive. And also, given the kind of power prices that we can get, the economics looks better now than they used to.
Okay. Good. And so how is the strategy going with regards to the electrification? Are you still increasing it going into 2022?
We're not announcing any new plans. We're still delivering on the plans that we have announced before. I think at the end of the day, Aitik is now up to 10 or 11 trucks that are electrified and they're starting to run around. Kevitsa have their 2 first trucks in the first line up and running. So we are delivering on the ones, but we don't have any additional projects as of right now to announce.
Okay. On the grades, you expect grades to come down in Kevitsa, obviously, because it was quite high in Q4 on copper side. But you're not talking about nickel. So we should expect nickel in Kevitsa to be pretty much in line with the reserve?
With the reserve, yes.
Okay. And how certain are you that you will come down on the grades in Aitik already in Q1? Because when we go back 1 quarter, you didn't guide for 0.23%, definitely not in Q4. So what is the uncertainty on Q1? And you should be pretty certain because we are going in February.
Well, it's always a plus/minus factor, but I'm pretty certain it will come down.
Okay. Great. And then on investments, you said you were running pretty much behind your schedule for 2021, right, SEK 1 billion or so or SEK 2 billion? I don't remember, but it was quite a big figure.
We are below our schedule. And one important component is waste rock. For various reasons, COVID being one of them, we have not reached the levels of waste rock production that we aim for. In this situation, we also prioritized our resources into ore production. So that is one important thing. And next year's plan includes an increase. And we are working to reach that. But there is no change in '22 guidance in that respect.
But how can it not change if you're picking up speed in 2022?
The plan already had an increase in waste rock production. The number SEK 10 billion that we guided for already included an increased waste rock. As you may recall, we lifted the maintenance CapEx to 5 billion compared to SEK 4.5 billion, which we used to have. And that is an increased ambition in stripping. And we're sticking to that. But we don't feel that we can increase it further already in 2022.
Okay. I don't get it fully. Because previously, we're also guiding that it should increase, and you are running behind your schedule. So does that mean that 2023 will be upgraded then?
I mean, over time -- of course, you cannot change the fact that over time, we will have to do the stripping. Now the mine plan also changes from every year a little bit up and down. But we are a little bit behind on waste rock, which we don't like. It doesn't affect production in a kind of normal situation. But it does leave us fewer degrees of freedom if something were to happen because we will have fewer positions open as the waste rock removal is not quite as advanced as it would have ideally been.
Okay. And finally then for me, on the OpEx, you should have pretty good knowledge where OpEx is in Q1, I guess, even though you're seeing uncertainties for the full year, as you said, on the inflation. So Q1 2021 was -- you had some disturbances there, if I remember correctly.
Q1 2021, yes, we had disturbances in Tara and in Aitik.
But do you still expect OpEx, call it, unit OpEx or whatever, to be up year-over-year in Q1?
Well, there is an inflation component coming in there. And that is difficult to avoid. I mean, energy, for instance...
So the answer is yes?
Yes.
Okay. We have Johannes Grunselius, Den norske Bank.
A few questions from my side, more on the Smelters. I was wondering if you could help us to understand how you look at premiums, both for copper and zinc. I've noticed that your German smelting friend talked about all-time highs copper premium. So if you could talk a bit of those and maybe add nickel as well.
Well, if you start with copper, which I think is the one that's more kind of obvious, you know that our customers don't pay premiums just to be nice. They pay a premium as a compensation for a service that we're giving them, and that's the delivery to the gate. And as all kind of logistic costs have increased, there will be an increase of premiums. It doesn't necessarily mean that the net premiums are that much more higher because there is a pretty strong cost component in serving those tonnes on the last mile all to the customer. And I think that's what you're seeing coming through in these numbers, that premiums are coming up to reflect the increased logistic costs. And on nickel, it's -- there, the market is not so clear because we have other types of contracts. It's not for -- our nickel is a matte, not a finished metal. So there, the premiums are totally different.
So basically, nothing that will sort of drive profits for you in 2022 as a theme?
No. I mean, in copper, for example, the premiums, if we're talking about 1% of the price, of course, it's much more important what happens to the price. It's not the premium themselves that's going to drive the price -- the profit level.
Yes, I agree on that. But you're -- I get a bit curious when I read that nickel premiums are up to $600 per ton or something like that.
Yes. Unfortunately, that's not for us because we don't have a finished product to deliver.
And could you also talk about the compensation to the smelter from the mines, the TC/RCs. How do you look on them? They are pretty substantial for you as a group, I mean, in terms of earnings delta.
Well, the copper ones have already been announced, and they're going up slightly. On the zinc side, there is no announcement. It's not expected maybe for another few weeks where they will be. And we are, of course, less affected than many others because we have a relatively balanced situation on zinc. But net-on-net, it's, of course, higher TCs are better for us. I don't really have a point of view. I think that the zinc thesis will come up. But by how much, I don't know.
And then final question for me here. The sulfuric acid market also seem very tight, and you're doing loads of those volumes. I think it's the biggest product of yours in tonnage. How does this affect you for 2022?
Well, it is, of course, a positive. And now due to many different reasons, many of the sulfuric acid contracts are relatively fixed in pricing or have very slow-moving pricing formulas in them as we're having these very long relationships. But net-net, it's, of course, a positive with high sulfuric acid prices. And over time, it will be even more positive.
Okay, then we have a question from Viktor Trollsten of Danske Bank.
Just firstly, on your increased planning prices, copper up a bit. Just are curious to know, obviously, the marginal uptick in those. But on the exploration results, how much was a result from higher planning prices? And how much was organic exploration results?
I will say that the -- this is basically all due to either engineering results or other exploration results. The planning price has not played a very big deal as of right now.
Okay. And also, just in terms of your mining plans for, let's say, Aitik and your [indiscernible] mines, is this something that can affect how you chose to distribute grades in the coming years? Or is it a marginal impact?
Well, if you were to make a marginal change, of course, it won't change as much. If you were to make a very big uptake, it will change because there are marginal ores, things that we call waste rock today. But of course, waste rock is not totally demineralized. It has some mineralization and with very high -- or with higher planning prices, we would rather take those into the mill and it would reduce our grades.
Okay. And also, on the planning prices, do you feel that you have any projects that was previously not economically viable that is now or...
No, I think that the -- this update that you see now in the published prices is not as big as it will make things turn profitable or not. As I've said many times, I think, for us, we have a pretty big pipeline of projects that we would like to do if you've only got permits. That is more of our limiting factor.
And then also, on unit costs in Aitik up a bit in 2021, just thinking about 2022, if you're able to ramp up to 4 million to 5 million tonnes, should we think about those unit costs come down? Or is the inflationary pressure that high, so...
There's an inflationary pressure but also lower grades. Of course, both will push the unit cost up. Better production will help it to come down. But then I always have to remind everybody that every open pit becomes deeper every year. Every ton that is reduced next year is going to travel slightly longer than on last year.
Okay, operator, that opens up for the international analysts, please.
We have a question from Ioannis Masvoulas of Morgan Stanley.
The first question is on throughput rates across Aitik and Kevitsa, which came in at or above nameplate capacity. I guess, this is a sign that you can meet your targeted production levels once COVID challenges subside fully. But what should we expect for Q1, given the resurgence of COVID that you highlighted starting in late December?
In Q1, that will vary up and down, partially due to the COVID situation and also due to other things that can happen. So no more detailed guidance than the one that you've gotten.
I think maybe one reminder that we usually talk about is that Q1 being a winter quarter is often a bit challenging for open pit mines.
Okay. And the second question, again if I can push you a bit on cost inflation. So last quarter, you have been talking about a 5% cost inflation on a year-over-year basis. How should we think about just Q1? Ignoring the one-off effects and just looking at the underlying levels, are you still at single-digit inflation growth?
Yes. Unless something extremely strange happens from now going forward, yes, it's single digit, for sure.
Our next question is from Liam Fitzpatrick of Deutsche Bank.
Two questions from me, the first one on power costs. So you told us with the Q3 results that around 80% your power costs are hedged for the next 12 months. So what does that mean if we're looking out through this year? Is it the second half when higher power cost will start to feed through into the business, particularly the smelters? And can you remind us of the percentage of cost for the smelters that are power-related? That's the first question. Secondly, just on M&A, you've got a very strong balance sheet. There's delays to Tara. You've also got relatively short life at two of your mines. Are you looking at potential opportunities out there? Or is it very much an internal focus?
I can start with the second one right away that you can say it's very much an internal focus. Because that's always the focus of Boliden, to make sure that we take care of what we have and develop what we can do internally. There is always a focus on the outside, and we are not ruling out doing something. But we will not do it because we have to feed the smelters. We will do something because it's a good project in of its own. On power costs, Håkan, you probably can update exactly what's the share of the power costs for smelters. It is more for zinc than it is for copper. I can say on the power structure, you know that we have a situation, we're basically at 80% hedged. And if you're kind of far away out, that's worked out pretty well. And we're pretty fixed hedged for the full year of '22 at 80%. So it looks relatively good.
And regarding then the energy and electricity costs, I'll give you absolute numbers rather than percentages here, I hope that's fine. Energy, which includes the electricity and diesel and all kinds of energy, in Q4 was SEK 490 million in Mines and SEK 470 million in Smelters, so just shy of SEK 0.5 billion in each of the business areas. Out of that, electricity was SEK 285 million in Mines and SEK 340 million in Smelters.
Our next question is from Luke Nelson of JPMorgan.
Maybe just a follow-up to the cost questions again and attacking it in a different way, just in terms of the quarter-on-quarter waterfall, there was sort of a SEK 0.5 billion negative effect, Q4 versus Q3. Backing out maintenance and the various one-offs with Harjavalta and Tara, it's still implying something like an incremental SEK 1.5 billion per annum annualized EBIT impact from costs. I'm just trying to square that relative to your guidance of around 5% inflationary pressure. And I suppose whether -- what I'm trying to get at is to what extent now into Q1 is there going to be any incremental costs coming from power and energy costs? That's my first question.
Okay. So looking at -- just going back to the numbers in the quarters, if we start there, it's an increase of about SEK 0.5 billion, as you say. There is a big element of seasonality. We typically spend about SEK 150 million more each Q4 compared to each Q3 due to vacation periods and so on. We also charged about SEK 60 million one-off costs related to reclamation in Q4 in this quarter. So those two together is a bit more than SEK 200 million out of that. Then we have an increased production between the 2 quarters and some costs for disturbances. So electricity, for example, between the 2 quarters, are up about SEK 100 million. That is, of course, both production and price. So I don't see any major shock coming into Q1 due to electricity and so on. I think we built most of it already into Q4. But then we don't know how the prices will move from here and towards the end of the quarter. But again, we're 80% hedged. So the impact is limited anyway.
Okay. No, that's very clear. I suppose, more of a broader question around just the operations and reliability in general. We've had obviously two, three issues at Tara over the last couple of years. There's been a crusher issue at Aitik the last couple of years as well. Then obviously, fire at Garpenberg and the problems more recently at Harjavalta. My question is, is this sort of more of a fundamental issue around operational risk in the business, do you think? Is there a risk that you're underspending on maintenance? And is that something that will have to increase on a normalized basis going forward? Obviously, you talked about waste stripping underspending in 2021. But more broadly, is there a risk around the reliability of the business?
Well, I can answer it generally that, of course, we're not happy with what has happened. We are operating in a business that has to have volatility. There is always a risk of things breaking down and things do break down all the time. Have we had more than our fair share in 2021? I think so. I think that we've had more unluck than our fair share and we should be able to get that back. I cannot say that they were exactly something that happened that should not have happened and so on. We know that, especially the Tara mine, is an old mine that has a very old infrastructure and that is more susceptible to getting these kind of problems than others. But would I say that we generally have a maintenance debt? Not really. We have maybe somewhat of a maintenance debt which is due to COVID. Even though we had a record maintenance year in 2021, it was not quite as big as it was originally planned to be because we postponed some maintenance due to COVID. It still looks like a big number. But you know that the maintenance number that we give is basically the biggest part of it is this production lost during maintenance stop. So it's very expensive with maintenance stops when you're earning a lot of money. If you don't make so much money, that's not so expensive to stop for maintenance stops. So do we have a major maintenance debt? No. Do we have some minor maintenance debt? Yes. Are we working on it? Yes, we're very happy to get back to normal procedures going forward.
Okay. Great. So just maybe one final question, if I may. Permitting, apologies if I missed this in the presentation, but there's sort of two or three permits outstanding. Can you maybe just remind us of where they currently sit and the timing of them, please?
The kind of important right now is the Liikavaara permit in Aitik. We have gotten the permits from both the lower court and the appeal court in Sweden. It is -- has been -- it's been taken up to the Supreme Court. The Supreme Court has not yet given a timing on if they will at all take it up or whether it there will be dismissed even before listening to it. And we don't know what timing. The Supreme Court in Sweden does have the luxury of the setting his own time limits and doesn't have any time linked to it. That's one important one. We have the environmental permit linked to the Rävliden expansion in Kristineberg. And that one, I think we've said to you guys that we expect to get during Q1 this year. I think that now, more better assessment is Q2. It's taking a little bit more to work through. We're still not really worried about that permit because it is an extension of the existing Kristineberg permit. But also minor extensions take time. I would say those are the two kind of big -- what are important for what we're doing. We got the Garpenberg permit. That one is over and done with. We have the expansion with 3.3 million. And regarding Laver, which is the other one outstanding, that one is in the Supreme Administrative Court of Sweden. And there, we have appealed the declining of permit for it. Also, the Supreme Administrative Court in Sweden sets it own time limits, and you cannot get out of them when they're going to rule on the issue.
Our next question is from Amos Fletcher of Barclays.
I guess, I just wanted to sort of dig in a little bit on the effect of the underspend in capital last year of about SEK 1 billion. Is this going to have any kind of impact on production over the medium term, particularly from the open pit mines? And can we -- could we potentially see, I suppose, CapEx sort of drifting upwards into 2023 as a result of that?
I think I've said that before. Just to be very clear, we are -- we always have prided ourselves of having somewhat of a leeway in terms of our stripping so that we have flexibility in the mine. The fact that we have under-stripped in Aitik and to some extent, in Kevitsa, gives us not a problem to plan -- to produce according to the plan that's in there. But it gives us less flexibility if something were to happen. So I would say that maybe this is an increased risk situation if we were to, in some way, have something happening, where we would lose a phase or something like that, we have less flexibility to move around production. Over time, well, yes, something that was not stripped today will have to be stripped tomorrow. So we are, in some way, rolling a little bit of a CapEx ahead of us. We can't say exactly when and where it's going to happen. Because as you will know, we will change our mining plans or update our mining plans every year anyway and that this might come into such a rescheduling exactly when it's going to happen. But we are not as well stripped as we would have liked to be and as we have typically been.
Okay. And is there any impact on your projects as a result of this underspend?
No, there is -- the underspend is stripping. And the other part of the underspend is, you can say, lots of small projects, which are linked a little bit to kind of debottlenecking, to replacements and all these kind of things have been pushed forward. And we will need to do those. We can't push forever forward. The main reason -- well, there are several reasons, but COVID is a large part of these things projects have been canceled or postponed. Those will also have to catch up. But we're not changing the guidance for '22 because we are basically at '22 flat out of what we can do. So we will have to do with those things. So it's kind of an engineering -- also an engineering bottleneck on our own side.
Okay. And then the final question was just around, can you update us on your electricity hedge position for 2023?
Well, it's -- without going into too many details, we can say that we are somewhere between 60% and 80%. We are pretty well for '23 hedged with a base of 60%. And we -- I think that we've already filled some positions out there already. The ambition is to be close to 80% for rolling 2 years, but we might not be exactly at 80% as of yet.
Our next question is from Daniel Major of UBS.
Most of my questions have been asked. But first one, just on the CapEx budget for the Odda smelter expansion, you sort of set it at mid-year, when there was already quite a lot of cost pressure in the market. But can you give us some -- just an update on how you're feeling about the moving parts there? And what's the level of contingency you have in the budget for either capital pressure or overruns?
I mean, it's difficult to give an exact number on the contingency because we have, of course, done certain things around the budget estimates that we had in the summer, where we knew that there was a different metal price and that we had done certain things that were linked to kind of have this price effect taken into place. And then you have normal contingency as you would do in every project because something goes wrong anywhere. We do not see any reason, at this stage, to have to, in any way, revise those numbers.
Okay. Great. So you're confident on the budget. The second question, just to be clear on the timeline for Tara, I think maybe when we discussed before, you said you'd lost 6 months. But then you said the ventilation will be out for a year. What's the -- could you just clarify that sort of how much time you would expect to have lost in the development timeline of Tara Deep and then what your estimated sort of potential timeline for an investment decision on the project is now?
Well, the timeline for investment decision, we've said 2024 for a long time. That is still the ambition even though you can see the things that happened now made them be that there's a risk that it will have to be pushed out until '25. That is, as of right now, not a major issue because we have, for two reasons, both because we're producing less, that is, to some extent, giving some more flex in the existing tailings facility. But also, the fact that we're finding more ore is helping us. So it's not critical for the actual survival of Tara. We can move that to '25 rather than to '24. The exact loss of timeline is a little bit difficult to say because, yes, well, you can say, clearly that there's been several months where we cannot do drilling the way we thought. But of course, we're not doing nothing just because of that. We're still continuing surface drilling to save some time in this situation. We are working with the ventilation shaft that we -- when it was originally planned so that we would have a little bit of leeway. The fact that, that might be 1 year late might not delay the whole project for a year. I would say, if I were to be skeptical, I think you could ask the question, "Okay, so you had one big water inflow. How do you know that's not going to happen again? How do you know that maybe there's something in Tara Deep that has lots of water all over it?" And the answer to that is that, yes, there's such a risk. And of course, we're also in parallel with everything else right now doing a very close geophysical servings and hydrogeological survey of the area to try to figure out if there's something fundamentally that we have missed out on in terms of the water situation or was it just a kind of one-off bad strike that made us have this inflow situation.
Our next question is from Tyler Broda of RBC.
My question actually was just going to be on Tara and the water and the risks around that project. So I will leave it there, return to the queue.
Our next question is from Jatinder Goel of BMP Paribas Exane.
Do you plan to remain at your existing mines? Or would you then consider going into some of the newer zinc mines, there is nothing in portfolio? Because you said you won't pursue any M&A to feed your smelter. So is there a plan B in case Tara Deep doesn't work?
It's not really a plan B. I mean, there maybe plans As and Bs and Cs within the Tara Deep project around how to handle potential issues, and we have those. If we were to come out that the Tara Deep project is either not feasible from a technical point of view or from an economical point of view or from a social point of view or if we don't get permits for it or whatever can happen, then we will think about our next steps as of that. We are not pursuing any kind of mining activities just to feed the smelters. That one can be handled in a much easier way, in much different ways. But of course, we will always look at potential opportunities to do things in zinc with or without Tara Deep.
Our last question is a follow-up from Ioannis Masvoulas of Morgan Stanley.
Just a follow-up on the electricity costs. I think you mentioned SEK 100 million increase quarter-over-quarter. So annualized, that's about 20% inflation, if I'm not mistaken. And I think in the last call, you were talking about 12% to 15%. So am I looking at the right numbers? And if that's the case, what's driving the incremental costs?
I think one important part of the difference between the 2 quarters is consumption. We had quite significant maintenance stops in Q3. So the volumes are different between the 2 quarters.
Mr. Staffas, I leave it up to you to wrap it up, please.
Well, I thank you all for listening into this discussion. I hope you all feel a little bit more educated afterwards. I'd just like to summarize that I feel that we've had a very good quarter, especially within the Mines. We feel very good about going forward. We've also had a, I would say, strong update of the R&R situation, which means that we are feeling confident about going forward. Thank you, everybody.