Boliden — Call Transcript 2016

Speaker 15: Good morning, a warm welcome to Boliden's Q1 2016 earnings call. My name is Sophie Arnius, and I'm head of investor relations. We are sending live from Skellefteå today. We will also have our AGM here later today. We'll try to limit call to one hour. Today's presenters are our CEO and President, Lennart Evrell, and also our new CFO, Håkan Gabrielsson, who joined us 1st of April. There will be an opportunity to ask questions after their presentations. Lennart, please.

Speaker 9: Thank you, good morning. Strong production, a good result, and we are pleased with what has happened in the first quarter. A detail is that we have arrived at a 21% gearing, which relates to our target of 20%, which is a financial strength which would enable us to make an acquisition even at bad times, which coincides with the acquisition of Kevitsa. If we take us through some of the details of the quarters, revenues are severely hit by lower metal prices. SEK 8.8 billion compared to SEK 10.4 billion a year ago. Earnings, as a result of higher production and good cost development, is SEK 769 million in the quarter compared to just over SEK 1 billion a year ago. The free cash flow was SEK 210 million, then the first quarter is now a bit weak, where we're building normally inventories and working capital, and we have somewhat lower production for weather reasons. The smelters did particularly well. All of our smelters are delivering good results and have had a stable production in the quarter. Metal prices are significantly lower, and if you compare with the previous quarter, with Q4, we see that the term or metal prices have been going up, but at the same time, currencies have gone the other way around. Basically, the strong result compared to Q4 is a result of lower cost. The global market is sliding or going sideways, I would say. I don't think we have major bad news, but we don't have major good news. The global construction industry, the most important segment for base metals, have been developing reasonably well, whereas the automotive sector or automotive or transportation sector has been slightly negative. What is driving the market right now are news on closure of mines. In zinc, we have a fundamental positive picture with few new mines being built and low production in the quarter. In copper, we have seen the gradual sort of start up of many mining projects, and therefore it's a more supplied market, but it's in reasonable balance also here. The nickel market is new to us. We're following the new strategy for nickel, and we're, of course, going to be increasingly interested in that metal following the Kevitsa acquisition. Here, the inventories are very high, but production is lower than demand. If we look at the zinc prices, first of all, the long-term curve is very stable. Some years back, we were forecasting very high zinc prices. Instead, we have got a flat development, whereas more or less all other commodities have been going down. With a bit of good news in the quarter, we see on the blow-up to the right that the zinc price has responded positively. Copper, however, the long-term curve is continuing to slide downwards. We are down on the cash cost curves or cash cost support levels. Short-term, we have also in copper seen a positive price development. Nickel is similar to copper, even though it's a more volatile metal and the swings from peak to troughs are more dramatic. Basically, the long-term slide can also be seen here. We see on the blow-up to the right that also nickel has responded positively. Gold is one of the metals, together with zinc, which has had the best development. Actually, silver is the very best, where we see the longer term, very dramatic negative. If you blow up the latest development, it has been a good start of the year. As I said, currencies have now in the first quarter, improvement on metal prices, currencies have softened or Boliden's currency portfolio have softened and gone the other way around. Again, we have with the country mix or currency mix and the metal mix, we see a balance in the different commodities and currencies. The weighted index of both currencies and metal prices can be seen to the right. We see the first quarter improvement, the little positive to the far right of the curve. I mentioned that metal prices are down on the cash cost curves. To the left, we see zinc and to the right, copper. The three horizontal lines are representing the cash cost of the industry, the average of or the 90th percentile on the upper curve and the 50th on the lower curve. We can see the volatility of prices. As we can see, we are not down on the lowest levels compared to cash cost. We are on low levels. We think that it's too early to say that the recent uptick is a new trend. We think it is rather a volatility around the price floors. We would need to see more fundamental news on the demand side before we would believe in any stronger upward trend. If we go to the business areas and start with the mines. Earnings are, of course, hard hit by lower metal prices. Earnings are down to half of a year ago. CapEx is slightly lower. Continue to have a reasonable or quite strong or big CapEx spend. We see the trend line going down. We were in Q4 on just marginal positive results. Compared to that, of course, we're quite pleased with the SEK 240, even if it is not a very big number. Production was good. The seasonality lows in Aitik were, I think, expected by you and certainly not a surprise to us. Garpenberg was doing the two and a half million tons pace, the full capacity of the project, which was finalized last year. The rest, I think, I covered in my initial comments. On production, we see the milled ore production, the throughput on the bars, and the metal content on the line. As we can see, we are up on a quite good level on copper, even though it's a seasonal low there. In zinc, we have seen good production in all the zinc mines. Tara has had strong development with new developments and a good sort of the organization well in balance after the reductions we have done and other adjustments, other action plans. Also worth to note is that Boliden Area has delivered a lot of zinc in the quarter and has had a very good result. On the smelter side, across the board, good production. I think the headline for the report is good production in the smelters and stable processes, and that's certainly true. We have a result of SEK 655 compared to SEK 680 a year ago and SEK 580 in the last quarter of last year. We have improved process stability, action plans in Rönnskär is paying off. Kokkola is doing fine, Odda somewhat weak, and the nickel strategy for Harjavalta is doing very fine. Also, Bergsöe has had a reasonable quarter. We have higher cost than last year, which is mainly volume related. The good market terms are there, but even though it's slightly lower than last year, we are going to see the impact of slightly lower treatment charges more or full effect in the second quarter. We saw in the beginning of the year that we still had stocks and inventories purchased at the previous year's slightly better terms. In copper and zinc production, we can see it in a similar way. Good throughput in the copper smelters and in the zinc smelters and good metal content. Basically, a flat development, but with more complex materials and some more better margin processing. With that, I would like you, Håkan, to do your first financial presentation. Welcome.

Speaker 6: Thank you, Lennart. I'd like to start by giving a brief overview of the Q1 financials that we just published. Looking at the first slide, EBIT excluding process inventory valuations reached SEK 769 million. This was a quarter with good profit levels in smelters. It was also a quarter with a nice improvement in mines compared to Q4. Further down on the slide, free cash flow increased this quarter to just over SEK 200 million. We move over to the next slide, I go into a bit more detail where the result came from. This is a comparison of this quarter with Q4 of last year. Metal prices improved over the quarter, and even if dollar is weaker, we have a net positive impact of close to SEK 60 million. Primarily it's zinc, but in general, it was a good development. As Lennart also mentioned, the effect of new treatment charges for 2016 doesn't kick in fully in Q1. When it comes to volume, we have a negative impact of roughly SEK 40 million. There are a few different things in there. Aitik has often a seasonally lower production in the winter months, and this was the case also this year, especially January, so cold weather and production was slightly hampered. We have also guided for a slightly lower grade in Garpenberg in the first quarter due to some rock stability issues that we had towards the later part of 2015. That is also in these numbers. Finally, there's a slightly lower volume of free metals in the smelter side. Cost control in the business has been good, and process stability has also been good, and that shows us a positive impact on the cost line. In addition to that, there is a volume element with slightly lower volumes that give slightly lower costs. Also in Q4 of last year, we had SEK 40 million of reclamation costs that comes in as positive on this slide. All in all, it gives a net improvement of just over SEK 170 million compared to Q4. Continuing then to the comparison of Q1 versus Q1. As you can see here, the main impact is that of lower metal prices that has had a negative impact of over SEK 600 million on the income statement. Roughly half of that have been compensated though by higher volumes. We've had good production both in smelters and in mines. If we add back the positive impact of that good production and some variable costs related to that, we have been able to compensate for roughly half of the drop in prices, leaving a net deterioration of just over SEK 300 million compared to Q1 last year. Moving on then to cash flow. The free cash flow has improved to just over SEK 200 million, which is a good improvement compared to both Q1 and Q4 of last year. I think there are two main points I'd like to highlight on this slide. Comparing with Q4, we have had lower CapEx. That is often the case seasonally that we have a bit higher CapEx in Q4 than in Q1. Comparing Q1 over Q1 last year, we have a better development of working capital that has helped us this year. Those two items, together with the variations of profits that I talked about just recently, explains the improvement in cash flow. Finally, moving on to the last slide. Looking at the graph on the right-hand side of the slide, we can see that we have an almost three years period of gradually strengthening the balance sheet. We are now down to 21% gearing, which is close to the target of 20% that Lennart mentioned. It just confirms that the timing, from our perspective, of the Kevitsa acquisitions is very good. With that, I hand back to Lennart.

Speaker 9: Thank you, Håkan. To conclude, see what's in the information we have given and going forward. First of all, Aitik will have a copper grade of 0.21% in 2016, which we have informed about. Garpenberg will have grades of around 4% zinc and 120 gram per ton of silver. I think the cost action plans are going well, so I think that's within the guidance we have given before. On CapEx guidance, we have said that we're going to be slightly below SEK 4 billion in the full year of 2016 and slightly above that 2017 with the investments that we are gradually taking on now. In particular, we are investing a little bit more in the smelters, since we are earning a lot of money there, and we have held back a bit the investments in the smelters during the years when we have expanded the mines. The planned shutdowns will have an EBIT impact in the smelters in the second quarter of about SEK 165 million, and they relate to Harjavalta, Kokkola, and Rönnskär mainly, and SEK 50 million in Q3. The summary of this quarter is, again, we are enjoying the effect of a strategic position. We are in mines and smelters, and they are going, as we evidently see, in different cycles. Today, we're earning most of the money in the smelters. A few years back, it was most of the money in the mines. We have base metals and precious metals. Today, the gold prices are going up, silver I mentioned, whereas nickel and copper are having difficult times, and zinc also is quite positive. Productivity we have developed with our organic strategy, which has been more focused on developing our existing units rather than buying new things and justifying with a lot of tons of metals or something else. We are less ton focused and more profit and cash flow focused. Solid performance in all of the smelters, but also good production in the mines, considering the slightly weaker seasonality. We have seen significantly lower prices compared to last year. Compared to the previous quarter, we have seen an uptick in prices, which have been compensated, or on the other hand, the currencies have been going the other way. Taken together, a rather flat development from the previous quarter, where we instead have had cost reductions. The Kevitsa acquisition was announced on the 10th of March. Not much more to say about it. We have had some initial contacts and discussions. We are looking at basically two things for Kevitsa to be a very good deal for us. We would need to have better nickel prices. We think we are somewhere low. We don't know when it will happen, but we think it will happen eventually. The other side of the coin is, of course, what we can do ourselves, and we think there are improvements, and the synergies are very good. We know all the equipment, all the processes. We know how to mine an open pit in the Arctic climate, and so on.

Speaker 6: We got the approvals from relevant or from the competition authorities. That condition is passed. We think that the closure of the deal or the paying and delivery of the deal will be on the 1st of June or maybe 1st of July, but the target is 1st of June. That concludes our presentation. Again, we're happy with the result and development of Boliden, and we are prepared to take your questions.

Speaker 15: Yes. Thank you, Lennart, and also Håkan. We will now open up for questions. Operator, please go ahead.

Speaker 13: Ladies and gentlemen, if you have a question, please press 01 on your telephone keypad and you'll enter queue. We have a question from Alain Gabriel from Morgan Stanley. Please go ahead. Your line is open.

Speaker 1: Yes, good morning, everyone. Just two quick questions on the cash flow side. Firstly, on the spending, the investments in Q1, the run rate appears to be far below the guidance for the full year. I get there's some seasonality in that. Do we need to read much more into the spending during the quarter? Are you potentially signaling that we might come in below your guidance? The second question is the cash tax during the Q1 continues to be below what we have seen in terms of the P&L tax. This is also recurrent, that we have seen in 2015 as well. Do you expect any reversal on the cash tax payments anytime soon? Thank you.

Speaker 6: You take that? Yeah. Okay. We have given a guidance on the CapEx for the full year of 2016 of just below SEK 4 billion, and that is a guiding that still holds. There is one element of seasonality in this, but there is also a few bigger investment that kicks in a bit more during the later part of the year. We talk about crushers in Aitik and some environmental investments in Rönnskär. The CapEx guiding of SEK 4 billion holds. The second question, I think, was about taxes, right? There is a timing effect there with preliminary taxes compared to final taxes, and we will catch up over the next four quarters so that the tax on the P&L and the cash flow statements even out.

Speaker 1: Thank you.

Speaker 13: Our next question comes from Philip Ngotho from ABN AMRO. Please go ahead. Your line is open.

Speaker 14: Yes. Good morning. Philip Ngotho from ABN AMRO. I have a few questions. First of all, on the TCs that you indicated that they're not fully in the numbers yet. For the mines, you do indicate that they benefited from the new terms. I'm just wondering, could you indicate to what extent the new TCs are in the numbers for the quarter? For example, did they start in March, or could you give any guidance on that for both the smelters and the mining division? The other question I have is on Rönnskär. You indicate that due to the raw material mix, you had a bit of a lower silver production, I believe. I was just wondering, are you flexible to maybe increase or change your raw material mix to maybe target a higher silver production for Q2? How flexible are you in that, given also the sharp increase in silver price? Are you looking at that, and how much flexibility do you have in that? Those are my questions.

Speaker 9: On the timing of TCs, you can say that probably two-thirds of the quarter was with old TCs and one-third is with new TC. It has a full impact on the smelters, obviously. In copper, we are more sensitive to the TC terms than we are on zinc, where we basically have an equal plus and an equal or plus and minus in smelters and mines, since we have approximately similar volumes. In copper TC, lower terms will have a stronger impact in going forward. Count two-thirds of the Q1 was on old terms and one-third on the new terms. When it comes to the mix and silver, I would say that the main thing with complex materials, what we try to do and our flexibility, we try and we are really, this is a focal point for us to maximize the gross profit by taking difficult materials. That is coming through as increased TC. The general terms of standard TC of copper and standard, certainly on copper, but also on zinc. In copper, we have a very large variation from different suppliers and different quantities. Free metals of silver, free metals of gold, free metals of nickel and zinc and copper, depending on what you're looking at, are coming in as vital elements. The visibility for you is not great here. We are working on complex materials. We are going to see a variation. As you can see, if you follow the numbers, they are not swinging widely. Obviously, the standard TCs are just giving a piece of it. The free metal piece you have information on before is you can apply a new metal price, you don't know how much we are doing. The metal mix performance is something we are pushing to increase the margins. Visibility is not fantastic, unfortunately.

Speaker 14: Okay. You do take, obviously, I assume you do take into account the metal prices as they are to probably optimize it as much as possible?

Speaker 9: No. I would say, of course, with a different metal price, the attraction of different concentrates will differ. It's long transportation, it's long distances, it's more to look at what are our smelters, what kind of bottlenecks do we have for different impurities, if we are maximizing the pre-calculated gross profit against the mix of materials and the bottlenecks we have. That's the optimization game we're playing. It's very complex, it's long-term, I would say maybe on six, nine months, what we can do on purchasing and feeding in and trying to maximize this value. It's a very important part of the smelter business.

Speaker 14: Okay. Thank you. Very clear.

Speaker 13: Our next question comes from Liam Fitzpatrick from Credit Suisse. Please go ahead, your line's open.

Speaker 10: Morning, everyone. Three questions. Firstly, just on Tara. The throughput was, I think, the best we've seen in the last two years or so. Can you just comment on how sustainable that volume improvement and cost improvement is through the rest of this year? Secondly, just on Kevitsa. Can you give us a bit of guidance on when you'll be able to guide us on volumes, costs, synergies, et cetera? Lastly, just on third-party zinc concentrate supply, do you foresee any issues in securing supply, or are you confident that you're sufficiently supplied through this year and into 2017? Thank you.

Speaker 9: On the first one, on Tara, I think we should probably be a bit prudent here. We had a very strong quarter. I think fundamentally, we are going to be on this level. It's not a good idea to extrapolate and think that we're going to take additional steps upwards. I think you should have a degree of prudence here. Basically, I think it is fundamental improvements behind the strong Q1. On number two, on Kevitsa, when we are going to give guidance. I think it will work something like this. Suppose now that we are coming in in the summer. We have formed our teams internally now. We have put project leaders similar to what we do in other big projects. We are staffing up quite big org chart with what we can do, and here is to give and take. We are also very eager to learn from what First Quantum have done very well. We are also going to have a strong listening exercise and learning exercise. If you look at Kevitsa in particular, I think that this team will work probably in the first six months, probably some kind of idea of a concept towards the end of the year is probably a first indication. Then, of course, as we are going to follow and own the mine, we're going to have comments on the actual development. The third question is the zinc supply to our smelters, and we are okay there.

Speaker 10: Just on the concentrate supply. Is it fair to say that you weren't taking any supply from some of these major closures that we've seen over the last three, four months?

Speaker 9: No. We are well supplied with long-term contracts and some spot volumes, which may be at some less attractive terms, probably, but I see little risk. This is not a major issue for you or for us.

Speaker 10: Okay. Thank you.

Speaker 13: Our next question comes from Daniel Major from UBS. Please go ahead. Your line is open.

Speaker 4: Hi there. Three questions from me. Firstly, an operational question at Garpenberg. You obviously flagged the issues of rock instability at the end of the fourth quarter, but your grade achieved in Q1 was actually pretty close to what you're guiding for the full year. Is that a better performance than you'd expected, and therefore, should we be thinking of some upside risk to that guidance in terms of grades? Second question, can I just follow up on Alain's question on tax? You paid about SEK 440 million less actual cash tax payments versus in the P&L in 2015. In 2016, are you expecting to catch up, meaning your cash tax be in line with the P&L tax or catch up the deficit that you didn't pay last year? The third question, again, on the balance sheet. You got a bridging loan facility in for the acquisition. What's your preferred route for refinancing that facility?

Speaker 9: On Garpenberg instability, it's a bit of psychology, I have to admit, in Garpenberg. We are so focused on delivering everything according to plan, and the whole culture here is we are going to deliver what we have said. I think we were probably a little bit overly prudent on that guidance. Basically, the story, of course, was correct. We had a collapse or a rock fall in one of those large stops. We had to back out from that, and the other one was lower grade. We probably have been taking some higher grades in order to reduce the impact. I think we have just done a good job. The other two, cash and tax questions, if you can take those.

Speaker 6: First, the question about tax. The way it works is that we pay preliminary tax over the year, and then it's regulated in retrospect. We will certainly catch up the difference from 2015. The outcome of the 2016 tax payment, it depends on how the profit moves and what happens. It is a bit complex to predict, but I can confirm at least that we'll catch up to 2015 numbers. When it comes to replacing the bridge financing for Kevitsa, it's something that we are looking at, and we are investigating different options. We have nothing more to communicate at this point around that, but we will come back as soon as we have something in place.

Speaker 4: Okay, thanks so much.

Speaker 13: Our next question comes from Franck Darnault from Deutsche Bank. Please go ahead. Your line is open.

Speaker 5: Morning, gents. Thanks for taking my questions. Three ones from me, please. The first one on working capital. I understand you're building up inventories as you usually do at this time of the year, but just seeing your receivables, which have been going up as well, how shall we think about that moving forward? When shall we expect, or do you expect any release of receivables in the next few quarters? That's the first one. The second question on Garpenberg. I know that you are trying to automate the process of the mine. Just kind of, can you please provide us with an update? I think you're targeting an 80% automation. How far can you go this year and what potential savings can you realize in that extent? The last question on Kylylahti, if you can just give us an update on your outlook at the mine.

Speaker 9: At Aitik.

Speaker 5: At Kylylahti.

Speaker 9: Kylylahti. I'm sorry. The Finnish pronunciation. Okay, I follow that. If you start with the receivables.

Speaker 6: Okay.

Speaker 9: When do we get paid?

Speaker 6: That's a good question. Working capital, it moves quite a lot over the year. As you say, we generally have a buildup of working capital in the first quarter. At the current state, working capital is a bit on the high side. It's not extreme, but a bit over average for a year. We expect some positive cash flow from that during the later part of the year. It's difficult to quantify, but typically Q4, or sorry, Q1 is not the best quarter when it comes to working capital.

Speaker 9: On automation in Garpenberg, I think you should look at it. We have the highest productivity in the world in Garpenberg, we wouldn't be there if we don't continue to push automation and productivity all the time. I think what you are going to see in Garpenberg is that, we see it also in Aitik for open pit applications, that we have a lot of suppliers. We have a lot of business partners who are testing out new equipment in our mines. We have been raising our hands and said, "We are prepared to take the technical risks together with you and push the limits and productivity forward." It's natural for us to do because we are in a mining cluster here in Scandinavia with some of the big names like Atlas Copco or Metso or Sandvik or ABB or whoever, and global leaders. They have a very strong interest. They often have their R&D base here, we have high cost, high environmental demands and a lot of other things. We are taking the steps and lead here. What it will mean in Garpenberg particularly is that we are going to take steps forward. I don't see any dramatic sort of quantum leaps here and that we suddenly are reducing headcount or cost or something like that. We are going to continue the continuous improvement kind of development. I think on the other hand, that we may see improvements in other mines following Garpenberg's leading position in automation. We are seeing some similar things. We started the new technology with GPS-like positioning in Kristineberg in the Boliden area. Now that is moved to Garpenberg instead and to all the other underground mines in Tara. We are having very precise positioning of everything, which is a fundament for automation and for safety in the mines. I don't think that we would like to sort of guide that we are going to take step functions. It's not going to be that development. This is a continuous improvement in our minds, we have similar programs for the smelters. When it comes to Kylylahti, very strong production. We are extremely pleased with the development of the concentrator plant. We are extremely pleased with the mining, everything has developed very well. The sequencing and everything is going as planned. The weak side is the exploration, where we had hoped with a yearly update of reserves and resources to have good news. As we informed on the previous quarter, we are seeing the mine to the depth, and there seem to be some kind of slide, and we don't know exactly which direction. We are looking for the continuation of this deposit to the depth, but we don't have it yet. This is a disappointment.

Speaker 5: Okay. Thank you.

Speaker 13: Our next question comes from Christian Kapper from Nordea. Please go ahead. Your line is open.

Speaker 3: Thanks for that, operator. Just a few follow-ups for me on costs in the mines. You obviously delivered a better result this quarter than the last quarter, but still as you also mentioned, Lennart, maybe not that happy with the profitability in the mines. We have seen from other companies in the sector, they are continuously working with taking down OpEx on the mine side. How are you proceeding with that from now on in terms of operational expenditures? Thanks.

Speaker 9: I think it is important to say we have not been in a crisis mode in Boliden. With a continuous improvement program, with the new Boliden Way, with what we have done over the years, we have been in good cost positions and we have not been forced to do very dramatic changes, which are, in my opinion, almost always value destroying. We are working on continuous improvements and on the cost side we have a very successful procurement activity. We were at the board meeting yesterday talking about the result of procurement, it's going very well. We have an inflation in or deflation in the group which is on maybe 1% today, which is very good considering that we have imported inflation with the weaker currency if you compare it with a year ago or with a stronger dollar to the Swedish krona and to the euro. I would say that we are developing the cost side positively. We are doing our programs like Tara. We go from 700 to 600 people and things like that. Basically, we are continuing more on a continuous improvement rather than to do very dramatic sort of steps.

Speaker 3: Right. Follow up on that, Lennart, regarding what you said on group cost deflation of approximately 1%. Does that mean that the underlying cost deflation is a little bit higher than that then?

Speaker 9: Well, again, you have to keep track. If you compare in our industry, you have to keep track of what currencies are they talking about. Some of the big cost reductions are for companies in weak currency markets like Sweden, but doing the accounts in US dollars. Of course you have a huge cost reduction, which is just a currency effect. We think that we have a very good cost reduction development, it is including several quite big cost increases, some of them being tax related or tax related on fuel and sulfur for transportation fuel and so on. We have many cost items which are going up, which we can't do much about, but against which we have a very favorable cost picture in general, I would say.

Speaker 3: Finally from me, on the sensitivities that you provide each quarter, when do you think you will include the nickel sensitivity in the bridge?

Speaker 9: When we are in the nickel. You can say that we are already in Harjavalta, but as soon as we have Kevitsa in the group, we have. A smelter is a mixed picture, the metal sensitivity is not that great, and it is still a quite small metal compared to copper and zinc. When we have Kevitsa in the picture or in-house, we are going to do it from day one, basically.

Speaker 3: Thank you very much.

Speaker 13: Our next question comes from Ola Södermark from Swedbank. Please go ahead. Your line is open.

Speaker 11: Yes, good morning. A follow-up question on Aitik. Can we expect a normal seasonal pattern production-wise in Aitik over the coming quarters that is going to be quite upticking ore milled in Q2?

Speaker 9: I think you should model the normal seasonality, yes. I think that we put out a caution here that we have low availability, which means that we are probably more volatile in the next seven, six quarters or so than we have been in the past two, three years because we do have a lot of wear in some of the structures of the crushers. Slightly more volatile, but I think the guiding is good what you're doing. If I would recommend our analysts is to go on a normal seasonality. Absolutely.

Speaker 11: Okay. Thank you. That's all.

Speaker 13: Thank you. Our next question comes from Olof Grenmark from ABG. Please go ahead. Your line is open.

Speaker 12: Good morning. You mentioned a new nickel business model, which is part of your success in smelting business in Q1. You have talked about this one in the past, but could you please repeat what is that about and possibly also quantify that effect?

Speaker 9: Yeah. We have been in Harjavalta. First of all, Finland, the more east you go towards Norilsk Nickel in Russia and the further you are from zinc copper in Sweden. When you are going east, it is becoming more nickel in the copper, and over in Russia, it is pure nickel. Because of that, it is very natural that our copper smelter in Finland has, since many years, also a nickel smelting side. It is a copper and nickel smelter in Harjavalta. We have, until mid-last year, had an exclusive cooperation with Norilsk Nickel, and we have been toll smelting for them. It means that Norilsk owned the concentrates delivered to us. They owned the metal, and we delivered the nickel back, matte to Norilsk, and they owned the material through that whole process. We did the smelting against a fee, the so-called tolling fee. From the 1st of July of last year, we have a business model which is identical with the other smelters. We are buying concentrates in the market. We are selling the nickel product to the market. We have discontinued this long-term cooperation with Norilsk as we had it. The impact of that is that we own the inventory, and nickel is expensive, and therefore it is about, what did we guide? SEK 500 million or SEK 300 million as a result of us carrying the inventory. We have the margin, which is higher when we own the business entirely ourselves. Now, from 1st of July, we have the smelter business model identical to what we are doing with copper and zinc. We had, as a group, an anomaly because we had zero internal feed from mines. With the Kevitsa acquisition, apart from all the other synergies and reasons for that acquisition, we will have a good internal supply also of nickel. Over the 12, 18, 24 months from middle of last year until the integration of Kevitsa, we have added fully a new metal, even though the metal has been in the portfolio as a toll business since many years. I think this is a very nice organic step-by-step development into a new main metal.

Speaker 12: Is it possible to quantify the Q1 effect from all of this?

Speaker 9: Absolutely. We refrain from doing it because nickel is not a very liquid market, and therefore we are somewhat cautious in giving too much information for commercial reasons. It's a good deal, and we are successful in it. It's contributing to the Harjavalta strong results. It's not making the result, but it's a nice contribution for Harjavalta. It's also a nice little contribution to the smelters and to the group.

Speaker 12: Fair enough. Thanks.

Speaker 13: Our next question comes from Jat Malberg from Kepler Cheuvreux. Please go ahead. Your line is open.

Speaker 7: Thank you. Just a question on the metal price and terms on the mines division. You had SEK 141 million of positive effect. Can you say it when a month after month of Mema effect included in that?

Speaker 9: Let's see. Do you, Sophie, have the Mema effects? I think it is relatively modest right now. Do you have it?

Speaker 6: It's relatively modest. There is something in there, but it's relatively modest.

Speaker 7: Okay. On Aitik, you talked a bit about the volumes for this year. I think you indicated that you will be at around 36 million-39 million tons for the next, for 2016, 2017. Is this still the view from your point?

Speaker 9: Your line is a bit poor quality. I think the guidance on Aitik, what have we said there, Sophie?

Speaker 6: Yeah.

Speaker 15: We have no specific guidance when it comes to mill tonnage for Aitik. It is only grade-wise for 2016 and 2017.

Speaker 7: Okay. Just last on Kevitsa. First Quantum have a new technical report. Do you think that the grade guidance, volume guidance that is in there is fair to use in our estimates for Kevitsa going forward?

Speaker 9: In the due diligence, we were going through the database there, and we believe it is good quality. The technical report that came after is really what we had in the due diligence. Yeah. I know that they are slightly low in Q1 for reasons I don't know. I think the mineralization, we have good control of.

Speaker 7: Okay, just last on Boliden area. I know that's generally volatile, both throughput and grade there, but was there any structural change in the higher throughput this quarter or was it just a typical effect?

Speaker 9: I can refer back to the board meeting of yesterday. It's interesting. We have been very much talking about the Garpenberg and the success of that project. Behind that project, we closed down the previous concentrator in Garpenberg, and we took some of the used equipment and moved it up and replaced some old stuff in the Boliden area. We have upgraded the quality of Boliden gradually. It's not changing the world. We have not been changing the nominal capacity, but the process stability had been improving. I think that part of this may be there to stay. I certainly hope so. Again, we have four mines supplying one concentrator, and it's the campaigns, because we are doing batch production coming from Maurliden sometimes, Kristineberg one at times, and Kankberg, and Renström. Depending on what mine we are processing, it can differ quite a bit.

Speaker 6: Now we are trying to even that out so we don't have big swings in the quarters, fundamentals are quite volatile with the difference in materials we are processing.

Speaker 7: Okay. Thank you.

Speaker 13: I remind you that if you want to ask a question, you will have to press 01 on your telephone keypad now. We have a question from Johannes Grancelius from Handelsbanken. Please go ahead. Your line is open.

Speaker 8: Yes. Hi, everyone. Most of my questions have already been answered. A few ones left. Interest rate here is very low in Q1, 1.3%, I believe, or something. How should we view the interest cost here going forward? Now you're taking on slightly more debt here because of the Kevitsa deal.

Speaker 6: Okay. The interest rate, I think you should model with a slight increase when it comes to following the Kevitsa acquisition. Since we're still working on the takeout financing, we cannot give an exact guidance. Typically, we will have a slightly higher interest cost.

Speaker 8: nothing materially higher anyway?

Speaker 6: Nothing materially higher.

Speaker 8: Good. There have been some major movements, obviously, on the FX here. When you bought the Kevitsa here a few weeks ago, did you fix the USD-SEK ratio in that transaction already done when you did the transaction of SEK 712 million, or how should we view that?

Speaker 6: That is nothing we have disclosed. Obviously, that is something that has been on our agenda, and we have not disclosed how we handle that.

Speaker 9: I think we can do. I think we actually can do. We are exchanging the currencies gradual from the point when we agreed to buy. Of course, there are risks that something comes up and it is not finalized. We have a fixed part of that exchange or currency so far, and we are going to continue gradually to do it. What you will see in the end of the day is some kind of averaging out in the period, and you will be approximately right.

Speaker 8: Okay. Good to know. The final question is on the P&L items here in Q1. There is a pretty high number internal profit eliminations, SEK 100 million. That is usually up also when metal prices move up. Is it fair to say that a large part of this negative SEK 100 million will be reversed in the second quarter, everything else equal?

Speaker 6: The metal price effect will stay as long as the metal price will stay there. The inventory movement. We have an increased inventory, and if, for example, the previous year is repeating itself, we are going to probably tap out some of that working capital towards the end of the year or in the following months. I think basically it is seasonal low in December. The modeling is sort of on this level and then probably a slightly better development in the end.

Speaker 15: The internal profit, the minus SEK 100 million that you referred to, that is mainly relating to higher metal prices in Q1.

Speaker 6: Yep. Correct.

Speaker 8: Yes. Since metal prices is up here in Q2, about the same magnitude, perhaps we should see maybe another -100, then it would eventually be reversed when the metal prices stabilize.

Speaker 6: Yeah. We're not longing to the days when that will be returned.

Speaker 8: Yeah, of course.

Speaker 6: You see.

Speaker 8: Okay, thanks very much.

Speaker 6: Thank you.

Speaker 13: Our next question comes from Chris Wells from Pareto. Please go ahead. Your line is open.

Speaker 2: Good morning, gents. Good morning to you, Sophie, too. Just a quick follow-up question on the smelters. Good stability. Can you give us an indication of the stability we've seen in Q2 so far? Also, Lennart, can we get a bit of a split on which smelters we're going to see maintenance on this quarter, please?

Speaker 6: On guidance on stability, we don't have much to say. I think the smelters are running well, and that's the situation we have. Basically, no news are good news. We are on a good level and no new information on it. On the maintenance shutdowns, it's SEK 165 million in EBIT effect in the second quarter, and it's Harjavalta, Kokkola, and Rönnskär, basically. Then we have a little more in Q3, basically, Odda. All of that is in the presentations or in the report.

Speaker 2: Brilliant. Thanks.

Speaker 13: There are no further questions at this time. Please go ahead, speakers.

Speaker 15: Thank you so much for joining us today. Our Q2 report will be published on 19th of July. Thank you.

Speaker 6: Thank you.