Boliden AB (publ) (BOL) Earnings Call Transcript & Summary

Ladies and gentlemen, I'd like to welcome you to Boliden's Q2 2022 Results Presentation. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have a results presentation led by our President and CEO, Mikael Staffas; and our CFO, Håkan Gabrielsson. We will also have a Q&A session led by our operator. Mikael, welcome.

Thank you, Olof, and excuse us all for being slightly late. We had a little technical error here as we were supposed to start. It is where we are in Stockholm today and Stockholm is expected to be 35 degrees today, so maybe the technical equipment has something to say when you get these kind of red hot days. Anyway, I'd like to go through and present the results. And I would say that we've generally had a very strong production quarter. We have, in our mines, produced well according to plan, We're especially happy that Tara is up and running again according to plan, also happy that we have once again gotten the 45 million tonne level in Aitik, once again, confirmed. And also the other mines with Garpenberg, with Kevitsa and also the Boliden Area has performed very well in the quarter. On the smelting side, we've had big maintenance shutdowns. As was said beforehand, it should be no news to anybody, they took slightly longer and were slightly more expensive than we had expected. But they came up running relatively strongly. And then we've had some minor issues on the smelting side, but generally also there, a good production quarter. Now price and terms have also been good. We know that it's very difficult in these times when prices go first up and then down to get the timing right in a company like Boliden where you have all kind of mix of quotational periods that play into this equation. And therefore, it's difficult to assess exactly how good the price and terms would have been for us. But anyway, the ones that we have seen and the ones that got into our books and made it, we've gotten a record profit for the second quarter straight. We have also been hit by a strong inflation, and we'll come back and talk a little bit about inflation. This is no news to anybody. We're also coming up. They said inflation is also affecting some of our CapEx projects, especially the Odda project. And I'd just like to start with the Odda project and say that we are going very well according to plan. The timing is going to plan. And the kind of unforeseen that we have found along the way, there is always something in a product that is well covered by the contingencies that we've had. What has not been covered by any contingency is, of course, the enormous inflation that we're seeing on things that are relevant. For a project like this, we're seeing a very strong inflation on all kind of steels, including stainless steel. We're seeing a strong inflation on logistics, which is also a relatively large part of a construction list. And also then other things, including rebars and cement and so on, follow through. The estimate that we have now is based on the total expected inflation for the whole project, i.e., for much more than a 1-year period. Otherwise, also the Kristineberg project is very well on track. There, we have now also received the environmental permit. We started without that. And of course, it's a good confirmation that we've gotten it. We're not surprised. We had expected to get it, but it's always good in a sense when you do get this. We're still having, on the negative side, a little slow ramp-up of the nickel line in Harjavalta, and I'll talk a little bit more about that later. So all in all, we've had a good quarter. We had a [indiscernible] profit excluding the process inventory revaluation of a little bit north of SEK 4.5 billion, the highest we've ever had. Mines at SEK 2.7 billion and the smelters at SEK 1.4 billion. Also dam, good, even though I think they might have come down slightly lower than what just had been expected. But once again, the exact timing of the pricing effect is a little bit difficult to get right sometimes. The ESG quarter was also a very strong quarter. We have had a, for us, very low LTI frequency of 3.2. We are now, soon after 15 years of fatality-free operation, continue that in the quarter as well. Sick leave is coming back slowly, though we've still had, especially in the beginning of the quarter, COVID issues, but we're seeing a slight improvement over how it was last year. And also the CO2 intensity went down quite a lot in the quarter. We've had very good and stable operations in both mines and smelters, which very much helps the CO2 intensity to go down in individual quarters. The price and terms are the ones that have been tricky to deal with. You can see here that we've had extremely strong prices and terms that peaked somewhere in the middle of the quarter and then came down relatively strong towards the end. And you know that with the way that we price and the way that we have the quotation of periods, the end of period pricing is very important as we reprice previous -- or deliveries in previous periods, which means that the price and terms might have not been as strong as everybody could have expected given how strong they were if you go back to May. We should also be aware of -- on the right side, we have another positive, I think that most of you have picked that up. We have strong premiums. The prices right now for sulfuric acids are also then on record levels. So what about the prices? Well, from this exhibit, you can now see clearly that we are having a situation where, number one, the prices have come down to the lowest they've been for the year. That's not so -- maybe so interesting. What's more interesting when you look at this chart that we have all the time is that we now see that inflation is really picking up also for our competition. You can see that in the zinc, where basically all parts of the cost curve is affected by high inflationary pressures. You see that in copper, maybe to a lesser extent, but you see that there as well. And you see it especially on nickel on the further right part of the cost curve, where especially the producers of nickel pig iron. And the high intensity of coal and other fuels that go into that process have really raised the cost position for them, which means that over time, of course, this is actually something that is good in the sense that prices over time will develop better when the cost curves for the industry is going up. And even though we don't have any exact numbers yet and we don't know exactly what our competition is up to, we don't feel that we have a higher inflation than many others. To some extent, we might have a lower inflation as we are more energy efficient than many of our peers. On the mines, well, we've had a -- as I said, across the board, a strong production quarter, 45 million or very close to 45 million pace in Aitik, good production in Garpenberg, good production in Kevitsa, even though we had slightly lower grades that came into exactly this quarter. Boliden Area had maybe a little bit less throughput than normally, but we had higher grades, and this is quite normal with the ore mix when we get lots of Kankberg ore that came into this quarter. That exactly what happens with the lower grindability but the higher grades that we have. And Tara, we're very happy to announce that we're back to a much more normal situation than we had before, still slightly lower grade depending that we cannot access every stope that we would like to access in the mine. But we are having enough positions so that we can able to produce full. On the smelter side, yes, we've had in the 2 copper smelters very extensive maintenance stops, both in Rönnskär and in Harjavalta. They both went, roughly speaking, quite well, even though, as you know, when you have some major maintenance stops, there's always something that shows up. But generally speaking, they went well. We also had the chance in the Harjavalta stop to do some corrections to the nickel line. The nickel line has since then picked up, even though it's not still at full pace, but it's getting much, much better as we redesigned the concentrate dryer in the maintenance stop in -- we had in Harjavalta. Also, Kokkola and Odda produced very well. Kokkola also had a maintenance stop in this quarter, a smaller one, but still a maintenance stop. The other kind of negative news is Bergsöe. Bergsöe had a failure in the oven -- in the furnace and that had to be repaired -- actually had to be repaired twice, and we had an unplanned outage in Bergsöe that was close to a month because of this, but luckily enough, Bergsöe is a relatively small unit to us. So with that, Håkan, I'll leave it to you to go through some of the financial numbers for us.

Thank you, Mikael, and good morning. Well, as Mikael already said, we presented a strong quarter. We have an EBIT excluding process inventory revaluations of SEK 4.5 billion, which is, in fact, our strongest number so far. The price coming down towards the end of the quarter meant that we had a negative process inventory revaluation, leading then to an EBIT of SEK 4.1 billion. Investments picking up a bit, SEK 2.2 billion, as main projects like Odda are getting up to speed. Free cash flow of SEK 2 billion, and that leads to an earnings per share of SEK 11.54. Looking by business areas, mine -- Business Area Mines reached SEK 2.7 billion. They were impacted by lower prices, in particular, towards the later part of the quarter. Smelters, stable at SEK 1.4 billion compared to last quarter. We had maintenance across most of the units in the smelting side, which had a negative impact on EBIT. This year, most of the maintenance was in Q2. Last year, we had most of it in Q3. Eliminations, positive, SEK 400 million due to lower prices. We have seen a strong inflation. We talked about that already last quarter, but it has picked up further in Q2, and we now see an overall inflation on the OpEx side, on the operating expense side of 15% year-on-year, meaning then comparing Q2 of this year to Q2 of last year's. In particular, it's energy, and diesel, chemicals, explosives, transports where we feel most of the inflation. It's fairly limited on other parts of the cost base. Looking then at CapEx. Overall, the inflation on CapEx projects is higher than on the OpEx side. In particular, we see steel having a big impact of the indexed in contracts and also logistics. We have left the CapEx guidance unchanged, though, for 2022. We'll have to come back to '23 and beyond the guidances later on. The reason for that is that we also see some extension of lead times, which means that we're not expecting to be exceeding the previous guidance for this year, even though we have the inflation. Comparing operating profit excluding process inventories Q2 of this year to Q2 of last year. There is a significant improvement, of course, and we've been helped by prices, SEK 2.3 billion between the quarters. Out of that, SEK 1.3 billion is a stronger currency position, a stronger dollar. On the metal side, we also have a positive impact, and there is primarily zinc that helps us in this quarter. We also see bigger impacts from byproducts, meaning the sulfuric acid primarily, and metal premiums influencing this quarter. We have a gain of SEK 250 million from byproducts and about SEK 200 million from higher metal premiums due to an improved balance in the European market. Volume-wise, we're up SEK 445 million. That's primarily a higher mill volume in mines with most of our units performing well. I think at the 45 million pace, Kevitsa, really strong and good across the line. We do have some slightly lower grades in Kevitsa that is offsetting the positive mill volume slightly and then also an impact on the negative side from maintenance stops in smelters, where we -- as I said, we had most of it in Q2 this year, but last year, most of it was done in Q3. Cost is up SEK 750 million year-on-year. That's an 18% increase overall. In there, there's about SEK 150 million increase due to maintenance stop. And if you back that up -- back that out, we see a 15% cost increase. Now again, it's pretty much exclusively energy, consumables, diesels, et cetera, the areas that I mentioned before that leads to this cost increase. There is also a volume element of about SEK 100 million as we have produced more this quarter compared to last year. Looking at a sequential comparison, Q2 compared to Q1, again, slight improvement. We have a positive effect of SEK 300 million on price and terms. Comparing these 2 quarters, the positive impact from currencies are offset by a lower metal price development. So that's basically a wash. The SEK 300 million that we see in a positive impact is byproduct prices, treatment charges and metal premiums. Volumes are up SEK 500 million. We have higher mill volumes across all mines. And in particular, Tara, of course, being hit by the water inflow situation still in Q1 shows a good improvement. Costs up SEK 546 million for the same reasons I talked about on the previous slide. Planned maintenance in smelters, inflation and higher production. Looking at the cash flow, I think we covered many of these components, but just saying one word on the working capital side. We have a cash flow of SEK 2 billion. We tied SEK 1.2 billion in working capital in the quarter. That is primarily due to the maintenance stop in smelters. The combination of very strong production in mines and maintenance stop in smelters mean that we've been tying a bit of capital in the quarter. And we are currently at slightly above average levels in copper and in nickel. The balance sheet, very strong. We are now at a net debt of SEK 3.7 billion and a gearing of 7%. In Q2, we have paid the ordinary dividends and the extra dividends, which explains most of the difference. And we have a robust funding and a net payment capacity of close to SEK 14 billion. So Mikael?

Thank you, Håkan. With that, I'd just like to sum it up with a few points. The Odda project, I said it already at the beginning, I just -- I think it's important to point out that the product itself is going very much according to plan. We have an increase in inflation on the CapEx side, which you can say is expected. You could argue for some way that, that's a little bit unfortunate timing of the project. We could -- had we done it earlier, we could have avoided some of this inflation. True. We didn't have a permit earlier. We couldn't really have done it earlier. On the other hand, the time was also very, very good because all of the -- for example, the power contracts and so on that were signed, that were linked to this are now, of course, even more interesting than they were when they were signed. So generally speaking, we feel very good, and our internal numbers for the Odda project is getting even better with this despite the higher CapEx that we are seeing. So the project is still financially very attractive. We've also gotten a permit situation in the quarter. We've gotten the permit for the Rävliden expansion in Kristineberg. It feels very good. It can still be appealed actually until today. We have no indication that it will be appealed by any of the so-called heavy parties in this situation. It is likely to be appealed maybe by some smaller parties, but we have gotten what in Swedish call [indiscernible] thrown under that is -- that we are allowed to use this even during the appeal process, so we can continue with the project as planned. Regarding Laver, we have gotten now the final verdict from the Supreme Administrative Court of Sweden that has ruled that we do need to have a Natura 2000 application in order to move ahead with the project. So we're back to square one. This is not the end of Laver. We can still work around this. We're working in 2 different avenues. One is to do the Natura 2000 permit application to get that one done. The other one is to try to do a Laver that is done in a slightly different way. So it won't affect Natura 2000 because as most of you will know, Laver is not a Natura 2000. Laver is on the outside of Natura 2000 but has water that goes into Natura 2000 area. If we do Laver in a different way, we might be able to avoid water going into Natura 2000 areas altogether, although that's not clear yet, but those are the avenues that we're working with around it. The project is not dead. With that, I would like to remind everybody about the Capital Markets Day that we have coming up in November. And I'd also like to remind you some of the outlook. These numbers are very much the same as you've seen. We don't have any changes for Aitik in terms of either volume or grade. No changes in Garpenberg, volume or grade. No changes in Kevitsa. From what we said before, the maintenance shutdowns, similar to what we've said. We have maintenance both in Q3 and Q4, Odda and Bergsöe mainly, but on a much lower level than we had in Q2. We have the inflationary pressure. Håkan talked about roughly 15% on OpEx. This can, of course, change with things that we absolutely do not control, including energy prices, but as well as we can see right now this 15% level is likely to remain during the second half of the year. In this, you should also be aware of, as some of you know, that the second half of last year, inflationary pressure was already picking up, but we had almost no inflation because we had a good set of contract, which meant that the general inflationary pressure, especially on the energy side and on chemicals, did not get through last year. Now it's coming through this year. So we have a lower base that we're basing this on, which means that we are estimating that it will be somewhere in the neighborhood of 15% for the rest of the year. The CapEx, as Håkan alluded to, even though we see similar or even higher CapEx inflation compared to OpEx inflation, we're also seeing some delay. There is a very tough market -- has been a very tough market to get deliveries in certain projects. It's not really affecting Odda, where we're getting things more or less on time, but it's affecting other smaller projects. And therefore, the total CapEx guidance for this year remains at slightly above SEK 11 billion. With that, this concludes the kind of formal presentation, and I now open up for questions. Mark?

Our first question comes from the line of Ioannis Masvoulas of Morgan Stanley.

First question from me on Odda CapEx. How confident are you on the revised estimate? Are there any remaining long lead items or any other aspects of the project that could see further escalation?

How confident am I regarding the Odda estimate? Well, I am very confident. Now there are still long lead items, and there are certain things that hasn't even been ordered yet. So there are things in there that could go -- and it could go either way. It could go up and could go down. So it's based upon our, today, best estimate where especially the heavy items, including steel and so on, will go. So yes, there is still some uncertainty, but I feel very good about the number.

And a related question. So you talked about overall CapEx inflation north of 15% in addition to the Odda other project CapEx increase. How should we think about the 2023 CapEx outlook? Should we expect a meaningful step-up relative to this year?

I think we'll come back to 2023 CapEx guidance in October. As you know, we are reworking our investment plans every year in the fall. And of course, given the situation we have right now, we are reworking them quite a lot. So I will not -- I will come back to that in October once we've been able to work through that.

Okay. And last question for me, if I may. On Harjavalta, you talked about the slower ramp-up of the new nickel line. When do you expect to hit the full run rate there?

It should come relatively soon. Now I'm a little bit battered because I said that before, but the remodeling that we did to the concentrate dryer that we rebuilt during the maintenance stop has made it much more reliable and much more robust. But it's only a couple of weeks of operating since then. So it's a little bit too early to say whether we have cracked all the issues, but so far, it looks good.

Our next question comes from the line of Daniel Major at UBS.

First question, just a follow-up on the CapEx. And I appreciate you're not going to give 2023 guidance. But how should we think about the increase in the budget? Will you look to defer other projects as a consequence of the increase in CapEx at Odda? Or should it be incremental to the current pipeline of CapEx budgets that you see from a sort of high-level basis?

We always look very critical in anything that we do, including -- or as part of our budgeting process as we go through that every fall. So we will be looking very critically at it and see what we can do and what can be done with timing and other things.

Okay. We'll revisit in Q3 then, I guess. Second question just around costs or sort of a couple of questions around costs. A first simple one, what foreign exchange assumption are you using for the 15%? Are you taking spot Swedish krona?

Yes. For that, it's based on the current exchange rates.

Okay. And then just on the energy component of the cost inflation, you previously indicated about 80% of your energy is under fixed price contracts and you have some other hedges in place for the remaining 20%, but you're flagging energy as a significant driver of the increased inflation. If you've only got 20% open of your energy exposure, it seems a relatively small component to be a big driver of overall inflation. Can you give us a sense about how important energy excluding diesel is in that 5% uplift in expected inflation?

Yes. I said energy, but the 80% is referring to power, and the power component is not the major driver of this. Yes, we do have an inflation on power as well because the 20% is quite more expensive than it used to be a year ago. But it is the general inflation that goes to diesel and that goes through gas and everything else that comes through in the chemicals, that's the major driver.

Okay. So power is not yet still relatively well positioned into 2023. Is that the correct way of thinking about...

That's the correct way of looking -- power is not the major driver of this.

Our next question comes from the line of Luke Nelson at JPMorgan.

Just a follow-up on Daniel's question on costs. If I look divisionally at the quarter-on-quarter waterfall, it actually looks like cost performance was quite strong. And in mines, obviously, adjusting for maintenance, it looks like it was actually a benefit. Can you maybe just sort of talk to sort of, quarter-on-quarter, the sort of cost performance within -- I know you mentioned energy, but maybe within sequentially the effect of reagents, acids and things like that? And then the second comment or question on the 15% inflation you talk about year-on-year. Can you maybe quantify what effect that is in terms of a quarter-on-quarter effect? Does that imply sequentially an increase given you also talked about a 15% effect in Q2? That's my first question.

I'll leave that to you, Håkan. You can dwell on the details of the cost inflation.

So if we start sequentially, we talked about Q1 inflation of about 10%. So we do see an increase then coming up to the 15% level right now. So we do see an increase in Q2 to Q1 as well. And then we expect roughly a stable level if you put everything together for the second half of the year. But in there, I think we are expecting some changes. As we saw, Mikael talked about the energy prices already coming up towards the later part of last year. So we do expect the inflation rate between the different categories to even out a bit. So that's one thing. If we talk about the cost inflation year-on-year, I think looking at inflation also, one should be aware that it's sometimes a bit difficult to be very precise on individual quarters, but we do see the longer trends much better. Looking at the inflation that we have seen this quarter compared to last year, if you back out the maintenance, which was about just short of SEK 150 million between Q2 this year and Q2 last year, there is -- basically, the only cost increase that we see are within consumables, chemicals, diesel, electricity, et cetera, et cetera. Electricity, as we talked about earlier, is not the main part. I think we're up about 10% year-on-year. That is both volume and inflation, though. But diesel and chemicals and sort of the indirect effects of energy costs are driving a much higher inflation in other areas. On the salary side, we're up less than 2% year-on-year. So that's a fairly limited increase. So it's very much basically the cost inflation that we see all within these areas that we have mentioned.

And just for you to get a flavor of this thing, as we look into this, there are certain chemicals that have increased 4x. Just to have a sense of that, certain of these things, they might not be big, they might be a relatively small part of our total cost base, but have very high inflation into them. And that's, of course, part of the issue here. How will that continue to develop? Well, many of those, well, extremely expensive. Now chemicals are very much tied to the general gas cost in Europe and so on.

Great. Really good color. Second question, I suppose, somewhat related to costs, but from the power side and your prior comments, again, indicated that the inflation coming through the back end of this year was not necessarily power within the broader energy inflationary effects. But if we think about 2023 and given your profile of hedging, which I think historically has been sort of 2-year duration, 20% spot exposure but with some flexibility, can you sort of give a sense on how you're seeing the power costs in 2023 relative to 2022?

Well, first of all, it is difficult to give the details, but just to have a -- we talked about the 80%, but you must remember that we have north of 50% that's hedged on very long term. So we only have maybe 20%, 25% that needs to be reset. We're still in '23, you're going to be benefiting from contracts that were made in '21, so still at a relatively good level. And then we will get the kind of 20% spot that comes into it, and we don't really know what it's going to be like. It's unclear, I think, to everybody, but we can have some guests, but it's only 20%. And we also have an advantage as the areas where we are big power consumers, especially in Northern Sweden, the power prices, the market prices are considerably less than they are in other places. So for us -- and Håkan gave you a little bit of flavor of it. For us, the power inflation is less than the general inflation. It's actually kind of helping us to keep the total inflation down.

Okay. Great. And final question, if I may, just a modeling question. Just on the pricing effect within mines quarter-on-quarter, sort of negative SEK 1.5 billion. Can you maybe just break out within that what the provisional pricing effect was? And apologies if you've already mentioned that.

No, I'd be happy to do that. And we didn't mention it earlier, I think. As always, I'd like to start with the definitions. The open positions that we had in the beginning of the quarter have been revalued to final prices during the quarter. That has a negative impact of a bit more than SEK 100 million, SEK 105 million. It's primarily nickel, which have long quotation periods and where we saw prices coming down towards the later part of the quarter that drives that number. So that is what we refer to as the MAMA effect or the quotational period effect and so on. In addition to that, as you know, the pricing of the material, as we said, within the quarter is a bit back-heavy. So you can never use a straight average across the quarter. And that is what brings up the total number. But the direct revaluation of quotational period is SEK 105 million negative.

Our next question comes from the line of Krishan Agarwal at Citigroup.

Most of them have been already answered. If I can ask a quick clarification on 2022 CapEx because in the release, you say that the expected spending may not be equal to the previously communicated number, but then you also reiterated your guidance for just over SEK 11 billion CapEx spend. So how should we look at the 2022 CapEx in the context of these 2 statements?

Well, you will have to wait until October for a statement on '23 CapEx. There is inflation that is, of course, driving it up, but there is also everything from reengineering to reprioritization that could drive it down, and we're going to have to see where we end up.

I think my question is more on the 2023 CapEx, as in you reiterated the guidance for just over SEK 11 billion, but then you also alluded to that -- the spending [indiscernible] equal to previously communicated numbers. So from a modeling point of view, SEK 11 billion CapEx number for this year stands, right?

That stands, that stands. So for this year, it stands.

Our next question comes from the line of Jatinder Goel of BNP Exane -- sorry, BNP Paribas Exane.

Got a question on Odda CapEx revision. Mikael, you alluded to some of the market backdrop getting better, and I reckon it's to do with zinc prices being stronger, TCEs, asset pricing, premiums all being better as well. So if you look on a net basis, what does this new CapEx budget do to your, say, ROCE or IRR forecast for the Odda expansion project? If you could give either delta or absolute numbers, that will be very helpful.

You're not going to get an absolute, but I can give you a little bit of a delta because we have redone this CapEx with some of our own estimates to how we have changed our long-term assumptions on exactly the things you talked about, metal prices and sulfuric acid and so on. And when we do that number internally, we are basically flat. It's all the same. And then just to make very clear that if we were to have the present price and terms that we have, it will be much better. So our long-term prices are, even though they are slightly more aggressive now than they were when we made the decision, they are still conservative compared to where we're standing today.

Understood. That's very helpful. On Aitik, is SEK 5 billion CapEx on dam not subject to any inflationary pressure? Or is that already taken care of? Or is there much uncertainty because the bigger spending chunk is next year?

Yes, the -- of course, that is not isolated to inflation, but -- there's a big but. This number was developed much later, and there were lots of inflationary pressure had been taken into account. We have not, at this early stage, done a reevaluation of the Aitik project. We think that there is not so much inflation into that area, but we will have to get back when we are in a position to make a kind of new estimate. But there are not really any significant that has happened between April and now that makes it that we need to refine it.

Okay. And just the last one, again, related to CapEx. SEK 11 billion unchanged CapEx guidance for this year, but the indication is CapEx inflation is higher than OpEx inflation, 15% for 3 quarters and maybe 10% for the first quarter. Very simplistically, is it 15% of the activity which gets delayed to future years and keeping that SEK 11 billion flat if you were to just think from a high level?

Yes, you could say that. I mean it's not a -- it makes sense.

Our next question comes from the line of Viktor Trollsten of Danske.

Maybe first, just a clarification on your previous -- on some of the delta in returns on the Odda project. Just trying to understand, when you are calculating the returns, I suppose you are using your planning prices that we can see in your annual report. But listening to your previous answer, it sounds like you have changed those planning prices in terms of zinc treatment charges, zinc prices, et cetera. Could you just clarify how we should look at it?

Can clarify. The thing that you can read in our annual report was the ones that were used to calculate the original return. Now there are certain things I think that you don't see there. I don't think -- for example, you don't see zinc premiums in there, but they were used for the original calculation. Now we have already -- we haven't told you guys, but we already, at the beginning of the year, modify our long-term assumptions due to all kind of factors that you will only see in February when you come out with the next annual report. But we need to have those put in place early in the year because we are doing -- using them for R&R calculation, for example, during the year. And if we use those slightly moderated long-term prices that we have now, and we also put in the higher CapEx, and we redo the whole thing and we do put in the OpEx inflation that comes into the OpEx going forward in all calculation, everything else, we're basically flat.

Okay. No, that's clear. I guess that's what I was after, that it sounds like in the coming year or so, that we could see some upside to planning prices. That's how I interpret it, but...

There is some upside to planning prices because there is some inflation. And we -- as you know, we had pretty conservative planning prices for '21.

Yes, I completely agree on that. But -- okay. And on the CapEx budget now and just maybe if you can expand a bit on your best estimate that you talked about. So if -- I guess a big element of the project is, let's say, steel prices. So if we are running at current spot prices, we said that those are fixed for the coming years, then we end up at the CapEx budget. And any fall in prices would actually imply downside to your new CapEx budget? Or is that how we should see it?

It's the way you should see it. We have taken -- and we talked about the specifics about the Odda project now. We have taken our best estimate of what we know today and applied that to all these indices that we have in all kind of contracts and put that all together, and we come up with this number of SEK 150 million. Some of that has been delivered, but it's a very small part because the project has not really started to deliver yet. Some of it is in things that have been ordered but have all these indices. And we still have a relatively -- or parts that has not even yet been ordered for the project that we are still working on. But as I said, the SEK 150 million is based on today's best estimate. If you were to have a sudden fall and you're talking about steel prices, an important driver, stainless steel prices, an important driver and so on, if that were to happen, then we could have a positive deviation to this number.

Okay. No, I guess that makes sense. Then -- or maybe finally, if I may, just on the mining operational performance in the quarter, at least from my perspective, Aitik grids are sort of ahead of guidance. And I know that you typically talk about, let's say, 10% variation in grid guidance. But would you be able to sell that first half grids are ahead of your first expectations? Or should we -- or have you expected the grids to decline by, let's say, 14%, 15% in the second half all along, so to speak?

Without going into too much details around that, we did have, in our planning, slightly better grades in the first half than in the second half. Now the grades for the first half has surpassed our planning, but it's clearly within the kind of margin of error. So there's nothing that we have to have a long discussion around why it became better. That happens sometimes. Sometimes it will be lower.

That's clear. And then finally on Kevitsa...

You said something about Kevitsa run rate, but we didn't get the last part of the question.

Yes, yes. Sorry, it's hanging up a bit on the line. But Kevitsa run rate on the mill or in the quarter was quite impressive. Is it a sustainable level? Or was it an extraordinary quarter from that perspective?

I would say it was a good quarter. But you should calculate with this 9.5 million tonne annual throughput, which we have guided for.

Next question comes from the line of Liam Fitzpatrick at Deutsche Bank.

I've got 3 questions. Apologies if I'm slightly going over some stuff that's been asked, but the line is a little bit patchy. The first one, just on working capital. You've had a big build compared to 6 months ago and 12 months ago. Should we expect this to unwind quite materially in the second half if prices stay where they are or move lower? That's the first question. Secondly, on the power side, so it doesn't sound that you're that concerned about power. I think you did mention earlier in the year that you would consider potentially reducing production at some of your smelters and selling surplus power if it made sense. Are there any smelters or any of your smelters where you're getting close to potentially making that switch and that decision? And then the third question, apologies in advance, it's another one on CapEx. At the start of the year, when you guided on the SEK 11 billion, did that assume around 10% inflation? So if you're telling us 15% inflation, the shift that's going to happen over this year and beyond is around 5%. Is that the right way to think about it?

Let me take a couple of these ones, and then I'll leave the working capital to Håkan. Regarding CapEx, you should know that the original number that we had was based on the planning last year, which is basically a situation in September for -- just to take a timing of it. So the number that we have originally was based on the best estimates of the CapEx based on situation in September of '21. And then we had seen some inflation, but not at all as what happened later. On the power side, the question was whether we stopped production. And here, you just have to be -- put this in context. We have always, every time, every year, stopped the -- our operations, especially in the Kokkola smelter in Finland, for maybe 1% of the time in the winter. Because there's always been individual hours where the power price has been so high that we make more money selling the power rather than producing. This became more during the winter, where we used this option more frequently. We, of course, calculate that for all of our operation, but it's so far only been the Kokkola operation with its power intensity on the smelting side that has been a case for this. We have actually, during this quarter as well, stopped production a little bit in Kokkola, less so. And we will continue to monitor this hour by hour. And most likely, it's not going to be that much during Q3, but during Q4, I'm pretty sure it's going to pick up again because we are likely to have very high power prices where it's more favorable for us to monetize on the power contract rather than to use the power for producing zinc. With that, I'll leave the working capital to you, Håkan.

Okay. So just -- I'll try to recapitulate that a bit. In Q1, we tied SEK 3 billion in working capital. That was 100% price-driven, so no volume increase. In Q2, we tied SEK 1.2 billion. That is a volume effect, which is actually a bit more than SEK 1.2 billion. And then as the prices came down, we released a small part of the SEK 3 billion that we tied in Q1. So what I would say is that with the existing prices, not all of it will come back because it's still -- we're still up compared to where we stood last year. But let's say that we have a SEK 2 billion volume increase in working capital, that should come back once we're through the issues in Harjavalta nickel line and through the maintenance.

It's not a big secret, but we should also maybe add that given the situation with the nickel market and given the situation with nickel concentrates, we have, despite the fact that we've been not running according to speed at the Harjavalta nickel smelter, which normally would have led us to sell off some nickel concentrate in the market, we have not done that. We have been sitting on those inventories because it's going to be a tight market going forward, most likely depending what's going to happen with nickel in Russia.

Our next question comes from the line of Amos Fletcher at Barclays.

Two questions from my side. The first one, going back over cost inflation. We're talking about rates of inflation, excluding wages. I just wanted to ask about your labor contract where we're seeing CPI picking up to the highest level in several decades in most of your key jurisdictions. I just wanted to ask, when will wages be reset for each of the main countries or assets over the next couple of years?

That's a very good question, which we haven't commented about. And you're right that this could be another thing that could affect us negatively going forward. The answer to your question is that we will, during the next winter time, have renegotiations basically everywhere. We have, I think, Finland coming up first right before Christmas. We have then the big one in Sweden in the end of Q1. I'm not sure, exactly sure when Ireland is coming, but it's coming around the same timetable. And Norway is also around the same timetable. So we will have labor negotiations everywhere. I mean you're pointing out the position that this might be very -- if one used the word interesting labor negotiation given the general inflation in the society, but it's also going to, of course, dependent on what happens in the rest of the world outside us.

Okay. And is it sort of fair based on your historical agreements that those tend to track in line with CPI? Or do you tend to pay CPI plus a bit?

Well, we are in unchartered territory because we haven't really been there. Basically, in all these jurisdictions, the basis for these labor negotiations is more around productivity developments and also kind of profitability development. Doesn't necessarily have to be linked to consumer price index. A lot of times, the unions have historically marketed their agreements as a CPI plus, but that's not the fundament for it. I think in the end of the day, what's going to happen to our labor costs is lots will happen with labor in the general market. In certain jurisdictions like in Sweden, it's very much tied already in the negotiation phase. In other jurisdictions, we negotiate much more on a company basis, but we will, of course, follow the general trend in those jurisdictions.

Okay. And then I just wanted to follow up on this issue around your exposure to physical natural gas supply. So in the event that we see actual rationing, are there any assets that are particularly at risk, would you say?

The only asset that we have that uses natural gas that comes off a grid is the Bergsöe, our small smelter in Southern Sweden. We have other operations that need to have gas, but it comes in an LNG form that we need -- that we're using for different purposes. That's not really a lot. So I see that the risk of getting a production interruption because of gas supply is relatively little. It is much more if gas supply is interrupted, the price of chemicals can go very high. Because the chemicals industry in Europe is very much dependent on natural gas prices.

Our next question comes from the line of Tyler Broda at RBC.

I'm just going to ask the question that Amos literally just asked. I guess while you're on the line, can you -- obviously, it's a fast-moving situation on the macro side in Europe at the moment. From a demand perspective, can you give us any indication of what your customers are doing at the moment or any sentiment from that perspective?

I would say that it's a little bit difficult to read the sentiment as we're in the vacation period, which kind of make things a little bit special. But I would say, generally, so far and up until the beginning of the vacation period, we have not seen any slowdown from our industrial customers. They are ordering according to plan basically across the board.

Our next question comes from the line of Johannes Grunselius of DNB Markets.

Everyone, it's Johannes here. I actually also have a question on the OpEx inflation and the CapEx inflation, but a bit from a different perspective because for sure, the stronger dollar must mean quite a lot to this elevated cost inflation for you. Could you just indicate what sort of cost inflation is in more dollar terms or unchanged at fixed terms, please, if that's possible.

The answer is, I don't know. I think it's a little bit of an interesting hypothetical question. What if the dollar-euro exchange would have been different? What would have happened to chemical prices? It's a little bit of a theoretical exercise. I haven't done that.

We actually buy in dollars. That is denominated in dollars.

I think it's relevant because if you -- sorry. Yes, sorry.

Actually, buy in dollars is quite -- yes, what we actually buy in dollars is quite limited. But of course, there is an indirect impact from dollars in, for example, diesel prices, chemical prices, et cetera. But it's -- we haven't done -- I can't say that we have done the full equation. I mean we look at the market prices that we pay basically, and that's, to some extent, influenced by dollar, but it's difficult to back out. As for metal prices, if you back out the dollar, I mean there will be -- there is a negative correlation to metal prices as well. And I guess that also covers part of our purchases.

Yes, yes. got you. I know it's theoretical, but I think it's still relevant because, I mean, all your competitors report in dollars. And I sense that you might be compared to the guys reporting in dollars, which is the industry standard. Yes. All right. My second one is more of a tangible question, I suppose. But that is on the byproduct side, from the smelter, I'm thinking specifically on acid sulfur, for example. Have this created any positive delta for you in Q2? And how do you see the second half when it comes to volume products?

Sulfuric acid prices are high. And I don't know exactly what the number is -- what they've done on a quarter-to-quarter basis. Regarding going forward, we don't really know. I would say that the sulfuric acid price are right now on an unsustainably high level. They are likely to come down. But when and by how much, I don't know.

And I can give you the number there. All in all, the byproducts, which is then primarily sulfuric acid, is up about SEK 250 million this quarter compared to the same quarter last year. I mean that's the byproduct total, but that's pretty much all in sulfuric acid that makes a difference.

And we have one further question in the queue. That's from the line of Daniel Major at UBS.

So the line is really bad. I just wanted to follow up on the working capital question. I couldn't hear what the answer was in terms of expected release of working capital in the second half.

So if we take out the price part of it all, we have tied in volume about SEK 2 billion working capital so far this year. And all of that was in Q2 that we expect to release once we get up to speed in Harjavalta nickel production and once we're through the maintenance stops.

Okay. So you built 4 in the first half and you could release 2. Is that the right way of thinking about it?

Correct. The other 2 is prices. And with lower prices, we'll release it. And with the same prices, it will stay.

There are no further questions in the queue at this time. I'll hand back to our speakers for the closing comments.

Yes. Thank you very much, Mark. Thank you all for listening in. Excuse us for the technical issues that we had both in the beginning and also during the call. We hope that we'll get better going forward. I would just like to take this chance to wish you all a very nice summer. As I said, here in Stockholm, it's expected 35 degrees today. I don't know what is at your place. For us, that's actually pretty good and pretty nice to get there. We haven't had such a nice summer or a very nice summer so far. We hope for a very good next few weeks. With that, have a nice summer, everybody. Goodbye.