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Edited Transcript of BOL.ST earnings conference call or presentation 24-Oct-19 7:30am GMT

Q3 2019 Boliden AB Earnings Call

Stockholm Oct 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Boliden AB earnings conference call or presentation Thursday, October 24, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Håkan Gabrielsson

Boliden AB (publ) - CFO

* Mikael Staffas

Boliden AB (publ) - President & CEO

* Olof Grenmark

Boliden AB (publ) - Director IR

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Conference Call Participants

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* Alain Gabriel

Morgan Stanley, Research Division - Equity Analyst

* Daniel Edward Major

UBS Investment Bank, Research Division - Director and Analyst

* Gustaf Schwerin

Pareto Securities, Research Division - Analyst

* Jatinder Goel

Exane BNP Paribas, Research Division - Research Analyst

* Liam Fitzpatrick

Deutsche Bank AG, Research Division - Head of European Metals and Mining

* Luke Nelson

JP Morgan Chase & Co, Research Division - Research Analyst

* Ola Soedermark

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Xiaofei Du

BofA Merrill Lynch, Research Division - Analyst

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Presentation

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Olof Grenmark, Boliden AB (publ) - Director IR [1]

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Ladies and gentlemen, I'd like to welcome all of you to Boliden's Q3 2019 Results Presentation. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have a results presentation led by our President and CEO, Mikael Staffas; and our CFO, Hakan Gabrielsson. We will also have a Q&A session.

Mikael, the stage is yours.

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Mikael Staffas, Boliden AB (publ) - President & CEO [2]

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Good morning, everybody, and welcome. It is clearly nice to stand here today and present the results to all of you. Let me just go directly into the numbers.

The numbers that we released today in the morning feels pretty good, and we're strong about what we've done. And I would like to start off with the thing that's maybe least commented upon, which is that our CapEx plans are on plan. And as you know, we've been in this industry for a while. That is not always the case when you're doing big expansions, that you manage to run these projects basically on budget and basically on time. And we are there.

That means that we are around the SEK 8 billion or just less than the SEK 8 billion that we said that we were going to invest this year. It also means that we're continuing with these investment plans on track into next year, and we have today guided for the investment levels for next year of around SEK 7 billion.

Apart from that, the production in the quarter has been quite stable, especially on the mining side, where we've been quite pleased with what we've been able to do. And also on the smelters, even though we've had record maintenance stops, those maintenance stops have been basically also according to plan. And we also guided for the failure that we had in one of the nickel furnaces in Harjavalta that was known to us as we stood here 3 months ago, and we've guided that as an extra maintenance stop already back then. We didn't talk about any specifics because back then, we didn't know exactly what it was or exactly how long it will take. But we made an estimate. This estimate turned out to be relatively good, even though we do, as you've seen, have slightly higher impact from maintenance stops because this failure in the nickel line was slightly more expensive than we thought when we were making the estimates 3 months back.

What has happened during the quarter, which doesn't really show up in the P&L and we're happy that doesn't show up in the P&L, is the -- quite a lot of disturbances that we've had on the logistics sides. It's always tricky when you're doing maintenance stops to try to get your inventory right because you need to match noncontinuous processes and make sure that you get the inventory right.

On top of that, we've had quite significant failures on the railway line between Aitik mine and Ronnskar. We've had 2 derailments and one whatever they call wheel explosion on top of that. That has made that a quite tricky thing, and we had to buy extra external concentrate to make sure that we fed Ronnskar before the stop. And therefore, we have lots of copper concentrate.

We've also had a rebuilding or modification of Dublin port, which made it difficult for us to get out the concentrate out of Tara. And then on top of that, the nickel shutdown in Harjavalta caused some problems because the nickel concentrate from Kevitsa cannot really go anywhere else, so then that's not really feasible. So we had to store that as well. So you've seen that we have record amounts of inventory. That is nothing -- that's not really a big thing. We are, as we're speaking right now, already going down in those inventories. And we expect that by the end of Q4, we will back to quite normal inventory levels. And as you know, in this industry, the risk of obsolescence is basically 0.

If you look at the general market, well, you can all read our prices and I'll come back to the prices in a while. You see where -- how they developed. Generally speaking, yes, we do feel also a little bit the slowdown that we're seeing on the demand side, especially on the zinc side. And as you've seen, the zinc year-on-year globally is actually slightly down in terms of demand. And this is very much driven by the automotive sector that has a significant decrease.

We see this also in our customers who are taking out slightly less amounts of zinc. For us, it's not really a big deal because we have other alternative delivery addresses, and we have gotten our finished metals out quite well in time. But it is something that we do see. And of course, this is also reflected in that the zinc prices have gone down during the period.

Maybe more surprising is that the copper prices are down. We see a pretty strong copper demand. If you go into the details, you will see that it's a little bit quite significant what's happening on the actual -- on the concentrate side where there's lots of zinc concentrates available right now. And the TCs, especially spot TCs for zinc, are actually very high, extremely high. We do not really benefit so much from this because we aren't bailing on annual contracts. So it's not a big thing for us. And as you know, on zinc, we are actually pretty balanced. On copper, it's the other way around. Right now, the spot TCs are in a record low level, which is, of course, over time, making copper smelting a more tricky proposition as we go forward.

If you start looking at the prices -- well, you all know the prices, there's nothing new about this. But we see this decline in both zinc and copper prices over the last quarter, as you can see here. What you also can see, especially on the zinc side, is that the official inventories are going down and are on very low level. On the copper side, the inventories had gone up slightly, but it's still on a very low level compared to what they had been historically. And then you see nickel where we've had quite, for us, very good development in terms of nickel prices going up, very good. I'll come back to why this is -- was more or less necessary in a few slides. And you also see that the inventories of nickel have gone down and continue to go down, even though there was a little uptick just towards the end of the quarter.

If you move over to the precious side. You all know that during this time, we've also had good developments on gold and silver, and lead prices have also kept up very strong in this period. I'll come back in a little while with what this mix makes to Boliden. Now I told you -- I said that this increase that we're seeing in nickel was more or less necessary. And if you look at this slide and look to the very right, you will see the nickel price, the high, the low and the average for the year, and you see where the cost curves are. And here, you could see that before we got this increase in nickel prices, for a long time, nickel mines have barely made the cash costs. And that we can also see that there were very few mines who have, for a long time, been coming online, and this has been a challenge for the whole industry. Now with the recent uptick in the nickel prices, there is a pretty good chance that we might be able to see more nickel mine supply coming over time. But you know that this supply chains are pretty long, and it doesn't happen overnight.

The other thing you could see here, if you go to the very left, is the zinc, that you see that the zinc prices have gone down. Some will say they're pretty on -- on a pretty high level still compared to where they've historically been, where we've seen prices under $2,000 for quite some time. But you can also see that the cost level for zinc mines in the world have gone up pretty significantly. And we are right now in a situation that when we have lower zinc price, we're actually somewhere around the 90th percentile of the cost curve. This cost increase has many different backgrounds. One is the higher zinc prices that we had a couple of years back that made lots of new mine capacity come online. Some of that mine capacity is pretty high costs. But it's also the high TCs that is reflected here as a cost for the mining companies.

You can also see that on the copper side, we're relatively flat in terms of the cost development. You can see that there are still some headroom from the cost curve up to the prices. But on the other hand, we also see that the supply of copper going forward is not that great, which means that it also looks pretty good for these metals.

Now if you add this to Boliden, you've seen this chart for many quarters historically. You can see that the metal prices index, if you look at the left, the balance of our metals is basically around $100. You can argue what $100 is, but that's what we consider to be kind of a normal level. So they're basically around $100, whereas the currency index has moved quite north for us, which is good. And when you multiply these parts together, you could see that we still have a very good situation with a very good revenue mix linked between the currencies and the metal prices.

Sorry. Let's start looking into the business areas. We start with the mines. The mines, as I said, had a good quarter generally, very stable production as such and also very stable in terms of the projects that we're running and the expansions. They're all on budget and on time. We've had a record throughput in Garpenberg. It's always nice to have records to report to the crowd. We do have lower grades in Aitik and Kevitsa. I think this were well-guided for and well-known to everybody. And we have had logistical disturbances, which means that also, the inventories in the mines were relatively high as we could not get everything out.

When you look at the production as such, yes, you see that on the copper side, the throughput is relatively stable, whereas the metal content is going down. But that's in line with the lower grades that has been guided. On the zinc side, you can see a very good throughput. And you also see that the metal production that was ticking up because of the better grades compared to last quarter.

And then you see on nickel, an interesting one. But of course, we only have 1 mine. You see basically almost a record throughput in Kevitsa. We are, to some extent, through the worst issues that we've had regarding throughput in Kevitsa, as we have now got them going on the Stage 4 or pushback #4, which means that we have more places to work from, which means that we get more through the -- to the concentrator. Now you see the grades are lower compared to what they used to be. And therefore, the metal content is lower, but that you know from all kind of open pit operations that metal content or grades will vary. They go up and down, and this was also, I think, well-guided for. You can also see that in terms of the -- see the lower grades actually makes a big difference compared to last year. But of course, last year, we had very high nickel grades in the Kevitsa mine.

If we move over to the smelters. We're also very pleased generally with the performance in the smelters. We've had several operations that have been working quite well. Both the CapEx that we do have and the maintenance stops, they've basically gone according to plan, all of them. As I said, we had this breakdown in the nickel electrofurnace in Harjavalta. But with that down, we cannot run the line at all. So the line was down for 7 weeks as we had to take care of the wall that also collapsed in this part. We're, of course, in a business where these things do happen, even though it's a long time since it happened last. And we're, of course, taking all the learnings to make sure that we will have these events occurring as rarely as ever possible, trying to understand exactly what went wrong in this case. We don't know -- have the exact answer what went wrong, but we're working on to make sure that it doesn't repeat. As I said, after 7 weeks, we're up and running, and we've been running well since we got it up going again.

If you look over the metal production, of course, on the copper side, you see that this is the second quarter of pretty low throughput. And last quarter, it was Harjavalta that had a big maintenance stop. This quarter, it's Ronnskar that has a big maintenance stop. On the zinc side, you can see that the throughput is quite online and actually on a very good level as both Kokkola and Odda had been working quite well during this time. And if you look at the nickel matte production, that's, of course, very much lower. But that's due to the 7 weeks shutdown that we had in the period.

With that, I'll give it to you, Hakan, to go through the financials.

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Håkan Gabrielsson, Boliden AB (publ) - CFO [3]

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Thank you, Mikael. Good morning.

Mikael has talked about the main points in the result that we released, but let's run through the numbers in a bit more detail. We have presented Q3 earnings, which are very much in line with Q2. CapEx is according to plan. Free cash flow, however, is negative, which is, of course, a disappointment. I'll come back to that in a while.

But let's start with the EBIT, comparing Q3 of this year with Q3 last year. We're slightly down on EBIT, about SEK 400 million. Most of that is related to volumes, and most of that is well-known in advance. We are mining in lower-grade areas. We have a higher maintenance this quarter compared to last quarter -- or last year, both in the quarter and in the year. We do see a high maintenance quarter. The effect of the maintenance stop was slightly bigger than we anticipated. And in addition to that, we've had some effect of the logistic challenges that Mikael talked about, and it all adds up to about SEK 1 billion negative volume impact.

Costs comparing to last year are about SEK 250 million higher. There is a fairly small element of underlying inflation here, and inflation is at a relatively low level. But on top of that, we have costs related to the maintenance and disturbances that Mikael has been talking about. Prices, on the other hand, prices and terms are positive, almost SEK 900 million. We have higher metal prices, primarily in nickel and precious metals. We have higher zinc TCs. We have a stronger U.S. dollar and also higher by-product prices. So all in all, a quite good development.

Comparing Q3 to -- sequentially to Q2 this year, we're pretty much flat when it comes to profit. We have lower volumes related to lower deliveries in mines related to the logistic challenges that Mikael addressed. We also have a bit higher maintenance and the effect of the nickel breakdown and Harjavalta in the zinc smelters. This is then offset by lower costs. We seasonally have lower costs in Q3 compared to Q2, and on top of that, slightly better prices and terms. So all in all, the net effect is that we end up in a result that is similar to Q2.

Moving over then to the cash flow. We've talked about the earnings level. We also talked about the CapEx, which is in line with our plans. But here, you see then the number that stands out, it's the working capital increase of SEK 1.3 billion. In here, the main thing that has happened is an increase of raw material inventories, concentrates and others. We have about SEK 600 million higher inventories in Harjavalta due to the 7-week nickel breakdown. We have about SEK 400 million higher inventories in Ronnskar, which is connected mainly to the maintenance that we had but also the logistic challenges between Aitik and Ronnskar. So those 2 adds up to SEK 1 billion, and we expect that to normalize in the costs of next quarter. The remainder is timing on payments, price effects and similar.

The second thing I'd like to draw your attention to in this slide is the taxes paid. We are paying this quarter less than last year. We have some catching up to do still of taxes to be paid. If you look at the balance sheet, in case anyone has had a time to do that yet, we have a short-term liability of about SEK 400 million tax liability. That will be paid basically in Q4 and to some extent in Q1. So I would expect higher tax payments in the next couple of quarters.

With a negative cash flow, we have seen a slightly higher gearing. This is then net debt-to-equity, excluding reclamation liabilities. We've increased to 15%, a slight increase. However, as you can see, this is a very strong balance sheet. We have SEK 50 billion capital employed. We have SEK 40 billion equity. We have a net debt of SEK 6 billion, and on top of that, a robust and strong financing with an average interest rate of 1.1%. So we feel that we're in good shape.

Mikael?

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Mikael Staffas, Boliden AB (publ) - President & CEO [4]

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Thank you, Hakan.

We also, today, have some interesting things to talk about going forward. We have announced today and the morning also a new investment. And those of you who have been around know that we have had a test line for trolley assist, about a 700 million test line in Aitik. Now we are extending this test line to a couple of kilometers. We're also gearing up and taking more trolley trucks or making more trucks available for trolley, and we're also doing the same right off from Kevitsa. And altogether, this is an investment of about SEK 300 million that will happen over the 2020 and to some extent 2021. And we'll get it fully up and running early 2022. But this is really a good investment that we like. It is good financially, but it is also good from the environmental point of view where we will be reducing the amount of diesel that we are consuming quite significantly.

And also, just maybe a bit more of a fun fact, but we are actually using 27 tonnes of copper just in these trolley lines. Copper is needed. And as I've said many times before, all -- everything that is going to be done to fight climate change typically has to do with electrification. That typically needs also copper. That's true for our own decarbonization strategy as well as everybody else's. That's a little bit to say that I think copper is a great metal.

Going forward, we're also announcing today what I think is some good news for many of you. We are announcing the grades for the next year or then altogether for next 5 quarters. And we are having Aitik at 0.25%, which is still above the long-term grade average. We have done a reoptimization over Aitik, and we can continue to run for another year at these relatively high levels.

In Garpenberg, we are now guiding for 3.7% and 100 for silver for the next 5 quarters. And let's not forget both in Aitik and on Garpenberg, we are quite firm on the volume guidance for next year, the 45 million tonnes and the 3 million tonnes.

In Kevitsa, we will get up to the 9.5 million pace during the next year, exactly as we communicated before. We will -- even though things have gotten better, we will still be mining below reserve average in Kevitsa also for 2020.

The maintenance stop for this last quarter is in line with what I think was said before. The total for the year will be bigger, but that was already done now in Q3. And then CapEx, we have, as I said in the beginning, now guided for SEK 7 million -- SEK 7 billion, I should say, for next year.

And with that, I need to put this one on top in saying if I said something I shouldn't say, I haven't said it. And I will leave the question open for you, Olof.

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Olof Grenmark, Boliden AB (publ) - Director IR [5]

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Yes. Ladies and gentlemen, that opens up our Q3 2019 Q&A session, and we will start here in Stockholm. Gustaf Schwerin, [Pareto,] please?

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Questions and Answers

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Gustaf Schwerin, Pareto Securities, Research Division - Analyst [1]

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Two questions from my side. Firstly, on working capital release in Q4, should we expect at least SEK 1 billion in release then, given your inventory levels in Q3 now?

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Mikael Staffas, Boliden AB (publ) - President & CEO [2]

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Yes.

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Gustaf Schwerin, Pareto Securities, Research Division - Analyst [3]

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Okay. It could be more than that as well.

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Håkan Gabrielsson, Boliden AB (publ) - CFO [4]

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Working capital will have an impact on a lot of things, including prices. But I stated 2 specific inventory positions in Ronnskar and Harjavalta that adds up to SEK 1 billion. We should see those normalizing.

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Gustaf Schwerin, Pareto Securities, Research Division - Analyst [5]

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Okay. Then second and just to understand your new CapEx guidance, at the CMD, I think you showed an indicative figure, looked to be around SEK 6.5 billion or something like that. So with this additional SEK 300 million in Aitik, I mean, is there anything else new in your CapEx guidance? Or is it basically what's given what you've been saying before plus this new investment?

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Mikael Staffas, Boliden AB (publ) - President & CEO [6]

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There is nothing new that is big enough worth mentioning. And then otherwise, we would have mentioned it. So you're right, this SEK 300 million doesn't all come in next year, but it comes a little bit over 2 years. But adding everything up, this is what we get.

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Olof Grenmark, Boliden AB (publ) - Director IR [7]

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Ola Soedermark with Kepler Cheuvreux, please.

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Ola Soedermark, Kepler Cheuvreux, Research Division - Equity Research Analyst [8]

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Yes. I must say the smelters had a very good performance despite the maintenance stop and the breakdown in the nickel process. Is this the kind of level we can expect to be sustainable at current market conditions, the underlying levels if you're adjusting for maintenance?

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Mikael Staffas, Boliden AB (publ) - President & CEO [9]

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I mean I would have to say yes to that because we don't have anything that is extraordinary good in that sense.

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Ola Soedermark, Kepler Cheuvreux, Research Division - Equity Research Analyst [10]

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Okay. That's very good. And when it comes to the investment in Aitik and kerosene, expanding the electrification having there, you are seeing a reducing diesel consumption by 5.5 cubic meters...

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Mikael Staffas, Boliden AB (publ) - President & CEO [11]

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1,000 cubic meters.

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Ola Soedermark, Kepler Cheuvreux, Research Division - Equity Research Analyst [12]

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1,000 cubic meters. Is it possible to quantify the effects? I mean are you going to introduce more power and so on? And so I assume there are some efficiency gains as well, so we can get the grasp of the effects.

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Mikael Staffas, Boliden AB (publ) - President & CEO [13]

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Well, you have a grasp of how much money we're saving from the diesel that we have announced. Of course, there will be some electricity costs associated with it, but it's a very neat investment.

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Olof Grenmark, Boliden AB (publ) - Director IR [14]

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Thank you. Any more questions here from the audience in Stockholm? Okay. Operator, then we open up for questions from the web, please.

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Operator [15]

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(Operator Instructions) Our first question comes from the line of Alain Gabriel from Morgan Stanley.

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Alain Gabriel, Morgan Stanley, Research Division - Equity Analyst [16]

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Three short questions on my side. Mikael, you mentioned some disturbances in the smelting business throughout the quarter. Can you quantify the financial impact of those disturbances, if that was outside of the maintenance cost that you have guided for?

Second question is on the electrification investments. Clearly, there are many different moving parts, so let us calculate the benefit, the profit or the annual EBITDA uplift from that investment. Can you give us the range of the IRR of that investment?

And third question is on capital allocation. Clearly, you are now below your 20% threshold. How should we think about your priorities going into year-end? Is this more for additional deleveraging or more for special dividends? How should we think about that?

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Mikael Staffas, Boliden AB (publ) - President & CEO [17]

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Okay. Let me take this through. I think regarding smelters, that might have been that I was unclear. I would say that apart from the maintenance stops that we've had, there's been a pretty solid operations in the smelters. We haven't had any other disturbances occur apart from that, the disturbances, additional talk about some logistics, but that hasn't really impacted apart from the fact that we had very high inventories.

The electrification IRR, we're not giving a specific number because it depends, of course, what you think about diesel prices and diesel taxes going forward. And therefore, we don't want to talk too much about that. But you can say that this is a very clear -- at least the numbers that we have, but that's also depending on what diesel price you put in going forward, it is -- it's a clearly -- a nice IRR, well above our 10% threshold line.

Regarding capital allocation, let me just say that we are at 50% right now, but that is, remember, excluding the provisions for decommissioning mines. If you add up that provisioning, we're actually right around the 20% threshold. So regarding what will happen apart from our ordinary dividend, our payout ratio, what will happen apart from that will have to be seen.

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Operator [18]

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Our next question comes from the line of Jatinder Goel from Exane BNP Paribas.

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Jatinder Goel, Exane BNP Paribas, Research Division - Research Analyst [19]

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Three questions, please. Firstly, you mentioned copper smelting is becoming a more tricky proposition. If you see the trend as structural, would you move actively towards higher integration, i.e., building or buying more copper upstream exposure?

Second question, are you willing to indicate how much sustaining CapEx is in your 2020 guidance? Is it still around SEK 4 billion?

And finally, on grades, in the previous call, you mentioned underground grades should move more gradually, while open pit can go more can quickly towards reserve. But looks like it's the other way around, based on 2020 guidance. Just to be clear, will Garpenberg see any recovery? Or are we heading towards reserve grade from 2020 onwards based on 3.7%? And has that surprised you on the downside versus your 4% guidance for this year?

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Mikael Staffas, Boliden AB (publ) - President & CEO [20]

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Let me take the first and the last, and I'll leave the middle one to you, Hakan. And if we start from the grades in Garpenberg, number one, we -- as we don't guide from 2021 and onwards, you will have to use the assumption around the grade averages that you have in the ore base reserve calculations. Now am I surprised that we're going from 3 -- 4.0% to 3.7%? Maybe I am, but you can also say that silver is holding up very well. So if you look at the mixture of the 2, I think that we're pretty well off anyway. And yes, also underground mines can go up and down depending on which areas and which ore bodies you're mining at what time.

Regarding the copper smelting, basically, you're turning it the other way around. You say that copper mining is going to become more lucrative, given that the TCs might be lower long term. And then I will say the answer to that is that we will always look to potential copper projects, but the TC is only one factor out of many in looking to whether a copper project will be viable and -- or not. And then I leave the sustaining CapEx to you, Hakan.

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Håkan Gabrielsson, Boliden AB (publ) - CFO [21]

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Yes. The question was the level of the sustaining CapEx, and it has increased in the guiding for next year. It's slightly above SEK 4.5 billion. And the reason is that we -- in the reoptimization that Mikael talked about, we have more stripping in Aitik, and then there were some advantages grade [versus on.]

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Jatinder Goel, Exane BNP Paribas, Research Division - Research Analyst [22]

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If I could just follow up on Kevitsa grade. You had mentioned below reserve grade. Fair to assume it will be above 2019 levels in 2020, though?

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Mikael Staffas, Boliden AB (publ) - President & CEO [23]

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Yes. Basically, yes.

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Operator [24]

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Our next question comes from the line of Liam Fitzpatrick from Deutsche Bank.

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Liam Fitzpatrick, Deutsche Bank AG, Research Division - Head of European Metals and Mining [25]

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I've got 3 questions. Firstly, on the smelters, it was a very strong quarter despite the maintenance. So I just wanted to check is there anything exceptional in the quarter? Or is there any mismatch between sales and production? Because looking into Q4, it looks like with maintenance dropping off, there should be a big uplift in EBIT. So I just wanted to check that assumption.

Secondly, on Garpenberg, throughput was very high in Q3. The targeted capacity next year is to hit 3 million tonnes. I mean is that looking conservative, given how this asset is performing at the moment?

And thirdly, just a quick point to check. When you say mines were impacted by delayed deliveries, I assume that means lower sales?

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Mikael Staffas, Boliden AB (publ) - President & CEO [26]

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Yes. Let me take this a little bit per set. Regarding smelters, there was basically nothing really that happened, apart from one thing that Hakan mentioned, which of course goes through both business area, which is that we have seasonally lower costs in Q3, which will, of course, affect both business areas going into Q4.

And you know the background of this. It's a little bit stupid, but that's the way we account for white-collar people, that when they take vacation in the summer, they don't cost anything. And then when they come back and they work in Q4, they cost. And that's the way our accounting goes. So -- but apart from that kind of seasonal effect, there should not be really anything else that was extraordinary in Q3.

Garpenberg 3.0, things are going very well. There is only one but to this, which I think is well-known to everybody. Our environmental permit is worth 3.0 million. So we're not going to produce more than 3 million, unless we change the environmental permit. And that is not going to happen for 2020, for sure. And then the last point was regarding...

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Håkan Gabrielsson, Boliden AB (publ) - CFO [27]

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Whether the logistic disturbances means lower sales from mines.

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Mikael Staffas, Boliden AB (publ) - President & CEO [28]

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Yes. There was a slightly lower sales from mines linked to the higher inventories also in the mines, yes.

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Liam Fitzpatrick, Deutsche Bank AG, Research Division - Head of European Metals and Mining [29]

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Okay. That's very clear. If I could briefly follow up just on the Garpenberg point that you made. I mean is that something that you're investigating? And can you give us any kind of rough timescale of when you might be able to increase the license?

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Mikael Staffas, Boliden AB (publ) - President & CEO [30]

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No. Well, the first answer is yes, and we are investigating this in many different dimension. Could we increase this slightly? Could we increase it a lot? If we increase it a lot, we will also need to do quite a lot of investments. So it all fits together. So the answer is yes, we're investigating.

The second part is, is this it going to happen in the short term? No, these processes take quite some time.

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Operator [31]

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Our next question comes from the line of Luke Nelson from JPMorgan.

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Luke Nelson, JP Morgan Chase & Co, Research Division - Research Analyst [32]

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Just in the SEK 4.5 billion of sustaining CapEx, can you break out how much of that is typical underlying [sub-base] and business capital? And how much of that is stripping at Kevitsa and Aitik? And also, just on the stripping profile at Kevitsa, the midterm outlook on pushback for and potentially sort of the pushbacks there?

And then secondly, just on the vacation reserves. Is it possible to give an indication how much release that was just relative to your comments in the prior question?

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Håkan Gabrielsson, Boliden AB (publ) - CFO [33]

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Should I start with a couple of them?

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Mikael Staffas, Boliden AB (publ) - President & CEO [34]

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Yes.

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Håkan Gabrielsson, Boliden AB (publ) - CFO [35]

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Yes. Okay. The seasonally lower cost on the vacation reserve, that's about SEK 150 million for the whole company, roughly equal part in the 2 business areas. Out of the slightly above SEK 4.5 billion sustaining CapEx, I'd say that about SEK 2.5 billion is stripping rock development and smaller expansions of the tailings side, and about SEK 2 billion is replacement CapEx.

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Mikael Staffas, Boliden AB (publ) - President & CEO [36]

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And then I can say regarding the question whether there will be an additional pushback in Kevitsa, as you know, right now, in our mining plan, we only have the 4 pushbacks, the 4 -- #4 we just started.

And regarding a decision on a potential pushback 5, it's probably about 3 or 4 years out that we have to make that decision in order to make it fit with the existing mine plan. But there are lots of loose parts before we make such a decision, including the kind of simple thing of also having a new tailings facility.

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Operator [37]

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Our next question comes from the line of Daniel Major from UBS.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [38]

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Few questions. Firstly, the CapEx for this year and also for next year, can you let us know what FX assumption is factored into that SEK 7 billion number for next year?

And if I look at the guidance for this year, you're saying SEK 8 billion or slightly below SEK 8 billion. And that's despite, I guess, the SEK being weaker than you expected at the start of the year. Does that imply your effective CapEx spend is slightly lower than you expected given, I'm assuming, a decent proportion of that is in U.S. dollars? That's the first question.

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Mikael Staffas, Boliden AB (publ) - President & CEO [39]

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I can take -- the kind of FX part is that there's not so much in U.S. dollars. That's not a big issue on the FX side, but there is in euros. So then, it's the euro-SEK exchange rate that does matter in this regard. And yes, it's been a little bit of an uphill. But yes, we have been able to swallow the kind of headwind we had there. But it hasn't been that big. Now exactly which euro-SEK exchange rate, I'll leave to my CFO.

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Håkan Gabrielsson, Boliden AB (publ) - CFO [40]

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And we can put it this way. We base the plans basically on the current euro-SEK exchange rate. And it's -- as Mikael said, it's the euro that is significant, given the SEK number. The dollar has a smaller impact.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [41]

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The second question is on the tax payments relative to what's through the P&L. You've obviously flagged the SEK 400 million, it's now a short-term liability that should come out over the next 2 quarters. Beyond that, would you expect the P&L and cash tax payments to then normalize? Or is there still some catch-up payment that sits in the -- sort of in the longer-term liabilities and will all flow after over the medium term?

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Håkan Gabrielsson, Boliden AB (publ) - CFO [42]

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I guess it's always in the process of normalizing. That's the trick. I mean the taxes charged on the P&L, that follows the results. And then there's a time lag for the payments. And we're coming from earnings levels that are -- were higher in the last couple of years due to higher grades, for example. And we are catching up that part. I think that would be done about, let's say, Q1 next year. But then there will always be a time lag that -- where you have -- where you're catching up in either way depending on how the profits move. But the SEK 400 million I talked about, it's done by Q1.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [43]

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Okay. Very clear. And then final question on Kevitsa. The throughput was strong this quarter, above 2 million tonnes. And you've indicated you get your 9.5 million somewhere in the second half of 2020. Would it be fair to assume a higher than 2 million tonne run rate for the next couple of quarters before the expansion to 9.5 million comes in at the end of the second half of next year?

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Mikael Staffas, Boliden AB (publ) - President & CEO [44]

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No, because without that extra mill that comes with the expansion, we cannot really get more than this 2 million.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [45]

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I meant you've been -- your run rate this first -- the start of the year was more like 1750 and you're above 2 million tonnes this quarter. Should we assumed 2 million tonnes is sustained? Or would it drop back to the kind of 1750 level until a new mill is commissioned?

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Mikael Staffas, Boliden AB (publ) - President & CEO [46]

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I think that you could -- there will always be things going up and down, but 2 million before the new mill is a very good result.

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Operator [47]

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(Operator Instructions) Our next question comes from the line of Olivia Du from Bank of America Merrill Lynch.

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Xiaofei Du, BofA Merrill Lynch, Research Division - Analyst [48]

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So most of my questions have been answered, so I just have a very short few ones. So first off, for the costs you've been spending from the electric trucks in Aitik, has -- when did this -- did that start to realize? And in terms of the execution in Kevitsa, should we expect a very similar timeline?

And number two, recently, I think there's some negotiation between the copper mines and the Chinese copper purchase team. And have you heard any news on the potential TC floor for next year despite a low spot market? And so first, these 2, please.

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Mikael Staffas, Boliden AB (publ) - President & CEO [49]

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I can take that. Regarding the second one first, what is happening with the benchmark negotiations. As you all know, we're not sitting at that table. So we are not, in any way, any prime information. The only thing that I can say that I understand that there's pretty heated negotiations going on. But I have no insight whatsoever about what levels is being discussed. It will be very interesting, LME next week, by the way, see if something comes out over then on whether these negotiations will be continued afterwards.

Regarding the cost saving and how quickly they will come, there will be some of this coming '20 and '21. But of course, it's '22 that we have this basically fully in place. I will not be more specific than that.

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Xiaofei Du, BofA Merrill Lynch, Research Division - Analyst [50]

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And what about Kevitsa? That would be -- so this is Kevitsa?

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Mikael Staffas, Boliden AB (publ) - President & CEO [51]

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That's both Aitik and Kevitsa. I think it's a little bit before, but for Kevitsa, that's a little bit later. But they're basically going in parallel.

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Xiaofei Du, BofA Merrill Lynch, Research Division - Analyst [52]

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And next, sorry, very short one. The inventory revaluation was quite a positive, SEK 200 million in 3Q. And what is the outlook for the fourth quarter?

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Håkan Gabrielsson, Boliden AB (publ) - CFO [53]

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The inventory revaluation is more or less entirely based on market prices. So -- and the positive amount we had was an effect of the upturn in market prices that we saw during the quarter. So it's difficult to give an outlook without actually giving a forecast on price levels at December 31. So I think I'll -- I mean, that's the background.

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Xiaofei Du, BofA Merrill Lynch, Research Division - Analyst [54]

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Yes. Sure. And last one, just thinking about your exploration progress because from memory, last year, you didn't have any increase in your reserves. And so far, how is this going this year? And is there any update regarding Tara Deep? Yes, just some update would be appreciated.

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Mikael Staffas, Boliden AB (publ) - President & CEO [55]

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In February, we will update you both on what is happening on our exploration in general and what's happening specifically in Tara Deep.

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Operator [56]

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We appear to have no further questions from the telephone line at this time, so I'll hand the conference back to you at the audience in the room. Thank you.

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Olof Grenmark, Boliden AB (publ) - Director IR [57]

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Okay. Ladies and gentlemen, let me just please double-check. Do we have any final questions from the audience here in Stockholm? So please go ahead then.

There appears to be no more further questions. So ladies and gentlemen, I'll -- thank you for attending and leave the final word to Mr. Staffas.

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Mikael Staffas, Boliden AB (publ) - President & CEO [58]

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Well, and I will also say just thank you for listening. It's always good to be here. Bye.