Ladies and gentlemen, I'd like to welcome you to Boliden's Q3 2020 results presentation. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have a presentation led by our CEO and President, Mikael Staffas, followed by our CFO, Håkan Gabrielsson. There will also be a Q&A session after the presentation. Mikael, the stage is yours. Welcome.
Thank you, Olof, and good morning, everybody. Today is a day that's maybe more nice to stand up here in front of you than it could be at some other time. I think we're presenting a report this morning that is very strong. We've had good production, and of course, prices and terms are heading our way, although that was no surprise to anybody. Just to summarize the quarter, we've had a quarter that's had a good profitability level, where we're up to almost SEK 2.3 billion in the quarter. Compared to last year, that's quite a significant step up. The cash flow is also good in the quarter. That is, of course, good mainly due to the underlying profitability numbers.
We've also had slightly less CapEx than we would have anticipated in a quarter like this, which is due to some extent to COVID-19 that has forced us to slow down a couple of CapEx projects somewhat. This is not a major thing, but there are some parts that have been moved on. This is nothing that we would like to do, but it has been a consequence of the next one because as you say here, we have had a successful smelter maintenance session.
Of course, these maintenance stops have taken quite a lot of footwork from a lot of people in order to get it done, both to get the maintenance stops done in a much shorter time period than we normally have, but also to manage to run the smelters that were on a less maintained level than normally up until we managed to have the maintenance stops done. On the mining side, and I'll come back to that, but on the mining side, we've had a good production quarter. We've had new production records both in Garpenberg and in Kevitsa, and I'll come back a little bit to those details. If we start with COVID-19, to some extent, we can say that we've had a very little impact. That, of course, doesn't mean that we haven't worked a lot.
There's been lots of footwork going into handling the COVID-19 situation, but we managed to handle the issues that come up in a way that we've been able to do our operations the way we should do. We have been able to produce, and as I said before, we've been able to handle the maintenance situation. We do have a slightly increased short-term absenteeism, not alarmingly high, but it's coming up a little bit, and of course, that's something that we've had to work around. We have had travel restrictions, both to ourselves, but also to lots of the subcontractors that are working, and that's where we also have had to prioritize in certain aspects who has been able to come, who has not been able to come, and that's a little bit where we've had to push some investment projects, CapEx projects a little bit out.
We've also pointed out the supply chain risks. There have been quite a lot of supply chain risks involved with this situation. I think we also there have been managed to handle it. We have not had to stop or do anything than we'd usually do in these situations. How have we done this? Well, to some extent, say there is not really any magic to this. There's lots of work and lots of hard work day to day. We have a very decentralized model. We have worked with the COVID response on a very local level, depending both on the local situation, the local regulations, and how to get it done. We've done it in very close cooperation with our unions. We have, as you know, managed to reschedule maintenance stop. We have managed to run the smelters without maintenance for extra quarters until waiting for that.
We have had an elevated amount of working capital that we spoke about already in the spring, where we said that we have roughly SEK 1 billion, too much working capital. We have abated or taken out about half of that. You can say that you don't see any difference in working capital. Well, the increased metal prices tie up roughly another a half billion in working capital. H alf a billion down due to volumes and half a billion up due to the prices. Finances were set up. They've been robust throughout the time. We have a balance sheet that means that we don't have to be nervous about day to day. I think the final point is an important one. We have not had any layoffs of any material size, and we have not accepted any government support of any material level in this situation.
The market. I think that some of you always think that we're supposed to be the big predictor of the market. What we can say general is that from our side, the demand that during the spring was to some extent upheld by traders who would have bought material from us and put it into inventory. We can now see that during the fall, our normal industrial customers have picked up, and today I would say we are more or less in a normal situation where we ship the material that we have to our normal customers. You can ask, what has the traders done? Well, most of the things that they bought in the spring have most likely ended up in China, although we don't know that for a fact. To some extent, we'll see in a little while, we'll talk about the prices.
It's reflected in the price that there is a pretty good balance between supply and demand on a global level. On the concentrate side, there has been a pickup in concentrate availability. The shutdowns of mines that we're seeing, especially in South America, have eased up during the quarter. There's still a tight concentrate market situation. It means that there's not enough choice or not as much choice as we would like to. Given that we were relatively high on inventories in the beginning, we've been able to handle the situation pretty well. If you look at the prices and start with the base metal prices, this is of course no surprise to you. We've seen an uptick both in copper and in zinc, as well as in nickel during the quarter.
We're back to what we can say are much more normal levels after the dip in the first half of the year. What this graph also shows, I think is mainly interesting on the copper side, you can also see that the copper inventories, these are the official inventories that are available, have decreased, which suggests there's a strong underlying demand, especially from China, which means that the inventories are not as big as you could have expected. On zinc and on nickel, you do see an uptick in inventory. I wouldn't call that alarming levels, there is a small uptick there. On the pressure side, well, the gold and also the silver are a little bit off their peaks that we saw a few months back, still on a very high level.
Of course, these are precious levels that we consider to be higher than somewhat of an average over time. I think it's important to point out for those of you who don't know us in detail, that this of course helps us quite a lot. We do not have any streaming arrangements or anything similar in place. We do have the full byproduct credits from the production that we have. Looking at the developments on the international markets and coming to the chart where we show what the development is on the different metal markets and how the prices and cost has developed. You can see on both on zinc, but especially on copper, what you could perceive being a sharp cost decrease in the mines of the world. As you can see that the cost levels of the different percentiles here are coming down.
This is not that the miners around the world are so great in cutting costs. It has to do with the byproduct credits. Very high gold prices gives that you have low cost for remaining copper. High silver prices gives that you have lower cost for the remaining silver. You can also see here that despite that there's been an uptick in the price level since the really low prices that we saw earlier in the year, still the zinc price is not remarkably high. There's still some more to growth there. Copper price is higher than the cost curve, there's also strong demand for copper, which means that the copper price level is also probably pretty strong where it is. We have nickel, which is a constant discussion we've seen for many years.
Nickel prices hovering around very low levels and in the cost curve, which means there are people that don't make much money. We think that there's an upside to the nickel price as well. If you combine all these metal prices, you combine that with the TCs and you also combine that with metal prices. You can see two things from this chart. To the left, you can see that the eternal truth that we've been preaching all the time, which is that there is a negative correlation between metal prices and currencies, if you start from a Swedish krona point of view, has proven to be true again. You can see that there's been a pickup in the base metal prices or metal prices, and there's been a fall in the currency. When you add those things together, there's still an uptick.
The level that we have right now as a revenue part or our market term index or price index, whatever you want to call it, is on a record level. It has not been this high in the history of Boliden. Which I think says something that we are operating in a market that is quite interesting to be in with the base metals and the precious by credits. If we move on and go a little bit into the different business areas and start with the mines. In terms of the expansions we have in this quarter achieved the full expansion rates in both Garpenberg and Kevitsa. We have not achieved it in Aitik. That's partially due to that we've had lots of maintenance in Aitik that was coming in in this quarter.
Also that it is a slightly slower ramp-up than we would have potentially liked to have. We did achieve the pace, at least for the time after that we had done the big maintenance stops in August. We have here, of course, improved price and terms. The base metal prices come through very nicely into the business area mines. You can see that CapEx is lower than last year and maybe a little bit lower than would have been in line with the guidance that we have for the full year. We're a little bit behind with some of the expansion projects. For example, the trolley line in Kevitsa has been postponed a little bit in the situation with COVID-19, where we had difficulty to get the experts to come in and help us to get that one get going from the start.
If you look at the production levels and you look at the throughput, the throughput in the zinc side is on a very high level, and the grades are okay, and we've had a good production in zinc. On the copper side, also decent throughput levels, slightly lower grades than last quarter, only to be expected, as last quarter had very high grades. We can see on the nickel side where both the throughput but also the metal level is coming up as we are expanding our work in Kevitsa. On the smelter side, we've also been, I would say, successful in production. We managed to handle the maintenance situation in a good way. We also have a higher level of free metal, so we've been able to increase our yields in this.
There is some timing effect into this, but it's been a good quarter in terms of that. Here we actually have slightly weaker price and terms as the precious metals is quite important for the price and terms for the smelters and the slight downturn in gold and silver affects negatively together with the currencies. Also here, the CapEx is less than last year and maybe slightly less than our own plans. Also here, some of the ongoing expansion projects and so on are slightly delayed, a couple of weeks behind. It's not more than that. It also linked to COVID and also linked to prioritizing of internal engineering resources to manage the maintenance shut situation. If you look at the production here, we have a very good copper production, especially compared to last year.
Of course, you remember last year we had record maintenance stops, especially in Harjavalta, but we had a good production level there. On the zinc side, we also have a record feed situation coming in. We've had some stability with the foundry in Odda, but the foundry in Odda is normally not a bottleneck, which means that we will be able to cast all the zinc eventually. We were having a higher inventory of cathodes as we came to the end of the quarter. The nickel matte production is much better than last year, but then we had the breakdown in Harjavalta. Nickel matte is maybe one of the areas that was mostly affected by the delay in the maintenance shutdown.
We've had some issues with the nickel line over the summer in Harjavalta. Now as we've been able to go through the maintenance stop, that's in a much better situation, and we are working with the expansion there. With that, I will leave the floor to you, Håkan, to go through the financials a little bit more in detail.
Thank you, Mikael. It's good to see you. It's always nice to talk about another quarter with good results. As you have seen, we've released the Q3 earnings with EBITDA of about SEK 4 billion. EBIT excluding process inventory of SEK 2.3, SEK 2.258. Investments slightly lower than the comparison periods. A strong free cash flow of close to SEK 1.9 billion, that adds up to earnings per share of SEK 7.44 and a net debt to equity of 11%. I'll come back to some of the details shortly. Looking at the profit, the results by segment. As you can see, we have a strong development in mines that's much driven by stronger metal prices and also by the expansions that we've been carrying out that Mikael talked about. Smelters, all through the situation with COVID-19, has been delivering strong and stable profits, also this quarter.
We have a negative internal profit adjustment. That's timing adjustments. It's a bit seasonal, and as you can see, it's similar to the same quarter last year. That's pure timing then. We go into the profit analysis comparing Q3 of this year compared to the same quarter last year. We have an EBIT that is about SEK 620 million higher. Volumes are up SEK 472 million. It's about SEK 280 million in each of the business areas, and the balance is inventory adjustments. On the mining side, we have higher mill production, in particular than in Garpenberg and Kevitsa. Grades were a bit lower, but strong mill production. On the smelting side, as Mikael talked about, we had a Q3 last year with heavy maintenance and a breakdown in the nickel facility in Harjavalta. That explains the main improvement compared to this year.
We've also had better recoveries in Rönnskär, and we also have an effect of an expanded production capacity in Harjavalta. Looking at prices and terms, plus SEK 288 million quarter-on-quarter. In particular, that's higher gold, silver, and copper prices. Copper makes about plus SEK 250 million. Precious metals in total, about SEK 550 million. That's partially offset by currency movements. This is yet another example of negative correlations between metals and currencies that actually reduces the earnings volatility. Costs SEK 30 million lower than last year. We have good cost control, and we have a relatively low inflation that helps us in that situation. Depreciation, though, is a bit higher because in mines we depreciate part of the equipment in relation to the production volumes. With good production, that also increases the depreciation. Moving on to Q3 of this year compared to Q2 the previous quarter.
Similar change in profit, about SEK 620 million better. In this comparison, we have lower volumes. Grades have been down in Aitik and Kevitsa. That corresponds to about SEK 100 million, we've compensated half of that with better throughput. On the smelting side, last quarter we didn't do much maintenance. We had to push that into Q3, which explains the smelting part of this number. There is a strong recovery of metal prices. There is about SEK 300 each in copper and zinc and about SEK 200 in silver, again, offset partially by currencies. Costs clearly lower than Q2. If you have been following us a while, you know that this is partially a seasonality thing. About half of this is seasonable variations. We have typically about SEK 150 million less cost in Q3 compared to Q2.
Apart from that, we are keeping a tight cost control all through this crisis. Two strong quarters. Moving over to cash flow then. A good step up compared to the comparison periods. We've talked about the earnings EBITDA, we talked about the CapEx. Mikael also touched upon the cash flow from working capital. As you can see here, it's more or less flat. It's a SEK 95 million negative contribution from working capital. In there is a release of actual volumes corresponding to just below SEK 500 million, but the price increase takes that out of the equation. We've been talking about elevated working capital. It's still above average, but not as much as where we were in the end of Q2. Looking a bit towards the future, I'd just like to comment the taxes paid. We paid preliminary taxes based on projected earnings.
What happened in the initial phase of the crisis was that that number was adjusted down. We have been paying about SEK 100 million too little in Q2 and Q3, and we'll catch that up in Q4. About SEK 200 million extra tax payments to be expected in the fourth quarter. Again, that evens out over time, but just for those of you that are modeling our year-end cash flow. Balance sheet, as Mikael said, strong. We've got a net payment capacity of just above SEK 10 billion. Net debt is at SEK 5.1 billion, so a relatively low gearing. Good financing and loan durations of 3.9 years, and an average interest rate of 1.4%. We've repaid some of the short-term loans, which actually increased the interest rate a little bit, but still at a very competitive level. Mikael?
Thank you. Those of you who follow us will have read this already in the release that we had out in August, that we are putting SEK 400 million or EUR 40 million into expansion of the nickel line in Harjavalta. This is an investment that is, number one, well profitable. It also fits well into the maintenance cycle, which basically means that had we not done this now, we would have had to maintain the old equipment that it's replacing quite a lot. Therefore, we decided this was a good time for the expansion, a good time to put in new equipment. Most of this will happen, or almost all of it will happen during 2021, and we will have it up and running after the maintenance stop, which is scheduled for Q3 in 2021.
This also, as a by effect, lowers the CO2 emissions by somewhere between 15% and 20%. That's from a position that's probably world leading to start with. We're probably the most CO2 efficient nickel smelting operation in the world, even though I should be a little bit careful because we don't have perfect benchmarking data. That is at least all the indications that we have, and we managed to put this one down even further. Now looking forward, we are now repeating the guidance for the rest of the year. You've seen Aitik at 0.25% all the year, and we will aim to end up at 0.25%. Some of you will say, "Okay, you were slightly below 0.25% for the first three quarters on average. Are you going to catch that up in Q4?" We're not that exact, but it's around 0.25% for the quarter.
In Garpenberg, we're also repeating the guidance of 3.7 and 100 grams per ton for silver. We're also repeating that for the rest of the year, we will be slightly below reserve averages for Kevitsa. Regarding next year, the positive side is that we are on, as you see, there is no guidance on something below in Kevitsa, which means that we are now back to reserve grade averages in terms of Kevitsa. Garpenberg, we are guiding, as you see, slightly higher grades for the next year. Maybe not by a lot. In Aitik, you see that we're now coming down to a thing that we talked about a long time. We will not be able to produce above the reserve average for a long time. We've done that now for five or six years. Now for next year, we're guiding for 0.21%.
That is only to be expected that we will come to that point at some time. Regarding CapEx, we have not really been that clear about this year, but now we're saying that we're coming in a little bit below SEK 7 billion. We're slightly vague on this one, has to do a little bit with the COVID and exactly what we managed to get in on this year and what will slide over to next year. For next year, we're slightly above SEK 7 billion. Those seven, just to get a gist of it before you start talking all about getting these finances broken down, we're about SEK 4.5 billion of maintenance CapEx.
We are with the expansions that you know about, with the leaching plant in Rönnskär, with the trolley lines, trolley assist in Kevitsa and Aitik, and with now the nickel expansion in Harjavalta, that comes in for next year individually in the year at a little bit above SEK 1 billion. Then you can say that there's about SEK 1.5 billion missing, and those SEK 1.5 billion is a whole set of smaller expansion prolongation projects, but also a pretty good chunk of environmental investment that comes into that number to fill up the total. With that, yes, that's true. Olof almost said we have to make a little bit of a marketing campaign. Don't forget we have a capital market day.
It's going to be here in Stockholm on the 17th of March physically for those who want to join, and digital or electronically for those of you who don't want to join or can't join. There is a scheduled visit to the Harjavalta smelter and looking at the work around the nickel expansion, and the sulfuric acid plant that we've inaugurated about a year ago. That's scheduled for the next day. With that, Olof, I will give it to you to monitor us through the rest of this session.
Yes, ladies and gentlemen, that opens up our Q3 2020 Q&A session. We will start here in Stockholm. Christian Kopfer, Nordea, please.
Okay, thanks, Olof, for that. Good morning, everyone. A few questions from my side. Firstly, on the CapEx spend, could you perhaps tell us a little bit on the return on the CapEx? I mean, some expansionary CapEx or environmental SEK 2.5 billion, right? As you said, Mikael, what are the return on investments on those?
We do not come out with a guiding on the total package, but for most of those, there might be some environmental pieces that are below 10%. For the rest, they should be above 10%. As always, you need to be careful when you calculate that because we always do that against our mining plans. You know the mining plans are declining. Something that's a prolongation we call expansion because it's expanding the mining plan. You need to be aware that we are comparing it against a slippery slope.
If you look at Aitik, is the reserve grade still some 0.23%? It was like that by the end of last year, right?
It was like that by the end of last year. If you wait one quarter, you will get the new update.
Yeah, is there any reason to believe that it has changed?
No, as you know, it's been 0.22% and 0.23% for the last few updates, depending a little bit on where the rounding comes in.
If you look at nickel in Harjavalta, it came down quite substantially. Was that only because of the maintenance or?
No, the nickel in Harjavalta came down. I would say it's maintenance, but it is also said that was one of our operations that was really suffering by the delayed maintenance. We had some issues in the nickel line coming up to the delayed maintenance, and then we also had the maintenance stop.
Do you expect that to come back in Q4?
Well, now we are maintained, so now we should be back.
Finally on Kokkola. Sorry, on silver, it came down quite dramatically from previous averages to 1.6 tons. What happened there in Kokkola?
There were no technical issues. That's the raw material mix question.
How it looks over time there in Kokkola for silver?
Well, it will go up and down over time depending on what concentrates are available, at what prices and terms.
On working capital, Håkan, still expect that to come down in Q4?
We do. We are on a bit of an elevated level. As I said, at constant currencies, constant prices, we have perhaps half a billion more than a normal average. We should be able to get that down. Having said that, we don't quite know exactly how COVID-19 unfolds or will unfold, there is a certain amount of risk to that. I do see that Q4 will be a quarter where we release working capital.
Okay, next one is Gustaf Schwerin , Handelsbanken.
Thank you, Olof. Firstly on Aitik, did I hear you correctly that you said that after the maintenance stop, that we are pretty much at the ramp-up run rate? How should we view Q4 now for Aitik?
Well, 45 million tons per year is the only guidance that we've given. That's true for every quarter.
Great. My second question is on the smelting business. You mentioned in the report that there is some negative mix effect from lower quality concentrates in Q3. Also you mentioned the Odda problem. Could you quantify the EBIT impact in Q3, please?
It's still a relatively limited impact. I'd say SEK 100 million perhaps, probably less in the quarter. We talked earlier in the year about how we expected more disturbances due to the concentrate mix. There have been some issues, but those are quite minor.
On Q4, should that be close to zero, the mix effect?
Yes.
Great. Thank you.
Ola Södermark, Kepler Cheuvreux, please.
Follow up here on the mines. The mines had a really good run this quarter. Are there any so-called MAMA effects or quarterly price adjustments? Is it possible to quantify them?
Yeah, exactly. That's a good question. Before I give a number, I just want to repeat again what we mean by MAMA. MAMA, when I say that, it's the deliveries that had a preliminary price at the end of last quarter and that has been finally priced this year. That was about SEK 187 million in this quarter. On top of that, of course, as we have the provisional pricing, we will have average prices that are skewed to the later part of the quarter, so we will gain on top of that. At the moment it's SEK 187 million.
Okay. On CapEx, I think you mentioned that CapEx for this year was slightly below or some projects were delayed. Is it possible to quantify how much of the CapEx for this year that is deferred to next year?
Do you want to take that?
The quick answer is not really. As you know, we're a little bit vague on these numbers because there are some things that are up in the air, but we're talking maybe of hundreds of millions, but not more than that can be moved over.
Okay. Lastly, on Aitik and the guidance for next year, you highlighted that you've been above reserve grade for a couple of years. Is it fair to assume that you're going to be below for a couple of years as well, or is it a pushback there?
It is fair to assume that this goes in cycle. It doesn't go in from one year up and down. When you're above, you're above for a while, and when you come below, you are below for a while. That is fair to assume.
Just one more on Odda, the expansion. Any news there and any timetable since last time?
There's not really any news at all, more than that we have submitted the application for the environmental permit. We do not know and we do not control the timing process for getting this permit. It could happen by mid-year next year, but it could happen some other time. There are other pieces to the puzzle, but that's the big piece to the puzzle.
Thank you.
Any other questions here from the audience in Stockholm? Yes, Viktor Trollsten, Danske Bank.
Yes. Thank you. I'm a bit curious on the environmental investments, and I also noticed that here in the maintenance CapEx, you now include an ongoing dam raising. Is that related to Aitik, the call it security increasing measures in terms of the tailings there?
Like I said, it is both in Aitik and in Kevitsa that we do include the annual raises of the tailings dam into the maintenance CapEx. That's something that happens every year. The dam has to be raised every year. That is getting slightly more expensive every year, both because you're coming to higher levels, but also slightly more expensive due to the fact that there are increased safety standards being implemented slowly. That's a little bit of all of those effects that comes in. I suppose you're maybe asking why the maintenance CapEx has gone from around SEK 4 billion-SEK 4.5 billion ? Well, that's part of the puzzle. There are other things as well.
The security increasing measures in Aitik, that's only relating to the, call it ongoing dam raising, or are you doing anything else there that's included in the CapEx for 2021?
No.
I know you have a document on your website saying that you have applied for some measures there.
No, I think the safety measures is connected to dams. That's where there is all over the world now an increase in safety standards, and every consultant in the world has gotten a new model to calculate stability of dams. That means that the dams need to be slightly thicker, which means it costs more money.
Mikael mentioned something close to SEK 1.5 billion that is not named projects that have been press released, and there is a bit more for dams in Aitik. It's not huge numbers, but it's a little bit more.
Okay, just conceptually, the IRR on such an investment, is that basically zero?
Depends how you see it. We typically invest in dams and environment because we need to continue the operations. I say that the IRR is extremely good because the alternative would be to stop, if you put it that way.
Fair. Just finally, I think the environmental permit in Aitik is ending in 2023. Should we now expect significantly more environmental investments in order to renew that?
You're asking a good question for which we don't have a good answer. Number one, you're absolutely right. The existing permit in the Swedish context, which is for about 10 years, will expire somewhere 2023, 2024. Actually 2024. We think that we need to have a new permit in place by 2023. As getting a permit for an operation like Aitik is always full of lots of discussions about all kinds of things. Dam safety is one of those issues. There are, of course, other issues as well.
Okay. Thank you.
Next question comes from Robert Redin, Carnegie.
Hi. Just one question, a follow-up on that Aitik grade guidance. You've been above reserve grade for a couple of years, and you now guide for 0.21%. I guess the expectation was for a lower than reserve grade average grade in 2021, but it's quite a big step down. My question would be, do you expect to be at this sort of level in this period when you produce at grades below reserve grade average, or do you expect further steps down 2022, 2023?
We don't have any guidance for 2022, 2023. We'll keep that. I think the only guidance is for 2021 that you just gotten. The other guidance, of course, which is the obvious one, that over time, we will be at 0.23%, which is the average. Otherwise, the average is wrong.
Okay. Right. Thanks.
Any other questions here from the audience in Stockholm, please? Okay, seems to be no questions from Stockholm. No questions left here. Operator, I hand over to you, please.
Thank you. If you wish to ask an audio question, you may do so by pressing zero one. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Once again, it's zero one on your telephone keypad if you wish to ask an audio question. Our first question comes from Conor Rowley from Credit Suisse.
Hi there. Yeah, just two questions on CapEx. Firstly, I'm assuming the SEK 7 billion next year is excluding anything from Odda, the expansion. On the timing, you said mid-next year it could be approved. Are we saying then that there's a chance the CapEx could go up at that point for 2021, or is 2021 now a fixed number?
I'll answer that one. 2021 is never a fixed number. That's the number that's related to what has been released to date. I will say the Odda is not in there, and that's clear, and I would say that will depends on if we get a permit and we're really fast, it could affect the last quarters of the year, but who knows? There is also one more thing that is not in there that you should be aware of, which is the Rävliden Project, which is one that we said it's of course much smaller. It's not so much money, but something that could happen during the year and could cost some more money.
Okay, thanks. Just one more on CapEx, just on the sustaining. I mean, the SEK 4.5 billion guidance you give, how bare bones is that number? You're talking about these other projects we don't really know about, environmental projects and smelters being SEK 1.5 billion. Realistically, should we just put that in every year as long as prices are at reasonable levels? Actually, realistically, your sustaining number is SEK 5.5 billion-SEK 6 billion?
Should I take it?
You can go into detail, but it's a very good question in terms of philosophy, because what is sustaining and what is not? I would say that if we were to come in a situation where we would not prolong our mines, but we come in a situation where this is going to end sometime, then we could go below the SEK 4.5 billion. The SEK 4.5 billion has some replacement that wouldn't have to be done. Lots of these other things that are done in order to meet environmental needs that we anticipate for the next permit and so on, would not be needed.
However, as we're going as a going concern, and we're going as a going concern where it is likely that we will continue to meet an increased pressure for environmental, for occupational health, even though we think that we are probably one of the best in the world in terms of our environmental performance and in terms of occupational health, that will continue to increase and we are continuing to work on a ongoing basis. Yes, it's likely that those kind of SEK 1 billion or something like that would have to continue. Now I said a kind of philosophy. Now you can go into details.
Yeah, I don't think there is so much more details. I think that was a good response. Just to give one example. We do have, as long as we extend the life of the mines, and we continue mining, we do have investments in infrastructure. We might have to move parts of the infrastructure, might have to move a road over time, even an industrial area. Change the power supply, add water pumping, add ventilation and so on. Those kind of investments will be there in a going concern perspective. I think it's fair to assume that if we are healthy and develop the company, there will be a bit more than four and a half. I agree with Mikael on that.
Okay, thanks very much.
Our next question comes from Liam Fitzpatrick from Deutsche Bank. Please go ahead with your question.
Good morning. Thank you. Two or three questions from me. Firstly on Aitik. Next year we're going to see throughput up circa 10%, grade down by 20%. Can you help us in terms of what a sort of approximate range could be in terms of the impact on unit costs at Aitik? Secondly, on the Odda expansion. It sounds like from what you're saying that this project is going ahead once you get, and assuming you get the environmental permit. The market is expecting a pretty substantial fall in zinc TCs next year. Is that potentially a key consideration in terms of whether or not you go ahead with the project next year? Final quick follow-up just on the CapEx point for next year. The second project that you mentioned, that is not included in the guidance.
Do you have a rough kind of range in terms of its size in terms of overall budget? Thank you.
Let me start with this a little bit. The Odda expansion, I can answer quite easily that of course the zinc TCs for next year will have zero impact. This one will not come online for another two or three years, and what's the basis for our decision is the idea about zinc TCs for the next to 10, 15, 20 years. That's the timeframe where we're going to make that money back. It comes together with zinc prices and it comes together with cost levels and everything else. That's the easy one to answer.
Regarding the CapEx that was not mentioned, which is the Rävliden project, we have not guided for this one. It depends a little bit because it's one of these situations I think I talked about also connected to Tara Deep that there is a kind of low CapEx, high OpEx version, and there is a high CapEx, low OpEx version of doing this thing, depending on how we want to produce and what kind of shaft and infrastructure we want to build. Therefore, it could turn out that it's not so expensive, but then we might lose some value because of high OpEx. I always tell everybody, I hope that it's going to be high. When I say high, then we're talking maybe about SEK 1.5 billion. SEK 1.5 billion , something like that. That's a high CapEx version of a project like Rävliden.
There are low CapEx versions as well, but most likely giving less NPV. We had Jit on unit cost. Do you have any good numbers on unit cost from this? I will have to pass that one.
We typically don't guide for that. We are currently putting together the plans for next year, and there are a number of moving parts. Of course, there are volume advantages, scale advantages of ramping up. We're also looking into the inflation side, and we're also looking into the fact that we're mining deeper in the pits, so there's longer trucking distances. I'm not prepared to give any guidance on that, but I expect all things like to see an improvement, at least.
Yeah.
Okay. Thank you. That's all very clear. Just a final quick follow-up on the timing of the Rävliden project approval. Is it mid-next year? Is it later than that?
Put it this way, I hope it's early next year, it's not quite sure. It's another project that has a slight COVID impact on the preparations. As I said, it is not exactly clear exactly how we want to mine this.
Okay. Thank you.
Our next question comes from Krishan Agarwal from Citigroup. Please go ahead.
Hi. Thanks a lot for taking my question. My first question is on the CapEx. A lot has been said on the environmental CapEx, higher level of sustaining CapEx, et cetera. You have order expansion coming out for next year and the year after. Is it fair to assume that the current level of CapEx, the maintenance CapEx, environmental CapEx, and expansion CapEx, we are looking at CapEx level for next three years around SEK 7 billion? Is that a fair way to look at it, your CapEx needs?
I don't know if I got the question right, but we have guided for, given what you know, it's likely more than SEK 7 billion. What you don't know and what has not been announced will be in addition to that, and we cannot say what the number is until we are about to announce it. Did I get your question right?
Yeah, broadly. I think the follow-up is that with a lot of good CapEx already there in the pipeline, especially with Odda, is it fair for the market to assume that there is no potential for CapEx to significantly fall from the level of SEK 7 billion, at least for next over two years?
Well, we're not guiding for 2022 at this stage. We'll come back to that when that number is ripe and due.
Okay, I understand. My second question is on the potential for special dividends. The debt has come down a lot, and then you're saying that there's a potential working capital relief in the fourth quarter. Do we suggest that you have now enough room for the special dividends given your policy of 20%, including reclamation and the dividend itself?
I think the only thing I'd like to comment on that is to say that the policy that we have is unchanged. It is there, and we'll see once we get to the next quarter where we are. We never know what's happening between now and then with COVID-19 and everything else.
Maybe I can chip in, yes, because it's an important question that we get a lot. Just to repeat a few things that are maybe well known to many of you. The policy is clear. We've kept more or less the same policy for almost 10 year. We have an ordinary dividend of one-third of net profit. A second part of the policy is that if net debt and reclamation debt together is less than 20% of equity, we see that there's room for extra dividend. Basically meaning that higher net profit means higher ordinary dividend, and higher cash flow means higher total dividend. Governance-wise, then it's the board that recommends and the AGM that decides, just to be clear on that.
How that has been calculated in recent years is that we started with a year-end balance sheet, reducing the equity and cash with the recommended ordinary dividend. Basically, a pro forma balance sheet as if ordinary dividend were to be paid at the end of the year. If that is below 20%, it means that there will be a room for an extra dividend. That has been dealt with in the prior years. I guess it's your guess about the cash flow and the profit for the next of the year. Looking at a few of the reports, I think if you look at the lower end, there is probably not so much, and if you look at the higher end of some analysts, there is room.
I think it's up to each and everyone to make an estimate about price development and as a result, cash flow and profits.
Okay. Pretty clear. Thanks a lot. My final question is, given the sharp divergence between the TCs for this year and the strong TCs, what would be a reasonable expectation from your side in terms of TCs for the next year? Directionally, it looks clear that the TCs are going down. It's more on the magnitude of potential adjustment next year.
Yeah. No, I will just repeat what you said. I think the direction is pretty clear, especially on zinc TCs, maybe also on copper TCs. How much, we don't know. We're not part of those negotiations. We are a price taker in it, and we can all speculate a little bit of what the balance will be once the discussions are made. As you know, especially the zinc TCs are typically set maybe in February or March, and it's still quite a long time until then, and the market can change quite significantly.
Okay. Pretty clear. Thanks a lot.
Our next question comes from Ioannis Masvoulas from Morgan Stanley. Please go ahead.
Hi, guys. Good morning, and thanks for taking the questions. Just a couple of questions left from my side. The first on Kevitsa. It sounds like the grade projections for next year suggest a tailwind for that mine in 2021. How should we think, though, in terms of the next couple of years? On Aitik, you already mentioned that it's a typical operation that has longer mining cycles, and a grade profile could persist for a few years. Is that the case for Kevitsa as well, or is it quite different and the grade for 2022 onwards could be quite different than 2021? I'll stop here for the first question.
Yeah, and I will say that Kevitsa is similar to Aitik in that sense, that it also will have rolling averages. As you know, we've been below for now a couple of years, and now at least for next year, we're indicating stick to the average, and then at some stage we should be above as well, otherwise the average doesn't work. That's the kind of simple things. Yes, it's not going to be erratic up and down individual years. If you go above, you go above for a few years, if you go below, you go below for a few years.
Okay, understood. That's very helpful. Just a second question around your recycling activities. Looking at your e-scrap operations, they look underutilized over the past few years. Are there any opportunities there for you to improve the margins there and ramp up volumes? Secondly, related to recycling, in terms of your lead acid battery recycling operations, I think in the past you were looking to potentially expand that facility. Could you give us your latest thoughts around potential timing and CapEx? Thank you.
Yeah. If we start with the e-scrap operations, you're absolutely right that we have an overcapacity in the system. The reason why we have an overcapacity is not operational, it's commercial. We have found a level of procuring e-scrap that fits to what the market has to offer. We are very happy for all kind of initiatives to increase collection in Europe, and we're ready to take on more. As I said, this is a commercial decision, not a technical decision. On lead in Bergsöe, for those of you who speak Swedish, you will have seen that we have gotten an increased permit from 50 to 55,000 tons, which is a 10% increase. This is not a permanent, this is a temporary three-year exemption, which is good. We think we should be able to get to the 55 without any substantive CapEx.
We have more ambitions than that, and we are working on what the appropriate level should be connected to applying for the next permanent environmental permit, which is in roughly, whatever, two or three years down the road. Exactly what the numbers should be and exactly what the associated CapEx is, I cannot say at this time.
Can you comment on that temporary exemption? Is that how it typically works for that sort of operation, or is it a unique situation that you've got a temporary expansion permit?
It is relatively, I would say, rare. It's not unique, as it happened before. You can say that we're happy we got it. We're not so happy that it was not permanent. There's both a good and a bad around that.
Okay, understood. Thanks very much.
Our next question comes from Daniel Major, UBS. Please go ahead.
Hi there. Thanks. First question, and apologies if asking the same question in a different way, but on the CapEx, just to clarify, if we think about the SEK 7 billion run rate this year into 2021, but also in the two, three years beyond that, is it fair to assume, based on the smaller incremental projects that you are likely to or would like to approve, that that sort of run rate of around SEK 7 billion would be maintained, and then CapEx for Odda would come on top of that, implying that if you approve what you hope to approve, CapEx would rise SEK 2 billion or SEK 3 billion above SEK 7 billion in the subsequent two years?
I will put it this way. I think that you can take the seven and you can take off the SEK 1 billion, which is linked to specific expansion projects, and then you get to a number that is maybe slightly below six. If you want to use that as a base, I can understand that, and then any kind of further announcements would come on top of that, which could be Odda, which could be Rävliden, and which could be something you don't even know about yet.
Very clear. six is the sort of base ratio.
No, I didn't say that it is. I think that you can look at it that way.
Okay. All right. Thanks. Second question, can you give us any indication on the trajectory of smelter maintenance CapEx sort of smelter maintenance impacts versus the SEK 300 million this year into 2021?
We will guide for this next one. Even though maybe someone has a number, he's not going to be able to tell it. Just a principle is that this is a relatively low impact year. Next year is likely to be higher, everything else equal, because we go on a roughly every second year. You know that last year 2019 was a big one. This one is smaller, next year likely to be bigger. Also when you look at that number, remember that's both cost and production loss. The value of production loss depends on price and terms. We've had the discussion, we're coming in SEK 30 million, which is not a big number, but we're coming in bigger now in Q3 compared to what we guided for. Well, guess what? The price and terms are better.
Okay, thanks. Final one, just on working capital. You mentioned that you assume that you hope to release more inventory in the fourth quarter, kind of all else equal. If there's a SEK 1.25 billion positive from payables, is your guidance that you hope to release working capital net or reduce inventories? Can you.
That is working capital net, and I think it's more fruitful to look at working capital as a totality. We have had big movements between payables and inventories in this phase where we have shifted maintenance and maintenance stops and moved deliveries and so on. I think it's easy to get lost if you get into that detail. It's much a matter of that we had a Q2 where we were planning for maintenance stops but had to move them, so we need more concentrate. Basically meaning that we reduced the inventories levels in that quarter since we produced more than expected, and then it's a bit the other way around in Q3. There is some movements there. The half billion number that we've given is our working capital total.
Very clear. Thank you very much.
Just as a reminder, if you wish to ask an audio question, you may do so by pressing in zero one on the telephone keypad. Once again zero one on the telephone keypad if you wish to ask an audio question. Our next question comes from Oskar Lindström with Danske Bank. Please go ahead.
Yes, hello. Two questions from my side. First, just a quick one. I'm not sure if I got this. You mentioned the higher free metals in the smelter operation. Is that something that we should see as a new level or more as a one-off?
You should see it more as a one-off. That's a time correction. As you know, the way this works, we don't have the exact yield of the smelters at every time. The way that it is done is that when we get some intermediate products and we do inventorization around them, we do testing around them, and it finds out that there is some more copper in some of these intermediate products than we thought, and then we adjust the calculations for the yields that we've had. That is what has happened in this quarter. We've had good inventorization, so you can say that right now the balance sheet is the best it's ever been.
Thank you. Our next question comes from Jatinder Goel from Exane BNP Paribas. Please go ahead.
Good morning. Just one question on your mining production profile. On a five-year view, 2021, as a starting base could be probably the peak year because you've got full capacity expansion, and no new project is probably under implementation, which can add much volumes. Before Tara Deep, where do you see the volume trajectory on a 2021 production base, five years forward? If you have any sense on being it flat, or how much decline we could expect on a CAGR basis. Any guidance will be very helpful. Thank you.
Well, Jatinder, we only have one guidance. We're simple people. We have the average in the ore reserves, and that's the only thing we can guide you to at this time. The rest is for you all to make your own judgments.
Okay. Thank you.
Not sure if we lost one question from. Nothing more from Danske or?
No, there appears to be one more question that has been registered. Please hold while I try to capture the participant's name.
Okay, operator, we take it back here from Stockholm. Are there any follow-up questions here from the audience in Stockholm? Okay, I hand over to Mikael Staffas for the final word.
Well, I would just like to thank all of you for attending. I look forward to seeing you all in about three months from now, or a little bit more than three months, where we will release the full year numbers, and we will come back with lots of interesting information, including the annual update on the ore reserves. Thank you, everybody.
Thank you.