Ladies and gentlemen, I'd like to welcome you to Boliden's Q2 2020 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, followed by our CFO, Håkan Gabrielsson. We will also have a Q&A session. Mikael, the stage is yours. Welcome.
Thank you, Olof, and good morning to all of you out there, and a special good morning to those of you from the other side of Atlantic who always get to be very early in the morning to see our presentations. It's of course, a very good day today to stand here. We've had a very good quarter, and that makes, of course, my life a little bit easier, but let me go through a little bit what has happened in the quarter and why we have ended up where we have. First of all, I'd like to talk about COVID, and I'll talk more about it on the next slide, but just as a general comment, this has, of course, been something that has tainted the whole quarter for us.
We have been able to manage this in what I will say in a very good way, and I'm quite pleased with the whole organization. Thus, we had result of about SEK 1.6 billion, which is better than I think many had expected, and also better than maybe we ourselves had expected when we went into this quarter. We're also very happy with the strong free cash flow of SEK 1.2 billion. Håkan will come in a little bit more into the details, but after having struggled a bit with cash flow the last few quarters, including tying up quite a lot of working capital, we have now, as we've said, been able to freeze that tie. We have not tied up any more working capital despite the price increases, and that's really helpful.
The production has been very good, both in mines and in smelters, and of course, we've been helped by the fact that the smelters have postponed the maintenance stops. If this were a trick that you can do every quarter, you would love to do it, but it will come back and haunt us a little bit, and I'll talk more about that towards the end. COVID-19, what has it been? It has actually been a pretty big deal on us. It has affected us in very many ways. We've had quite a lot of short-term absenteeism, even though we've been very successful in keeping the serious cases down.
We had very few serious cases, if any, but we've had lots of not so serious cases, but still people that need to stay out, and we had to schedule the staff around that all the time. We've had challenges in getting experts in. You know in this industry, if something happens, you typically need to have an expert come in and look at something that has been, due to travel restriction, almost impossible. We have been able to work very well with our local teams. We've had challenges in sourcing, specialty chemicals and other things, but we managed to handle that, and we managed to survive. We have some delayed exploration that we had to do, and that's still in effect that we have in there.
We've had some general supply chain disruptions, and we've also had our normal industrial clients changing their patterns of buying that we've also been able to handle in a very good way. What have we done? Well, number one, we were early on this one. I think that already back in February, we were working on the responses on what to do. We had already seen what happened in China. We were pretty convinced it is going to come back to us, and we were, as I said, early on this. We worked very much on our decentralized model, which I think is the really key in this situation, as we need to make sure that you adjust for the local situation exactly what is needed there.
We've also worked very close with our unions and our employees in this because, of course, we have been talking about what is appropriate, how can we handle the health situation, and what can be done by every employee to make sure that we stay healthy. We have rescheduled the maintenance stops. We had no choice. It was absolutely impossible to carry out maintenance stops during Q2 in any major fashion. We did a small one in Odda. Otherwise, we have not done them. That is a challenge going into Q3 with so many maintenance stops at the same time. At least for Q2, that has helped us, of course. We were forced to find new sources of supply for our smelters and adjust the mix. I talked quite a lot about this last quarter that that was a risk.
We've been able to handle this risk better than we thought ourselves, and we haven't had much of an impact of that. Despite the fact that we got some new sources and some new recipes into the smelters, that did not have a very negative effect. We have an elevated level of working capital. That one grew already in Q1. It hasn't grown more in Q2, but we are very happy that we had that relatively high level of inventory as that has helped us in order to maintain a good operations. We should also point to the robust finances, of course, being able to help us in these times with a strong balance sheet makes things simpler that you don't have to chase every single moment to make sure that you're staying afloat.
On the last point, I just make the point that we have not had any layoffs, we had no material state subsidies at all, those of you who cover other sectors know that this is not always the case if you look around. Now, just talking about the markets, I think here, of course, lots of things have happened in the market not time enough to go into all the details, basically, the simple story is we have a weakened demand in the Western world, we have had improved activity in China during this quarter. On the metal side, we have a weaker global demand, although China improved. Smelter output is down year-on-year, it's been stable quarter-on-quarter.
The base metal prices went down quite low and have recovered, especially towards the end of the quarter. Of course, we've seen the precious metals, therefore, especially gold, doing very well in this time. On the concentrate market, it's been lots of moving pieces. There's been mine disruptions, but there's also been some smelter disruption, and there's been rescheduling going on and everything else, as I mentioned, and I think that we've been able to handle this very well. There's been lower spot TCs coming out of this mixture.
If you then look at the prices, then of course you know this much better than I, many of you, so I won't go into much details, but I think it's worth pointing out here on the copper side, where you see the price picking up, but also the inventory levels. They picked up in the beginning of the COVID-19 crisis, but they come down very fast, very quickly. Now, this is not all inventory. This is just the official inventory, but the fear that you could have had that there will be lots of copper inventory sitting around has not really happened. You see the same thing on zinc. The price went down. It's been recovering a little bit. The inventories are up, but still on very low levels compared to what we've seen historically.
On the nickel side, the inventories have come up more significantly, but also here we've seen a rebound in prices, though not as strong as in the other metals. Now, the other big talk of the town is, of course, gold. You all know that gold has been doing very well. silver, not to the same extent, but also a good pickup on silver, and lead performing more or less in line with zinc. This one you've seen many times, this slide, and maybe it's the time to dwell a little bit upon it for those who haven't seen it. You can see on the zinc side generally that the zinc prices now are on a level where basically the 90th percentile don't really make any money. They just cover their cash cost.
You can also see a trend where zinc costs have gone up in the mines. You can wonder why is this. This is of course the zinc TCs that have gone up that becomes a cost to the mines in these calculations. Therefore, it's been quite a squeezing situation in the zinc mining. On the copper mining, you can see, number one, there's quite a lot of margin as your copper miners make quite good profit. You can also see what looks like a very strong cost pressure and a cost decrease in the copper industry. You should remember that this is, of course, in light of the high gold prices. The high gold prices comes as a by- credit for very many copper mines, and therefore it looks like the cost of the copper mining goes down.
On the nickel, it's still a pressured situation for the industry in general, as you've seen. Here, you see a slight pressure downward on the cost. Here, maybe coupled to the high PGM prices. When we add all these things together and also take in the currency, you can see that Boliden has fared relatively well. Compared to what you could think about the volatility, we're on a quite stable level. We have once again been helped in the beginning of the quarter with the currencies, towards the end when the metal prices came back, the currencies came down, if you take the mixture, it's been much more stable than you might think. If you go into the different business areas, I will start with the mines. The mines have had good production.
You can see quite a lot of higher volumes, both compared to last year and compared to last quarter. You can see that on the next slide, you'll see especially on the zinc side. We did have a fire in Kevitsa. This is, of course, not good at all. I think that given that we had a fire, been able to manage it quite well, get the operations up and running. We had an 80 million SEK effect on this in Q2, and as you know, we guided for 200 in total, so we still have a little bit more than half left until we are fully done. It looks to be on schedule to be up and running again, the primary crusher, in August. We've had negative prices and terms compared to last year, positive compared to last quarter.
Håkan will dwell a little bit more upon these effects that we get when the prices move around quite a lot and the way that we price with preliminary pricing and how that gets affected by the end of period is something that Håkan will bring up to you. CapEx is a little bit down. We're trying to keep it down as much as possible in these situations, but I would say it's still pretty much on schedule for the year. If you look then on mine production, and of course, the number that you see here that jumps up is the zinc production that has come way back up again after the last quarter where we had all the problems in Tara with altogether 23 days in Q1 out of production. In Q2, we've basically been going full out in the zinc mines.
Copper mines also had a good quarter where the increased grades can be shown in the metal production side of this, and also the nickel production has been good. Moving over to the smelters, of course, the big thing in smelters has been the change of maintenance stops. The fact that we've been able to run a Q2 without maintenance stop is, of course, something that is very unusual, has never happened before, and hopefully will never happen again, which is, of course, a contributing factor to the very good profit level that we've had, despite the fact that we've actually had slightly weaker prices and terms compared to last year. As I said in the beginning, the negative impact from the feed mix was much less than we had feared, which is a good thing.
We've had higher volumes, partially because of less maintenance, but also higher free metals. We've had some good months in terms of the yields in the smelters. The CapEx are on plan, and of course, here we're quite less than last year because CapEx is tied to some extent to the maintenance stops that will then get more pushed into Q3. If you look at the production, you can see on copper, of course, a big difference compared to the very big maintenance stops that we had last year on the copper side. On the zinc side, more stable.
We actually did have a maintenance stop in Odda that we managed to carry through despite COVID-19, managed to handle that one, and of course, therefore, the zinc throughput does have some maintenance stop in it. With that, Håkan, I'll leave the floor to you to talk a little bit about the financials.
Thank you, Mikael. Good morning. It's certainly a pleasure to be here presenting the Q2 report. Going back to where we stood in the beginning of the quarter with a lot of uncertainty, things have clearly developed in a good way, to some extent better than we anticipated ourselves. We released earnings statements today. We have an EBIT that is better than both comparison quarters, also a free cash flow that is better than both comparison quarters. EBIT is slightly up compared to the other quarters. There is a substantial improvement in free cash flow. Earnings per share for the quarter was just shy of 5 SEK. Looking by segment, the main improvement from Q1 is in mines, which has more than doubled the profit with the help of good production. Production has also been stable in smelters. That came in slightly below last quarter.
As Mikael mentioned, the impact from a negative concentrate mix has been less than we anticipated at the start of the quarter. The other eliminations is better than we perhaps estimated. It's negative, but the supply situation as a whole has been fairly good during the quarter, and we've been able to limit the amount of internal stocks that we keep. Therefore, a slightly better number than our expectations. Moving on to the EBIT comparison, Q2 this year compared to Q2 of last year. A very small improvement to SEK 1,634 million. Prices were negative, and that's primarily due to lower base metal prices compared to the same quarter a year ago. We've recovered that with higher volumes. We've had higher mill production in most mines. We've also had higher grades above all in Tara and Kevitsa that has contributed a good deal.
The main impact, though, is in smelters due to rescheduled maintenance. We had a quarter last year with very heavy maintenance and fairly limited maintenance stops this quarter, which of course contributes in the short term. Depreciation is up 200 million SEK. We have had a period of high CapEx, which translates into depreciations. Furthermore, when it comes to deferred stripping in our open pit mines, we depreciate that based on metal production in the mines, and that has increased, which then brings up the depreciation. Comparing sequentially Q2 to Q1, volumes are up by almost 600 million SEK. We have higher grades in most mines, above all, Aitik is contributing a lot here. Then Tara, which has had a very difficult Q1 with a number of disruptions, had a really strong Q2, so we're happy about that.
Smelters, stable compared to last quarter, and as I said, the impact of a negative concentrate mix is clearly less than anticipated. Moving in to the prices and terms. We have lower base metal prices and by-product prices that have an impact on the smelting division. Mines, however, had a positive price effect. That is due to provisional prices. When we have a quarter with major price movements, you will find that the realized prices in mines differs quite a lot from the average notations in the market. One component there is the MAM effect, which is then deliveries during Q1 that have received their final pricing in Q2. That is added up to about SEK 40 million in this quarter, compared to a negative of SEK 20 last quarter. The big impact is, of course, how deliveries are priced within the quarter.
A big part of the Q2 deliveries are finally priced relatively late in the quarters, and there are still deliveries that were open towards the end of the quarter that were valued in the accounts at end of period prices. Somewhat complicated material, but just as a recap then. Copper, zinc, and lead is priced one month after delivery, silver and gold two months after delivery, nickel three months after delivery, platinum and palladium four months after delivery. Cash flow. We have a better EBITDA, lower CapEx, and lower taxes than the comparison quarters, leading up then to a stronger free cash flow. Working capital is stable. As you know, when prices increase, it ties a little bit more capital, but we finished last quarter with higher finished metal stocks than usually due to supply problems. We've been able to ship that, so that's normalized.
All in all, the working capital is still on elevated levels to mitigate risks for COVID-19. Balance sheet. We’ve increased the net debt to equity to 17%. We paid closer to SEK 1 billion dividend in the quarter. We also took some new loans in connection to the last quarterly report. That means that the loan duration has increased to 4.1 years, and the interest duration has increased quite a lot to 3.4 years. We still have a very competitive average interest rate in the quarter of 1.1%. Net payment capacity, SEK 8.7 billion is a strong payment capacity. Our revolving credit facilities of EUR 770 million are not utilized at this point in time. Strong balance sheet and a robust financing. I think with that, Mikael, if you want to wrap up
Thank you, Håkan. I will wrap up with just a few slides. Number 1, I'll talk about a project that we are announcing today that we are contemplating. It is in Odda in Norway, where we are looking into a major modernization of the smelter, the zinc smelter there. It's based on partially new technology, digitalization, optimization. It is a possibility to create a really world-class smelter in Norway with better recoveries on byproducts, with leading climate performance in the world, so on and so forth. There's lots of good things around it. The reason why we're coming out with it now is that it's also for those of you who need read Norwegian, the Norwegian government will also have a press release out today saying that they are willing to support the project with NOK 341 million.
We want to make sure that we have a real level playing field among all our analysts, that it's nothing hidden going around here. There is a couple of big caveats. Number one is we don't have an environmental permit for this. We are still in the process of working with it. We have applied for it, and we've gotten parts of the permit, but we have not gotten the full permit. Of course, we will not move forward with this project until we have a full permit. There are also other pieces that are outstanding around this. It is a very promising and very interesting project. It's a big project, but we are still quite some time, several quarters, if not even more, until there will be a decision around it.
Going forward, just very reiterative regarding Aitik, we have all the time guided for 0.25% for the full year. We're still guiding for 0.25% for the full year. We had slightly better grades in this Q2 than we thought we would have, because we were able to get faster down into the N6 pushback after the winter than we had anticipated. The N6 pushback is a rich pushback that helped us in Q2, but it will not change for the whole year. We have everything in place in terms of the 45 million tons as of now, but there is an elevated risk due to the COVID-19 situation. Those of you who are familiar with the Swedish situation will know that there is a local hotspot of COVID-19 around the Gällivare area that has and is affecting us.
Exactly for how long and how much that will dig into the quarter is too early to say. There is also a relatively big maintenance stop scheduled in Aitik for August. We normally don't talk about them in the mines because they tend to cancel out. Just to be very clear, in this case, there is a major realigning scheduled for both lines in the mill in August. In Garpenberg, we have achieved now the full pace of 3 million tons already for the first half year. That's going on for the full year. We have no change in the guidance for the grades at 3.7 and 100. In Kevitsa, also reiterating 9.5. We have all the equipment, everything in place to achieve the 9.5 million throughput as soon as we get the fire cleared out, and we can get the speed up again.
The grades are still slightly below reserve grade, as we've said all the time. Regarding the COVID-19, there's a continued elevated risk. There is something around the maintenance stops, as I said in the beginning, that we will have to work very closely with, but we are squeezing in lots of maintenance in short time, and we have suppliers who are squeezed from many sides because we are not the only ones in our geographies who are doing this. A lot for the pulp and paper industry and so on have also rescheduled maintenance stops. Now everybody needs to do it, and we're to some extent using the same suppliers, and they are stretched in this. Of course, if you add then to the risk that there could be a COVID-19 hotspot in any of our areas, of course, that would be a very tricky situation.
We do have an elevated working capital level. At some stage, that will come down, I think that it will remain elevated most likely for Q3 as well as we will have some safety cushions on the concentrate side in order to make sure that we can run full in our smelters. The maintenance stops, we have all the same guidance for the full year. We've actually moved a little bit of the maintenance from Q3 into Q4 compared to when I spoke to you three months ago. That's been a way of trying to handle all the maintenance before we get into the cold season. We also need to utilize October. A final thing, Olof has told me many times, I need to remind you all guys that we have a capital market day coming up. It's going to be in March of 2021.
It will be a day in Stockholm with presentations, and then it will follow up by a visit to Harjavalta and to lots of interesting things in Harjavalta, including the new sulfuric acid recovery that we built and have commissioned a couple of quarters back. With that, I think we will leave the floor open to any questions. Are there any questions?
Yeah. Thank you. Our first question comes from Ioannis Masvoulas, Morgan Stanley. The floor is now open to you.
Yes. Good morning. This is Ioannis Masvoulas from Morgan Stanley. Two questions from me. First, in terms of the project at the Odda smelter, it sounds like you've done a lot of work, and you are at advanced stages. You got the government support as well in terms of funding. Can you give us some indication on the overall CapEx? I mean, would it be over on 10% or 30% of such a project? Maybe some indication on the timeline, assuming you get the permits in the very short term. The second question, just in terms of smelters, I mean, last quarter you talked about some pressure potentially on the realized premia as you have to shift to traders. How is that progressing here in Q3 versus Q2, and also any commentary on acid prices, and again, on a realized basis at Q3 versus Q2? Thank you.
Okay. We'll start with the Odda. I think that many of you have questions on that, so let's just get it off. Number one, the actual total investment, we will not say because we will do that once we have the project done, and we are not quite there yet. We're of course talking about billions with an S in the end of SEK, which is not surprising at all. This will be a potentially a 60%-70% increase also of throughput. Timing, very difficult to tell. Dealing with permit situation is never easy. I think it's unlikely that we will have a full permit done within 12 months. Maybe that's the kind of timing that we're looking to.
In the meantime, we will of course work on the exact project that we would like to do, which within that envelope of the permit we can look at different sub-pieces. That's just to give you some order of magnitude and some timeline. The realized premia, I'll give that to you, Håkan, regarding the acid prices, the only thing I'll say is that yes, the acid prices were depressed during the quarter, but we have seen from low levels an uptick in acid prices towards the end of the quarter. I think the main question that you should ask is have we had any problems to get rid of our acid, which could potentially be a problem, the answer is no. We've been able to find destination for the acid for the whole period.
Regarding metal premias, it's difficult to give an estimate for Q3. We typically don't guide for that, and in particular, there is still a fair amount of uncertainty related to COVID. It's fair to say that the impact in Q2 has been relatively limited. As you see from the EBIT bridge, we're only down SEK 30 million on premia from Q1, so perhaps a bit less than anticipated.
Just to be more specific on my question then. In terms of the sales mix traders versus downstream customers, is that improving in Q3 relative to Q2 based on the information you have now? Secondly, on acid prices, given the uptick in spot prices towards the end of the quarter, is it fair to say that this is not going to be a headwind in Q3 versus Q2 could be potentially a tailwind?
Well, I don't know exactly, much to tell, but yes, it looks like a might be more of a tailwind rather than a headwind. Regarding premia, it's still relatively small numbers. Let's not dwell into that. On a general note, yes, we have seen an uptick from our industrial customers and we would assume a higher share of industrial sales in Q3.
With the additional remark though that there is a seasonality in this, and we typically have slightly more spot during the vacation period in Europe. Apart from that, I agree with Mikael now.
That's clear. Thank you very much.
Thank you. Our next question comes from Christian Kopfer, Nordea. The floor is now open to you.
Thanks operator. Good morning, everyone. A few questions from my side. First, on follow up on Odda. Can you say something on potential return on invested capital? I guess it at least should be above 10%. Should we look at at least above 15% for this or?
You will get all that information, Christian, when we present the potential decision.
If you look at Aitik for the quarter, it seems like you had really stronger recoveries. If my calculations are right, they were at 93%. Was it something special here that impacted Q2 and what do you see on recoveries for the next year over time?
Well, over time, I think we have the 0.90 as a good average over time. You know that we've been struggling with recoveries a little bit in Aitik for a while because we've been in oxidized areas and have oxidized ore for a while. Right now we are in the S3 pushback through the worst part of that, and we're getting into better ore. We've had a good ore mix in this quarter, and we've also had a good operations in the mill. Yeah, 93% is a high number that is doable at certain times, but we're coming into the pushback number 7, N 7 here in later next year, which will start from the surface again and likely to have higher oxidized ore again. I think the 0.9 over time average is a good one.
Yeah. Can you, I think, Håkan, you mentioned on the pricings after delivery, I didn't catch all the details here. Yeah, if you just could remind us again on that.
Well, I think that the main story here is that if you have, as you well know, Christian, if we have a situation where we have big price movements, the realized prices in mines will be different from the average market notations. I think we had a metal price impact in the EBIT bridge of about SEK 340 million plus. If we would've gone strictly on average prices, which is not the market standard, but if we would, we would have been instead at about SEK -150 million. There is a very significant impact. The reason is, of course, that we have MAM pricing where final prices are set a number of months after deliveries. For the base metal, the copper, zinc, and lead, that's one month. For gold and silver, that's two months. For nickel, that's three months. For platinum and palladium, that's four months.
Especially in a quarter like this where we have had a quite steady trend. Basically, I think you could say that the metal prices had a V form with the lowest points roughly at the end of quarter one, and then it has recovered all through this quarter. In that kind of scenario, the realized prices in mines will be substantially better than the average prices. Of course, the opposite is true for Q1.
Right. Okay. Thank you very much.
Thank you. Our next question comes from Luke Nelson, J.P. Morgan. The floor is now open to you.
Morning. Firstly, just another question on the provisional pricing effect. The SEK 340 million effect quarter-on-quarter. Is it possible to break that out between the intra-quarter and inter-quarter effect? That's my first question. Secondly, Q3, typically you get a vacation reserve release. Given the issues with COVID-19, et cetera, should we still be expecting a similar positive tailwind in Q3? I'll leave it there.
Okay. With the last one, we do have typically lower costs in Q3. You have to sort of put in on one side the vacation period, and in the other hand, we have the maintenance stops that we have announced for. Typically, the normal guiding for vacation for lower cost in Q3 still stands. When it comes to prices for mines, again, if you just take the total impact, we had plus SEK 340. If we would have had average prices altogether, we would have SEK -150. That's almost SEK half a billion in total impact. The open deliveries from Q1 that were finally priced in Q2 they had a positive impact in Q2 of SEK 40 and a negative of SEK 20 in Q1, so they make up SEK 60 million.
The rest to reach that SEK half a billion in difference between the quarters is intra-company than in both quarters, of course.
Hello? Did we lose contact?
No. Hello? Hello, can you hear me?
Now we hear you.
Sorry. Apologies. Sorry. A follow-up question on Odda, if I may, just on the prior question about return on capital. Clearly you're not at the point to give what the return metrics might be. Just more strategically, is it valid to think that these projects will hit the 10% return on capital threshold that you say with your financial targets, or given the sort of ESG type investments, are you willing to accept lower return on capitals on these type of projects?
The answer is that since this is a project that is voluntary, we can absolutely do without it. The 10% line is clearly there. We have very good zinc in Odda already, and the additional tons will be even better than the first ones, but we would need the 10%.
Very clear. Okay. Thank you.
Thank you. Our next question comes from Liam Fitzpatrick, Deutsche Bank. The floor is now open to you.
Morning. Two or three questions on Odda. Just on the CapEx. I appreciate you can't, or you don't want to say too much, billion sounds big and it sounds open-ended, which is something potentially the market is not going to like. Could you help us maybe narrow the range or give some broader ranges on industry CapEx intensity that can help us on that front? Secondly, on the construction phase, once you do approve, what's the build period that we should think about? Thirdly, just on the funding strategy. You've given a little bit of detail in the release, can you elaborate a bit further on that in terms of how you would look to fund the entire CapEx bill, split between grants, loans, and equity funding? Thank you.
I can start with the last one in terms of funding. Yes, we will, of course, try to look for grants, and there is one number that has been released of the 341 NOK. Apart from the public funding that we could get, we will fund this through our own balance sheet. We typically never use project financing. That's not in line with our total financing strategy, and it's much cheaper and better for us to do the financing through our own balance sheet. Even though it's a big investment, I don't foresee any need to raise any equity for it. It could all be done with debt. That's one thing around it. Construction time, it's still open, but I'll just throw out a number. Let's say two years, just so you have a sense.
It's not going to be two months, and it's not going to be 20 years. The type of time that it will take to build something like this. In terms of CapEx, we will be very blurred because we don't know how big the project is yet, so I'll stick to the billions of SEK. The only kind of comparison, but that one you have to remember is it's more than 20, almost 25 years old. We did a big increase in the Rönnskär smelter back in the late 1990s, and then we talked about SEK 2 billion back at that time for that expansion and all things are not similar, so it could be different this time around, but we're talking about pretty big numbers.
Okay. Thank you. If I could just ask one quick follow-up on the smelters. The Q2 issues that you flagged weren't as bad as feared. Are you now through these issues? Will Q3 be similar or better, or are you still concerned around third-party concentrate supply in the second half?
Still concerned, but on a lower level. You will all know that Peru is more or less back online. Peru was one of the big red flags for us since we have quite a lot of supply from there. I will not say that we're out of the risk zone, because if you look into South America, it's a little bit unclear exactly how the virus will continue to impact operations there.
Okay. Thank you.
Thank you. Our next question comes from Victor Hansen, DNB. The floor is now open to you.
Yes. Good morning, Mikael and Håkan. Follow-up on the Odda project. Could you comment a bit on how that could change the sourcing balance in zinc for you? If I'm not mistaken, you are more or less self-sufficient to 60% in zinc, and given that the Tara mine is relatively old, how could this change the sourcing mix for you?
Well, I can just quickly comment on that this is of course one of the strategies that we look into, how to be able to source it, and we are having those discussions as well in parallel. Then, of course, discussions around the potential likelihood of Tara Deep, of course, also plays into the discussions we're having internally. Having said all these things, in the end of the day, we're not too worried about the sourcing. The zinc market is a relatively liquid market where if you have a cost competitive, good smelter, you will find supply.
Okay. In terms of free metals and stuff like that, could it change the mix for you? Also follow up on that, does this change how you prioritize your mine projects going forward? Then has, let's say, the Tara Deep project gotten even more important for you?
Well, Tara Deep has always been an important project on its own merits, and we are very hopeful to build that one. You can look at that irrespective of Odda. With respect to free metals and so on, the question you should ask is would an increased capacity in Odda change in somewhat the market balance mix so that the market terms will get worse for smelters if there's more smelter supply altogether in Europe still fighting for the same concentrate? There the answer is that we don't really think so because it's still small enough on a global scale that it will not really affect. If it does, it will of course makes it more difficult for everybody, not just for us, because we are in a competitive market for concentrates.
Okay. That's clear. Also on the mining side, I note that performance in most mines was really good, at least in my view. The one thing that I noticed in Boliden area that grades with the only exception being gold, where grades are down quite significantly quarter-over-quarter. Could you talk a bit on that?
Say very quickly that the Boliden area is the most difficult area we have since we have three different mines and we have even different ore bodies within those mines that supply. I can say that for this last quarter, we have done quite a lot of Kankberg, and when you do a lot of Kankberg, yes, you do get lots of gold. You also get less throughput because Kankberg is the hardest to grind ore that we have in the Boliden area, and that's part of the total equation. By the way, apart from gold, it is less of everything else.
Just if we look forward, should we expect sort of the same trends going forward or?
You should look for the Boliden area. You should look at the R&R statement and the average grades there. That's your best guide for the grades coming out.
Okay. Looking at Tara, I note that the run-of-mine ore was up quite significantly in the quarter. Is that the sort of level we should expect going forward also?
You know everybody knows that Tara is our oldest and therefore you can say most unstable mine that does have very old infrastructure. When you have old infrastructure, it doesn't mean that things are problematic every time. We've had a very good quarter. We should rejoice in the fact that we can do good quarters like this. Of course, we were also helped by the fact that we had this shitty Q1 where we did lots of maintenance, and that we didn't have to do so much maintenance in Q2 also helped. Average over time, now the rate that we had in Q2 is, I think, higher than you should suspect that we can do sustainably.
That's brilliant. Thanks a lot for that. Thank you.
Thank you. Our next question comes from Daniel Major, UBS. The floor is now open to you.
Hi guys. Thanks for the questions. First question is just a clarification on the provisional pricing. I'm sorry if I didn't hear it correctly. Was that SEK 350 million delta quarter-on-quarter, i.e., the negative from last quarter plus the positive from this quarter? Can you just clarify that?
The SEK 340 million, that is what we have published Q2 compared to Q1 changing in metal prices for business area mines. That is what we have. What I said is that if we would not have had quotational pricing and instead just applied average prices, that number would instead have been SEK -150.
Okay, great. Thanks. Very clear. Second question on the working capital. You suggested that you would unwind some of this, but maybe not all of it of the working capital build in the first half, in the second half. Can you provide any more details on the expectation around that?
I will say that I think we're about SEK 1 billion fat on working capital compared to some kind of ideal level, and that SEK 1 billion should come out sometime, but we're not going to push that very hard in Q3. Some will come in Q3 and the rest will come later when we have, hopefully, stability in the world again.
Okay.
Remember, say that there is always a price thing in this. If the prices go up, then of course you have a different situation, but clearing for prices.
Yeah. Okay. Then final question on Odda, and I won't ask the CapEx question again, but perhaps more how it pertains to your thinking on the balance sheet and the special dividend. You've been very clear on the formula around the level of the 20% gearing at which you would pay a special dividend. If we enter, obviously, a construction period over the next couple of years, would you look to alter that and be more conservative on the balance sheet if you're building a major project or got a larger CapEx commitment?
I can say it is No, you're very right. We're very rigid with the formula, and the formula will stand. Of course, everybody will then realize that if we do a major CapEx project, of course, it's less likely that we'll do the extras, but we're not going to change the formula.
Got it. Okay. Thanks so much.
Thank you. Our next question comes from Oskar Lindström, Danske Bank. The floor is now open to you.
Hi. Yes. Thank you. This is Oskar Lindström from Danske Bank. Two questions, again, coming back to this other project. You don't want to state the absolute CapEx number, but say, if you do go ahead with this project, will that tie up your project management resources and limit sort of the CapEx available for other projects so that if this goes ahead, is that the project that you will be doing in the next couple of years? Then follow up on that also, what's the progress on or is there any progress on the Laver project?
I can start with the first one that you absolutely pointed to the right question, which is management capacity. You know that we've been running big projects for quite a while. We do have the capacity to take on another project, and if we were to take on a project like Odda, that will of course dampen the chances to make other big projects in that timeframe because of exactly the point you're talking about, which is management resources which also, by the way, might tie into the balance sheet. That's not the main driver. It's the management resources that's the main driver. That's absolutely the right point. The other question was around Sorry, I missed.
Is there any news on the Laver project?
On Laver, sorry. No news. Zero news.
Okay. All right. Just a final question. You mentioned a relining in Aitik in August. What's the cost of that versus I guess you didn't do one last year.
Now we're getting into way too detailed issues. Normally, we never talk about relinings because they tend to come all the time, but we will, just because everybody is so focused on this 45 number, we just want to highlight that this is actually happening in August. In terms of cost, it is actually very low because we have a set up with our suppliers of the lining where we have a paying per ton. The fact that it's being relined is not a cost issue, but it is a throughput issue. This is something that takes almost one week or a little bit less than one week. It happens to be both lines this time. Typically, you now have one line at some station, one line at a time, but for different reasons, now it's time to change both.
All right. Thank you.
Thank you. Our next question comes from Olivia Du from Bank of America. The floor is now open to you.
Hi, thanks for taking my question. Most of my questions have been answered, maybe just to follow up on two quick ones, please. Number one, what is the thinking around Tara Deep at the moment? I know that with all that expansion, which is potentially a very attractive project from a long-term perspective for the group, and ideally, of course, if you can.
increase the zinc production from own asset to go along with it. That might be quite good. What is the latest update with zinc price? As you said, it's nearing the cash cost level, and given that Tara historically has been a relatively high cost mine, will this change anything in terms of your thinking?
Let me just dwell on Tara Deep, just a couple of points. Number one, we are still extremely upbeat on Tara Deep. Number two, we have lost time in Tara Deep because of the COVID. We managed to get the permission from the government in Ireland to keep on the operations in Tara going, we were not allowed to keep exploration going because of the rules around COVID and the lockdown in Ireland. We have lost about four months. That's a pity. It's not in any way lethal, it's a pity. We will continue to work around it. With Tara Deep, I usually said this to everybody, I'll repeat it again. Tara Deep could simplify very easily be done in two different ways. There, of course, are lots of other versions in between, two simpler this way.
One is for the very low CapEx, where we will continue to produce through the old infrastructure, the one that we just told about that tends to break down, that is 40 years old. It will be low CapEx but high OpEx in doing it that way. We could do it in a high, which I would like to do, in a high CapEx, low OpEx way, which means basically new infrastructure, new shafts, and everything else. Whether we can make that work out and can make that project work out to invest into that infrastructure is something yet to be seen, and we're working on it, and a decision is probably needed somewhere around 2024 or something like that.
We still have some time, but there is lots of work to be done, but just both in order to get the R&R statement up, but then also to be able to do the pre-feasibility studies around how to design the mine.
Yeah, thanks. The second question, can you just remind us if you're currently utilizing any furlough schemes for cost savings?
Using any what?
Furlough schemes in Sweden and Finland.
No, we're not. We are not laying off anybody, and we are not taking any state subsidies of any significance right now.
Okay. Thanks.
Thank you. Our next question comes from Gustaf Schwerin, Handelsbanken. The floor is now open to you.
Yes, morning. Gustaf Schwerin, Handelsbanken. Two questions from my side. A follow-up question on the effect in smelter from the suboptimal mix. You said it wasn't too big, if you can quantify much the yield loss was from this. Secondly, your thoughts about the recent price development for base metals. How much of the rally you think is related to speculation regarding short-term supply shortage? Thank you.
Well, I can say that in the first one, we did not have a material negative effect from the adverse feed mix in Q2. Of course, there was something, but it was small. I wouldn't call it material at all. Regarding price developments, don't know. Pass. There are so many things going on in these markets, and I fundamentally think that the prices should go up over time. How that's going to work out in the short term, I don't know.
Very clear. Thank you.
Thank you. Our next question comes from Jatinder Goyal, Exane. The floor is now open to you.
Hi, good morning. Jatinder Goyal from Exane BNP Paribas. A couple of questions, please. Just to clarify on Odda project, will it be all incremental capacity, or will there be any offset or need to switch off any of the existing capacity? Just to clarify. Then I can ask the second one.
I can think in Odda, of course, a project in itself, standalone, won't affect any of the other operations as we see it right now. It will be, in that case, an increase of capacity. Exactly how we play around with the different parts in Odda and that some parts of the factory will be shut down and replaced by other bigger units, that we will present once we have a project and details, and we'll tell you all about that. Yes, there's of course some upgrading as well and not just expansion in such a project.
Understood. Second question. There were some media articles suggesting Sweden's push towards lithium tie-ups in Latin America. Is that something coming to you from the government, or would you be interested in any of those tie-ups or potentially exploring lithium in Latin America, or you're happy within Europe?
Lithium is not really our metal. It's a different metallurgy compared to the base metals that we are doing. We are, generally speaking, not interested in lithium.
Maybe with copper and nickel, which are both used in electromobility.
We are in copper and nickel.
Lead as well.
and lead. We're into many of the metals that go in, but we are also very aware of that lithium is a different metal in terms of all the processing that goes around it. Even though it's used for the same purpose, it's lots of different processing.
Sure. Understood. Thank you.
Thank you. Our next question comes from Christian Kopfer, Nordea. The floor is now open to you.
Yeah, thanks. Just to follow up to Håkan then, I guess, on the pricing effects in the quarter, to be honest, I have some issues squaring this up. If you look at mines, you correctly pointed out that you had a SEK 340 million tailwind in the quarter. If you look at smelters, there was a minus SEK 180 million impact. If you add that up, you should arrive at a positive impact for the group. The impact for the group is a quite big negative number, minus SEK 220 million. The higher prices that you got in the mines, it turned out to be a negative for the group.
I agree that there is a complexity in this, that's clearly so. There is a timing impact as well. The positive impact in mines is, to a large extent, reduced by internal profits and released only when the material has flowed through to the smelting side. There is a timing impact. The part that you're missing in that equation is the internal profits, which is an adjustment for timing.
Internal profits was not that big negative, right? Even if you add that back. Okay, basically what you're saying is that on a group level, you didn't feel the higher prices, that should come next quarter.
Correct. The internal profit also is made up of a volume component and price component.
Yeah. Thanks for that.
Thank you very much. Our next question comes from Ioannis Masvoulas, Morgan Stanley. The floor is now open to you.
Yes. Hi there again. Just a follow-up question. In terms of the guidance that I take, you indicated the maintenance of work during August, at the same time, you're still expected to get the 45 million ton run rate. Is that an average for the quarter? Would that mean that you effectively are able to run slightly above it for parts of the quarter? Thank you.
No, I think it goes the other way around. What we said is that we have everything in place to run at 45. However, there are two issues. We have the COVID-19, and we have the fact that we have a big maintenance stop. I think that taking 45 and divided by four is a little bit optimistic for Q3.
Understood. Thanks for clarifying.
Thank you very much. Our next question comes from Conor Rowley, Credit Suisse. The floor is now open to you.
Hi there. One follow-up on the smelter concentrate mix. A bit more specifically on how much of your concentrate you had to source from different places. I'm looking in terms of the smelter bridge, in terms of the TC Q1 is still quite positive. I would have thought if you're sourcing from different areas, you would have had to get spot TCs, we've obviously seen spot zinc TCs and copper TCs fall quite heavily through the quarter, you haven't seemed to be impacted by that. Can you talk us through what the specific negotiations and what TCs you're getting on this sort of other mix? Even though I know overall you didn't have that negative an impact.
Yeah. This is when it becomes very complicated even for ourselves, but even more complicated for you to try to follow, because some of these changes of concentrate might be swaps. We're swapping one quality for another because we have to do that in order to fill, because the one that we wanted was not available, but we get it on the same commercial terms. We get something that we don't really want at the same commercial terms, so we don't get impacted by, in this case, the lower spot TCs, so you won't really see it on the TCs. Where we could get impacted would rather be on volume, on throughput, because we will have to feed less if we do get a mixture of impurities that doesn't fit as well, and we hit some of those bottlenecks before.
You could see it on yields, which is I know a tricky one for you to calculate, which is the free metal part of it. That's where you could see it. Commercially, this is a special beast because normally the suppliers try to avoid to declare force majeure, so they are looking at other ways to fix things.
Okay. Thank you.
Thank you. Just as a reminder, if you do wish to ask a question, you may do so by pressing zero one on your telephone keypad. Our next question comes from Daniel Major, UBS. The floor is now open to you.
We made a note that this will be the last question for time and reason. Oh, sorry. Okay, sorry. Go ahead.
Hey. Very quick couple of follow-ups, and apologies if you'd already mentioned it. The CapEx guidance of SEK 7 billion for this year is still relevant, correct?
Yes.
Excellent. Just on the CapEx for next couple of years, with respect to how the split between maintenance and potential future expansionary CapEx looks, are you still expecting sustaining CapEx to be around SEK four and a half billion in 2021, 2022, which is, I believe, your previous guidance?
I would say that without going into details and without promising much, I would say that the maintenance CapEx is likely to stay similar for the 2021, 2022 timeframe. Beyond that, it's difficult to tell because you know that a large part of our maintenance CapEx has to do with things like stripping, and it will be depending on certain strategic choices in the big open pits regarding that. For example, will there be a pushback five in Kevitsa or not? For the next two years, yes, there's not likely to be big much difference on that one.
Okay, sort of four and a half, and then the rest up to whatever the guidance level you provide will be project spend.
Yes.
Okay. Very clear. Thanks a lot. Thanks for the call.
Thank you very much. There appears to be no further questions, so I'll hand back to the speakers for any other remarks.
I'll just thank you all. I wish you all a very good summer, and I look forward to seeing you, hearing from you in the fall again. Thank you, everybody.