Sumitomo Metal Mining Co Ltd

TSE:5713

Earnings Call Transcript 2022-Q2

[Daiji Toyama, executive]

Now we would like to start the telephone conference of Sumitomo Metal Mining for the announcement of its financial results for the second quarter ended September 30, 2021. My name is Daiji Toyama, Manager of PR and IR Department, and I will moderate this teleconference.

I believe you already have the materials, consolidated financial results, for the second quarter ended September 30, 2021, and supplementary explanation for financial summary, at hand.

First, [ Takanori Shimizu ], General Manager of PR and IR department, will talk on the highlights of financial results.

[Unknown Executive]

This is [ Shimizu ] speaking. Thank you very much for your continued support, and I also appreciate your participation today. We have 128 people joining this call. We are pleased with your active interest.

I will explain some of the key highlights, and then manager in charge will explain the details later on. So I will explain the financial results of the second quarter ended September 30, 2021, announced today. Please refer to the first page of the consolidated financial results.

First, with regards to the consolidated operating results of the second quarter fiscal 2021, both net sales and net profit increased from the second quarter of the previous fiscal year. Net sales was JPY 597.9 billion, JPY 191.2 billion higher year-on-year. Profit before tax was JPY 121.7 billion, JPY 95.8 billion higher year-on-year. Quarterly profit was JPY 120.2 billion, JPY 102.9 billion higher year-on-year. And the profit attributable to owners of the parent was JPY 113.8 billion, JPY 96.4 billion higher year-on-year. So both net sales and net profit increased year-on-year.

Now I will explain the overview of the second quarter results and second quarter consolidated results compared to the previous fiscal year. First of all, metal prices in the second quarter of the year. Copper price had been on the upward trend since last fiscal year, then due to the weakening of demand caused by the spread of coronavirus variant, the price started to decline from the middle of this period. Nickel price maintained its upward trend, thanks to the recovery of the world economy. Gold price was basically on the rise due to the uncertainties of the world economy impacted by the spread of COVID variant, then it started to decline as U.S. economy recovered.

Throughout the second quarter, copper and nickel prices were higher than the same quarter last year and the gold price was lower than the same period last year.

As for the exchange rate, yen got weaker than the same period last year.

As for the consolidated net sales of this period, it was JPY 597.9 billion, JPY 191.2 billion higher than the second quarter of the previous year due to the higher prices of copper and nickel.

Consolidated profit before tax during this period was JPY 121.7 billion, JPY 95.8 billion higher year-on-year due to the higher net sales and the increase in profit on equity method owing to a higher copper price.

Quarterly profit and profit attributable to owners of parent is the next point. Since consolidated profit before tax increased, quarterly profit increased up to JPY 120.2 billion, JPY 102.9 billion higher year-on-year and profit attributable to owners of the parent also increased up to JPY 113.8 billion, JPY 96.4 billion higher year-on-year.

On the 14th of October, we announced the transfer of interest we had in Sierra Gorda copper mine, and approximately JPY 25 billion of corporate tax expenses related to the transfer is included in the second quarter profit and profit attributable to owners of the parent.

Now I will give you key topics of the business in the second quarter of the year. Please refer to Page 7 of the supplementary explanation for the production volume of each mine.

Now looking at the overseas copper mines, first of all, at Morenci copper mine. Production volume was 195,000 tonnes, lower than the production in the second quarter of the previous year due to reduced level of new operations due to the impact of COVID pandemic. At Cerro Verde copper mine, production volume was 192,000 tonnes, an increase from the previous year when the mine was placed in the care and maintenance status in response to the pandemic. At Sierra Gorda copper mine, production volume was 93,000 tonnes, which was higher than the same quarter previous year due to stable operations and better ore grade.

Next, now as for the Taganito HPAL, equipment trouble during this quarter resulted in the production volume lower than the level of the same quarter last year. The facility, which had the equipment trouble, has already restarted the operation.

With regards to the CNBC (sic) [ CBNC ], COVID pandemic caused a reduced level of operations temporarily and production volume was slightly lower than that of the previous year.

Lastly, with regards to the Materials business, net sales of Materials business was JPY 133.5 billion, up JPY 38.8 billion year-on-year, and the segment profit was JPY 13 billion, up JPY 11.3 billion year-on-year, due to brisk sales of applied powder materials and the increase in battery materials sales, which experienced a segment demand in the previous year.

Next, I would like to talk about the forecast for the consolidated full year results for the year ending in March 2022. We've revised the full year forecast, which was announced in May.

Net sales and the profit and loss. In the revised full year forecast, net sales will be JPY 1.175 billion, JPY 128 billion better than the forecast in May. Profit before tax will be JPY 266 billion, JPY 128 billion better than the May forecast. Net profit will be JPY 224 billion, JPY 110 billion better than the forecast in May. And the profit attributable to owners of the parent is JPY 214 billion, JPY 110 billion higher than the forecast we announced in May.

A process to transfer all the equity interest held in Sierra Gorda copper mine will be completed by the end of March 2022. And based upon this assumption, the total impact of the process is forecast to be about JPY 70 billion, which is included in this full year forecast.

Metal price and exchange rate assumptions we used for the forecast for the second quarter are on Page 1 of the supplementary explanation. We expect metal prices to be higher than the assumptions we used for the May forecast, and the yen will be weaker than the assumption used in May.

Revised profit before tax forecast is significantly higher than the May forecast. There were some negative factors such as lower production volume at some overseas copper mines that resulted in higher unit cost, but the tailwind of favorable metal prices increased the profit of Materials business and the transfer of interest of Sierra Gorda offset the negative factors.

Next, I will outline some of the topics related to the second quarter forecast. Please refer to Page 7 of the supplementary explanation for the production volume of respective mines. First of all, impact of transfer of all the equity interest held in Sierra Gorda copper mine, that is the first topic I would like to explain. As was mentioned earlier, total impact of the transfer of equity interest, assuming the process will be completed by the end of March 2022, is estimated to be about JPY 70 billion and the amount is included in the forecast. This amount, however, is the estimated difference between the book value of the assets to be sold and the assumed transfer price at the completion of the transfer process. This is the estimated difference amount. Therefore, the amount is not fixed yet.

Next, I'd like to touch upon some of the topics related to overseas copper mines. At Morenci, impact of COVID pandemic is shrinking and production volume is being ramped up. Moreover, mineral processing area, which was planned to be reopened in 2022, has already restarted operations at 50% of its capacity. Thus, we forecast the annual production volume to reach 401,000 tonnes, which is higher than what we forecasted in May.

At Cerro Verde copper mine, operation is continuing stably based on the annual production plan, taking into the consideration the influence of the spread of COVID infection. But the ore grade is getting lower and we are trying to compensate for it by increasing throughput. Estimated annual production volume is [ 383,000 ] tonnes, which is lower than the forecast made in May.

At Candelaria, mining operation delayed due to the measures to prevent the potential collapse of open pit due to a fault found in the mining area. Our partner, Lundin Mining, announced downward revision of annual production guidance in June. Measures to ensure pit stability and monitoring will continue. Annual production volume will be 107,000 tonnes, which is about 70% of the announced volume in May.

Now at the Sierra Gorda copper mine, stable operation is expected to continue. Sierra Gorda will be excluded from the coverage of equity method company from the third quarter.

Next, with regards to the Taganito HPAL. Due to the equipment trouble, which occurred in the first quarter, annual production volume will be 29,600 tonnes, which represents about 90% of the annual production plan announced in May at CBNC. Due to the impact of the COVID pandemic, operation level was reduced temporarily in September. Therefore, annual production volume is forecast to be slightly lower than what we announced in May forecast.

Now I will talk about dividend. Please refer to a summary of the reported consolidated financial results and notice regarding difference between the result of second quarter FY '21 and the forecast in a revision of the full year forecast and revision of distribution of retained earnings and the dividend forecast that we announced today.

Result of our second quarter cumulative was finalized and the full year forecast was revised. Thereby, we reviewed the distribution of the amount at the end of second quarter as well as the dividend forecast at the end of the period.

Second quarter results and the full year forecast include the amount of the impact of interest transfer of Sierra Gorda, assuming the execution of the transfer will complete by the end of March 2022. But the schedule may slip into the following fiscal year contingent on fulfillment of conditions and acquisition permits. Therefore, calculation of the interim dividend and the year-end forecast excludes the Sierra Gorda impact and then apply 35% or above as consolidated payout ratio.

As a result, interim dividend is raised by JPY 42 per share from the last forecast to JPY 113. Year-end dividend forecast also raised by JPY 9 from the last forecast to JPY 71. Annual dividend increases by JPY 51 per share to JPY 184, which is our all-time high.

By the way, the impact amount of interest transfer of Sierra Gorda includes reversal of loan loss reserve as the cumulative impact for loans to Sierra Gorda S.C.M. adjusted for the balance of retained earnings at the beginning of FY '19 due to the application of revised IAS 28, investment in affiliated companies and joint control companies.

Since it is a cumulative impact of the reversal, it was recorded as opening adjustment at the beginning of the year, reducing from the retained earnings at the time when the provision was recognized. It was not recorded as loss, thereby didn't impact P&L.

Future dividend forecast calculation after the execution date becomes definitive will not include the reversal amount. And on that basis, SMM maintains consolidated payout ratio of 35% or above according to our return policy.

So now please look at the supplementary explanation for financial summary. Mr. Toyama will take the floor.

[Daiji Toyama, executive]

Please look at the supplementary explanation for financial summary for second quarter. I'm going to extract the salient points only.

Table on the top of Page 1 shows a comparison between the second quarter cumulative results and the result of the same period last year and August forecast. Footnote is a change analysis of profit before tax. First, please refer to year-on-year difference, the column 1 minus 2. Other than the market factor of JPY 88.6 billion that contribute to the majority of JPY 95.8 billion upturn of profit before tax, cost differential improved significantly on the back of production ramp-up and the improvement ore grade in Sierra Gorda was aggravated in Taganito and CBNC and Morenci due to the production cutback and Cerro Verde. Overall decline was JPY 5.4 billion.

Suspension of construction expense of QB2 was JPY 3.9 billion recorded in the same period last year was one-off and disappeared this year. Minus JPY 6.3 billion of Others include an increase of tax expenses overseas copper mines and realized profit and by product gains.

Next, please refer to the comparison against August forecast column 1 minus 3. Of JPY 15.7 billion increase, factors other than market of JPY 7.7 billion, we saw JPY 1.9 billion upturn on the back of the increased sales in Hishikari and Sierra Gorda. Plus JPY 4.4 billion of Others includes unrealized profit and by product gain.

Next, please look at the difference in Aug latest revised forecast, May forecast and second quarter cumulative results. I will explain the difference between new and old forecast of FY '21, that is column 3 minus 4. Full year forecast of profit before tax increased by JPY 128 billion from the forecast. Excluding market impacts of JPY 75.9 billion and divestment gain of Sierra Gorda, a total of minus JPY 18.6 billion impact comes from cost differentials due to production cutback of Cerro Verde and Candelaria from May forecast. Minus JPY 5.6 billion of Others include an increase of tax expenses of overseas copper mines and realized gains and by product gains, accordingly.

Please look at the comparison between second half forecast and first half results at the bottom of the page. That is column 2 minus 1. Out of JPY 22.6 billion increase of profit before tax, market factors contributed negatively by JPY 2.6 billion due to the metal price assumption. Hishikari is lower on quantity as first half recorded increased production and sales, whereas Taganito, Morenci, Cerro Verde returned better on the back of recovery as well as increase of production and sales. Overall quantity impact projected plus, JPY 5.3 billion.

As for cost differential, our projection is minus JPY 3.4 billion and due to Hishikari and Toyo plants copper as the plant scheduled shutdown planned in the second half. Materials business records minus on the back of price differential and mix change in battery and powder material businesses. Minus JPY 9.8 billion of Others includes unrealized gain by product and sales expenses aggravation.

Turning to Page 3 for year-on-year comparison by segment. Gross profit of Mineral Resources segment increased by JPY 24.2 billion to JPY 45.8 billion. As shown in the explanation of difference in the middle of the page, the quantity turned better in Hishikari as sales volume increased first half. Price differential improved in Morenci and other overseas copper mines on higher copper price.

Gross profit of the Smelting & Refining segment increased by JPY 29.6 billion to JPY 55.3 billion. As shown in the explanation of difference at the bottom, copper improved JPY 13.4 billion and nickel improved by JPY 12.2 billion. Significant improvement comes from price differential due to nickel and cobalt price hike. In Others, copper was plus JPY 9.1 billion with minor exchange rate impact, whereas nickel, plus JPY 8 billion with exchange rate impact of plus JPY 0.4 billion, respectively.

Table on the top on Page 4 for net sales of Minerals segment. Battery Materials increased by JPY 22.1 billion to JPY 62.6 billion as demand temporarily declined same period last year. Powder materials increased by JPY 9 billion to JPY 25.8 billion and -- such as sales went up on the back of strong market conditions and demand.

Profit and loss in equity method affiliate is shown in the table at the bottom, increased by JPY 28.8 billion to JPY 24.4 billion. Profit increase primarily comes from copper entities. Cerro Verde went up year-on-year on increased production and sales as well as higher metal price and recorded JPY 11.7 billion, up JPY 11.4 billion. Sierra Gorda went up to JPY 6.1 billion, up JPY 12.2 billion.

Please go to Page 5. This page shows comparison between latest revised forecast of FY '21 and May forecast. Please note the figures are rounded to the nearest billion. Gross profit of Mineral Resources segment is projected to be JPY 83 billion, up JPY 20 billion. As shown on the table in the middle, the contribution comes from price differential of Hishikari and price differential on higher copper price and the improvement of quantity and increased production and sales in overseas copper mines, mainly Morenci.

Gross profit of Smelting & Refining segment projected to be JPY 87 billion, up JPY 32 billion. As shown at the bottom, copper is expected to turn better by JPY 20.3 billion and nickel by JPY 13.8 billion, respectively. Reasons include nickel price differential and copper and nickel inventory valuation, which is expected to improve significantly. Cost per unit projected to aggravate by JPY 9.6 billion in nickel entity due to production cutback in THPAL power.

In Others, copper records a plus JPY 8.1 billion, of which exchange rate impact is plus JPY 0.4 billion, whereas nickel record plus JPY 1.9 billion, of which exchange rate impact was plus JPY 1.6 billion. Page 6 on top shows net sales of Materials segment by product group. Overall, segment net sales is projected JPY 275 billion, up JPY 23 billion from May forecast. Steady production and sales continued in battery materials. And on the back of higher metal price, sales is projected at JPY 130 billion, up JPY 12 billion from May forecast. There are some uncertainties of demand in the part of the powder materials products yet projected JPY 52 billion, up JPY 0.8 billion from May forecast.

Lastly, about equity method earnings of affiliates on Page 6 at the bottom. Please note the figures are rounded to the near JPY 0.5 billion. As for overseas copper mines, Cerro Verde projected an increase JPY 5.5 billion on higher metal despite a decrease in production and sales. Candelaria expects a decrease of JPY 3 billion in production cutback. Overall, equity method earnings is projected to be JPY 46 billion, up JPY 5.5 billion from May forecast. This ends my explanation. Thank you.

So the floor is open for Q&A for about 30 minutes. [Operator Instructions] If we have many questions, then we are going to appoint. Thank you.

[Operator]

First of all, Mr. Yamaguchi from SMBC Nikko Securities.

[山口 敦 (やまぐち あつし), analyst]

This is Yamaguchi speaking. It was a very detailed explanation and also material was very clear comparing the first half and second half of the year. The JPY 70 billion of the proceeds of the sale of Sierra Gorda interest, so the profit before tax is the basis. So that's about -- so that's going to be the difference between JPY 70 billion and JPY 25 billion. So excluding onetime factors, so the [ 2660, this 700 or the OCM ] , so that is my understanding. Is this correct?

And from the third quarter, the Sierra Gorda numbers will be excluded. That's what I heard. But the flow income -- flow-over income from the Sierra Gorda, what's going to happen throughout the year? So these are the questions related to Sierra Gorda. That's the point #1.

Second question I'd like to ask you is related to the topics of the copper mines. Morenci, well, the throughput and the processing of the ore in the Morenci, what kind of economic benefit do you expect? And Candelaria, it's going to remain difficult. And in the latter half of the November, Lundin Mining is going to give you more the guidance related to the Candelaria. That's my understanding. So could you please elaborate on these points?

[Unknown Executive]

Thank you very much, Mr. Yamaguchi. This is [ Shimizu ] speaking. With regards to the transfer of interest in the Sierra Gorda and the impact to total is JPY 70 billion, as you mentioned. Well, the annual full year forecast -- in the full year forecast, this amount is included in the profit before tax. However, this is excluded from the calculation of dividend because, well, the -- well, what is going to be executed by the end of March 2022 or not, we are not sure yet. So that is the reason why we excluded this impact from the calculation of dividend.

By the end of March 2022, if this process will be completed, then out of this JPY 70 billion, as I mentioned, well, the deductible or the amount is to be subtracted. So it is not that the total of JPY 70 billion will be excluded from the calculation of the dividend, but whether the part of JPY 70 billion will be excluded.

And on your second point, also the Sierra Gorda will be excluded from the profit accounting from the second half. I would like to give you a supplementary explanation. So starting from the second half of the year, as you mentioned, so the equity method and the inclusion is applicable to Sierra Gorda during the first half only. It's not going to be recognized in the second half. However, JPY 6.1 billion, that is the result in the first half and also JPY 8 billion in November. So actually, JPY 1.9 billion, we add these numbers to the accounts in the second half. But this is a reversal of the unrealized gains only.

So the -- after this number is posted. So after the -- in and after the third quarter, Sierra Gorda will not be recognized.

[山口 敦 (やまぐち あつし), analyst]

Well, the partner company, the KGHM, well, they seem to have the right to reject this option. That's what I heard. But is it correct? Could you please confirm on this?

[Unknown Executive]

There is such clause in the document or contract.

[山口 敦 (やまぐち あつし), analyst]

But there may be some timing difference, but you are sure that this process will be executed without any problem?

[Unknown Executive]

You're right. Well, the timing difference may have -- the delay may happen. But the -- so there are no possibility of your partner going against this proposal to exit from Sierra Gorda.

And you also asked about Morenci and Candelaria. Yes, as for the processing, well, the lithium project in Morenci, that's what you asked about. Am I correct? Processing at the Morenci copper mine, you asked this question.

[山口 敦 (やまぐち あつし), analyst]

So in the future, so it's going to be a positive development for Morenci, am I correct?

[Unknown Executive]

Yes. We are ramping up the operation there, yes. So the new -- they will start in 2022, that's what we are trying to do. But actually, we are on the shifting schedule forward. That means the development is positive to us. That's about Morenci.

And the next question is about Candelaria. As you mentioned, production outlook has not been updated, so I'm not able to mention something that is indefinite or the uncertain. But the countermeasures have been taken at Candelaria. That's what I can say.

[山口 敦 (やまぐち あつし), analyst]

Cerro Verde, after the next year, do you think that the ore grade is going to decline?

[Unknown Executive]

Well, the original plan is that they compensate by ramping up the processing volume so that you can just offset the decline of the ore. The debottlenecking and ore grade decline, in fact, that there is no project -- progress in FY '20, thereby we concentrate to improve the activities to -- on the part of the mills.

If the COVID is going to be calming down, then operation level is going to go up. That is what we have been explaining. That remains unchanged.

[山口 敦 (やまぐち あつし), analyst]

So it has been now suspended? Is that the right understanding?

[Unknown Executive]

That is correct. Thank you.

[Operator]

Matsumoto-san, Nomura Securities.

[松本 裕司 (まつもと ゆうじ), analyst]

This is Matsumoto from Nomura. First question is about Sierra Gorda, the transfer of interest. There is a reversal according to the financial report, there is about JPY 55 billion at the loan loss reserves. Is that what you're referring to? So excluding the calculation of the dividend, how much that would be?

The second point is Toyama-san explained the difference between first half and second half, JPY 9.8 billion is in Others and JPY 8 billion for Materials, and that's a source of my concern. Could you be more specific and elaborate?

[Unknown Executive]

Thank you. So the first question is in relation to the revised IAS 28. At the beginning of FY '19, that wasn't recognized, that is the revaluation of the loans extended to Sierra Gorda project was recognized so that we reduced the amount of the retained earnings that's amounting to JPY 56.3 billion. And that negative figures were recorded in the '19 financial report -- securities report, excuse me.

And then with this divestment of Sierra Gorda, the amount that is excluding the reversed amount and to be recorded, to be more specific, over the course of 2, yes, the reverse amount is JPY 10.9 billion total. Based upon that amount, we calculate the dividend amount and that amount is excluded from the dividend calculation.

[松本 裕司 (まつもと ゆうじ), analyst]

The second question. JPY 9.8 billion of Others and realized income by product, and the impact of the sales expenses are included in my presentation earlier. How much of it in each item and minus JPY 8 billion of Materials, do you have any breakdown.

[Unknown Executive]

The breakdown, I'm afraid I cannot explain or I cannot disclose. We'll take the example, the direct net sales expenses deterioration, that includes the logistics expenses and others.

And as for Materials, the QB difference, the quote period difference of batteries, there's an upturn that we experienced in the first half. If you compare first half, second half, then that resulted in the negative territory.

[松本 裕司 (まつもと ゆうじ), analyst]

Understood. Just a confirmation of the first part of your presentation. The retained earnings were recorded 56.3 in FY '19 and the JPY 11 billion amount was recorded already so that the dividend calculation is based upon the data between JPY 70 billion to JPY 45 billion.

[Unknown Executive]

So JPY 70 billion, say, the base of my discussion is not definitive, first of all. And JPY 55 billion or -- we're not definitive as well, meaning that we are until -- we had changed the execution, those figures were not fixed.

[Operator]

Next, Ozaki from Daiwa Securities.

[Shinichiro Ozaki, analyst]

This is Ozaki speaking. Can you hear me?

[Operator]

Yes, we can hear you. Over to you.

[Shinichiro Ozaki, analyst]

This is about THPAL, the operational trouble in the first half. So please explain the specific situation about the HPAL -- THPAL. And also, you are planning to increase production volume in the second half. So could you please elaborate on this point? That's number one.

Question number two is about Sierra Gorda and the impacts of Sierra Gorda on the performance, I would also like to confirm on this point. Full year profit before tax and the -- and we also have the JPY 70 billion, which is related to the transfer of interest and the tax on the expense in the first half. That's the positive to JPY 25 billion, which is the positive impact on the profitability. Am I right in saying so?

[Unknown Executive]

Yes. JPY 25 billion in the first half, that is included in the first half, you are correct. As I mentioned, in the first half, well, the deferred tax assets and also, well, the corporate tax expenses. The corporate tax effect is posted in the profit side, but it's going to be eliminated when this process is completed and the same amount of the corporate tax will be posted. So the -- and assuming that this process is completed by the end of March next year, there will be no impact on the full year accounting. So that's about JPY 25 billion.

It's going to be neutral for full year.

So the JPY 25 billion, that's positive in the first half. But the -- as it goes smoothly, well, this will be posted as the tax expenses in the second half. Yes, that's about JPY 25 billion and also for JPY 70 billion part.

On the -- this assumes that the process will be completed in this fiscal year by the end of March. But the JPY 25 billion, if the process is completed and executed, this amount will be eliminated by the end of this year. So this is something that we shouldn't worry about.

[Shinichiro Ozaki, analyst]

So -- and the profit before tax impact by JPY 70 billion and also the bad debt, the reserve and the reversal. So about JPY 40 billion to JPY 50 billion shall be deducted?

[Unknown Executive]

That's the number that we should look at to calculate the dividend amount, yes. So that is amount to be excluded from the calculation of the dividend. Your explanation is correct -- your understanding is correct.

[Shinichiro Ozaki, analyst]

Okay. And how about THPAL related question?

[Unknown Executive]

Yes. THPAL in the previous first quarter the earnings briefings, I touched upon this. So at the end of the first quarter, this happened. This is related to the boiler facility of the T HPAL. We had trouble there. But it was already repaired, recovered and the normal operation started once again, and we also know the reasons for the problem. And so the -- it has been recovered already.

On a full year basis, there will be an impact because of this reduced production volume due to the trouble. So that is the reason why we included this into the calculation of the forecast.

[Operator]

Shirakawa-san, please, Morgan Stanley MUFG Securities.

[白川 祐 (しらかわ ゆう), analyst]

This is Shirakawa from Morgan Stanley. Apologize for my lack of understanding about Sierra Gorda, so I'd like to reconfirm. JPY 25 billion in the first half that is recorded as profit will disappear in the second half. So that disappearance is already included into your plan.

[Unknown Executive]

Yes. We have included that in our plan.

[白川 祐 (しらかわ ゆう), analyst]

Just your confirmation, thank you. And then another 2 questions. First one is about the Materials business. The cobalt, the applied price difference between first half and second half, could you be specific where the difference is being derived from?

Second question is also about Materials, particularly the battery business. This time around, the Tesla made announcement it may possibly make a transition to LFP, the iron phosphate. Going forward in mid long term, the nickel-related such NSC and NMC, what will be the impact? Or do you have any plan to make a transition to more of a LFP type of batteries?

[Unknown Executive]

Thank you. The first question is about the applied price difference. As explained briefly earlier, that tend to be a positive impact in the first half. Going forward in the second half, full year is a positive impact. And on a year-on-year basis or against May forecast, all across board positive territory. Whereas if you take a look at the difference between first half, second half, then we recorded a decline. Apologize, my explanation is rather qualitative, but this is what is happening.

And then the battery, the Tesla's announcement, LFPs transition according to release, is your question and our response as well as direction. That is my understanding of your question. The EV mounting LFP taking advantage of the characteristics, that part of the market is expected to grow centering around China. Thereby, it is expected that the size of LFP-related market is going to expand. But our basic stance on the part of SMM is that as a maker to own the nickel resources, the nickel-based battery, this is the advantage in the cruising range is going to be and continue to be our focus.

High nickel, by taking advantage of our strength in high-nickel chemistry and the business direction remains unchanged, centering around that high-nickel battery.

So LFP, the trend and market trend of the technology is something that we pay attention to going forward, and that will depend on the customer's request. We may consider to respond to the customer demand if there would be any. But the basic stance on the part of SMM is that we take advantage of our strength, that is high-nickel chemistry battery.

[Operator]

Next, Mr. Goroh from UBS Securities.

[Harunobu Goroh, analyst]

This is Goroh from UBS Securities. According to the press release that you have just issued, this is about the Côté Project. Well, the review of the total expenses, you also referred to this during the third quarter. You also made this announcement.

And also recently, you announced the initial resource estimate. So this is not about the Côté Project itself, but it is a related area or the neighboring area. So I'd like to sort out the information.

So the mineable resources, mine life and the extending, so that is what you observed in this project. And the increase in these -- in the expense that you have just announced, what is it related to? And also the confirmation of the mine resource, the volume in the Côté Project, I would like you to elaborate on this.

And second is about the cash flow and also investment plan. Compared to the beginning of the year, the amount is going to be reduced. That's about the CapEx. So is this simply because of the timing difference Or is this related to the transfer of interest in the Sierra Gorda CapEx, the plan that you announced you're going to change it? And could you please explain more in detail?

[Unknown Executive]

Thank you very much for the questions. First of all, about the Côté, the review of the -- we announced the review of the operating expense -- the expenses to develop the project. On the 23rd of July, IAMGOLD made the announcement about the increase of the investment. We reviewed these numbers and we made our own announcement this time.

As for the content of this press release, as is mentioned in the release itself, well, the increase in the initial development cost is because of the -- or the change of the specifications and also the amount of the equipment, facilities needed for the development, the man hours and the increase in the materials and the equipment as well as the changes in the exchange rate.

So the changes in the economic environment is the reason for this review. So this increase in the development cost at the Côté project and along with the press release the other day will be about the -- what we announced previously about the resource estimate and the exploration is not related to this increase in the development cost.

But the increase in the cost, well, is related to the feasibility and the economics of this project. And the -- as was separately announced, well, there is a high potential in this Côté area and the neighboring areas as we announced on the estimate at the Gosselin Zone, and we can expect to see the higher volume as well as longer mine life. So that is how we are assessing this Côté project right now. This is the confirmation.

[Harunobu Goroh, analyst]

So new -- as a result of this new evaluation of the resource estimate that you announced the other day, so this is something that was added to your initial scale of the project? And is this something that you can study separately from the original Côté project?

[Unknown Executive]

Yes, you're right.

[Harunobu Goroh, analyst]

Understood. And 2023, that is the year planned to be the start of the production and no change to that?

[Unknown Executive]

You're right, no change about the start of the operation from 2023.

[Harunobu Goroh, analyst]

And also cash flow question, please.

[Unknown Executive]

Yes. Your question is about -- second question is about the investment and the cash flow. So CapEx amount is to be reduced. So we had the plan included in the 2018 midterm plan. However, there were some delays and also because of the COVID and the investment and the plans -- or the projects are reduced. These are the reasons.

So your question is with -- this is because of the delay in the timing or the change of the timing, right -- you are right, including the battery-related business investment. Well, the start of the investment project were delayed and the timing and the difference happened. And these are the reasons for this change. But the plan itself will be continued. So please understand this as the result of the timing difference.

[Daiji Toyama, executive]

So time has come so we'd like to close Q&A session. So we are wrapping up the call. Thank you very much.

Recording of this earnings call is available until November 29. So you may find the phone number to call in the e-mail that we sent to you to confirm your registration.

Thank you very much for your participation. So you may hang up. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]