Boliden AB

Ladies and gentlemen, I'd like to welcome you to Boliden's Q2 2023 results presentation. My name is Olof Grenmark and I'm Head of Investor Relations. Today we will have a results presentation led by our President and CEO Mikael Staffas and our CFO Håkan Gabrielsson. We will also have a Q&A session. Mikael, welcome.

Thank you Olof and hello everybody out there. It has for sure been a very, very intensive and very special quarter from our side. And I'll try to go through all the things that have happened. It's, as I said, been a very intense quarter for us. So if we just start going through, one of the highlights that all you know is, of course, the fire in Rönnscher. And I'll come back and talk more about the fire in Rönnscher in a little while. But we had the major fire. We had the total shutdown of the operations. We are now, as we're speaking, up and running. All the units except the electrolysis plant are running. We still have some curtail capacity at some of them, but they're all running and we have a good hope that we very soon be able to run all of them full and thus be able to produce anode copper at full production. But I'll come back to that. The other big thing for us in the quarter has been the general development of the prices and terms. And as you can see, when you look at our numbers, you can see that we've been hit not just by lower metal prices. Zinc prices especially have gone down dramatically. We've also been hit by lower byproduct prices. And in our case, lots of people who are based in Sweden think that we are winning from currency, but we're actually not compared to last quarter. Because of the strengthening of the euro compared to the US dollar, we're actually having a negative development in terms of the currency effect as well. This all led to a situation where we decided to put the Tara mining care maintenance because the escalating costs there and the lowering the zinc price, which we decided back in June and we have now effectuated Tara will be down. We will come back when the prices and terms have returned so that we can run Tara profitably. And we do think that we can do that. Otherwise, we, of course, have another solution than carry maintenance for Tara. We are very positive that we will come back in a strong way whenever prices return. On top of that, we've had low grades in mines. Partially, this has been well communicated far in advance with the developments in ITIC. And then also we had to Because of rock stability issues and changing our mining plan, we also got a lower grade in Kivica that we announced in an extra press release a few weeks back. Then also a very big maintenance stop in Harjavata, one of the biggest ones in many years. We went through. The maintenance costed or took a little bit more longer time than we thought, so it was a little bit more expensive than first anticipated. But it also feels good that we're through the majority of the maintenance for this year. On top of that, we can also say that, of course, inflation, especially if you compare to last year, is still hitting us relatively hard, although inflation quarter on quarter is very low now. Our major projects are all of three going according to plan, and we're developing well both in ODA, in ITIC, and in the Kristineberg project that we're doing. So all in all, and we'll come back to that, this has led to a reduction, sharp reduction in the profitability for the quarter, especially compared to last year. We have a negative free cash flow. We'll come back to that partially because of the fire in Runshare. We also had a higher working capital and CapEx now up at levels around what we have guided for. So if you look at the profitability development, we had a little bit less than a billion, 833 million profit for the group. We'll come back to details around that. There are some one-offs in that number as well, especially the mines have been struggling with the lower grades. Smelters also back mainly due to the big maintenance stop, but also the fire in Rönnskärm. On the ESG side, we've also had a struggling quarter. The LTI frequency that we for a number of quarters have been coming down to very low levels and of course maybe has made us a little bit spoiled. We are now having a setback in this quarter with a number which is more like what we had a couple of years back. We still feel good about the progress that we have. We still feel good about the general safety development, even though these kind of quarters do unfortunately happen now and then. The sick leave is going down if you compare to Q1, and we're heading down to lower levels. However, it was not quite as low as we had hoped for and anticipated, and we're working hard to see whether we can get the sick leave down even further. What was good in the quarters is CO2 emissions are continuing to develop in the right direction. And you can see here that we have a lowering of the CO2 emissions scope 1 and scope 2 from 206 to 190 in the Q2 compared to last year. The metal or the price in terms, especially zinc with 19% down in the quarter is the one that hits us pretty hard. And you know that with our pricing model, what definitive pricing comes up to four months in certain cases. After delivery, that hits us hard and we have a negative development on the prices and terms. We have a strong negative development on the byproduct side, especially sulfuric acid. We also have declining premiums for the spot side, which is in line with this. And we have a negative currency development for Bullen as a group because of the strong euro, even though the Swedish krona is weak and helping us, the strong euro is actually making it altogether a negative currency development compared to last quarter. We can also say that in part of this, this is what we see and this is what comes from LME numbers and so on. We also see, and we've been open with this, that when we look locally at the markets where we are present, we also see clearly lower activities. We see our customer's taking out less volumes than normally. And we can really see that in the sectors that are using our metals, clearly recession has entered into Europe. And this was also been a discussion as we've been talking about Tara, because of course, if you believe that the zinc prices would jump up next month, you wouldn't put Tara into care and maintenance. But as we see it right now, we cannot foresee that the zinc prices will jump up really in the short term. We're probably talking into 2024. until we get a good rebound in the zinc prices. If you look down on the prices, you can see that the prices right now, both for zinc and for nickel, are down around the cost curve, which is usually a sign that the prices don't really go that much further down, but it's also not sure that they will jump up very fast. Copper is still developing well, has had a much better development in the quarter, even though the copper price is also down. And the copper price is still well above where the cost levels in the industry are. If you look at production, I must first say that we had a good production in our mines almost all the way through. We've had good throughput in Aitik, 45 million tons more or less. Apart from the beginning of the quarter, which we guided for where we had problems floating over with the The mill issues that we had in Garpenberg, after that was solved in April, we've been producing very well, and the throughput has been very good in May and June. Also in Kevitsa, we are having throughputs very close to the 10 million tons, which is our permit level around there. So throughput, and also in the Boulinera, throughput is good. Tara throughput was also relatively decent. With the announcement of the care and maintenance, the production went down, so looking at it for the whole quarter, it is below what it should be, but... It was doing relatively well up until then. The issue that we've had has to do with grades. In ITIC, we are now down to the point 17 that we have guided for for the full year. We knew that we were going to come there. And we have also indicated in the Capital Markets Day that this is a level roughly where we could be expecting to stay for a couple of years before we get the grades coming back up again. In Garpenberg, we've had some issues with the grades. We've been in lower areas. That's really a temporary thing, and we should get the grades back in Garpenberg, and we don't have any change in the forecast for the year. Kivica, this is quite in line with what we communicated a couple of weeks back. We've had rock stability issues in Kivica, which has made it for long parts impossible to mine from the pushback number three where the high grades are and we've been mining from pushback number four instead. We've been able to keep the volumes up which is good but of course it's hitting the grades and we are now at those grades as we communicated there. On the smelter side, well the big thing on the smelter side throughput is the very major maintenance shot that we had in Harjavata which was well communicated beforehand It took about a week extra, longer than we had anticipated, a little bit in different parts. That's things that happens when you do these major stops. You only find out exactly the condition of the furnaces once you have cooled them down. It took extra time for us to do this, but we feel good about this. We also had a chance in the meantime to rebuild the nickel concentrate dryer, which has been causing us issues, and now it looks better once we've been able to get going with that one again. In the zinc smelters, we've had a relatively good production, even though we had a little bit of an issue with the electrolysis plant in Oda, number four. But otherwise, the zinc smelters have been doing well. The big thing is, of course, the fire in Oda that totally shut down Oda on June 13. It was down for about two weeks. To the most extent, we've been starting up the different parts. We have been able to start produce anodes we have actually shipped anodes we have developed a limited contract basis for anodes and we are as we're speaking building up the the book around how to sell the anodes we're not really worried about it but it will take some time to establish this we are a brand new player in this market and we need to put a name to ourselves around it but we're not in any sense worried that we're going to be able to sell the anodes that's going to be quite possible Now, Håkan, I'll leave it over to you to talk a little bit about the numbers.

Thank you and good morning. Well, as you have seen, we have reported an EBIT excluding process inventories of 833, capex of 4.2 billion. That means that we have now spent just over 7 billion, which is in line with the full year guidance of 15. And as a consequence, that means that we have a negative cash flow of minus 3.8 billion. We look at the profit by business area. You can see what Michael talked about. There is a decline in mines, a sharp decline in mines related to lower metal prices and grades. On the smelting side, we have a significant, a big plant maintenance. And on top of that, the fire in Rönnskär had a major impact. So those will be the main changes in the results. If we look a little bit more in detail and start down with Q2 compared to Q2 of last year, year on year there is a big drop in prices. We have an EBIT impact of about 750 million compared to last year from the zinc price reduction. Also price reductions of copper and byproducts, sulfuric acid, is significant in this analysis. Year on year, the price drop on metals and sulfuric acid is partly compensated by better premiums and better currencies. But all in all, it's adding up to a negative price impact of minus 841 million Swedish kronor. Volumes are down 2.1. More than half of that is related to metal grades in mines. This is mainly Kevitsa in line with the announcement a few weeks back, and Itik mining at 0.17% copper, which is in line with the full-year guidance. So those will be the most significant ones when it comes to grades. The fire in Rönnskär, we estimate, had an EBIT impact of about 400 million Swedish kronor. A volume impact of 400 million. 200 of that is direct production losses in the smelter. The other 200 is related to the timing of profit recognition in mines. When we've had one smelter close due to fire and the other one in maintenance, concentrate had piled up. And that means that we have not been able to recognize the full profit of the mining production. This is a timing effect, and we expect that to normalize during the coming quarter. We also have a bigger maintenance stop this year, which has a negative impact on volumes. Costs. The main reason to the cost increase is inflation. We have a high single-digit inflation, so a bit below 10% year on year. In there, there is of course also a currency component. The Swedish krona has further weakened against the euro and dollar, which plays into this. In addition, we have slightly higher maintenance cost and higher exploration. On the items affecting comparability, we have a few components related to Tara and related to Rönnskär. We have made a provision for early retirement in Tara, 53 million Swedish kronor. We have a provision for demolition of the cell house that was destroyed, 75 million kronor. And we have a write-down of 88 million krona, which is the book value of the cell house. A fairly low book value as it was mostly depreciated. If we look sequentially and compare Q2 to the previous quarter, the main components are the same. Prices and terms just below 800, negative impact. Base metal prices down. Again, zinc is the most important component with about half a billion Swedish krona impact compared to Q1, so significant. Also, the currencies are slightly negative. You can see 120 here, and that is related, as Michael talked about, to the euro strengthening against the dollar, meaning that the profitability in our euro-based units, Tara, Kevitsa, and the Finnish smelters, has had a negative impact. Volumes is a billion down compared to Q1. Again, grades is significant, about 400 million. Aytek and Kevitsa, according to the announcements earlier on. Also here we have the 400 million impact from the fire in Rönnskär. Same order of magnitude is the volume impact from the maintenance stops, primarily in Harjavalta. But on the plus side, we had about 300 million improvements due to higher milled volume compared to Q1. The costs are slightly up compared to Q1 due to maintenance stops. There is no significant inflation that we see compared to Q1. And then we have the same one-offs related to Rönnskär and Tara. Cash flow, well, the main difference is a lower EBITDA. We also have high investments and then we've built working capital roughly at 1.7 billion. And the reasons to that are two. We talked about already at the last quarterly report where we had a seasonal working capital build that didn't happen in Q1 and that we guided for would happen in Q2. So there's one background and the second one is of course the fire in Rönnskär where a lot of Concentrate stocks have piled up as we have not been able to process and ship that. Moving on then to the capital structure, we have a net debt of 11 billion. The main change compared to last quarter is a 7.3 billion dividend payment, including then the redemption of shares. And then in addition, the negative cash flow I just talked about. So that adds up to a net debt of 11. and a gearing net-to-equity ratio of 20%. We still have a strong balance sheet, 14.5 billion in payment capacity and strong numbers. So with that, I'll hand over to you again, Michael.