Boliden AB (publ)

Ladies and gentlemen, I'd like to welcome you to Boliden's Q2 2022 results presentation. My name is Olof Greenmark. I'm head of Invalidations. Today, we will have a results presentation led by our president and CEO, Mikael Staffas, and our CFO, Håkan Gahlbjörnsson. We will also have a session led by our operator. Mikael, welcome.

Thank you, Olof, and excuse us all for being slightly late. We had a little technical error here as we were starting. We are in Stockholm today, and it's expected to be 35 degrees today, so maybe the tech equipment has something to say when you get these kind of red hot days. I'd like to go through and present the results. And I would say that we generally had a very strong production quarter. We have our mines produced well over a quarter of a month. We're happy that Tara is up and running again according to the plan. We're happy that we have once again gotten the 45 million ton level in Ike once again confirmed. And also my urban bay would give it. And also the Bulletin area has performed very well in the quarter. On the smelting side, we've had big maintenance shutdowns, as was beforehand. There should be no need for anybody. It took slightly longer and was more expensive than we had expected, but they came up relatively slowly. And then we've had some minor issues, but generally also there is a good production quota. Now, price and terms have also been good. It's very difficult in these times to go back and then down to get the timing right in a company like Booli, where you have all kinds of mix of quotational periods that play into the equation. And therefore, it's difficult to assess exactly how the price and terms would be. But anyway, we have seen that books have made that we've gotten a record profit for the second quarter straight. We have also been hit by a strong inflation. We'll come back and talk about inflation. This is no news to anybody. We're also coming up with the fact that inflation is also a thing, some of our projects, especially the other projects. Just to start with the other projects, we are going very well according to plan. The time we want to plan and kind of unforeseen that we have found along the way. There's something in the product that is well covered by the contingency that we've had. It's not being covered by, of course, the enormous inflation that we're seeing, things that are relevant for a product. We're seeing a very strong inflation kind of deal. including steel. We're seeing a strong inflation on logistics, which is also a large part of the construction of this, and also then other things, including rebars and so on. The estimate that we have now is based on the expected influx for the whole project, i.e. for much more than one period. Also, this project is very well on track. There we have now received the environmental permit. We started without that. Of course, it's a good confirmation that we've gotten it. We're not surprised. We had expected to get it, but it's always a good sense when you do get this. We're still being on the negative side. It'll slow ramp up of the nickel line in Havata, and we'll talk a little bit more about that later. We had a group profit excluding the prospector revaluation of a little bit north of four and a half billion sec the higher had mines at 2.7 billion sec and the smelters at 1.4 also them good even though i think that might come slightly low what just had been expected but i want to get the exact timing of the effect is to to get it right sometimes The ESG was also a very strong quarter. We've had a very low LT frequency of 3.2. We are now soon up to 15 years of fatality-free operation as well. Sick leave has come back slowly, though. Still had, especially in the beginning of the quarter, COVID issues, but we're seeing life improvement over how it was last year. And also this CO2 in-city went down a lot in the quarter. We've had good and stable operations in both mines and in small houses, which very much helps the CO2 intensity to go down in individual quarters. The price terms have been tricky to deal with. You see here that we've had extremely strong prices and terms that peaked at the end of the quarter and then came down rather strong towards the end. And you know that with the way that we price and the way that we have rotational period and period pricing is very important as we reprice deliveries in previous periods. We've seen that the price might not have been as strong as everybody would have been given how strong they were if you go back in May. We should also be aware of, on the other side, we have another positive. I think that most of you have picked up. We have strong by-products, strong premiums. The prices right for sulfuric acids are also then on record levels. What the price is, well, you cannot see clearly that we are having a situation where number one, The prices have come down to the lows that they've been for the year. That's maybe so interesting. What's more interesting when you look at the chart that we have all the time is that we now see the wage is really picking up also for our competition. You can see that in the zinc, we're basically... The cost curve is affected by inflation pressures. You see that in copper. You see it especially on nickel, on silver. for the right part of the curve, where especially the produced nickel, iron, and the high intensity of coal and other fuels that go into that process have really raised the cost position for them, which means that over time, of course, this is actually something that is good in the sense that over time, the better the curves industry is going up. Even though we don't have any exact numbers yet and we don't know exactly what our position is up to, we feel that we have a higher inflation than many others. To some extent, we might have lower inflation than many of our peers. Last month, we've had a strong production quarter, very close to 45 million pays in ITEC, good production in Gapenberg, good production in Kevitsa, although it has slightly lower grades that came into exactly this quarter. A little bit less throughput than normally, but we had higher grades, and this is quite normal. When we get lots of water, that exactly depends on the lower gravity, but the higher grades that we have. And we are very happy to announce that we're back to a much more normal situation than we had before. Still slow grade, depending that we cannot access water. every stope that we provide in the mine, but we have enough positions to produce full. On the smelter side, we had two copper smelters, very extensive maintenance stops in Rönnsjö and in Havalta. Both went, to be speaking, quite well, even though, as you know, when you have so many maintenance stops, there's one thing that shows up, But generally speaking, they went well. We also had the chance in the Hariata to do some corrections to the nickel line. The nickel line has since then picked up, even though it's not still at full use, but it's getting much better as we redesigned the concentrator in the maintenance. Also, Coquelin, all produced very well, also had a maintenance stop, a small one for maintenance stop. The other kind of negative news is Barriser. Barriser had a failure in the oven in the furnace, and that had to be repaired twice, and we had an unplanned outage in Barriser. It was close to a month of this, but luckily enough, Barriser is relatively sweet to us. With that, Håkan, I'll leave it to you to go through some of the financial numbers for us.

Thank you, Michael, and good morning. Thank you. Well, as my colleague said, we presented a strong quarter. We had an EBIT excluding process inventory of 4.5 billion, which is, in fact, the strongest number so far. The process going down to the end of the quarter meant that we had a negative process inventory of 4.1 billion. It's picked with 2.2 billion, as main projects like ODA are getting up to speed. Free cash flow for 2 billion, that leads to another push of 11.54. The business area of mines reached 2.7 billion Swedish kronor. They were impacted by lower prices, in particular towards the later part of the year. Smelters stayed 1.4 compared to last quarter. We had maintenance most of the units in the smelting site, which had a negative impact on EBITs. Last year, most of the maintenance was in Q2. Last year, we had most of it in Q3. Eliminations positive, 400 due to our prices. has been strong inflation. We talked about that already last quarter, but it has picked up further in Q2, and we now see an overall on the OPEX side, on the operating expense side of 15% year-on-year, meaning I'm comparing Q2 of this year to Q2 of last year. In particular, it's energy and diesel, chemicals, explosives, transports, where we feel most of the It's fairly limited on parts of the cost base. Looking at CapEx, overall the inflation on CapEx projects is higher than on the OPEC side. In particular, we see steel having a big impact, often indexed in contracts, and also logistics. We have the ethics guidance unchanged, though, for 2022. We'll have to come back to 2023 and beyond the guidance later on. The reason for that is that at some times, which means that we're not expecting to be exceeding the previous guidance for this year, even though we have... Comparing operating profit exclusion period of last year, there is a significant improvement, of course, and we've been helped by prices, 2.3 billion between the quarters. Out of that, 1 billion is stronger, the position is stronger dollar. On the metal side, and there it's primarily zinc that helps us in the quarter. We also have bigger impacts from byproducts, meaning that sulfuric acid and metal premiums in this quarter. We have a gain of 250 million from byproducts and about 200 million from higher metal premiums due to an improved balance in the European market. Volume-wise, we're up 445 million Swedish kronor. That's probably a high-end volume in my case, with most of our units performing well. I think at the 45 pace, Kev, it's a really strong, good fossil line. We do have some... slightly lower than Kev, that is offsetting the positive meal volume. And then also an impact on the negatives from midnight stop centers, where we, as I said, we had most of it in Q2 this year, but last year most of it was done in Q3. Cost is up $750 million year on year. That's an 18% increase overall. In there, there's about 150 million increased due to maintenance stop. And if you back that up, back that out, you'll see a 50% cost increase. Now, it's pretty much exclusively energy, consumed diesels, et cetera, the areas that I mentioned before that leads to this cost increase. There is also a volume of about 100 million we have produced last year. Looking at Q1, again, slight improvements. We have a positive effect of 300 million on price rooms. Comparing these two quarters, the positive impact from currencies are offset by a lower metal price development, specifically a wash. What we see in a positive impact is high prices, treatment charges, and metal premiums. Volumes are up 5 billion. We have higher volumes of mines. In particular, the water, of course, is being hit by The water inflow situation still in Q1 should go to improvement. Costs up 546 for the same reason we talked about on the previous slide. Inflation and a hard action. Looking at, I think we covered many of these, but I'll bring one word on the working capital side. We have a cash flow of 2 billion and a tie of 1 billion in working capital in the quarter. This is primarily due to maintenance stop in smelters. The combination of very strong production in mines and maintenance stop in smelters when tying a bit of capital in the quarter. We are currently at slightly above average levels in copper and in nickel. The balance sheet is very strong. We are now at the net debt of EPS and a gearing of 7%. In Q2, we paid the ordinary dividends and the extra dividends, which explains most of the difference. And we have a robust funding and net payment capacity of close to 14 billion. So, thank you.

Thank you, Håkan. With that, I'll just sum it up with a few points. The other project, I said at the beginning, the project itself is going very much according to plan. We have an increase in inflation on the capex side, which you can say is expected. You could argue for some way that this is a bit unfortunate timing of the date. We could have done it earlier. We could have avoided some of this inflation. True, we didn't have a permit earlier. We couldn't really have done it earlier. On the other hand, the time was also very, very good because all of the, for example, power contracts and so on that were signed that were linked to this are now, of course, even more interesting for when they were signed. So generally speaking, we feel very good for the national numbers for getting even better despite the higher capex they're seeing. So the product is still financially very attractive. We've gotten it in the quarter. We've gotten the permit for it in an expanding flag. It feels very good. It will still be appealed, actually, on today. We have no indication that it will be used by any of the so-called heavy parties in this situation. It is likely to be played by some smaller parties. But we have gotten what is called the CITs. That is that we are allowed to use this even during the appeal process so we can continue with the project as planned. We have gotten now the final verdict from the Supreme Administrative Court of Sweden that has... ruled that we do need to have a Natura 2000 application in order to go ahead with the project. So we're back to square one. We can still work around working in two different avenues. One is the Natura 2000 permit application to get it done. The other one is to try to do LABOR that is done in a way so it won't affect Natura 2000 because as most of you will know, LABOR is not a Natura 2000. LABOR is on outside Natura 2000 but has water that goes into Natura 2000 area if we do a lot of way we might be able to avoid water going into Natura 2000 areas altogether although that's not yet but those are the avenues working with around the project is not dead and that I'd like to remind you about the markets that have been up in November And I want to remind you of some of the output. These numbers are very much the same as you've seen. We don't have any changes for IT in terms of either volume or grade. There are no changes in government value, volume or grade changes in cavities, except from what we said before, the maintenance shutdowns. Similar to what we said, we have maintenance both in Q3 and Q4, mainly, but on a much lower level than we had in Q2. We have the inflationary framework with about roughly 15% on OPEC. This can, of course, change with things we absolutely do not control, including energy prices. But as well as we see right now, this 15% level is likely to remain during the second half of the year. In this, you should also be aware of, as some of you know, that the second half of last year, Inflationary pressure was picking up, but we had almost no inflation because we had a good set of contracts that the general inflationary pressure, especially on the energy side, and our chemicals did not get through. Now it's coming, so we have a lower base that we're based on, which means that we're estimating that it will be somewhere in the neighborhood of 15% the rest of the year. The cap is alert to even though we see similar or even higher case inflation compared to OPEC's inflation. We're also seeing some delay. They're a very tough market. It has been a very tough market to get very certain projects. It's not really affecting ODA, where we get some time, but it's affecting other small projects, and therefore the tax guidance for this year remains slightly above $11 billion. With that, this concludes the kind of presentation, and I'm up for questions.

Thank you. Our first question comes from the line of your... Thank you. Our first question comes from the line of Johannes Masvillis of Morgan Stanley. Please go ahead. Your line is open.

Good morning, and thanks for the presentation. First question for me on all the CAPEX. How confident are you on the revised estimate? Are there any remaining long-lead items or any other aspects of the project that could see further escalation? Maybe I'll stop here for the first question.

Now, do you hear me now?

Yes.

We had some technicians. Do you hear me? Yeah, you hear me. Okay. So how confident am I regarding the other estimate? Well, I am very confident. There are still long-lead items, and there are certain things that hasn't been even ordered yet. So there are things in there that could go, and it could go either up or down. So it's based upon our today best estimate of where especially the heavy items, including steel and so on, will go. So, yes, there is still some uncertainty, but I feel very good about it.

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

I think we're back to 2023 cap in October. As you know, we are reworking our investment plans every year in the fall. And of course, given the situation we have right now, we are working quite a lot. So I will come back to that in October once we've been able to do that.

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

It should come relatively soon. I'm a little better than I said that before, but the remodeling that we're doing to the concentrate dryer that we reeled during the maintenance. It's much more reliable, much more robust, but it's only a couple of weeks of operating. It's a little bit too early to say whether we have all the issues, but so far it looks good.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Daniel Major at UBS. Please go ahead. Your line is open.

Great. Thank you. First question, just follow up on the CAPEX and appreciate you're not going to give 2023 guidance. But how should we think about the increase in the budget? Will you look to defer other projects? as a consequence of the increase in capex order, or should it be incremental to the current pipeline of capex projects that you see from a sort of high-level basis?

We always look for a critical thing that we do, including as part of our budgeting process as we go through that. So we will be looking very quickly at it and see what we can do and what can be done with timing and other things.

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

That is based on the current exchange rates.

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

Yeah, I said energy, but the 80% is referring to power. And the power component is the major driver of this. Yes, we do have an inflation on power as well because the 20% is quite more expensive than it used to be a year ago. But it is the general inflation that goes to diesel and that goes to gas and everything else that comes through in the chemicals. That's the major driver.

Okay, so power's not, yeah, still relatively well positioned into 2023. Is that the correct way of thinking about it?

That's the correct way of looking at it. Power is not a driver.

Okay, thanks. I'll leave it there then.

Thank you. Our next question comes from the line of Luke Nelson at JP Morgan. Please go ahead. Your line is open.

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

I'll leave that to you, Håkan.

We talked about a Q1 of about 10%. So we do see an increase coming up to the 15% level now. So we do see an increase Q2 to Q1 as well. And then we expect roughly able level, put everything together for the second half of the year. But in there, I think we are expecting some changes. As we saw, the energy price is already coming up towards the later part of the year. between the different categories to even out a bit. So this is one thing. If we look at the cost of inflation year-on-year, I think looking at inflation, one should be aware that it's sometimes a bit difficult to be very precise on individual orders, so you see the longer trends much better. Look at the inflation that we have seen this past year. If you back out, which was about just over 150 million Swedish kronor between Q2 this year and Q2 last year, there is... We see R within consumables, chemicals... in it as a trip to a trip to a sweet but earlier a.m. or two I think we're up about him you're on the air that it both of them know a but but these are the chemicals and so the indirect of all of the cost of driving a much higher inflation in other areas on the salaries but we're up left to present you're here so that's a you know a fairly limited increase It's very much basically the cost inflation that we see all these areas that I mentioned.

And just for you to get a flavor of this thing, as we look at it, there are certain chemicals that are being fourfold, four times. just to have a sense of that certainty. They might not be big. They might be a relatively small part of our total cost base, but they have high input to them. And that's, of course, part of the issue here, how will that continue to develop. Many of those extremely expensive now are very much tied to the general gas in Europe.

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

First of all, it is difficult with the details, but just about the 80%. But you have to remember that we have north of 50% that is hedged for very long term. So we only have maybe 25% that needs to be set. We're still in 23% going to be benefiting from contracts that were made in 21%. So still at a relatively good level. And then we get kind of a percent spot that comes into it, and we don't really know what it's going to be like. It's clear, I think, to everybody, but we get some guess, but it's only 20%. And we also have an advantage as the areas where we are big power consumers, especially in Northern Sweden. the power prices the market prices are considered less than they are in other places so for us for us the power inflation is less than the the general inflation it's actually kind of helping us to totally inflation down okay great and final question if i may just a modeling question um just on the the pricing effect

within mine quarter-on-quarter it's negative one and a half billion can you maybe just break out within that what the provisional pricing effect was and apologies if you've already mentioned that I'll be happy to and we didn't mention it earlier I think as always I'd like to start with definitions the open positions that we had

in the beginning quarter have been revalued to final prices during the quarter. That has a negative impact of a bit more than 100 million, 105. It's primarily nickel, which have long quotational periods and where we saw prices coming down towards the later part of the quarter. That drives that number. So that is what we refer to as the mild effect or the quotational period effect or something. In addition to that, as you know, the price of the material that was within the quarter is a bit back heavy. So you should never use a straight average quarter. And that is what brings up the total number. But the direct revaluation of the quotation period is 105 negative.

Okay, thank you.

Thank you.

Thank you. Our next question comes from the line of Khashan Aghol at Citigroup. Please go ahead. Your line is open.

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

Well, you will have to wait until October for the state 23 capex. It's inflation that is, of course, driving it up, but there is also everything from re-engineering to re-prioritization that could drive it down, and we're going to have to see where we end up.

I think my question is more on the 23 capex, as in you recreated the guidance for just over $11 billion, but then you also alluded to that the spending will not be as equal to previously communicated numbers. So So from a modeling point of view, 11 billion capex number for this year stands, right?

Stands, stands. So for this year, it stands.

Okay, okay. Sorry, the line is a bit blurry, so my apologies for that. Okay, thanks for that.

Yeah, it's a little bit blurry now, and hopefully we'll be able to get through this.

Thank you. And our next question comes from the line of Jitendra Goel of BNP Paribas XM. Please go ahead. Your line is open.

Thank you, operator. Good morning. Got a question on order capex revision. Michael, you alluded to some of the market backdrop getting better, and I reckon it's to do with zinc prices being stronger, TCs, acid prices, and premiums all being better as well. So if you look on net basis, What does this new capex budget do to your, say, ROSI or IRR forecast for the order expansion project? If you could give either delta or absolute numbers, that would be very helpful.

You're not going to get an answer, but I can give you a little bit of a data because we have undisclosed our own estimates to how we have changed our long-term assumptions on exactly the things we talk about, prices and supercast and so on. And when we do that internally, we are basically flat. It's all the same. And to make very clear that if we were to have the present in terms that will be much better. So our lower prices, even though they are slightly more aggressive now than they were when we made the decision, they are still conspiratorial.

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

Of course, that is not isolated to inflation, but the number was developed much later, and inflation had been taken into account. We have an early stage done in the re-innovation project. Okay. And just the last one, again, related to CapEx.

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

Yeah.

You said, I mean, it's not a... Okay.

Okay. Thank you so much.

Thank you. Our next question comes from the line of Victor Trollsten of Danske. Please go ahead. Your line is open.

Thank you, operator. Good morning, Mikael and Håkan. Maybe first just a clarification on your previous answer on the delta in returns on the Odda project. Just trying to understand, when you are calculating the returns, I suppose you are using your planning prices that we can see in your annual report. But, you know, listening to your previous answer, it sounds like you, you know, have changed those planning prices in terms of think treatment charges, think prices, etc. Could you just clarify how we should look at it?

can clarify, the thing that you can read in our annual report was the ones that used to calculate the original return. Now, there's certain things that they see there. For example, you don't see anything premiums in there. But they used for the original calculation. Now, we have already, we haven't told you, but we already beginning here, modify our long-term assumptions to all kind of factors that you will only see in February when you come out with an annual report, but we need to have those put in place early in the year, as we are using for R&R calculations, for example, during the year. And if we use those slightly moderated long-term prices that we have now, and we also put in the higher CapEx, we do re-opening, and we do put in the OpEx inflation that comes with OpEx going forward, and all the calculations are basically

Okay, I guess that's what I was sort of after, that it sounds like in the coming year or so that we could see some upside to planning prices. That's how I interpret it, but that's perfect.

There is some upside in prices because there's some inflation. As you know, we had conservative planning prices for 2021.

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

The way you should see it, we have taken... and everybody is specific about the all that now we have taken our best estimate of what we know today and apply that to all these indices to having all kind of contracts and put that all together and we come up with this number 150. some of that has been delivered but it's a very small part because the project not really started to deliver and some of it is in things that have been ordered but have all these indices and we still have relatively or a part that has not even yet been ordered for the data we are still working on but it's 150 is based on today's estimate if you were to have a fall and and you're talking about steel prices and drivers stainless steel prices an important driver and so on if that were to happen then we could have a positive deviation to this

Okay, I guess that makes sense. Then maybe finally, if I may, just on the mining operational performance in the quarter, at least from my perspective, I think grades are sort of ahead of guidance. And I know that you typically talk about a 10% variation in grade guidance, but Would you be able to say that first half grids are ahead of your first expectations? Or have you expected the grids to decline by 14-15% in the second half all along, so to speak?

And without too much details found that we did have in our planning slightly better grades in the first half than in the second half. The grades in the first half surpassed our, but it's within the kind of margin of error. So it's nothing that we have to have a long discussion about why we came better. It'll be lower.

That's clear. And then finally, I think here is a run... Sorry.

Håkan, what... I didn't get the last question.

Yeah, sorry, it's hanging up a bit on the line. But Kiev, it's a run route on the Mildor in the quarter was quite impressive. You know, is it sustainable level or was it an extraordinary quarter from that perspective?

I would say it was a good quarter. What we should calculate is the 9.5 million ton annual, which we have guided for.

Okay. Thank you very much. I'll start back in line. Thank you.

Thank you. Our next question comes from the line of Liam Fitzpatrick at Deutsche Bank. Please go ahead. Your line is open.

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

uh... let me take a couple of this one soon and then i'll leave the work k regarding capital that the original number that we had was based on the planning last year which is basic situation september for for just a it happening on it so uh... the and the number that we have originally was based on the best that that we get out the cap based on vision in september twenty one and then we hadn't in bomb it and and inflation, but not at all as what happened later. On the power side, the question is whether we'll stop production. And here, it just has to be in context. We have always, every time, every year, stopped our operations, especially in Finland, for maybe 1% of the time in the winter. Because it's always been individual hours where the price has been so high that we make more money selling the power rather than producing it. This became more where we use this frequently. operation on the smelting side that has been a case for this. We have actually, during this quarter as well, stopped production hour by hour. I was like, it's not going to have much during Q3, but during Q4, I'm pretty sure it's going to pick up again because we like to have very high power prices where it's more favorable for us to monetize on the power contract rather than to use the power for things. With that, I'll leave the working capital to you, Håkan.

Okay, I'll try to do it on a better basis. we tied 3 billion in Q9 working capital. That was 100% price driven, so volume increase. In Q2, we tied 1.2 billion. That is a volume effect, which is actually more than 1.2. And then, as the prices came down, we released a small part of the 3 billion that we tied in Q1. So, what I say is that with the existing prices, not all of it will come back because it's still... We're still up compared to last year, but we have a two-bin volume increase in working capital that will come back once we're through the issues in Haya-Valta nickel line and through maintenance. Okay, thank you.

we should also be add that given the situation the nickel market given the situation with nickel concentrates we have the fact that we've been not running according to speed at the area of the nickel smelter which normally was a soft nickel concentrate in the market we've not done that we have been sitting on those inventories because it's kind of forward most likely depending what's going to happen with nickel in Russia

Okay, understood. Thank you.

Thank you. Our next question comes from the line of Amos Fletcher at Barclays. Please go ahead. Your line is open.

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

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

Okay. And is it sort of based on your historical experience

agreements that those tend to track in line with cpi or do you tend to pay cpi plus a bit uh well they're on territory because they haven't really been there basically in these jurisdictions the basis for for uh These labor negotiations for productivity developments and also kind of profitability developments doesn't necessarily have to be linked to consumer price. Also, the union historically did their agreement as a CPI plus, but that's not the fundamental for it. I think at the end of the day, what's going to happen to our labor costs will happen with labor in the general case. In certain jurisdictions, like in Sweden, it's very much tied to the negotiation phase. In other jurisdictions, we negotiate much more on a company basis, but we will, of course, follow the general trend in those.

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

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

Okay, that's great. Thank you very much.

Thank you. Our next question comes from the line of Tyler Broderick. Please go ahead. Your line is open.

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

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

Great. Thanks. That's very helpful.

Thank you. Our next question comes from the line of Johannes Goncilis of BNB Markets. Please go ahead. Your line is open.

Hi, everyone. It's Johannes here. I actually also have a question on the OPEX inflation and the CAPEX inflation, but a bit from a different perspective, because for sure the stronger dollar must mean quite a lot to this elevated cost inflation for you. Could you just indicate what the sort of cost inflation is in more dollar terms or unchanged ethics terms, please, if that's possible?

Yeah. The answer is I don't know. I think it's a little bit of an interesting hypothetical, whether the dollar exchange would have been different, but would have had chemical prices. It's a little bit of a theoretical exercise. I haven't done that.

Absolutely, but I still think it's relevant because if you...

actually buy in dollars is quite limited. But of course, there's an indirect impact from dollars in, for example, diesel prices to chemical prices. But we haven't done a full equation. I mean, we look at prices that we pay, basically, and that some extent influenced by dollar but it's it's difficult to back out out for metal prices if you back out the dollar i mean uh there will be a there is a negative correlation to metal prices as well yeah yeah that also covers part of our system yeah gotcha i know it's theoretical but i think it's still relevant because i mean all your competitors reports in dollars and i i sense that you might be compared to the guys reporting in dollars

which is the industry standard. Yeah. All right. My second one is more of a tangible question, I suppose. But that is on the byproduct side from the smelter. I'm thinking specifically on acid sulfur, for example. Have this created any positive delta for you in Q2? And how do you see the second half when it comes to byproducts?

So, sure, gas prices are up, and I don't know exactly what they've done in the quarter. Regarding going forward, we don't really know. I would say that the gas prices are right now on an unsustainably high level. They are a lot down. But when and by how much... And I gave a number there.

All in all, the byproducts, which is then... Primarily, sulfuric acid is about 250,000 this quarter compared to last year. I mean, that's product total, but that's pretty much only sulfuric acid that makes a difference.

Okay.

Okay. That's helpful.

Okay. Thank you very much.

Thank you. And we have one further question in the queue. That's from the line of Daniel Major at UBS. Please go ahead. Your line is open. Hi.

Yeah, thanks so much for the follow-up. Sorry, the line's really bad. I just wanted to follow up on the working capital question. I couldn't hear what the answer was in terms of expected release of working capital in the second half.

So if we take out the price part of it all, we have tied in volume about 2 billion Swedish kronor working capital. and all of that in Q2. That we expect to release once we get up to speed in high-valve nickel production and once we're through the maintenance stops.

Okay, so you built four in the first half and you could release two. Is that the right way of thinking about it?

Correct. The other two is prices and lower prices will release and with the same prices it will stay.

Great. Thanks a lot.

Thank you. And as there are no further questions in the queue at this time, I'll hand back to our speakers for the closing comments.

Yes, thank you very much. Thank you all for listening in. Excuse me for the issues that we had in the beginning and also during the call. We hope that we'll get better. I would just like to take a chance to wish you all a very nice summer. As I said, here in Stockholm it's expected 5 degrees today. I don't know what it's like for us. That's actually pretty nice to get that we haven't had such a nice summer or very nice summer before the next few weeks. With that, have a nice day, everybody. Goodbye.