Boliden AB (publ) ($BOL)

Ladies and gentlemen, I'd like to welcome you to this Boliden telephone conference. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have an update by our President and CEO, Mikael Staffas, based on the press release that we sent out last evening. We will also have a Q&A session where our President, Boliden Mines, Stefan Romedahl, will also participate alongside Mr. Staffas. Mikael, I hand over to you. Welcome.

Thank you, Olof, and welcome, all of you out there. I will briefly, in a couple of minutes, just go through the general situation covering what we have already sent out in the release last night, and then I will leave the floor open for questions. But just to go back and look at what has been positive development. The first and maybe the most obvious positive development is that the seismic activity that caused the problems in the first time has gone back, and we're now back to normal levels. That's good. We managed to start inspections already a week ago, but those inspections were somewhat slow and somewhat tedious. They were done under special safety protocols, which meant that only very few people could be involved in it. And also, as we have been able to restore some of the safety infrastructure, including rescue chambers, we can now get larger crews underground and start working on the repairs that need to be done. So this is all good. The other part that's good is that we have now seen that lots of the big infrastructure pieces that we have underground, including the crushers, the hoist system, the workshops and so on, are either not damaged at all or only moderately damaged, which is good. And also the media underground, including ventilation, water pumping, power systems, compressed air systems, so on, they have been hurt to some extent, but we don't think it's going to take very long to repair them. We're talking about 1 or a couple of weeks. So these are the good things. The other thing that's good is that the majority of the ore that we have underground is in a very good condition. So that's also good. So we have a good position on Kvarnberget. We have a good situation regarding Dammsjon. We have a good situation regarding the lower parts of Lappberget. We also have good situation regarding the Huvudmalmen, which is an area where we're not producing at all right now, but what we can see there, it also looks like that's all good, which is linked to the new hoist and so on. However, the issue is, and that's very clear, that the area that has been most severely affected is the upper part of the Lappberget ore body. That's where we have the majority of our production. Around 70% of the plant production is in those areas. And even though we haven't done detailed inspections finished yet and even less than any kind of planning, it is obvious to us that the damages here are big enough that it's going to be very difficult to restart mining here in the short term. And in some positions, probably also forever, that we will lose some of these tonnes. Just to get a sense of order of magnitude to all of you guys. If we were to lose all of it, which we don't really think, but if we were to lose all of it, that's about a little bit north of 10 million tonnes, maybe up to 13 million tonnes, out of the 104 million tonnes that we have in the reserves. So that's a little bit more than 10% that we lost, but we still have 90 million left. And out of the 150 million that we have in resources, most of that is very undamaged and still around. So the long-term prospect for the mine is still good, even though the short term is tricky. So the time plan for us now is that basically, as of today, we have started the repair works. It will take a couple of weeks. We don't know exactly, but that's that the order of magnitude to get the things in place that we will need to have in order to start producing. We will then start production, and we will start hopefully at around 30% of normal capacity. And that's what we get from Kvarnberget, from Dammsjon and from the lower parts of Lappberget. It is then very difficult for us to have assessments of how things will develop going forward. We still have to work on those plans quite a lot. But we're, of course, working in 2 directions. One is to see what can be done out of the upper Lappberget. Is there something there that can be rescued? That's probably going to take a while and it's going to be relatively low volumes, but we will look into that. The other one is, of course, how can we speed up developments in our other ore bodies, the ones that are unhurt, so that we can ramp up production there? It's also, as those of you who have done a mine plan know, quite difficult to know exactly how fast that can be done when you haven't really tested what is doable and so on. When it comes to the other kind of financing consequences, we have gone out today that we will have in Q1, we are losing about SEK 400 million compared to what somebody could have guessed. It depends a little bit on what prices and terms you use. But if you use prices and terms of today or a couple of days back, that's the order of magnitude. On top of that, we have not yet assessed whether we will need to make a write-down of some of the infrastructure parts linked to the Lappberget ore body. That's, of course, a fully noncash item, but we will have to come back to that as well. So that's the kind of general information that I wanted to convey to you. And with that, operator, I leave the floor open for questions.

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

Appreciate you setting up this call. Two questions from my end. First of all, in your mine plan for Garpenberg prior to the rockfall, was the upper Lappberget zone supposed to account for the majority of production for many years to come? Or was this a zone that you were sort of gradually moving away from anyway in a couple of years?

Yes. I can take that one very quickly. It would have been -- the answer is yes to both of your questions. It would have been the majority of the production for a couple of years forward, but it was slowly getting less as it was coming slowly towards an end.

Okay. And second question. Is it -- or I guess, how much of the cost base would you be able to scale down on fairly short notice, I'm thinking for 2026, while you are on this lower production? I'm just trying to get an understanding of the under-absorption effect on the lower volumes.

Yes, I understand that. And that's a very good -- another good question that I don't have a good answer to. Some of what would have been OpEx otherwise is likely to become CapEx because we are likely to do much more drifting and development, which comes as a CapEx rather than OpEx, although it cash-wise might be the same kind of cost. Then we will save some costs, but it's a little bit difficult to say exactly how much on the -- in the mill, where we will use, of course, less power and we'll use less chemicals and so on when we are producing less. But we'll have to come back to those questions as well in more detail.

The next question comes from Alain Gabriel from Morgan Stanley.

A couple of questions. One, Mikael, you talked about the 30% production level towards the back end of Q2. What are the practical and physical limiting factors to you lifting your throughput rates above the 30%? That's my first question.

Development. We need more development. We have development roughly in place for those 30%. So I can answer that one quickly.

Okay. And the second one is on the expansion plans for Garpenberg. I guess it's still early stage, but preliminarily, do you think that this incident now will prompt you to put all the expansion plans on hold for now? Or how are you thinking about the expansion projects?

From a practical point of view, we don't really know yet. Of course, we will have to do certain things around the new hoist and see whether there has been some geotechnical changes and so on. But from a strategic point of view, that investment becomes even more important. That one is there in order to be able to develop Huvudmalmen, the next kind of big one, towards the depth. And if we're now losing tonnage in the upper part of Lappberget, we will have to get to Huvudmalmen sooner rather than later. So it puts the strategic rationale even more in the forefront.

The next question comes from Marina Calero from RBC Capital Markets.

A couple of questions from my side. First, do you know what caused these events? And do you see any risk of this happening again in the short term or in the medium term? And then the second question is, do you have an insurance in place that could help you to cover the potential infrastructure cost or repairs that you have to do right now?

I will take the second one first and I'll leave the first one to Stefan to get into in a little while. Regarding insurance, yes, we do have some insurance. It is on a very low level because there are very few things underground that our insurance covers. So it's -- there is likely to be some kind of insurance money, but it's going to be on a very small scale. I can say it's absolutely not going to be more than SEK 1 billion, because that's the ceiling. But it's likely that it will be less because there -- actually the things that are insured underground are the ones that have been actually doing pretty well. And the things that are not insurable underground are the things that have been faring worse. But this will be a long discussion. Regarding the cost of the event, I will leave it over to my mine director to see if he can make some sense of that so you all understand.

Yes. This is quite complicated in one way. But if we start with a simple answer, is that if you are doing mining as we do, then we will have a seismic event. Even if we're backfilling the voids that we are creating, that backfill will not prevent seismic events. So we will have seismic events even going forward. The thing is that the mining method as such should be possible to put up in a way that we should be able to mine even if we have these seismic events. In this certain occasion, it has been a really long-term buildup of stress in the rock mass. And these have been released in a way that we not have seen before. And after these have happened, it was in 2 phases actually, first one, big one, and then later on, a smaller one, going down in the number of seismicity as well as amplitude of the events. So the stresses around the rock mass around our ore bodies have changed now after these events. And that will take some time to build up a new stress before -- stress in the rock mass before the next relief of that. So this will have an effect how we are looking into the mine method -- mining method and if we should do changes to that, of course. But the main principles is the same. It will be stope production and it will be paste that we are using for backfilling. So we can't say that this kind of events will never happen again. It will. But we hopefully will be more prepared to steer them in an other way than it has happened this time.

The next question comes from Liam Fitzpatrick from Deutsche Bank.

Just a question on the flexibility that you have to kind of pivot your mine plan. I know you're still working through all of this. But if we take the scenario that you can't get back into the upper parts of this section of the mine for the foreseeable future, what sort of time frame do you think we'll be looking at or could be looking at to open up new areas and get back towards that pre-incident type levels of production and throughput into the mill? Is it 1 to 2 years? Could it be a lot longer? Could it be shorter? Just any kind of color on that would be helpful.

You will not get much color because I will say what I said before, we have not done the plan yet. And before you do the plan, you should be very careful about saying things. And there are so many things that you need to coordinate, not just getting the development media done. They need to be done in the right sequence, in the right order, to make sure that everything from ventilation to other things work out fine. So I will not give you another number on that yet. Hopefully, we'll be able to say something more as we release the Q1 report.

Can I maybe try and ask it a slightly different way? If you want to expand production from the other unaffected parts of the ore body, is there scope to kind of -- to ramp up production from those fairly short order?

I mean it's -- whether it's shorter or not, it's a little bit of a question. But yes, we will probably try to use -- those of you who have been in Garpenberg, you will know that there are other smaller ore bodies around that we have been mining before where there might be positions left, places like Kaspersbo, Strand and so on. So we will look at everywhere to see where we can find volume in a useful way. But let us do the planning first, and then we'll come back to you once we have a sense of how this can be done.

The next question comes from Krishan Agarwal from Citigroup.

Could you elaborate on which of the smelters are actually dependent on the Garpenberg feed? And is there any kind of rerouting of feed for the smelters you will have to do post this incident?

The Garpenberg feed goes -- it goes to many places. But the main part is, of course, the zinc concentrate that goes to Odda and to Kokkola. Without getting into too much details, of course, we're working on trying to make sure that we can work on our concentrate book to not get too much of an impact. But we'll have to come back to how we can manage that as well. Then there are smaller feeds of lead concentrate going both internally and externally, some copper concentrate going both internally and externally. But I think in those cases, the damage is probably less on the receiving end. We have, of course, called force majeure on all our deliveries because of this.

I understand. And then I'm assuming that the SEK 400 million impact, which you have guided, include any kind of impact from this concentrate rerouting as well?

Yes. Yes, it does because we have not had the issue so far. I mean it's -- there is enough to handle the smelters during Q1, during this kind of 2 to 3 weeks that you have until the end of the month, rather than what it will be longer term if this has gone for a long time. But we'll come back to that as well.

Okay. And then finally, a quick clarification. So the incident happened or initially was reported in early March. So the SEK 400 million impact which you have given is essentially for like 3 weeks impact?

Yes.

The next question comes from Amos Fletcher from Barclays.

One question for Stefan. I just wanted to ask, have you changed the mining method or the pillar sizes in any parts of the mine in the course of recent months or years that could possibly be a contributory factor to this happening?

Not really. It's a panel stoping mine plan that we have -- the mining method that we have used. And we are in -- mining secondary stopes mainly. So all the primers is taken out. We are following the sequence for the secondary stopes. But it's no big changes in the design of the stopes. But the ore body itself is quite wide, so it's about 120 meters thickness. And that means that you divide those primary stopes and secondary stopes in more or less 3 levels when you're going in. And that also makes the full void, if I say so, with Lappberget to be quite extensive, both in height and width and depth. So it's the number of -- the amount of backfill paste and the remaining secondary stopes that have collapsed together, if I say so, based on the seismic events.

Okay. Understood. And then the second question was just on CapEx. Have you got a sort of preliminary estimate of the capital cost to restore production back to 30% and then potentially back to 100% over the medium term?

No. But up to the 30% should be relatively low. As I said, these are minor repairs. So that one, I can -- just a low -- very low number, not material. The number for getting up to 100% could be more material, but we need to get back to that.

Okay. And then just final question was just around have you got any sort of indication you could give us on grade and throughput for 2027 at this stage?

I will be very careful with that. As you understand, we have -- we're now going to have to redo the mining plan for '26. We have given some estimates there because we know roughly which position we're going to go to, and we know that it's slightly higher silver grade and average for the whole thing and slightly lower zinc grade, maybe similar NSRs adding them together. '27, it's going to matter a lot how we decide to speed up development and which positions we're going to be able to get to.

The next question comes from Boris Bourdet from Kepler Cheuvreux.

I will ask 2 questions. The first is to try and assess the financial impact for the full year. So if I look at the press release, you indicate that there is 0.8 million tonnes to be produced in Q1 and then 0.1 million tonnes per month. So that leads to 1.7 million, 1.8 million tonnes per year, for this year. It's roughly half of what was expected initially. So should we cut EBITDA contribution in 2? Would that be a fair way to assess the broad financial impact for this year? And the second question is about the implications for the ongoing appeal. Do you see this event as some -- adding some risk to the conclusion that's to be taken at the end of the year?

I don't think that this will impact the appeal process on the environmental permit at all. Regarding financial impact, just to help you on the tonnes, we basically said it's going to be 800,000 in Q1 and then it will be maybe a month where there's nothing. And then if you do 100,000 per month for the last 8 months, and it's like 1.6 million, so that's less than half. So we're going to lose more than half for the year. And of course, in the quarters, in Qs 2 and 3 and 4, we will, of course, be less than half of that. But it's -- so that's just an order of magnitude. It's not a detailed guidance.

The next question comes from Johannes Grunselius from SB1 Markets.

Johannes here. So most of the questions have already been asked. But would you think, Mikael, that when you report the Q1, that you are able to provide some kind of 2027 guidance on ore production on Garpenberg? Or do you need more time to work through the mine plan?

We're going to need more time. I will be happy if I can have some more light on Qs 3 and 4 of '26.

Right. Then on Lappberget, I understand this is usually difficult, but you say, worst-case scenario, you leave Lappberget, which is 10 million tonnes of rich silver and zinc ore. But are you able to sort of provide any kind of rough estimate on the risk here for such a scenario?

That's also very, very difficult and it will have to do with timing. Actually, Stefan should answer this question more than -- because I've asked this so many times so I kind of know the answer. And the answer is that there is a risk that we will leave all of it. That might not be the total risk. But whatever will be mined will not be all of it, and it will be mined in a slow pace. Correct me if I'm wrong, Stefan.

No. I mean if we do rest mining, which will be the case in this situation, then it's a really detailed planning to do that. And you can't really say that you should do that in a high pace. So you have to be very gently when you're taking out some of the ore. I think it's doable, but it's a lot of engineering needed to be done to make sure that we don't worsen the situation. Because if we just mine out areas that we are -- can start mining, if I say so, then we will increase the open void, and that will -- might affect the seismicity going forward also. So we'll have to be very careful how we are processing here.

The next question comes from Richard Hatch from Berenberg.

Yes, just a couple. So firstly, have you got any stockpiles that you can use at the moment to fill the mill while you're impacted by hauling and hoisting primary ore? That's the first one.

Yes, but not of any -- I think we had like 5 days' worth of production on-ground that we could process at some stage. It's something, but not really meaningful.

Okay. And then secondly, I'm just trying -- again, like we're trying to understand the cost impact. So have you got a steer as to what percentage of the operating cost of the mine is fixed versus variable?

No, I think I will pass on that one because there's lots of costs here that are semi-fixed and semi-variable, and we need to get our arms around exactly how they work out. Just one thing just to be very clear, we have still not really worked out how we're going to run the mill. Most likely we'll batch it and they will be working for a couple -- for a week and then standstill and so on. How that affects consumption of chemicals and so on is something we need to look into as well.

Okay. And then just 2 more. The first was just a clarification point. I didn't hear you fully. So did you say you are or are not going to have to declare force majeure on your -- on the smelter feed, from the smelter?

Yes. We will because we're fully sold out. And of course, we're only going to be able to deliver maybe 1/3 for the rest of the year compared to what was expected. So yes, we will. And it's a question how we will negotiate with the customers around that, if we can postpone deliveries and all these things that you do in these situations.

Yes. Got you. And then the last one is just on the technical side of it, like, are you confident that you weren't overmining the ore body? And I appreciate it's a fluid situation, but in some of the deep-level South African mines, they have to destress the ore body, right? So is this something that you're considering now? You did mention it sort of slightly earlier on, but are you confident you weren't overmining? And secondly, are you considering destressing in the future to avoid this sort of thing?

We are looking into this from a rock mechanical point of view. And as I mentioned before, the dimension of Lappberget and the void that is backfilled with paste as well as remaining part in secondary stopes, that full, solid, if I say so, void, that have to be analyzed from a rock mechanical point of view going forward, of course. But the width of the ore body is a challenge when it comes to stability over time. But this incident with this high release of stress, that was not in our plans.

Okay. So you don't think you were overmining?

Yes. Are we going to a new way of mining? No, we will keep more or less the same way of mining. But we might look into the details how to get things right.

The next question comes from Jason Fairclough from Bank of America.

Just to kind of follow-up on the actual technical issues here. I was wondering, could you talk a little bit about any history of seismicity at this mine? And again, it's kind of been asked already, but has something changed to actually cause this problem? So if we look elsewhere, when we've had these sort of, I'm not going to say catastrophic, but these big seismic events, typically, it's been because of a change in approach to mining. So Kamoa-Kakula, for example, they were behind on backfilling, it sounds like. So I'm just wondering, has something changed?

Not really. If you start with the seismic activities, we have normally about 20 to 50 events per day. That's quite normal. It's small seismic events as well as a bit bigger. So that's a normal situation. In this case, it's starting to pick up the numbers quite dramatically when it comes to events. So when it was at worst, we had about 400 seismic events an hour. So that's a huge change. And the amplitude was up to about 2. But this is starting activating to known [ geology ] structures. One in the hanging wall, as well as another structure that is known since before. But the view is that the total void, the volume of the total void, have -- is quite big. But we haven't changed the mining method as such and we are not more behind now than before when it comes to backfilling. So that has been in the same kind of level. It's just that more have been mined out or refilled over time.

So again, does this have any implications then for the plans to increase the mining rate longer term? So are you actually -- and I guess this is what Richard was getting at, are we going to run up against sort of natural limitations in the ore body in terms of how quickly you can actually mine here?

Yes, that can be a consequence of it. If you look at Lappberget, with this kind of geometry that Lappberget have, even it is worse [ depth ]. But the main ore bodies going forward long term, that's Huvudmalmen, and that's another kind of geometry. It's always also wide. But this is a few years from now before we are there. But anyhow, it will affect the way we are looking into it when it comes to the primaries and secondaries. The sequence of how we do it, of course, we need to have a look into that. But even so, I think that we will have enough mining areas to increase production towards the target that we have in the long term.

Okay. And last one. I mean in terms of backfilling, you said that on the one hand you weren't behind on backfilling. But on the other hand, maybe the void was a little bit bigger than normal. Can you just help me understand that?

Yes. The paste filling in that room that was starting, one of the first collapse in the secondary room, here normally we had paste pipes going in to several kind of positions in the roof. And that was, unfortunately, 2 of those positions was taken out of operation. So we have -- it was starting to get like a slope down over these 60 meters, if you can see it in front of you. Basically based on that, we couldn't fill up in a really equal level based on the miss-out of those 2. So that made a bit of a slope. And then when we have this fall in the secondary stope, that's then we had a bit of an air shock coming out. But that's -- this is not directly connected to the seismic event that's happened a few hours later. But it could be, of course, a related thing over time when it comes to the stress buildup.

I might just be a bit cheeky here. So Mikael, in terms of thinking about safety, do we call this a -- what would you call it, a high potential incident or a near miss? How do you think about that? And how does it potentially impact how you run the business?

Well, number one, it is an LTI, the first event. It was an LTI because we had the air shock wave that fell people over. We should be very clear that there was not really any risk for anybody getting on to rockfall. And then we had the actual seismic event. We have clear instructions of when we will evacuate the mine, and we did that. And everybody were out, I think, by 11:00 p.m. And the big seismic activity started around 2:00 a.m., 3 hours later. So I don't know what you call that. I suppose you call it an incident. But all the routines were followed and nobody was really close to being hurt in the second -- in the actual seismic event.

[Operator Instructions] the next question comes from Alain Gabriel from Morgan Stanley.

Just 2 quick follow-up questions. Mikael, I guess, how long do you think it will take you to figure out what the right mine plan is going forward? Is it with the Q1 results that you've stated? Or is it going to take longer for you to update the market? That's my first follow-up.

Well, I think that we will have some kind of update in the Q1, but it might not be a complete update.

Okay. And the second question is on the grade differential between, if I pronounce it correctly, Lappberget and the second one, which is Huvudmalmen. Sorry, if I've mispronounced it. But what is the grade differential between the 2 different sections of the underground?

Regarding Huvudmalmen, I'm actually not quite sure. Stefan might be able to answer that one. But right now, the differential between Lappberget and Kvarnberget and Dammsjon, which are the other 2 active mining areas that we're using, is not a big difference. It's about the same NSR. It's actually maybe slightly higher in Kvarnberget and Dammsjon because they have higher silver grades but slightly lower zinc grades. And then regarding Huvudmalmen, Stefan?

The difference between Lappberget and those ore bodies that Mikael was talking about here also, it's size. Lappberget is much bigger and so on. So the other ore bodies is smaller. Huvudmalmen is looking really big, going downwards towards depth here now. But there, we're not -- we haven't prepared Lappberget for -- Huvudmalmen for production yet. So that will come in the next years.

And then the grade differential?

And the grade, what was the grade in Huvudmalmen? I actually don't know. I'm looking at Stefan. We might have to come back to you regarding that one. I don't know exactly. But it's not a major difference, but maybe slightly lower, but I'm guessing.

We can say like this. You have some high-grade areas, but that's towards depth in Huvudmalmen. And then you have quite many tonnes with average to low grade also. So it's a mixture of the different grades here depending on where you are in the ore body.

The next question comes from Richard Hatch from Berenberg.

Sorry if this one has already been kind of half-addressed. But I'm just sort of looking at the plan of the Garpenberg mine, and I just wonder if an early consideration would -- a medium-term consideration would be to drift into that new -- I'm sorry, I'm just going to butcher the language, Huvudmalmen area, so you can access some more and at least sort of drive into it from your existing workings? Or is that not an option?

I can say the following, but this is very kind of very, very preliminary, the timing is unclear. But we will be drifting close to Huvudmalmen or tunneling close to Huvudmalmen and ramping to get down in order to get the base position for the new shaft anyway. It was not envisioned to do -- to use those for getting access to the ore, but maybe we could. And that's kind of one area that should be looked into. But in what time scale and when, I think that that's way too early to tell. But we are looking to kind of ways to get to Huvudmalmen earlier. But exactly what the smartest way is, it's kind of too short time to think for that. Operator, is there anybody else?

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

Okay, guys. Thank you for listening to us for these last 45 minutes. I hope that we've been able to shed some more light on both what happened and what the actions are that we're doing. So with this, I wish you all a good afternoon, if you're in kind of our time zone. Otherwise, a good day if you're in North America. And I look forward to talking to most of you again as we come into Q1 results in about a month from now. Bye-bye.