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Boliden AB
Earnings Call Analysis
Q4-2023 Analysis
Boliden AB
In the fourth quarter (Q4) of 2023, Boliden reported a weakening of zinc and nickel prices, falling metal premiums, Treatment and Refining Charges (TCs), and sulfuric acid prices on spot levels. Despite notable investments in projects and inflationary pressures, which have affected profitability, the company maintained a stable production in most mines, excluding Aitik which experienced an unplanned maintenance stop. Smelters, particularly Harjavalta, demonstrated strong nickel production and adjusted operations amidst not operating a tank house at Rönnskär. For the full year, Boliden saw a decline in volumes and grades driving a SEK 2.5 billion reduction in revenues, with significant impacts from lower grades in Aitik, operational challenges in Kevitsa, and Tara's care and maintenance status due to unfavorable zinc prices.
While there were slight increases in Lost Time Injury (LTI) frequency, sick leave, and CO2 emissions in the quarter, Boliden boasted record low LTI frequency and lower sick leave and CO2 emissions for the full year, demonstrating an overall robust commitment to sustainability and an improvement over previous years.
Boliden grappled with weakening industrial cycles and macroeconomic influences, resulting in weaker performance in key metals like zinc and nickel. Copper prices, however, remained relatively stable. The company acknowledged the importance of nickel in electrification and the unsustainable low prices affecting nickel mines, suggesting that the long-term demand from electrification could potentially shift the pricing environment. Zinc prices were also low, affected by reduced global economic activity and construction, while copper found some stability in prices despite slight decreases.
Projects at Odda, Kristineberg, and Aitik showed significant progression, with high onsite activity for Odda and infrastructure development for a fully electric Kristineberg mine. Odda's new tank house #6 is set to replace the old tank house #4. The company invested SEK 15.5 billion in CapEx for the full year, aligned with prior guidance, on track for digitalization and automation objectives. The Aitik dam project is well on schedule with revised timelines.
Boliden has reported positive exploration developments in projects like Nautanen, with satisfactory results in the Boliden Area. Nonetheless, Kevitsa faced challenges with lower grades and reserve length due to environmental permit-related issues, though the company remains optimistic about its ability to address these matters. There were also minor adjustments to the lifetime and grade estimations for Aitik and Garpenberg.
EBIT stood at roughly SEK 2 billion, with a minor increment from Q3 but a decrease relative to the previous year, and an earnings per share of SEK 6.06. The businesses delivered equal profits in their respective areas, each at SEK 985 million, although this figure was down from the last year's figure. Overall, the mining sector showed improvement despite weaker metal prices, with enhancements in gold inventory management and insurance compensations aiding the results. Smelting results dipped due to these weaker prices and higher seasonal costs, reflecting a SEK 1.2 billion decrease in EBIT compared to the same quarter of the previous year.
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Ladies and gentlemen, I'd like to welcome you to Boliden's Q4 2023 Results Presentation. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have a results presentation led by our President and CEO, Mikael Staffas; and our CFO, Håkan Gabrielsson. We will also have a Q&A session, where we will start here in Stockholm. Mikael, welcome.
Thank you, Olof, and good morning, everybody. I would like to start by actually talking not about the last quarter, but about the last 100 years. As most of you already know, we are celebrating our 100-year celebration this year. Our official birthday, if you want to use that sense, is actually in December. So we're not quite 100 years yet, but we're going to take the opportunity to celebrate this the whole year and maybe to then top it off with the biggest celebration in December.
We are quite proud about the history that we do have, how we've been able to, during this 100 years, be very much a part of developing the societies where we are active. So with that in mind, let's talk about also the very recent past about the last quarter.
The key highlight is that if you compare to last year, of course, the prices and terms are quite a lot weaker. We'll come into more details around this, but it's especially zinc and nickel that is weaker, is also weaker sequentially compared to the previous quarter. We are, to some extent, saved by the weak Swedish krona for the Swedish operation, but the euro is relatively strong compared to the dollar. So there's no help in the euro-based operations that we do have.
We have lower volumes in Rönnskär, but that's in line with what should be expected given that we do operate without a tank house. And the operations in Rönnskär, you can see, is now in a full mode, given the fact that we don't have a tank house as operational. We had no production in Tara due to the care and maintenance, which has also been well communicated beforehand.
You can see we have a stable production in all of our mines, except Aitik, where we did have an unplanned maintenance stop that caused a stop in one of the mills for several weeks. That is now solved, and it was also communicated well in advance. We have a strong production in Finland. And our Finnish smelters, Harjavalta and especially Kokkola, has had very good quarters.
Our projects in Odda, Kristineberg and Aitik are progressing well, especially Odda, we are into the peak, if you want to say so, the peak timing, where we have the most people are working on site to get ready for -- to start later this year. We will come back to all these 3 projects in our Capital Markets Day that we will have in the end of March.
The financial performance. A little bit more than SEK 2 billion in EBIT ex-PIR. The free cash flow was good, SEK 1.6 billion. Despite having record amount of investments, we're still in a positive cash flow territory. The Board has also proposed a dividend of SEK 7.50, which is very much in line with our dividend policy of 1/3 payout ratio.
As I said, if you look at the development, we have a little bit kind of a fun fact that we actually happen to have exactly the same profit in our 2 business areas down to SEK 985 million. But all in all, a little bit more than SEK 2 billion profit, ex-PIR.
The sustainability numbers, if you look just at the quarter many not look so impressive. We have a slightly higher LTI frequency that we had the same quarter last year. We have a slightly higher sick leave than we had the same quarter last year, and we have slightly a higher CO2 emissions than the same quarter last year.
However, when we look at the whole year, as we're also in combination with is also summing up 2023 as a whole year, we will have record low LTI frequency, we will have a lower sick leave than we had last year and we have clearly lower CO2 emissions than last year. So we are -- even though the quarter itself was higher than last year, the full year was pretty good.
The market developments. I dwelled a little bit on this in the beginning. This lower zinc and nickel prices that are, of course, the most prevailing ones, and I'll come back and show this in a little slide forward here. We also have weakening spot metal premiums, weakening spot TCs and weakening sulfuric acid prices on spot level.
And these things only come into our P&L a little bit slower because we also have some of these on long-term agreements, but it's clearly a sign that there is a weakening general industrial cycle out there. The currencies are slightly weaker for us, if you look on this sequentially.
If you look at the prices and here, you can take -- if you start to read this one from the right, you will see that the nickel price is on a record -- I would say, a record low level, even though it's been lower previously. But if you look compared to the cost curve of nickel mines in the world, it is on a low level. And we are clearly seeing this around ourselves that nickel mines are having a big problem.
We could have a long discussion about where the nickel price is going. Of course, nickel has come from a time when the electrification and the EVs were going to use so much nickel and need so much nickel that the prices went very high. Now there's been a clear setback in these expectations.
It is pretty clear that nickel price cannot stay on these levels if the nickel is going to be used in any substantial way in electrification because at these levels, of course, no new mines will ever be started on nickel. And of course, this also hurts us relatively clearly since we have relatively long, what we call, periods for quotation means that we have long periods where we have to have definitive pricing on this.
On the zinc side, we also have low prices. And you can see here that the prices have come down and are on the lower level, and we're also down into the cost curves on zinc, which is obvious. It's not just us in Tara. There are many other mines around the world that are in care maintenance or curtailing production.
Zinc is, of course, very dependent on the general economic development and construction around the world, and that is seeing here, we're taking a hit on that on zinc.
Copper, the situation is much more, if you want to say, normal. The prices have come down a little bit over what's been in the last few years, but it's still on a relatively good level. We can also see on the copper mines where the demand is relatively good that we also see an increase in the costs for the high cost mines in the world, which is meaning that the margins are not so big as they used to be for the high-cost mines in that space.
When we look into the mines and the mine production, the volume in Aitik were lower than they should have been at -- or they should have been or than you might have anticipated have you not seen the notion that we did have a break in the one of the mills that led us to have an unplanned maintenance stop in 1 of the 2 primary mills.
We've also had, during the year, a little bit of adverse weather effect or we didn't have ventilation the way it should be for several days in the pit. The grades came in exactly where they were a year ago and also exactly as they were guided for.
In Garpenberg, the mill volumes slightly higher than last year, the grade is slightly lower than last year. But I would say both the volume and the grade is very much in line with what we had guided for. Kevitsa, volume is very much in line with the SEK 10 million environmental permit that we have in Kevitsa. The grades are slightly lower than last year, but on a relatively okay level. Boliden Area produced well and Tara was in care and maintenance.
On the smelter side, in Harjavalta, we had especially strong nickel production in the second quarter in a row with very strong nickel production. We had also in Harjavalta increased utilization rate in the tank house because Harjavalta is now receiving anodes from Rönnskär to be able to fill the capacity to the full extent. We had a weaker silver production in Harjavalta, but this is also part of the optimization between Harjavalta and Rönnskär, where lots of the slimes contain lots -- rich in silver, went back to Rönnskär for being treated in the precious metal plant in Rönnskär.
Rönnskär, of course, had a full quarter of not operating with a tank house. The anode production was ramped up and the precious metal production was also ramped up and back to the levels that it can be given that we don't have a tank house. Kokkola, very stable and high concentrate feed throughout the quarter, record production of silver coming out of there, which is all good news.
Odda had an unplanned shutdown in the roaster. We also shut cell house #4 permanently. This is part of our developments in Odda, where the new tank house #6 will replace tank house #4, and we took tank house #4 out of production already at this relatively early stage. And in Bergsöe, our smallest unit, also had strong production, also had favorable mix of materials that helped them to get good results.
Full year, adding up the 4 quarters of last year in total, yes, we have lower volumes in both business areas. We have lower grades. This is about SEK 2.5 billion out of that reduction altogether. Out of that, you can say that at least SEK 1.5 billion was very well guided for beforehand with the lower grades in Aitik, SEK 1 billion is maybe more related to Kevitsa, which was not that well guided for beforehand.
Tara is in care and maintenance. That is an interesting one, how that one works out. But when Tara is standing in care and maintenance, we are not producing because of bad zinc prices, but it comes out as a volume effect in our bridges, the way that we account for it. That's a philosophical discussion, but that's the way that it's reported. We had a fire in Rönnskär that took out -- and you can say both of those took out maybe SEK 0.5 billion each around that.
We had a high inflation, especially towards -- in the beginning of the year, now towards the end, we are more or less facing zero inflation. But if you look at total year, that's part of it. We had weaker price and terms. And once again, in zinc and nickel that has been the main parts of this. We've had also a weaker byproduct prices. PGM metals were down, although stronger premiums and TCs helped us a little bit on this one.
On the CapEx side, SEK 15.5 billion for the full year, more or less in line with what was guided for. Mine sustaining at SEK 3.5 billion of that. The other expansion, which is achieving scale, digitalization and automation, with a total CapEx of EUR 850 million. As I said before, we're having good progress. We're actually, I would say, maybe theoretically a little bit before time schedule even, but we are in the very peak part of this.
We have 1,000 person on site working with the installations. So there's lots of things that are happening right now. We will come back more in detail on all of these projects in March, and we will be able to give a better estimate of the exact timing and budgets around them.
The Aitik dam project has also worked well during the year. As I think I said last year, we, at one stage, said that this has to be finished by May '24 or we will have to shut Aitik. We have, through different measures, been able to buy ourselves some time. So compared to the very initial time plans, we are on purpose a little bit late. We still need to be done with this through the year. We've given ourselves the full '24, and we are well on track with this revised time plan.
The Kristineberg mine expansion is also moving on well. Production has already started. We are starting producing through the old infrastructure. The new infrastructure, which will mean the fully electric mine with the electric trolley and the new hauling system is still on plan for start in first quarter of '25.
So mines for the full year, yes, lower grades, lower price and terms, lower mill volume in the open pits. We have not been able to repeat the high levels of '22 in '23. We had Tara in care and maintenance. And we had, on the positive side, a new annual record for throughput in Garpenberg.
You can see that Aitik -- well, you can see all has come down, but it was really clear the most is the fact that Kevitsa for the full year is basically just breaking even. This is a -- is once again the situation with the low nickel prices, it's difficult to deal with this. You can also see the loss that we have in Tara. This loss would, of course, have been even bigger, have we continued to produce and not gone into care and maintenance.
If you look on the smelter side, yes, n Rönnskär, is of course, the big disappointment. I think I said SEK 0.5 billion on the last slide. I meant SEK 1 billion down, and that's what you see here. You also see Harjavalta coming down from very strong '22. Kokkola has had a very good '23 instead. Odda around the same. And Bergsöe, even though you see that it's very small numbers because it's a smaller unit, but Bergsöe had a very good year and very good developments in total.
Let's see if we get this one to move ahead. Exploration. We are also today coming out and with our R&R statements. Around these, you can say that generally, we are saying that we're having a good development in the Nautanen project close to Aitik. We also have good exploration results and good developments of reserves in the Boliden Area.
Regarding Aitik and Garpenberg, you can say, it's not so much new. These are long-life mines, and we are moving around a little bit with cutoff costs and everything else, this has made the slight extension of Aitik and a slight reduction in Garpenberg, is not really something that is making too much of a difference.
The negative news here is Kevitsa. We are having -- one part is that we have now given the examples from this year where we have a larger waste truck dilution than we had in original plans, that also comes through into the research statement, and we do have thus lower grades in Kevitsa than we have announced before with the higher assumed waste truck dilution.
It's also formally a shorter one because we -- due to regulations around dam structures and everything else and exactly what kind of permit you need to have to be able to call something a reserve as opposed to a resource has meant that we have officially a shorter reserve life. We are not too worried about this. We think we will able to sort out the environmental permit for an extension, but this is the situation right now.
So if you look at the numbers, as I said, Aitik, not much of a difference, the same grades as before. Boliden Area, and now 2 years longer than it was before, reserve grade is also similar. Garpenberg has officially lost a year, but this is more due to optimizations around the cutoff grades. Tara, we have no new update. Because of the care and maintenance situation, we have not been able to update the situation. So this is exactly last year's number minus the production that we did in the early part of the year.
And Kevitsa does have a lower grade now in the reserves as compared to before. And we have, as it looks here, lost a year of production. But as I said, this is due to around exactly what the environmental permit discussions are around raising the dams in Kevitsa.
On the resources side, without going too much in detail, you can say that, generally speaking, this is looking relatively good. You can see right down at the bottom that in Kevitsa, we're getting all those tonnes that we lost in reserves are coming back into resources is the downgrading because of the environmental permit that is the result of that.
On the financial side, Håkan, welcome.
Thank you, and good morning. Good to see you here. So -- do you want to bring it? So we are presenting today, as you have seen, a result with an EBIT of just about SEK 2 billion, which is slightly up compared to Q3, but down compared to last year. Mikael talked about investments and a high activity level in most of our -- all of our key projects. And at the end, it's positive to be able to report a good cash flow at a quarter where we also have record investment. All in all, it adds up to an earnings per share of SEK 6.06.
By business area, Mikael talked about both business areas delivering SEK 985 million. Both are coming down compared to last year, where both also had similar results, about SEK 1.5 billion. Comparing to the last quarter or the last couple of quarters, there are slightly different trends, though.
Mines are improving, and they are improving in spite of weaker prices in nickel and zinc. And that is due to grades coming up a bit. We've also been successful in releasing gold inventories from, in particular, the Boliden Area mines or plant. And then we have a one-off insurance compensation recorded, which is related to an incident in 2021 in Tara.
On the smelting side, we are reporting a lower result than last quarter. That is related to lower prices, which we can see and it's also related to seasonally higher costs.
Going into the analysis of EBIT Q4 this year compared to Q4 last year. As you can see, we are down about SEK 1.2 billion between the quarters. Prices have come down SEK 0.5 billion, is in there. It's primarily nickel and zinc, but also sulfuric acid has come down. And on the other side, on the positive side, we have seen higher premiums and treatment charges, but the net effect is SEK 0.5 billion compared to the same quarter last year.
And then you can slice this in different ways. But if you combine volumes and costs together, we have basically lost SEK 300 million each in Rönnskär and Tara. So I think the price drop of SEK 500 million and then SEK 300 million each in Rönnskär and Tara, that explains the deviation.
But if we go through this analysis line by line, we are SEK 1.5 billion down on volumes, about half of that is Tara. And if you add Rönnskär, it's about 75% of that number due to the fire and care and maintenance done. And then the rest is the unplanned maintenance that we had in Aitik in the last quarter.
Then Mikael touched upon the philosophical question there. So I'm not going to dive into that more. But even if the reason for the care and maintenance in Tara was completely prices, the fact that no zinc comes out of the mine is in this context reported as volumes.
On the cost side, we are SEK 0.5 billion better than the same quarter last year, and that is entirely up to Tara being in care and maintenance and having lower costs. Inflation in the quarter, as we see, it's sometimes a bit difficult to measure shorter periods like a quarter, is about zero. There is a slight increase in services and personnel, but at the same time, energy and other is coming down.
We also had about SEK 120 million positive impact from one-offs in the quarter. That is an insurance compensation that we got related to the flooding in Tara in late 2021. And we also have some costs related to restructuring in Rönnskär in asset write as in Odda. So that's SEK 120 million this quarter. Then we had a negative write-down Q4 of last year of SEK 260 million, which was related to exploration rights. And then the difference between the 2 is SEK 380 million here.
Sequentially, the movements are slightly smaller. We are a little bit up in spite of prices coming down. Small movements on the pricing side. What we see here is mainly an effect of negative currency development and that's mainly Swedish krona being -- having a negative movement compared to the dollar.
Volumes are up. We have reduced inventories, mainly gold. I would estimate the impact of that inventory reduction to be about close to SEK 200 million in the quarter. We have higher grades in mines, and we've had higher feed in smelters. In Q3, Rönnskär was still ramping up after the fire. And then Q4 is running well according to the new business that are producing anodes.
Cost is up. We do have a seasonal increase. Q3 is a cheap quarter due to a lot of staff being on vacation. And Q4 is more expensive, and in particular, as we have ramped up the production in Rönnskär, that has an impact on cost. And here, you can also see the SEK 120 million one-offs with mainly the insurance payout in Tara.
Cash flow, we have a cash flow of more than SEK 1.6 billion. So it was a good end of the year in that respect. It is down compared to last year, which is not a surprise given the price development, the resultant development and the high CapEx but we're happy to have released about SEK 3 billion of working capital in the quarter.
Those of you that have followed us for a while knows that this is -- there is some seasonality in this. We typically have a good Q4 and then it swings back a little bit into Q1. So I think that's to be expected this year as well.
Then on taxes paid. There, we have one-off payments, return payments from tax authorities of about SEK 300 million that will be flowing back in Q1. So there is, you could say, a one-off positive in here of about SEK 300 million. I'm not going to go into the technical details of taxes, but it's related to preliminary tax payments being adjusted between legal entities and then some falling before the year-end and some falling after. So expect this to catch up a bit in Q1 on cash flow.
Capital structure. Well, strong balance sheet, happy with that. Net debt to equity, 19%, which is a healthy number. Net payment capacity of close to SEK 15 billion. So we feel well positioned when it comes to the balance sheet.
And finally, for those of you that are doing detailed modeling of us, we have updated the process inventory volumes. Process inventory is the tonnes of metal that is tied up in the production processes in our smelters. This is a material that is not hedged, and that is then revalued every quarter on the income statement.
And that is what shows up as the difference between EBIT, excluding process inventories and the regular EBIT, if you like. There is no cash effect in this. So for those of you modeling, you can see the new tonnage here, and it's an updated view depending on our current metal flows.
So with that, Mikael.
Thank you, Håkan. Yes. Those of you who read those numbers in detail can also understand that we have had a general change of feeding where we are feeding more precious metals into our plan, which is in line with our strategy, especially for Harjavalta.
Capital Market Day, I think you all know about this one. We will provide you an update, as I said before, on the 3 big projects, where we're standing. We'll make sure that we are well detailed around that. We will also present an update of where we're standing potentially concerning new projects.
And you all know that there is a potential project regarding a new tank house in Rönnskär out there. I've been told just to make sure everybody knows that we will present that when we feel it's ready and as everybody can understand, having an exact timing on that doesn't really help anybody because it's also a matter of making sure that you can procure it in an efficient way and not putting a very firm deadline on that. But we will provide an update on where we're standing on that one as well.
As well, we'll also provide an update exactly where we're standing on the insurance discussions. I have said before and I'll repeat that, that we feel very strongly feel very good about the insurance payout possibilities. But as you know with insurance company, you never really know until you really know.
With that, looking into the first quarter of '24, we are repeating basically all of the guiding that we gave before. We are still in the 0.17% range in Aitik regarding grades, 3.5% and 100 grams silver in Garpenberg and Kevitsa 0.28% and 0.20%.
Tara, we are in care and maintenance and unlikely to change during Q1. The maintenance shutdowns for the full year of '24 estimated at SEK 400 million compared to what we had in '23 of SEK 670 million. CapEx, SEK 14 billion. That is, just to be very clear, excluding a potential start of a program in Rönnskär tank house or for that matter, any other thing that we haven't decided yet.
Regarding Q1 in general, we do have political strikes in Finland, as those of you who are part and -- from this part of the world are aware of. These are quite cumbersome for us. There was 1 set of strikes that hit right here in -- between January and February. There's another one scheduled for mid-February. And we don't really know when it will end. We are not part of this.
We can just say that the 1 that we just had cost us around SEK 50 million. The one that is scheduled cost us around SEK 50 million. It is an unfortunate situation that we cannot do much about as it is a political strikes that has to do with the government and has nothing to do with us as employers.
We also remind about winter conditions. I think that we've done this previously, and just to make clear that it is winter, which does affect us. And for those of you part of Scandinavia does know that we've had even for Scandinavian circumstances very harsh winter so far with extreme colds even for our sake and also extreme winds. And I don't want to overexaggerate this, but it has had effects on operations in Northern Sweden to some extent that should be taken into account.
With that, I remind everybody that our purpose is to provide the metals essential to improve society for generations to come. Our vision is to be the most climate-friendly and most respected method provider in the world, and we do that through our 3 values of care, courage and responsibility.
With that, Olof, over to you.
Thank you. Ladies and gentlemen, that opens up our Q&A session.
And we will start here in Stockholm. And I saw that Christian Kopfer, Handelsbanken, has a question. Please.
Just a few questions from my side. Firstly, I think you mentioned that you see weakening metal premiums byproducts. Does that mean if you take into consideration also the contracts, I know you have a lot of contracts in this. But all in all, you see negative impact in the P&L from these kind of items going into Q1 versus Q4?
Yes.
All right. Can you specify the magnitude?
No. But it's -- I don't know, Håkan, if you have specified on magnitude, how much it will be on a quarter?
I think we'll have to pass on that.
But is it several one hundred millions or?
I would say triple digit, but not so high. But this is really a gut. I don't know.
Right. Okay. That was good at least to hear the details on that. Then when it comes to Harjavalta, Kokkola. I think you mentioned there, Mikael, that it was quite volatile. Harjavalta was at least you can maybe call it disappointment while Kokkola was really good year-over-year, right? Going into next year, how do you see those smelters performing? Were those unnatural, both of them? Or were they more natural in combination? Or how do you see it going into next year?
I would say that Kokkola production was good, but that could be assumed to continue on a good level. Now who knows what's going to happen with zinc TCs. They are not out yet. So we will have to wait until we get the zinc TCs, which is a large part of the financial performance in Kokkola.
On Harjavalta, we've had a good nickel year. We have to see what happens with that one regarding nickel prices and other things. We have a potential for a better copper year given that there are some positives for Harjavalta from the negative in Rönnskär, they get to run the full tank house all the time.
So with -- just maybe just for simplification. Just assuming everything remaining constant, prices, FX and so on. Does that mean that Harjavalta, Kokkola together will show a little bit better result in 2024 just organically?
I would say yes. Yes.
Cool. And then also, I think, Håkan, you mentioned that it was a meaningful reduced inventory effect in the mines, I guess?
In the mines and in the smelters. I think I mentioned that we got out precious metals in a good way. A part of that is Boliden Area getting out the metal that was tied in the tankers. But we also had a good development in Harjavalta.
Yes. But should we look at that from a one-off perspective? Or should you be able to reduce inventories even more in Q1?
I think you should see it as a bit of a one-off if you compare to Q1. There was nothing -- I mean we should be able to repeat what we did in the full year of 2023 also in 2024. But we were more successful than average in Q4 specifically, and that I don't expect to repeat in Q1.
How much was the effect in Q4?
About SEK 200 million.
Right. And for the full year?
Of the inventory reductions, well, we -- I think...
I would say zero.
Basically zero. Because basically, we produce gold. And we've had an increased gold production, as Mikael alluded to. So we had a good profit on the precious metal side. We built some inventory during the year and released it in Q4.
Johannes Grunselius, Den norske Bank.
Johannes here. I have a question on to you on Kevitsa. Because you mentioned waste rock dilution is partly impacting the reserves. Is this a surprise to you? Is this a surprise to operation? Or is it fully in line with what you have expected internally?
It is clearly a surprise compared to a year ago. Otherwise, we wouldn't have released those R&R statements. It is not a surprise compared to what has happened during the year. I mean, we have had problems with grades in Kevitsa and waste rock dilution has been a clear issue around that, and that's, of course, also being now reflected in the R&R statements.
Okay. Is there somewhere you can sort of improve this with the different mining techniques or you have to live with it?
We are, of course, working with this all the time and see what we can do about it. I don't think there's a different mining method, but this is around within a blast, trying to make sure that you load the right things, what is going to the mill is only ore and what's going to the waste rock dump is only waste rock.
And this is something that we're trying to improve to monitor. It is more or less difficult in different parts of the mine. We think that we've been in a part of mine where this is more difficult. But this is the way that it's come out when you have the qualified person looking at the numbers.
Right. I also have a question on Rönnskär and the situation, the business plan without tank house. Because you're now giving us the yearly EBIT, which is highly appreciated since you did basically profit in the first quarter most likely. I mean it seems that you were making a bit of a loss when you went into the new business plan. Can you elaborate a little bit on that? Is that correct? Are you expecting kind of an EBIT breakeven going forward? Or what's the status?
I mean what we have said is that, everything else equal, you should expect about SEK 1 billion less than in '22, and '22 was SEK 1 billion plus. So there should still be some plus left.
Ola Soedermark, Kepler Cheuvreux.
Yes. A follow-up on Aitik and the development there during the quarter. You said that like 25% of the SEK 1.5 billion in lower volumes and costs is associated to Aitik.
Maybe I was a bit too general there. The remaining 25% is various parts, it's inventory movements in other parts than gold. It's Aitik, Kristineberg, et cetera. So it's not entirely Aitik that is that 25%.
But around SEK 300 million could be Aitik each?
I know, I think it's a slightly lower number than that, a couple of hundred.
When we're looking into the first quarter now, I mean, the weather has been quite tough up there. Should we expect the same level in first quarter in Aitik of operational kind of volumes or...
No, you should expect a higher volume. We should not have a failure on the mills, which was the big thing. So we should expect better in Aitik.
Despite the winter conditions?
Despite the winter conditions, they are still not that big.
And also on Tara?
I mean I can say just -- I mean we had -- this only in Aitik was maybe SEK 200 million related to the fact that we had to take the staff for the maintenance. And I would say that all of the winter conditions and everywhere around, we're maybe talking about SEK 100 million or less than SEK 100 million, and that is not all Aitik.
Okay. And the lower diesel prices at the pumps here in Sweden, are they going to impact you as well?
Yes. Yes, the answer is yes.
And on Tara, you're writing that you may be going to reopen it or start production in the second quarter if everything goes as planned. What kind of lower production or what structural lower cost can we expect? Are the mine going to be profitable at current zinc prices if you restarted in the second quarter?
I don't want to go into those details because as some of you might know, there are, as we're speaking, quite intensive negotiations going on between the local management and the unions around there. We have released and many of you have read about that or maybe even seen it to the labor court a rescue plan, which does involve lower volumes and then also lower manning around that.
But this -- here you should be careful about the word plan because normally when we say plan that's something that we intend to deliver. Here, the plan you could say it's more like a discussion starter and negotiations are ongoing.
And do we have any kind of deadline for -- before you have to close it, basically?
Not formally. I mean it's, of course, at some stage, if we don't think that we can get anywhere, so we can make it profitable, we have to close it. But what exact timing around that is relatively open.
And how important is it for your Odda expansion?
Not really. I mean we have on place relationship, and it's clearly possible to procure zinc concentrate on a free market. So it doesn't really matter at all for them.
Ola, I think we have to move on. Igor Tubic, Carnegie. Up in the corner, up in the corner. Thanks. Igor Tubic, Carnegie, please. Thanks.
Yes, I just have one question around Odda. You mentioned that you have reduced the capacity due to the expansion project. What should we expect going forward? And in terms of the unplanned stop, is it solved now? Or what's the status there?
The unplanned stop is solved, that we had the extra maintenance in the roaster. Regarding the closed tank house, that is a small tank house of about an annual capacity of about 40,000 tonnes. So that means that Odda, as of right now, doesn't -- can't do 200,000 tonnes as we used to, but 160,000 tonnes on an annual basis. This was all part of the plan. And as the new cell house #6 comes into line we will get up to the 350,000 tonnes but in the meantime, as of Q1, we are on a kind of 160,000 tonne pace.
Adrian Gilani, ABG Sundal Collier, please.
Two questions from my end. First of all, with the significantly lower nickel prices, are there other mines that are being sort of put on care and maintenance on nickel? And can you perhaps share with us where Kevitsa is on the global cost curve for nickel?
Cost curves for nickel are difficult because there's lots of buy metals around it. But if you look at nickel sulfide, Kevitsa is in a good position on the cost curve. There are clearly things going on in the nickel space around the world. Without going into any detail, there are clearly discussions about putting mines in care and maintenance that are ongoing around.
Okay, I understand. And then perhaps a bit of a detailed question for you, Håkan. We had a positive SEK 200 million in financial income. And I assume there's something a bit unusual in that figure.
It is. It is interest payments that in some -- for deposits that we have during the year that in some contracts are payable at the end of the year.
Okay. So not something that...
No, that is an exception in that sense.
Viktor Trollsten, Danske Bank, please.
Perhaps first on your CapEx comment in the report regarding Odda where you said that it was higher CapEx in Q4 versus what you anticipated. But still you basically have the same guidance for the full year you issued your guidance and you leave your 2024 guidance unchanged. Can you just expand a bit on what does that mean with higher-than-anticipated CapEx?
Well, it was higher than anticipated, but at the same time, you should also be aware that we are now in the absolute peak part of the project and what falls into December and what falls into January, both in reality and in terms of cash flow and in terms of accounting is there are some uncertainties around that. And then we got a larger part than we thought in December.
So basically timing effects rather than cost overruns. But why doesn't you take down your 2024 guidance then on full year CapEx?
Because, as I did say, we will have a review of the full part of Odda once we come into March, and we're doing a full review of the end estimates between now and then.
Okay. Okay. And perhaps -- and I guess we will discuss this on the Capital Markets Day. But on the payback, I guess since you announced the investment, you have raised your planning prices for zinc at least twice. Have the payback view in any way changed?
I think we came up with this discussion already when we were hit by the big inflation on the CapEx numbers. And where we said that when we look at the project now compared to -- well, then compared to original, when we made the first decision, the payback calculation looks better, even though the CapEx is higher.
It has to do with zinc price, it has to do with other byproduct prices and also estimates around TCs going forward compared to also the fact that we do have a power contract in place that was said before. So we feel very good about the project despite that we had to take that inflationary increase of investment.
And then on unit costs within mine is up quite a bit, of course, in '23 over 2022 because of volumes and also inflation. But you mentioned that inflation is now basically zero. So as hopefully volumes ramp up a bit in, let's say, Kevitsa, Aitik, et cetera, how should we think about unit cost year-over-year from what we know today?
On the short run, it shouldn't go up, it maybe goes down a little bit. But of course, with Aitik, even though we haven't discussed exactly how long, you've seen in the Capital Markets Day that we're not going to be at the 0.17% level forever. And when the grades start picking up, that will, of course, severely lower the unit cost.
But doesn't higher milled ore also to some extent help you.
Yes, it does to some extent. But it's -- I think the grade is a much more influencing part of this.
And can I have just 1 short, 1 more short, and perhaps philosophically. But Kevitsa close to breakeven in 2023, I guess, Q4 is better than perhaps in midyear. But philosophically, would that go below breakeven? Would you be asking clients to close that down as Tara? Is that how you strategically think around?
Yes. I mean we look at all of our units independently. And if it were to be that it will be more financially advantageous to put Kevitsa into care and maintenance than to run it, we would do that. Right now, that's not the case because when you're breaking even, it does cost money to stand in care and maintenance. So we're not at that stage yet. It doesn't mean that it can't happen, but we're not there now.
Excellent. Operator, please, can we start with the international questions?
[Operator Instructions] The next question comes from Ioannis Masvoulas from Morgan Stanley.
A few questions from my side. The first one on -- again on Kevitsa. How does the lower reserve grade and lower nickel price profile today impact the potential pushback #5 expansion. Is this still an option you're still pursuing actively at present?
The answer is yes, we are looking into it. And of course, it does affect now that the pushback #5 is, of course, not the things that are in the reserve but rather was in the resource. So -- but of course, it will -- everything will be taken into account as we move forward, but we have not stopped our ambitions.
Okay. And decision expected this year? Or could that be related to next year?
The answer is that if you want to be kind of optimal from a sense of that the decision that is to be made is basically to start pre-stripping. And it could be optimal to do that this year because that means that we can continue with the same fleet that we have and make that a very smooth transition. If we don't decide to do that, we will have to scale back.
That's okay for a while. If we do it for too long time, then suddenly, we would have to drastically scale up the stripping fleet in order to be able to do the pre-stripping for production. But it's not that there is a certain date and by that date, it becomes too late.
And these things also change a little bit when you look over the plan. So the ambition, as we said, is to make a decision later this year. It could be a yes, then we go ahead. It could also be a wait a while decision because we want to get more information. It could also be a no.
Understood. Second question on the comment around -- maybe for Håkan on the working capital reversal in Q1. Shall we expect a partial reversal? Or could it be as big a delta as we saw in Q4 reversing fully into Q1? And any color there would be very useful.
Well, if you're looking at the working capital, I don't think it will be a reversal of SEK 3 billion. But we typically, if you just look back over the years, we've had about SEK 1.5 billion coming back in Q1. That's kind of the normal seasonality as we start to build inventories to be prepared for maintenance stops and similar. So on working capital, about SEK 1.5 billion, roughly, it's a bit difficult to predict exactly. And then on top of that, you have the tax matter that I talked about of about SEK 300 million.
Perfect. Very clear. And last question for me. Going back to the comment you made about a 3-digit million impact in Q1. Was that referring specifically to copper treatment charges? Or were you also looking at the [indiscernible] in that comment?
I think that the comment I made was regarding weather. And the question was, is the harsh weather going to be something like SEK 200 million, I said it was going to be less. And I said that it is going to be spread around several units, not just Aitik.
Okay. Great. And maybe around TCs then especially in copper, you typically used to have 10% to 15% exposure on spot. Is that the right way to be thinking about it? Or are you -- have you limited that exposure to minimal at present?
No, I think that it's fair to look at around 20% exposure to spot. And then you have this kind of specialty in Q1. But all of you who have been around for a while know that, that partially, we will use material that was bought in Q4, and that's an inventory that will have the TCs of '23 into them, and then we will get the benchmark TCs of '24 coming in towards the later part of the quarter.
The next question comes from Jason Fairclough from Bank of America.
Good morning, folks. Two from me. Just 1 on mine production level, the other 1 on TC/RCs. I was looking at your Slide 8, which is the mine production of the key products. And if I just compare where we are today versus, say, 2019, 2020, these key products of copper and zinc are up about 1/3, right? So copper used to be about 30,000, 35,000 tonnes a quarter, now it's 20,000, 25,000. And if you look at zinc, obviously, we're off more because of what's happened with Tara.
So I'm just wondering, how should we think about this. Is this a structural decline in the business? Or is this more of a temporary cyclical decline? So that's the first question.
Second, on copper TC/RCs, given what's happening in Panama with First Quantum, we've had downgrades as well from various miners in Chile. So we've seen a complete collapse in TC/RCs. And I'm just wondering whether this matters or doesn't matter for Boliden. Could it actually be a positive for you given that you're missing a tank house at the moment? So those are the 2 questions.
If I start with the second one regarding that, we are a net smelter. And as I said before in the last question, maybe we have up to 20% spot exposure and then the rest is on benchmark. And the benchmark is off, but not by that much. The benchmark is set for this year. So yes, we will have slightly worse conditions for the copper smelters, but not that much, and we're not that impacted by the spot levels.
If you then move to the mine production, I think that the main thing that you need to remember here, if you start with copper, are the grades in Aitik. And as we have shown in previous Capital Market Days, we are swinging around the average.
And the 0.17% as we're into last year and this year is clearly below the 0.23% that we just reiterated this morning again on the reserves, which means that those grades will come up and thus the copper containing production will come up. Exact timing is a little bit blurry, but those who have seen the fat line chart from the Capital Market Day will have an idea that, that happens not this year and maybe not next year, but maybe the year after that.
And I think it's a little bit different. Yes, the big thing here is Tara. Whether Tara will come back or not is a separate discussion, although our ambition is clear that we get Tara back online. On the underground mines, the grades are declining constantly. We're trying to cover that by increased production, which has been generally successful. So with Tara back in place, zinc production should hopefully also come back to more normal levels.
The next question comes from Krishan Agarwal from Citigroup.
My first question is for Håkan. If you can give us a picture on the underlying cost inflation in the fourth quarter and more so when you run your budget for the 2024, what sort of cost inflation expectation you have baked in for the full year? And the second question, probably I'll take after the first one.
Sorry, did you hear the second question?
Yes, he'll come back to that one.
Okay. Okay. So the underlying cost inflation is about zero in Q4. We have some inflation on salaries and services and costs for energy and some other commodities are coming down. So the net inflation in Q4 is zero. When it comes to 2024, I'd rather not do a projection.
I mean we obviously have budget assumptions because we do have budgets, but those are set in August every year. So I don't think they are that relevant really for this discussion. With a plan, it's good to have a plan, but the only thing is that it's -- the reality is going to be something different. So I'm not going to give a forecast on the inflation for 2024. But Q4 was zero.
Okay. So if I can ask a follow-up. So what is the trend you are seeing, we are already through the month of January, on the cost inflation for Q1?
Similar to Q4.
Okay. Understood. And the second question is on the CapEx. I mean I understand that you're going to update the market on the tank house CapEx whenever you have visibility. Does it mean that you remain open to revising the full year 2024 CapEx estimates whenever you have the tank house visibility? Or full year 2024 is likely to be SEK 14 billion and then tank house most likely will come in 2025?
We're open to revising that SEK 14 billion number. And the reason is that if we get a good business case and a decision to ramp up the tank house, the payback is likely going to be so good. So it's important to start straightaway.
Having said that, most of the CapEx is likely to happen in '25, but there will be things happening already in '24 if we were to go ahead early in the year.
Okay. A quick follow-up. So I mean you will come back with the plan, but can you give us a broad expectation that how much time you are expected to take once you make the decision on the tank house?
We are on purpose vague, and we're saying that we're doing this as quickly as possible. You will understand that we have both technical things to sort out. Normally, we do investments you should say that we will have 10 years of versions of previous drawings that you can pull out of some mill manager's drawer because they've all been thinking about doing things. We had nothing of that in terms of building a new tank house. We have to start from scratch.
On top of that, we have to find a place to build it, and we have an idea where that's to be done, where we need to do lots of groundwork and geotechnical drilling and so on because we have not done that, and it was not originally designated to be any kind of construction in that site. So that needs to be done. We need to think about exactly how big it's going to be, which has to do with the things like that. We have to think about specific techniques to put in around these things.
So there are many things around that will affect -- and I should say also, just to be very much aware, I mean, of course, there are lots of suppliers around who think that we have our back against the wall and need to build a tank house and like to price it accordingly. And we are, of course, not going to go ahead until we feel that we have gotten the offers that are in line where it should be.
All in all, we're working very hard and it's very high on our agenda. As Håkan alluded to, it is so you can make the back of the envelope math that if you're losing SEK 1 billion per year, this is a relatively quick payback investment. But we're not going to do it faster than what the circumstances will allow us.
Operator, I think we only have a few minutes to go. So I think we have time for 2 more questions, and then we will have to answer the other questions after the analyst call. Please go ahead.
The next question comes from Amos Fletcher from Barclays.
Just a couple of questions. First 1 on the impact of the Rönnskär shutdown. You were guiding to SEK 1 billion EBIT impacts from that. But if you look at the financials, you disclosed basically SEK 1 billion reduction year-over-year in 2023. Are we to expect that EBIT turns negative in 2024 as a result?
I guess the answer is, I'll come back to that. We have guided for the SEK 1 billion compared to '22. Given the price and terms to stay around the same, we should make a profit. What you should not forget is that there are in Rönnskär a couple of one-offs related to the fire, which means that you had a, of course, much worse Q2 than what the average will be for the rest of the year.
Okay. And then I just wanted to ask on Kevitsa. Can you give us some guidance on when we should expect mine grades to be back at the reserve levels?
That's a good question that I cannot really answer on the top of my head. But I would just, as an estimate, probably from '25, we're still below for '24. But from '25, we should see the reserve is coming into play.
Okay. And then I just wanted to ask about the tank house inventory hasn't been discussed today, but just what's the time line at the moment for getting it out? And can you update us on the tax status of that inventory?
Say that the actual inventory reduction as such, which is happening at the same time as we are also doing the demolishment, has been -- we have initially -- done some initiating things, but very, very slowly. We're learning how to do this.
It's a lot very much about working in a safe way for the people who are there, who are demolishing the burned down building at the same time as recovering the metal. We have started. As I said, we are still in a ramp-up phase, and it's probably going to take the better part of this year until we get everything out.
Regarding what we'll do with it, we have not made a final decision. As those of you who listen before know that there are basically 2 option. We could sell it off, get a good cash flow, but it will be taxable cash flow, taxable profit most of it. And then we would have to buy it back for a new tank house to put in as the iron stock again.
Or we could simply store it, not getting the cash effect, but also not the tax effect. We have not been forced yet to make this decision. So therefore, we have postponed it a little bit, and we will make the decision when we have to. We still have those both options open.
Okay. And then I just wanted to ask on the insurance payments. Is there any updates on the sort of timeline and also your tax position for those payments?
Regarding timeline, this is, of course, part of a discussion on the new project and ambition would be that a settlement with the insurance company will be in place at the same time as we would announce a potential new investment. I didn't say that before, by the way, the insurance discussions are part of this whole thing, around making sure that we do it that way. We are still very confident that we will get the money.
Regarding taxing, yes, those proceeds will be taxable. And the tax [Audio Gap] for that is that then you use it for investment and then the depreciations from the investment becomes a tax yield. So over time, they will get the right amount of money. Of course, that has a negative timing effect on a company like Boliden but not much we can do about this regarding the tax matter.
Ladies and gentlemen, unfortunately, we need to stop there, and I leave it to Mikael to round this off, please.
Okay. Well, it's great to see all of you guys here. It's been great talking to all of you, and I look forward to seeing you again when we present the Q1, which is not quite 3 months from now, but about 2.5. We will then be in Boliden, where we will have both a Board meeting, and we will also have the AGM in the Industrial Society of Boliden, which was built around the mine that we found 100 years ago. Anybody who has the ability to be there, I would recommend that you will come. We will, in any way -- in many way highlights the fact that both us as a company, but also the city itself turns 100 years. Thank you, all.