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

Welcome to Boliden's conference call. [Operator Instructions] Now I will hand the conference over to Olof Grenmark, Head of IR. Please go ahead.

Ladies and gentlemen, I'd like to welcome you to this telephone conference. My name is Olof Grenmark, Head of Investor Relations. Today, we will have an update regarding the press release sent out last night, led by our President and CEO, Mikael Staffas, and he will be assisted by our Chief Financial Officer, Håkan Gabrielsson. Mikael Staffas will give us some initial comments, and then we will have a Q&A session. Please note this telephone conference will be recorded, and it will be put up on our Web. We will end this telephone conference 9:15. Mikael, welcome.

Thank you, Olof, and good morning, everybody out there. I think it's quite easy to say that June 13, it was not a Friday the 13th, but it was still a 13 will be remembered from long time as being a day of lots of events happening at the same time. If we start with the fire. We are, of course, extremely pleased that nobody got hurt. I can also say, which was in the -- mentioned in the written communication and update, it looks like we will not have any damages beyond the tank house, which is, of course, good that the rest of the operations seem to be unhurt. We have shut everything down as of now, and we're going through all the other units. And we're looking into that they are safe to operate and so on, and this will take some time. We have also lost some of the infrastructure on the side. So there are some issues regarding, for example, oxygen ammonia and so on that we need to work on getting the pipes restored, but that should be relatively quick and easy. Regarding the tank house, nothing will be quick and easy. This is a more or less total fire, and there will have to be a new tank out in some way constructed. For us, this will mean that we will also have to change the commercial model. We will go short term from selling cathodes to selling anodes or tolling anodes depends a little bit, and we are, of course, in full work right now in handling this whole commercial setup and everything else, but we feel good about it. Russia is also a port that is frequently used for the Boliden area to get the zinc concentrate out maybe to Kokkola and Odda. And the port is already operational that will not be impacted. So all the other things that are going on should be fine to continue. We have given you a number of what it costs to be shut down totally. There will, of course, also be some kind of lost revenue of being operating without the tank house, i.e., in selling anodes rather than cathodes. There is a commercial consideration in that. We'll come back to that once we get our arms around it. There are, of course, many moving parts in that part of the equation. I can also say regarding insurance, just that we are fully insured. The easy part to say here is that we are -- we have SEK 100 million as a self hold on the property, and we have a 14-day of self hold on the interruption. Now exactly how this work out, and you've all dealt with insurance companies or know how the insurance companies work, there's going to be some discussions about this. And as long as we don't have a final settlement with the insurance company, those insurance money will not hit our P&L, i.e., in the beginning. As we're moving right now, we will continue to take the interruption costs and the cost on the lost property on to our P&L as potentially be settled later. So that's the introduction on the fire in Rancher. If we then move over to the other areas, I'll just briefly touch on them. The situation in Kevitsa has been unfolding for a while. We have had lower grade, and we should have and it's accelerating. We have had to, due to many different things, had to reschedule the mine sequence. We are mining now almost exclusively from what we call the Pushback 4. And nothing from the Pushback 3. The Pushback 3 has much better grade than the Pushback 4. This doesn't mean that the Pushback 3 has been lost. We will be able to mine it later. But the problem is security that for different reasons, Pushback 3 has now ended up to be below Pushback 4. And due to the operation of the Pushback 4, it's not safe to operate below. And therefore, we cannot do that. That will have impact severely in Q2, as we have communicated. There will be some remaining issues regarding this or impact on this for the rest of the year that we have guided for. It's important to point out, though, that there's no change in the R&R statement, i.e., there is no loss of positions that we have communicated this day. So the ore body is there the way it was before, and we should be able to get that metal out over time. The third item, I'll just briefly point it on is the care and maintenance in Tara. Care and maintenance in Tara was decided by local management and local Board last night due to what has been for the last, you can say, 2 to 3 months sustained very heavy losses, both book losses and cash losses, and this is a way to curtail the cash losses around this. We are entering a 4-week wind-down phase, where we will secure the operations, and then we will be standing still until we have better conditions. What we are looking for in better conditions for the zinc price. Zinc TCs plays into this as well, but also power, and power cost is part of this equation. The general productivity level that we can achieve in labor cost is also part of the equation that we need to look into for a potential restart. With this stoppage, it also means that we get more time to look into the Tara Deep issue because, of course, what we don't mind as whether we're down, we'll still be able to mine later. And the space that we don't take into the tailings facility, we will have left later. So that means that the whole time pressure on Tara Deep will go away. But we will also, of course, lose some time there. We cannot do exploration from underground for safety reasons. We cannot have drilling going on underground with -- during care maintenance. We do not have the security staff there to handle that. We could do, and we're still evaluating exactly how to do this. We are looking into whether we're going to continue to do drilling from surface. There are some protocols around that. I think the main issue is that we are actually pretty good in schedule regarding exploration from surface. It's the underground one that's more on the critical path given that we, during the whole flooding situation could continue with drilling from surface, but not from underground. There's also been some questions, and I'll probably get some more questions. What is the impact on the smelters from this? And the answer is that, yes, there will be some impact exactly how very difficult to point out. But we're also pointing out that zinc is -- zinc concentrate is a liquid market. It's possible to procure. And we do not, short term, have any shortage of zinc concentrate. But of course, if this were to be prolonged for a longer time, we need to find additional volumes of zinc concentrate for Kokkola and for Odda. So with that introduction, I think I'll leave it open for questions, and we'll probably get some more color on this for the questions.

[Operator Instructions] The next question comes from Adrian Gilanifrom ABG Sundal Collier.

First of all, regarding the Kevitsa grades. When are you going to be fully back to normal in Kevitsa regarding the mining in Pushback 3? Is this effect isolated to the current year? Or is it a spillover into next year as well?

And I'll take that quickly. It's a little bit too early to tell. But as it is tapering off, I would say that this should not be affecting next year too much. And rather, these lower grades, we will get back at higher grades than sometimes in the mining sequence as well.

Perfect. And also for the insurances for Rönnskär. You mentioned a bit on potentially being insured for lost revenues and earnings as well. Is this just for the complete stop in the coming few weeks? Or could you potentially be insured for -- during the anode production phase as well until the electrolyzers are back up?

We are insured for the whole situation for any losses due to the fact that we can operate in this case, a tank house. Now the reason why I'm playing this down is a little bit because, of course, the insurance company might not be willing to accept the same model as we do regarding what is really lost revenue and lost profit in the situation. So therefore, we'll be careful. But in principle, we are fully covered.

Okay. And that's for all the free metals and the metal premium loss, just to be clear?

This is why I don't want to say very clearly because it is for the interruption cost, the cost of business interruption as the way to put it in insurance terms. And this is always a discussion with insurance companies what is the interruption costs.

Okay. And a final one from my end, more long term on Tara Deep. Should we just assume that the decision is going to be taken at earliest in 2026 now?

I think that's a safe assumption.

The next question comes from Edward Goldsmith from Deutsche Bank.

Two questions from my side. Firstly, on care and maintenance at Tara. What is the closure cost? And what is the expected quarterly maintenance cost going forward? And then second question is on Rönnskär. If Rönnskär restarts, will it be able to return to full capacity? And as long as you're not producing cathodes, what will be the impact on margins?

Well, if we start with the second one. As long as we're not producing cathodes and rather producing anodes and selling them, there will be an impact on margins, of course. But exactly what they will be, I cannot tell and will not tell because we are, of course, having all kind of commercial discussions at this time with other refiners around what would be potential refining charge be and so on. So that will take some time. So I cannot give you an exact number. Regarding the closure costs, you could say that it's about the 1-month full operating cost of closing down. So not much production, but full cost for 1 month. After that, costs are severely reduced to the order of magnitude of about EUR 10 million per quarter of keeping it in care and maintenance. That's the cost for pumping, and they're kind of making sure that the equipment is taking care of it's own while it's being shut down.

The next question comes from Daniel Major from UBS.

Just on the Rönnskär with respect to, I guess, the -- you obviously indicated that the insurance will come through. Is it fair to assume in our modeling that you will receive a lump sum payment in due course? Can you give us any indication on the rebuild time line CapEx associated with that, that you might have to carry to rebuild the tank house and what sort of ongoing additional cost you would likely incur at Rönnskär before you receive any kind of any insurance payment? A similar question. Tara, you mentioned EUR 10 million care and maintenance cost. I'm assuming that's a P&L item. What's your expected run rate of CapEx associated with ongoing exploration on Tara Deep, et cetera, whilst the asset is closed? So first question for me.

We take the second part first around Tara. The exploration activities are, of course, part of the OpEx and not part of the CapEx. They will be curtailed, so -- but that's also part of our we can reduce the OpEx and [adjust] this EUR 10 million per quarter. That is, as you pointed out, a P&L item. There are other cash flow things that goes in and out when you have -- when you deal with these things. You will -- there are, of course, clearly, payables going down, which will affect cash flow. But there are also some receivables going down or affecting cash flow. The cash flow is not really the same, but the P&L is to the order EUR 10 million per quarter. Then you said Rönnskär and Rönnskär CapEx, and the answer is we do not know. And I don't want to give a number. It will, for sure, cost a lot. But we have, at this stage no clue. We have not even a conceptual study or what we would do, what a new sell house would look like, what we will -- how we would like to design it and what the timeline will be for that. That's way too early to say anything about. We don't foresee -- if you take your question, we don't really foresee any increased costs of operating Rönnskär compared to the kind of standard. But of course, the question is, what is the lost revenue of foregoing the refining charge that it comes with having a tank house and having to give that to somebody else. And what's the effect, as you know, on free metals around this? And can we do tollings? Or would we sell the anodes and so on? All these are way too early, commercial consideration that's too early to tell.

Okay. Maybe just a follow-up, if I could. Just to interpret the guidance you've given on for the sensitivities around the earnings for Q -- for the second quarter. In the mining business, SEK 1.2 billion of EBIT in Q1. You've guided for SEK 500 million of, I guess, exceptional items relative to your previous guidance. How should we read that on the sequential bridge in earnings from Q1 to Q2? I think prices have been lower. But I guess you see some improvement at Aitik after a poor Q1. I mean, how should we think about the sequential bridge in the key items, both mining and smelting Q1 into Q2?

If you -- as you know, we don't guide too much for that, but I can help you a little bit. And of course, there were some kind of one-offs that we should not see again. There were pretty big negative items in Garpenberg that we have said now that there is some of that remaining into April before we got really going. But as we're talking now, it's much better. We have also not said anything about Aitik, and that means that Aitik is more or less operating according to the guidance we've given, which means more throughput than we had in Q1, but also potentially lower grade as we had -- as we have guided, we're heading down to 0.17. And then you have these impacts that we talked about in Kevitsa. And then you will have the lower prices, and you'll have to do your own modeling on this.

The next question comes from Christian Kopfer from Handelsbanken.

Yes. Just a few follow-ups then from my side. Firstly, on Kevitsa, it seems, Mikael, you are -- you had a lot of uncertainty when it comes to, call it, guidance for grades. Still, you are quite explicit on the full year, very explicit for the full year, which essentially means because we already have a guidance for Q2 and then you can pencil in what you expect for the second half. So even though you signal that you are uncertain, you still say that you expect implicitly grades to come up quite materially in the second half. Is that correct interpretation?

Yes. We do expect them to come back in the second half, but we don't expect them to come back so much so that the full year guidance that we had given before holds. But they will come back. The Q2 will be the exceptional low point, but we won't get everything back in Q3 and 4 from what we're losing in Q2.

Yes, that's fair. But if I would, in order to reconcile everything, it seems like you need grades to come up to end the year at quite significantly higher level than what you saw in Q1. Is that fair?

Yes, Q1 was relatively bad. Q2 is really bad. Q3 and 4 looked better, but they won't compensate for the bad that will happen in the early part of the year.

Okay. All right. So going into 2024, 2024, as you see it right now, that should be more normally of Kevitsa?

Yes, it should be some normal year for Kevitsa as I see it now, we haven't done the detailed mine plan for next year. But as I see it now, it should be a more normal year.

Okay. And then for Tara, what would you say everything else look, everything else unchanged, so to speak? How much higher zinc prices do you need to restart there?

It's difficult to give that because there are lots of moving parts in the zinc price. There's zinc TC. There is power prices that we're negotiating hard on Ireland. It is labor cost, but maybe not the cost of labor itself as opposed to the productivity, but the labor cost unit becomes per unit and so on. So there are many moving parts in this decision to go into care and maintenance, and all those moving parts together is what we look at as we will then consider restarting again.

Yes. That's why I said there. So everything else unchanged from current level. So -- but is it fair to say that you -- at least you need to go meaningfully about 2,500?

I would prefer -- I mean, I would prefer not to say anything on that. But of course, if you only were to play with the zinc price and nothing else, your zinc price would have to be clearly higher than they are today.

Yes. Okay. All right. And when do you think you will come out with an assessment of investment costs? And also when it comes to more details on insurance claims on Rönnskär?

It's a good question. And the answer is I think it will be rather months before we come into this clearance regarding this. There's something very -- just to get a sense of it, we have to think about whether we're going to build on the same place or the different place at the Rönnskär site. And if we decide to put it in the same place, which will have some advantages, it will take quite some time to get -- to clear out what is there right now. Building somewhere else could potentially be faster, but would have other disadvantages. We have not been able to even start thinking about this. And we have not -- I don't think we've been able to contract anybody to do a feasibility study around this. It's unfortunate so that even though we have many contingencies, I don't think that we have a ready kind of drawings for a new cell house. That's -- we haven't done continue to that end.

The next question comes from Ioannis Masvoulas from Morgan Stanley.

Follow-ups from my side. The first that I'd like to clarify, on Rönnskär and Tara, the disruptions and the underlying reasons are very clear. But Kevitsa, what changed in your view on grades now as compared to the beginning of the year that forced that change in the mine plan? Could you elaborate a bit on that, please?

Well, the -- as I think I said before, the main reason is that we are now mining solely out of Pushback 4, which is a lower grade pushback, and we're not mining anything out of the Pushback 3. That consequent, why is that? Well, the reason is that Pushback 3 is below Pushback 4. So we cannot be at Pushback 3 right now for safety reasons. Then comes to your question, why did we not have that already in the plan? Well, in the plan, we had -- we foresaw both a type -- a faster mining at Pushback 3. They could kind of keep up the pace and stay ahead once you circle around the pit, they could have stayed ahead and stayed outside. We've not managed to get the productivity at Pushback 3 that we wanted early in the year. And then secondly, we thought that we could -- you can work on top of each other if you are not close to the rim so that you're not close to rock falling down. But because of the way that things worked out, we're having to operate and loading much closer to the rim, which means that stones will fall over the rim, which means at this stages to be below. This was not clear as we did the mine plan, and we've had to adjust the mine plan accordingly.

That's very clear. And second question, Rönnskär. I believe you had the commercial agreements around the low carbon copper out of the smelter. What happens to the agreements? And could Harjavalta step in so you can still maintain some of the albeit smaller green premiums?

That is, of course, something that is -- it's a very interesting question because the way that the kind of classification of green copper works is, of course, based on the standard that we had before the fire. It's not that you mentioned -- that you measure for every individual tonne exactly. You measure that on an average basis for a year. Exactly how these calculations will have to be redone now, it's very unclear. That's something that I think our people are working on as well. So the answer is we don't know how much can be done with green. The main driver for getting the [indiscernible] is the Aitik volumes. And the Aitik volumes will most likely still continue to be processed in Rönnskär. Rönnskär will then do an anode, but not the cathode. The cathode needs to be tolled somewhere. And then comes the question, okay, what is the CO2 footprint of that tolling at some kind of refinery somewhere. And that's we don't know. Way too early to tell.

Understood. And last question for me. You talked about the possible write-downs at Rönnskär around the tank house and relevant equipment. How does the insurance compensation plays into it? And when you think about the full year dividend, would you adjust for any impairments on your net profit?

Well, starting at the end, if there are impairments, then they will go down to the P&L. We were not making adjustment for impairments in dividend discussions. Now there are, of course, lots of moving parts around this. We will have to take the write-down. We just don't know exactly what it is right now. But it's -- given that this is an old tank house, the write-down will be relatively small. But we don't know exactly where it is yet. The replacement value is much higher. The insurance is linked to the replacement value. So in that sense, the insurance is there to cover. But as we said, we don't know exactly how this will work out. And the insurance claim is clearly going to take months to sort out.

The next question comes from Krishan Agarwal from Citigroup.

Question, most of them have been asked. A quick follow-up on the commercial loss at Rönnskär. I mean I understand that you're not quantifying it now. But conceptually, if I were to understand it that the commercial loss from switching from cathode to anode is that you'll be losing a bit of a physical premium and then the free metal while you'll be paying the refining charge in addition to the cost you already incurred. Would there be any loss of the by-product credit as well in terms of gold because you're producing the anode?

That's also way too early to tell because it all depends on what our commercial agreement would be if you were to sell the anodes, how much paid will we get for the metal contained. If that is higher than what we have paid for the concentrates, which it should be, there will be some free metals still, but it will be less. If we toll it, then we're in theory getting all -- getting back all the spice for the precious metal plant, then we're not losing any free metal. But we will have a tolling cost that we need to pay. But all these things, I think, are way too early to discuss. You will, of course, understand that we will have to be having these commercial discussions in a very thoughtful way, how to handle it and how to make sure that we're not coming it up on the short end of the stick in commercial discussions as well because we are the ones who are in a need.

Understand. And then a quick financial implication type of a question. How should we read this entire incident as an impact on the group working capital. I understand that directionally it is going to result in a little bit of a build, but then any kind of quantification or guidance would be helpful. And the second follow-up is that the -- if I were to look at the consensus expectation for the next year CapEx, it is around SEK 11 billion, significantly down from your guidance for SEK 15 billion this year. Should we bake in into our models a little bit of a higher CapEx because of these incidents that you are discussing?

Well, I mean, in the end of the day, there will be more CapEx because, yes, the answer is yes. Then the question how much of that will be covered by insurance, I don't know. So that's something that needs to be looked upon going forward, I cannot get that mix and then not the timing either around it. So yes. But yes, it will be CapEx to build the new tankers.

And then the working capital?

On the working capital, we are having a higher working capital. And everything else equal, this thing should quicker how fast we can get the working capital out given that we will have, if you want to call it, excess capacity at the precious metal plants and therefore, should be able to kind of get more into intermediates. But once again, this is also but because we don't really know how the balance will work out of all these things. And just to make short term, of course, we will get a concentrate buildup. We cannot stop all the concentrate coming in. So there will be a concentrate buildup short term.

Yes. That's for more of the Q2?

That's kind of for end of Q2 and the early Q3. We have vessels on the way that cannot really be redirected even though we're kind of stepping it there and trying to step down from existing contracts where possible.

The next question comes from Johannes Grunselius from DNB.

Yes. It's Johannes Grunselius, DNB here. Two questions from me. I mean we have discussed a lot of details. But what I'm after is I understand you don't want to give us a CapEx guidance for the tank house. But could you help me understanding how expensive is the tank house, if you look at the smelter in general? I mean, is this a very critical part of the sort of equipment and the capital employed in -- or the invested capital in the smelter?

I mean it's, of course, going to be much more a part of the capital with the new one compared to an old one. I don't want to give any numbers, but I can refer to some of your colleagues, Johannes, who have kind of done some kind of benchmark what it cost to be tank houses around the world and already came up with a number of maybe this will cost SEK 3 billion to build a new tank house. But I would say I have not given that number because we have not done any assessment whatsoever.

Yes, yes. I don't know if you can help me with this one, but it seems to me that we're talking more about a plus billion investment eventually when the visibility is done?

Yes. I would assume that we're talking about a plus billion investment, yes.

Okay. Okay. And then also on the details when it comes to byproducts for Rönnskär when you move out from cathodes for a while. Does that mean you're losing the premiums when you're selling to direct clients? Or could you still charge a copper premium on your products?

There is a copper premium on -- there is in Europe a copper premium on anodes or on blister. So there is a -- which is, in some way, kind of linked to the premium on cathodes. But of course, not 1:1, but there is a kind of correlation. So yes, we should still get some premium. But how big it will be, who knows? We, of course, now jumping into the kind of spot market for -- if you want to sell the premiums now if we toll it, then we get then we get the capital back and then we can sell ourselves with the premium. So yes, there are also these issues around.

Okay, okay. When you think about the important byproducts or income streams from the Rönnskär smelters, where would you say we will see the most negative impact from not producing cathodes?

I mean we will lose on TCRCs because we will lose the RC portion of it [not fully], but we will also lose some free metals. But exactly the kind of balance of these, I don't know. And we will also lose some premiums. But the balance, I don't know.

The next question comes from [indiscernible].

First of all, my regrets to you for yesterday's fire. And I want to ask you about the employees. Is there any directions regarding the employees at Rönnskär short term, long term?

Regarding employees is, of course, also way too early to tell. We have not done any kind of plans, and we need to sit down together also with the unions and have discussions around it. But having said that, of course, things will change. We will not need any staff or any tank house in the short while. And there might be other portions where we also don't need any staff. On the other hand, we're going to build things and clean up things where we might need some additional staff and exactly how this is going to work out, it's way too early to tell.

[Operator Instructions] The next question comes from Daniel Major from UBS.

Dan here again. Just 2 follow-ups. Just to clarify again on the insurance dynamic and the cash flow dynamic at Rönnskär. At this point, would it be your assessment that you would receive at least some funds from the insurance claim for the rebuild? Or would you have to carry most of the fund for the rebuild before receiving anything on the insurance claim?

I think that both the size of the insurance claim and the timing of the payment of the insurance claim is still very much open to discussion. That is, of course, the timing that we would have to spend the money for a rebuild. And I will say that we have not come at all that far in the discussions with the insurance company. But we are full value insurance. So in theory, even though you know insurance companies find different reasons why an old cell house is not the same as a new one and therefore, you would have to pay something in between. But in theory, we have a replacement insurance in place that should be fully replacing lost property.

Okay. And then just one final strategic question. Tara is right at the top of the cost curve and the CapEx associated with the expansion, et cetera, is material. How is the buy versus build case looking for zinc at the moment with respect to securing feed to your smelters, et cetera? Might it be a more attractive opportunity to look to acquire assets relative to continuing with the kind of revival of Tara?

We don't really look at it that way because we can always feed the smelters, and we don't have to buy a mine to feed the smelters. We can have an offtake agreement from another mine, and we can have a commercial agreement. So we don't need -- for that, we are interested in operating Tara mines if we make money in Tara mines, and we need to have a project on Tara Deep that is good enough so that we will make money on it as on a standalone basis, as would any other potential acquisition of additional mining capacity would also have to stand on its own feet regarding what the finances would look like. So I would say that Tara Deep, Tara Deep is a different mine than exists in Tara, the way that we envision it. We envision it being done with quite some infrastructure investments, quite some CapEx. But at the same time, that would lower the CapEx, and Tara might not necessarily be this high cost mine it has been so far.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

I just like to say thank you, everybody, for listening in. It's -- as I said in the beginning, I think we'll always remember June 13, which was not a Friday the 13th, but a Tuesday, the 13th. We can rest or you can rest assure that we will continue to work with full energy to correct the things that we have, and we are working diligently on this. Thank you very much for your attention, and I wish you all a good day.