BOLIF - Boliden AB (Publ) (BDNNY) Q4 2022 Earnings Call Transcript

Boliden AB (publ) (BDNNY)

Q4 2022 Earnings Conference Call

February 14, 2023, 03:30 AM ET

Company Participants

Olof Grenmark - Head of Investor Relations

Mikael Staffas - President and Chief Executive Officer

Hakan Gabrielsson - Chief Financial Officer

Conference Call Participants

Mattias Vadsten - SEB

Viktor Trollsten - Danske Bank

Adrian Gilani - ABG Sundal Collier

Johannes Grunselius - Den Norske Bank

Christian Kopfer - Handelsbanken

Krishan Agarwal - Citigroup

Jason Fairclough - Bank of America

Alexander Vilval - Pareto Securities

Liam Fitzpatrick - DB

Daniel Major - UBS

Presentation

Olof Grenmark

Ladies and gentlemen, I'd like to welcome you to Boliden's Q4 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, Hakan Gabrielsson. We will also have a Q&A session, which we will start here in Stockholm. The whole call is scheduled for one hour.

Mikael, the stage is yours. Welcome.

Mikael Staffas

Thank you, Olof, and welcome all of you over -- in the camera over there as well. And happy Valentine to everybody. We have wonderful weather here in Stockholm and somebody has put lots of red hearts around all this venue this morning. So, we feel very welcome.

So, the presentation today, and I'll just start with getting the general message across. We've had a good quarter. Even though -- [when we say] (ph) the good quarter is, of course, we've had good situation in terms of our prices and terms that have helped us a lot, and that's, of course, the basis for everything.

We have had lower grades in our mines, which is nothing new. You all know about this and it's been well guided for in advance. But the smelters have performed very well, not just because of price and terms, but also because of good performance in general and good production.

We're having a little bit more than SEK3 billion in EBIT coming online here, but we also have a very strong cash flow of more than SEK3.5 billion despite the fact that we've been investing record amounts as well, in line with the guidance that we did have.

The dividend proposal is out as well, and we're following our dividend policy exactly the way that it has been done before. And therefore, it happens to come out at SEK15.00, more than last year. Somebody made a joke this morning that you have tweaked your dividend policy to be able to say that you have increased it. No, we have not. We've followed the dividend policy through the letter, and that's what it comes out with.

Our projects are doing fine, both in Odda and the big project in Aitik, are both moving ahead according to schedule, the way that it is set up. And also, we have gotten a clearly improved production in the nickel line in Harjavalta, where you can say that now the ramp-up is completed; too late but better late than never.

So, generally speaking, the EBIT level, if you look first at the solid line here, you get the rolling 12 months, you will also see that 2022 was a record year, altogether, which was a good thing. Now, if you look sequentially, yes, we have lower profitability which is due both to lower grades in the mines, as well as that we don't have quite as brilliant price in terms as we did earlier in the year, even though they are still on a very good level, and I'll come back to that in just a moment.

Talk a little bit about health and safety and environment and other sustainability issues. We've also had a good quarter. Our LTI frequency has come down. It is -- 2022 is the best year that we've had regarding occupational health. We have a 15th year of fatality-free operation, and the LTI frequency, as I said, is getting lower.

We've also continued to improve our CO2 emissions. The intensity measure that we have in -- this is the last quarter. I will use, what I call, the old measure, and we will move over to a science-based target as reporting as of 2023. But also, according to this old way of measuring, we have had a very good quarter. You can see a clear reduction compared to same period last year.

What is a little bit disturbing for us, it's disturbing in many aspects, is the high sick leave that we have. That one is record high, which is nothing that we're proud of. It also does affect our productivity and does affect our production, especially in the mining side, and I'll come back a little bit to that as I move on.

The pricing, as we said, we're still -- just don't fool anybody, we're still having very good prices and terms. We are being helped by high metal prices, even though they're not as high as they were in the early part of 2022. We're also being helped by strong currency -- strong currencies from our perspective, the way that we measure, starting in the Swedish krona, we've had good currency that does help us with the revenue side.

If you look on the prices, as we have shown this exhibit many times over and over again, you will see that the prices are good. They are way above the cost levels in the industry, and everybody is basically making good money. What you can see from this one is that the inflation that we have in the industry, and I'll come back to talk about our inflation in a while, is getting a bite into the industry and we see that the cost levels in the industry are going up. We also see that especially on the nickel side, the cost levels are going up due to the fact that also new marginal production is coming online, which is driving up the cost level in the industry. But as you see, you cannot really complain this industry saying that the prices are too low. They are actually in a pretty decent level, I would say.

So, if you go through the production that we had, we had in Aitik, I would say, decent quarter in terms of throughput, not quite as good as last year. We have been hit partially by winter condition, but also by the high sick leave. And high sick leave, as you know, especially in the open pit mines actually hits us pretty hard. If you don't have somebody showing up for work in the morning, that truck will not move. It's not that we have somebody else sitting beside and waiting, and it's not like in a control room where there might be six people working and five show up, where you can do most things anyway. In the open pits that's not the case, and we're suffering from that, both in Aitik and in Kevitsa. The grade is down to 0.17 as we had guided. We're already in Q4, coming into the levels that we will see also for 2023.

In Garpenberg, also strong production. The zinc grade is 3.6, according to the level that we had guided for, and also the silver grades being in line with what I think most people had expected.

Kevitsa, 2.6 million tonnes in the quarter, which means that we're over 10. Some of you know that we have an environmental permit that is 10. So, some will say have you broken environmental permit. In Finland, you can occasionally, if you don't do a habit of it, go over your permits. So, this was in the full year about 2.2 million tonnes or 2.3 million tonnes, which is okay if you don't repeat it. So, [following] (ph) out there. You can't expect that to really be repeated, but we have proven with the investments that we can fulfill the permit that we do have.

Boliden Area has had a good mill volume and good grades. In general speaking, in the Boliden Area, if you turn -- look at it, it is probably the one that is performing best of all our mining areas.

Tara is coming back from a low level, but it has had a good -- relatively good production, increasing the mill volumes and we're still waiting to get into the really good stopes to get up the grade, but still working on that.

On the smelter side, generally, a very strong quarter. Generally good production in the smelters, all in all. We've also been able to produce a lot of gold. This is by far a record gold quarter. As you know from before, we have been suffering a little bit from having lots of gold in intermediate products. We've been good at getting it out, which is also the basis for getting a very strong cash flow in the quarter. And we are now down to, I would say, working capital levels that are kind of significant or normal for the season as such.

In Harjavalta, the nickel line has also improved. You can say it's more or less up to full speed as of the fourth quarter.

In Ronnskar, also, strong production, strong throughput. Also there, good precious metal production coming through.

The zinc smelters, also good production. The power prices have been lower than they were in Q3, which means that we have not as much as before taken voluntary curtailments of production to sell power. That has happened and we do have some margin from selling power. But it's not that often and we have been able to do what we want to do, produce zinc most of the time, which you can see.

Bergsoe has had a planned maintenance stop. Basically, Bergsoe, from the issues that we had early in the year, is basically up to full speed.

So, if you look at the full year, as I said before, the full year for 2022 is by far the best year that we've ever had with, of course, very good price and terms when you put in the earlier quarters that we did have in the year. We've had improved volumes, but the grades were heading down already in this quarter in the mines. The volumes in smelters have been going up. Generally, smelters have had a very good year, record year in smelters.

And then, of course, we've been struck by high inflation and especially as we measure in the Swedish krona that has also been suffering from the current exchange rate, as much as it helps us on the revenue side, it's, of course, also biting us on the cost side. If we look just quarter four over quarter four, we're close to 20% inflation level. If you look at the whole year, as I said, here it's not quite as much because it was a little bit less in the beginning of the year, but is well over 15% for the whole year in terms of inflation.

The mines, you can see very similar types of profit level for the mines -- the individual mines this year compared to what they have been in previous year. This is, of course, a mixture of better prices and terms and lower grades that makes this to become relatively similar. What is of course is interesting and new is this picture on the smelter side, where you can see that many of the smelters have taken big step forwards and are now bringing very good profitability levels. Harjavalta especially, but also Kokkola and Odda have increased margins during the year, all in all.

Exploration. We are also today releasing the R&R statement. Number one, which I think I've alerted before, we have not curtailed investments into exploration, rather it's a record year in terms of spending on exploration. There is partially an inflation piece in this as well, but it's also an increased ambition of being able to explore the way that we want to do.

The really good news in this R&R update is Garpenberg, where we have both improved resources and improved reserves at the same time. And you have to remember, we measure resources without the reserves in them. So, when I say that it's -- the sum has gone up even more, which is very good, which means that we from a strategic point we'll have to come back to you about how we're going to handle the improved geological situation that we have in Garpenberg.

Otherwise, relatively small updates. Boliden Area continues to add year per year. Tara with the issues with the water leak that we've had and therefore lack of possibility for exploration, not quite a year in every year. And then in the open pits in the north, we actually have a little bit of reduction of the relatively long times, as we have had to factor in higher costs. But that negative in terms of volume comes back with higher average grades. And Aitik has now moved from 0.22% to 0.23% average grade, again in the R&R statement.

So, having said that, you can see here now in Garpenberg what a long life of mine we have, and that's something, as I said, alerted that we will have to think about over time what we can do about that from a project point of view, and the minimal resources have also fared relatively well.

With that, I will leave it over to you Hakan to go through some of the finances.

Hakan Gabrielsson

Thank you, Mikael. Good morning. So, I'll just try to sum up the financial position that we have. Mikael has covered part of it.

We are reporting an EBITDA today of SEK5 billion, which is on par with Q3 and about SEK300 million up compared to the same quarter last year. Looking at EBIT before inventory revaluations, we are at SEK3.2 billion, which is down from the SEK3.5 billion that we saw in Q3. The difference is mainly the write-down of exploration rights in Kylylahti that we talked about in the Capital Markets Day, and we charged to the P&L this quarter.

Investments are SEK3.7 billion -- over SEK3.7 billion, which is up compared to both comparisons. We do see the projects in Odda and Aitik getting up to speed. Free cash flow, SEK3.5 billion. This is in fact the strongest cash flow number we have reported in a quarter and, of course, it feels good to have -- to be able both to report record investments and record cash flow in the same quarter.

By business area, as you can see, mines see an impact from lower grades. We are already using the profit level there compared to both comparison periods, while smelters is, for the fourth consecutive quarter, stable on a very good level at about SEK1.3 billion, SEK1.5 billion.

Looking at analysis of the changes in profit this quarter compared to the same quarter last year, we are up about SEK350 million compared to last year. We have a bigger impact from favorable currencies with a strong dollar relative to the Swedish krona, which adds up to about 1.3. Then we have seen lower metal prices in the quarter year-on-year, which is then compensated by a good development on metal premium and byproduct prices.

Volume-wise, we are roughly stable compared to last year. We have lost about SEK1 billion worth in grades, but that has been compensated by a good performance in smelters, and in this quarter by a reduction in inventories. Most importantly, we have reduced the inventories of gold that was tied in the processes and that has had a significant contribution to the P&L.

Inflation and cost is up. We are increasing the cost by about SEK941 million. Included in there is an increased reclamation reserve -- or cost reclamation in Kokkola, SEK54 million, but it's a significant cost increase and we are looking at about 20% inflation in the quarter. Out of that increase of SEK940 million, SEK700 million is an increase in energy and consumables, consumables meaning an explosives and similar. So that is really where we see the cost increase. The remaining parts are fairly stable. I already talked about the write-down that we had in Kylylahti which is the SEK259 million affecting comparability.

Looking sequentially Q4 versus Q3, we have a reduction of SEK295 million, which is basically the same amount as the write-down I just talked about. We have stronger prices. Metal prices are up, especially copper. Nickel is the most important one here and silver. Volumes are also positive. Lower inventories and good production in smelters. On the cost side, we are up. There is a fairly significant seasonal effect here. I would say that roughly SEK200 million is a seasonal effect between Q3 and Q4 that we see every year. And then, we have a bit of inflation and the SEK54 million reclamation cost in Kokkola.

Moving on to the cash flow. Again, record high cash flow, which is, of course, driven by good underlying earnings with the EBITDA excluding process inventories of close to SEK5 billion. We have high investments, but we've been able to release a lot of working capital. It's about SEK3.2 billion released in the quarter. This is -- this brings inventories down to a normal level for this time of the year. We have reduced a lot of the gold that we had in the processes. And we've also reduced most of the nickel that we talked about previously -- the extra nickel stock that we had.

Taxes is fairly high. There is always a lag between the taxes charged to the P&L and the taxes charged to the cash flow. So far, for the full year, there is about SEK400 million lag in taxes, where we are charging more to the P&L than the cash flow, and that will, of course, be recovered in the following year.

So, it's the final slide for me then. We end the year with a very strong financial position. We have, in fact, a net cash position -- small net cash position. It says 0.0 here, but it's a plus before the 0.0 if you get that. And also, we have a net payment capacity of SEK23 billion in the beginning of the year. Those SEK23 billion are made up of SEK12 billion cash and SEK11 billion credits that are not yet utilized. So, we feel like we're in a strong position, and again a strong quarter.

So, with that, Mikael?

Mikael Staffas

Thank you, Hakan.

Hakan Gabrielsson

I already talked about that, Mikael.

Mikael Staffas

Yes, you talked about the impairments, so we'll jump that one, and very quickly talk about the outlook going forward. And here, there is absolutely nothing new. We are still guiding for the same grades as we did last quarter. We're still guiding for the same CapEx as we did last quarter. I think there's actually a little bit of adjustment on the maintenance stop, which has to do more about the exact prices and terms around what is actually the cost of the idle time. But that's a minor one.

So, the summary is there is nothing new in terms of the guidance going forward. You have seen all these numbers before.

So, with that -- I'll just remind you all exactly why we're here, what the purpose is and the vision and the values.

And with that, Olof, I'll leave it over to you to guide us through the questions.

Question-and-Answer Session

Olof Grenmark

Thank you, Mikael. Ladies and gentlemen, that opens up our Q&A session. And we will start here in Stockholm. The first question comes from Mattias Vadsten, SEB, please.

Mattias Vadsten

Thank you very much. Two from me to start with. If we look on the financial result per unit, you have a line called smelters up there. It's had a delta of some SEK750 million year-on-year, I presume. And if you could just elaborate a little bit on what this is? And do we have an expected outcome for 2023 or how does it look?

Hakan Gabrielsson

Well, what it is, is metal premium basically. That's the short answer. As you know, we've had a situation in Europe where the -- I mean, driven by the high electricity prices where finished metal has been difficult to get hold of from the customer side, and that has driven up the metal premiums to very high levels. Now we set the internal prices between smelters and the head office annually. So that number for next year will end up in -- out in the smelters result, but there is a lag when setting those internal prices -- metal premiums.

Mattias Vadsten

Okay, good. And the next one, sort of, the mineral resource, which is in Tara Deep. Versus last year, can you describe how this compares to what you expected through the year, maybe, as the year has gone by? And what do we need to see going forward really for -- in terms of these investments to go ahead?

Mikael Staffas

Well, number one, it is according to expectation, because we haven't explored anything, because we got stuck with the water in the drift and couldn't explore anything from underground and very limited from surface. So that's -- you can say it's a lost year in Tara. We're still very hopeful that we will find much more. We will need more in order to motivate the investment. Exactly where that is, we don't know. We'll get back to that once we have more exploration results under our arms.

Mattias Vadsten

Thank you.

Olof Grenmark

Then we have Viktor Trollsten, Danske Bank, please.

Viktor Trollsten

Thank you very much for taking my questions. Firstly, on cost per mine. If we look in Aitik, Garpenberg and also Kevitsa, just we are looking at, let's say, 15% cost inflation in '22 versus '21. I think looking at OpEx per tonne milled ore, we had 71 in Aitik for example. Now we are talking about inflation tapering off, while also there's upside to milled volumes in '23. So, how should we look at these figures '23 over '22? Should we expect similar levels in '22 or still inflation?

Hakan Gabrielsson

I think that's, in one way, a difficult question, because, as I mentioned, SEK700 million out of the SEK900 million cost increase year-on-year is related to energy and consumables, which is then varying a lot. Now we have seen prices -- market prices coming down in the earlier parts of the year. But the crystal ball to see how the full year will develop is -- that's more difficult, but so far it's looking good.

Viktor Trollsten

Okay. And then, maybe on the potential Garpenberg project, if I may, given that you have now 35 years' reserve life, if I'm not totally mistaken, I guess, optimal life of mine in the region of 15 years, 20 years. Firstly, is that a fair assumption? And also, in terms of management capacity, given that you are in an investment phase now, do you have capacity in '23 or '24 to actually drill something?

Mikael Staffas

Well, I will say that, of course, you're right, we're having a resource that is bigger than maybe what is appropriate for the current setup. We are doing right now conceptual studies about what we can do around this, what the options are, how that could potentially be mined faster, but we are pretty far still from any decision. We will need to have both better studies and, by the way, we will need another environmental permit for that. So...

Viktor Trollsten

And then, just one final quick one. But on the planning prices, which you increase on metals but your [FX] (ph) unchanged. Just what's the reasoning behind both metal prices and moving currencies?

Mikael Staffas

Maybe I should just -- you've seen the one that has come out now with the R&R statement. Those are already -- they are a little bit obsolete, because they were the ones that were right in the beginning of '22, which is also when we took the costs after we did the R&R statement. So, there was a match between long-term prices and the cost.

As we now go into the next planning season, we're already starting that one, the long-term prices will be higher, but also the cost will be higher, because now the inflation that happened during this year will come into that calculation. So, it's new numbers that come in here in the R&R statement that you will see in a year from now.

Now, the reason why metals move in one way and currency move in another way, I don't know Hakan if you want to go into the details around exactly how we do our crystal ball, but it's a kind of a best estimate, and we have maybe been too conservative on currencies. On the other hand, we also know that at certain times the Swedish krona gets much stronger as well.

Hakan Gabrielsson

I agree. I mean, we've typically been perhaps more conservative on the currency side than the metal prices. You don't have to go that far back to see a dollar to Swedish krona at 8 for example. But it's -- I think you're right in that assumption. So, we'll have to look at it in the next year update, which we are actually getting into quite more or less now.

Viktor Trollsten

Thank you.

Olof Grenmark

Adrian Gilani, ABG Sundal Collier.

Adrian Gilani

Yes. Thank you. Two questions from my end. First of all, can you -- are you able to quantify the EBIT effect from the voluntary power curtailments during Q4?

Hakan Gabrielsson

Let's see, that's relatively limited. Olof, can you help us here?

Olof Grenmark

SEK56 million.

Hakan Gabrielsson

SEK56 million. Yes.

Mikael Staffas

Yes. But, Olof, that's the SEK56 million which is the margin on the power that we have sold, but there is also cost of standing still. So, the fact that we're selling doesn't give that much, but it's better than not doing it, but it's a very small number.

Adrian Gilani

Okay. Thank you. That's clear. And also, just a follow-up on the inflation question. In previous quarters, you've actually given us a sort of percentage, how to think for the next quarter. Now you sort of just say it's tapering off. Has visibility decreased or do you have a percentage...

Mikael Staffas

Visibility -- no, I actually think I said it. I should have maybe been more clear. I think that for Q1 over Q1 last year we're talking about 10%. So, it's clearly down from the 20% that we have seen, but it's not close to zero. But as Hakan mentioned before, a large part of this is what's going to happen with energy prices and oil prices and so on that plays a big part. So, it is even more difficult to have crystal balls in place than it usually is.

Adrian Gilani

Okay, thank you.

Olof Grenmark

Johannes Grunselius, Den Norske Bank.

Johannes Grunselius

Thank you. Johannes Grunselius here. A question on your smelters, because Harjavalta did particularly well, shining star. Could you give some color on that? I know they have -- obviously, there is a nickel line there, maybe that's the secret, or could you give some flavor why that is shining? And also, if it was kind of a smooth earnings progress throughout 2022, and we should expect more of it or the same in 2023?

Mikael Staffas

I would put it this way. Harjavalta has for a while been our best-performing smelter. So that it has that in the base. If you then start adding the nickel line to it, which of course was a little bit of a frustration in the early part of the year, but towards the later part of the year, nickel was going on full.

If you then on top of that put that we did have lots of inventory of gold, and inventory gold means not just that you are tying up working capital, you also tying up profits. But when you get that out, that of course gives a boost in the profit. So, all these things play into the strength of Harjavalta and that's why we have very good performing units.

Johannes Grunselius

Then also a question on -- I mean, we have seen a lot on the, well, copper TC/RCs, what's going on there in terms of global benchmarking? Could you give some color on the TCs for zinc, please?

Mikael Staffas

Not really. These negotiations are ongoing as we're speaking. We are not at that table, we're only seeing it from the sideline. I would prefer not to speculate. I think that most people would agree that we are seeing an increase of the zinc TCs, but to what level, I don't know.

Olof Grenmark

Any other questions here from Stockholm? Christian Kopfer, Handelsbanken, please.

Christian Kopfer

Thanks for that. Just one short follow-up from my side. I think also the production on the precious metals, especially on gold was very high in Q4. Is this something that you expect to remain, or was it something extraordinary here in the quarter?

Mikael Staffas

It was extraordinary. We were releasing gold that was sitting in inventory. So, the Q4 gold levels are probably going to be a record for a long time. However, if you look for the full year, I think we also have record gold. That's more kind of reasonable, because we are -- because of the very strong precious metal plant that we have with very good operating performance in Harjavalta, we are sourcing more gold which concentrates, because that's a good economic thing. So that gold production on an annual basis could remain at a high level, that's true, but not the quarter times four.

Christian Kopfer

Right, okay. Did you mention the, call it, earnings effect from this release of gold in Q4, I mean, in rough numbers?

Hakan Gabrielsson

No, I didn't mention that, but I'd say it's somewhere around just above SEK100 million, that's my estimate.

Christian Kopfer

Okay. Thank you very much.

Olof Grenmark

Any final questions here in Stockholm? Operator, please go ahead with the questions that we might have on the line, please.

Operator

[Operator Instructions] The next question comes from Krishan Agarwal from Citigroup. Please go ahead.

Krishan Agarwal

Hi, thanks a lot for taking my question. Couple of them have already been asked. Just a quick follow-up on Viktor's question on inflation. So, could you help us with the total energy cost in 2022, just to get a flavor as how much of energy cost inflation had been there in the full year? And then, is there any kind of expectation based on the visibility you might have on your contract, that how that energy cost base is likely to shape up in the full year 2023? That's my first question.

Hakan Gabrielsson

Okay. The total energy cost that we see in the full year of 2022 is about SEK4.5 billion. And when we say energy, we include diesel and a little bits of coal that we have and -- but mainly diesel and then electricity. The electricity of that is about SEK2.5 billion. Out of that SEK2.5 billion, we have about 80% hedged. We talked a bit about the price levels in the latest Capital Markets Day. So, there are some slides on that in there. Then there is, of course, also an indirect impact from the energy on various consumables. Another moving parts that we have been talking about is explosives, which is I believe about SEK1 billion in a year, just to give some numbers. The visibility is -- for diesel and electricity, I mean, we have 80% of the electricity hedged. But for the remaining part, we are fully exposed to market prices. So limited visibility going forward.

Krishan Agarwal

Okay, understood. And then, a quick question on -- there was a news flow that Anglo American is looking to do something with the Sakatti mine. And Boliden may be interested in that. Any thoughts there?

Mikael Staffas

No, there is not really anything to say about it. Sakatti is where Sakatti is, and then Angola is managing that project.

Krishan Agarwal

Okay, thanks a lot.

Operator

Please state your name and company. Please go ahead.

Unidentified Analyst

Hey, can you hear me? Sorry.

Mikael Staffas

Yes. We hear you.

Unidentified Analyst

Hey, [Shree] (ph) from RBC. Thanks for the call. My two questions, please. First one is on Aitik. The reserves have come down. So, when was this area that's been removed from the plan supposed to have been mined and how are these changes going to impact the next few years, please?

And the second question is on smelting. We are seeing power prices falling. So, do you expect smelters in Europe to restart in the near term? Thank you.

Mikael Staffas

Regarding Aitik, the tonnage that's been removed was the tonnage that was on a lower grade that was towards the rear part of the plan. So, it doesn't affect anything within short term, but taking them out, as I said before, has increased the average grade from 0.22 to 0.23. In terms of what is going to happen with Aitik, I think this doesn't really matter. I think there'll be lots of restatements of R&Rs between now and 10 years or 15 years forward when this might become very relevant. So that was that.

Regarding the power prices in Europe, I think you'll have to ask our dear friends in Europe exactly what they're going to do with their zinc smelters. My hunch would be that, yes, as power prices come down, we will see more zinc smelting capacity coming back online in Europe. But how fast and exactly how that will be done, don't know.

Hello operator?

Operator

The next question comes from Jason Fairclough from Bank of America. Please go ahead.

Jason Fairclough

Yes, good morning, folks, and thanks for taking the question. Just a little bit of a question on the inflationary impact on CapEx. I think we're always guessing a little bit when it comes to your CapEx numbers. I think the guide is for SEK15 billion for '23, that's two times your D&A. So, maybe you could just talk to a little bit about how you're thinking about stay-flat CapEx for the business, right? So, D&A, SEK6 billion, SEK7 billion per year. Is stay-flat CapEx that level, or is it more like SEK10 billion to SEK12 billion to keep the output flat?

Hakan Gabrielsson

Looking at the five-year guidance that we talked about in Q3, or the SEK15 billion guidance that we talked about in Q3 and in the Capital Markets Day, out of that, half of that number is related to three significant projects; the Ravliden and Kristineberg expansion, the Aitik dam project and Odda.

The remaining part, about SEK7.5 billion is probably a reasonable level going forward, then it will vary. I mean if there is a very tight financial situation, we could postpone parts of that. The stripping will vary over time, especially as we get closer to the life of mine in Kevitsa, for example.

But I would say that in the numbers that we have today and also including the latest inflation number, SEK15 billion total, out of which half is three very specific projects that are not there for the long term then.

Jason Fairclough

If I could just follow up. So, you talked a little bit about the cost inflation in the business, a lot of that's obviously energy. Do you think that those CapEx numbers are current for what's happened with cost inflation? So, in other words, just thinking about the OpEx read across into CapEx figures.

Mikael Staffas

Just as -- if you follow us, you will know that we did adjust some of the specific CapEx numbers for some of the specific projects upwards during the year because of CapEx inflation. There was nothing really strange for the projects themselves. As for standing right now, and we are reiterating the guidance, we don't see that there is any more CapEx inflation that we had already put into those calculations. So, we don't see any need to adjust anything around that. So, we feel that we at least -- unless something more strange happens, we have enough margins to handle inflation in those numbers that we have given you.

Jason Fairclough

Okay. If I could be cheeky and maybe just ask one more quick one. Harjavalta, can you just remind us, is there any complications to the operations there because of the war and -- Russia-Ukraine?

Mikael Staffas

Not as of now, but you are bringing up a fair point. We have our neighbors on the industrial area, Norilsk Nickel Harjavalta that are not sanctioned right now, could potentially become sanctioned. But even if they're not sanctioned, there have been pressures on them from self-sanctioning from others. They are so far operating fine.

If they were to cease operation, that doesn't primarily affect, as we have no material flow that goes between us. But yes, we have a neighbor, we have energy balances, we have lots of other things where we share the costs. So, what we said is that if they were to have to shut down for some reason that we don't control, that would affect us negatively in the sense of costs, maybe not in a material way, but it would change the effect as negative in terms of cost, but we should be able to continue to produce.

Jason Fairclough

Okay, thank you very much.

Operator

The next question comes from Alexander Vilval from Pareto Securities. Please go ahead.

Alexander Vilval

Hello. Thanks for taking my question. Two questions, please. First regarding Garpenberg. Could you say something sort of conceptually around the possibilities for Garpenberg in the longer term? Obviously, it's perhaps early days, but how -- which options do you have regarding possible expansion or sort of structural changes regarding the operation?

And secondly, any expectations regarding personnel costs inflation in 2023?

Mikael Staffas

Let's just start by Garpenberg. It's extremely early days. We're looking at conceptual studies. But just to be very clear, the Garpenberg operations is right now a very well-balanced operation. There is not really any surplus capacity in any of the stages in the production, which means that we will probably need more shaft capacity, maybe a new shaft to be able to produce more. We will probably need a second mill line in the mill, because the existing mill cannot really take much more. We will need an extended tailing facility, which has all kinds of implications around how these things can be done. But those are giving a few of the things that we are, of course, looking into and see how we could potentially manage. It's very early days.

And then, labor inflation, regarding Finland, if you read in Finnish news, the collective bargaining agreement is going on right now. We're talking about roughly 3.5% year one -- 3.5% to 4% year one is coming through most likely then in '23. Swedish collective bargaining agreements are not done yet. They will be done late March, early April. We'll see where they end up. And Norway has already concluded since a while back at around 4%, '23 over '22. Ireland, we are still negotiating, we don't have a collective bargaining agreement yet.

Alexander Vilval

Thank you.

Operator

The next question comes from Liam Fitzpatrick from DB. Please go ahead.

Liam Fitzpatrick

Good morning, everyone. Three or four questions from my side, if that's okay. First of all, on the working capital, it's a good performance in Q4. Are you kind of now at a stable level? Did you undershoot? Just any kind of color on where you see working capital versus that kind of end-of-year starting point?

And then, on -- in terms of the Aitik kind of labor availability issue that you had in Q4, can you give us any kind of feel or sensitivity or what that would mean once that normalizes in terms of uplift to EBIT in Q1 and beyond?

The third question, just on zinc premiums. So, my understanding is there's going to be a big lift in contract premiums. Can you give any color in terms of what that delta is going to be for your business in 2023 versus 2022?

And then final question on Tara. I think you told us at the CMD that the power contract was close to expiring. Where does that asset, once it rolls onto spot terms, sit in terms of margins? And are you comfortable that operation should be pretty steady as we go through the year from an overall cost perspective? Thank you.

Mikael Staffas

Should -- yeah, you start and I'll...

Hakan Gabrielsson

Yes. Good morning, Liam. Working capital, as you know, we typically have low level. I mean there is a seasonality in this and we have low levels basically every Q4 related to the behavior of industrial customers and so on. That is the fact also this year, I would say, it's a normal level. It's slightly higher than the same -- than one year back, but at that time we had the issue with water inflow in Tara, which meant that we were short of zinc.

So, basically, working capital is on a normal level for year-end. We have come down on most of the gold, we have come down on the nickel and we're a bit short on a couple of other areas. Q1, with the same seasonality is typically a quarter where we build some working capital. I expect that to happen also this year. So basically, the short answer would be a normalization.

Mikael Staffas

Then if we take some of your other questions, I can take Tara power. Yes, Tara is a high-cost mine. Tara is very sensitive to these kind of inputs. It looked, if I want to be frank, pretty bad for a while in the fall. It looks better now. I mean, the power prices have come down in Ireland quite a lot and we are managing to handle that. Exactly what it would mean for our cost position, there are more things into this, there's also things on the revenue side and of course premiums and so on play into this picture. I can't really give you any more detail around that.

The net impact of zinc premiums for us, I don't know, Hakan, if you have any kind of number. It's, of course, positive. You should be aware that some of these zinc premiums have already come through in Q4. But I don't know if we have any kind of estimates around that.

Hakan Gabrielsson

I think there is -- I mean if you just look at the quarter-to-quarter, there is a line in the EBIT bridge. And as I said, most of the revenue in the other in the business area smelters for the full year is zinc premiums. So it's substantial numbers. But then if you are asking about an outlook going forward, I think that's probably a bit difficult to say. I mean it depends on the overall zinc market, the electricity development and so on.

Mikael Staffas

And then your last one around labor availability in Aitik, the answer is we don't really have a number, but if we go back to normal levels, we would have 3% more availability of labor, which basically then theoretically will mean 3% more production but that's maybe oversimplifying it because there are other ifs and buts around this, but that's maybe the order of magnitude. And then you can play around what that means.

Liam Fitzpatrick

Okay. Yes, that's fine. Just on the zinc side, could you just remind us what your spot to contract exposure is? And here we are saying Q4, but I take it the Q4 numbers would only have included the spot premiums. Is that right, the contracts will apply from 2023 onwards?

Mikael Staffas

That's a good question. I'm not sure that we've ever come into discussions around how much on the metal side that we have on spot and on fixed annual contracts in premiums. Do you have that number, Hakan? I didn't even know myself.

Hakan Gabrielsson

No, but I think -- I mean, in general, the spot sales is about 10%, 15%. So that should cover it.

Mikael Staffas

Yes. I would say that, let's say, 80% to 85% is actually on annual zinc premiums that are more or less been set for the year.

Liam Fitzpatrick

Okay, thank you.

Operator

The next question comes from Daniel Major from UBS. Please go ahead.

Daniel Major

Hi, thanks. Couple of questions. Firstly, at Kevitsa, you've reduced the reserve life from 2034 to 2032. It's not a super long-duration asset. Can you give us any update on the next development of Kevitsa? I think it's pushback five. When you would expect to approve that and what the impact on the sort of asset duration and any potential CapEx associated with the project would be?

Mikael Staffas

You're absolutely right. We are looking into the pushback five. The pushback five is not in the reserves statement, it's more in the resources statement. We are -- and it's way too early to give any numbers, but we are looking into that. We hope that we will probably in '24 maybe. So, in a year -- a year to two years from now to make a decision regarding potential pushback number five. But the CapEx numbers is too early to say and also the exact impact on life of mine is also too early to tell. And also, just to be very clear on that, we will need a new tailings facility for a pushback five. So, there are also environmental issues linked to that.

Daniel Major

Okay. But just to, I guess, frame it in the context of previous CapEx projects, would it be fair to assume would be a substantial multibillion SEK project for a new tailings dam and the pushback five, is that the right way of thinking about it?

Mikael Staffas

I think it's going to be very difficult to get it for less than SEK1 billion, if you are asking it that way.

Daniel Major

Yes, multibillion, I suppose. Okay. Yeah. Thank you. That's all from me.

Operator

The next question comes from Daniel Major from UBS. Please go ahead.

Daniel Major

Thanks. I think I've just had my question. Thanks.

Operator

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

Mikael Staffas

Okay. Well, thank you all for all your questions and thank you all for participating. I wish you all a very good day. And I hope that you will all have a very nice Valentine's Day. Thank you all.

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Boliden AB (Publ) (BDNNY) Q4 2022 Earnings Call Transcript