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Boliden Commercial AB 2008-11-0411

Bildplatshållare

Capital Markets DayNovember 2008

Zinc smelter revenue stream

Ulf SöderströmPresident BA Market


Table of content1. Important information2. Zinc concentrates – example of content3. Pricing of zinc concentrates

i. Typical pricing clauseii. Deductions – Treatment chargeiii. Deductions – Penalties

4. Pricing of secondary raw materials5. Free metal6. By product credits7. Metal premiums8. Putting it together9. Share of raw material value10.Business cycle of metals


1. Important information

This presentation contains examples of common calculations that can be used to model the businesses in which Boliden operates.

All concentrate specification and contract terms presented here are hypothetical and are used to illustrate the relevant calculations.


2. Zinc concentrates – examples of content

Zinc54%

Sulphur30%

Iron7%

Lead3%

Others6%


3. Pricing of zinc concentrates

The price of the raw materials shall be the sum of the values of the payable metals less the sum of the deductions.

In general smelting business consists of the following gross profit elements:

Treatment Charge (TC)– Base TC– Price Escalators

Free metalBy-productsMetal premiums


3.1 Typical pricing clause – ZincThe price of the raw materials shall be the sum of the values of the payable metals less the sum of the deductions.

Buyer shall pay for 85% of the final agreed zinc content, subject to a minimum deduction of 8%-units at the official LME Zinc (SHG) settlement quotation averaged over the quotation period.

Example) A concentrate with a zinc content of 60% the deduction is 9% (60% x 85% = 51 % i.e. 60% – 51% = 9% > 8%). Payable metal value:

60%-Zn x 85% x 2,000 USD/t-Zn = 1,020 USD/MT

Example) For a concentrate with a zinc content of 50% the deduction is 8% (50% x 85% = 42.5 % i.e. 50% – 42.5% = 7.5% < 8%). Payable metal value:

50% – 8%-units = 42% x 2,000 USD/t-Zn = 840 USD/DMT


3.1 Typical pricing clause – Zinc

80 %

81 %

82 %

83 %

84 %

85 %

86 %

40 % 45 % 50 % 55 % 60 % 65 %

Zn content in the concentrate %

Paym

ent %

Minimum deduction mechanism compensates smelters for processing low grade concentrates.


3.2 Deductions – Treatment Charge (TC)The price of the raw materials shall be the sum of the values of the payable metals less the sum of the deductions.

Base Treatment Charge (TC) for zinc shall be 300 USD per DMT of concentrates based on zinc price of 2,000 USD per metric tonne.

Price Escalators mean that the TC shall be increased/decreased by +/-0.1 USD per DMT for each 1 USD/t Zn variation in the zinc price above/below base price 2,000 USD per metric tonne. Variable escalators/de-escalators and flat areas are also applied in some years.These terms are normally expressed $ 300/2,000/+0.1/-0.1.

Base TC, base price and price escalators are negotiated annually between miners and smelters. Typically negotiations start in October and continue well into the following year. Benchmark terms are normally established when the major mines and smelters have agreed the annual terms.

TC

TC

3.2 Deductions – Treatment Charge (TC)


TC $

/t Base TC and Base price

Example) 1 DMT Zn concentrate x 300 USD + (2.500 USD/t-Zn -2.000 USD/t-Zn) x 0.1 = 350 USD/DMT

3.3 Deductions – Penalties

TC

The price of the raw materials shall be the sum of the values ofthe payable metals less the sum of the deductions.

For instance, a iron penalty means that for each 1.0%-units by which the final iron assay exceeds 8.00%, seller shall pay a penalty charge of 2.00 USD per DMT of concentrates, fractions pro rata.

Example: A final iron assay of 10.00%, i.e. 2%-units over 8.00%:2 x 2.00 USD/DMT = 4.00 USD/DMT

Penalty clauses are typically applied for the impurities harmful to zinc smelting process.



4. Pricing of secondary raw materials

In addition to zinc concentrates, zinc oxides can be used as part of the raw material mix at a zinc smelter.Zinc oxides for example includes:

– Zinc clinker– Waelz oxides

The commercial terms for these materials are usually similar to zinc concentrates.

5. Free metalFree Metal

The value of the free zinc in zinc concentrates for a zinc smelter is depending on recovery rate and LME zinc price.

The typical recovery rate for a zinc smelter is 95.5%.

Example) Value of Free Zinc = Zn content x (Recovery% - Payable Zinc%) x LME price:

54.5% x (95.5% − 85%) x 2,500 USD/t-Zn = 143.1 USD/DMT


By-products

6. By-product credits

Main by-product for a zinc smelter is sulphuric acid (H2SO4)

Example) Value of Sulphur (rule of thumb)= 1 DMT of Zn concentrate with30% of sulphur gives approximately 1 ton of sulphuric acid (H2SO4) depending on recovery rate. Typical recovery rate is 95% in a Zn smelter.

1 DMT Zn concentrate (30%S) x (98/32) x 95% 0.873 ton H2SO4 x 75 USD/t = 65.5 USD/DMT


S u lp h u r ic a c id , c o n tra c t C F R N W E u ro p e 1 9 8 8 -2 0 0 8S o u rc e : F e r t iliz e r M a rk e t B u lle t in

02 04 06 08 0

1 0 01 2 01 4 01 6 01 8 02 0 0

1 9 8 81 9 8 81 9 8 91 9 8 91 9 9 01 9 9 11 9 9 11 9 9 21 9 9 31 9 9 31 9 9 41 9 9 41 9 9 51 9 9 61 9 9 61 9 9 71 9 9 71 9 9 81 9 9 91 9 9 92 0 0 02 0 0 02 0 0 12 0 0 22 0 0 22 0 0 32 0 0 32 0 0 42 0 0 52 0 0 52 0 0 62 0 0 62 0 0 72 0 0 8

€ /t

L o wH ig h

Premiums

7. Metal premiumsThe value of metal premium depends on:

– Demand/supply situation– The product (quality/alloys)– The amount of value added in customer service functions


Example) Value of metal premium = Metal ton x Zn content x recovery rate x premium/USD

1 MT Zn metal x 54.5%x 95.5% x 150USD/t= 78.1 USD/DMT


8. Putting Zinc smelters’ revenues together

5 6 %

2 2 %

1 2 %

1 0 % Treatment Charge (TC)

Free metal

By-products

Metal premium

Treatment Charge (TC) USD/DMT ShareTC:1 DMT Zn concentrate x 300 USD= 300 Esc: (2,500 USD/t Zn-2,000 USD/t Zn) x 0.1= 50Fe penalty:2 x 2.00 USD/DMT = 4Sum TC 354 56%

Free metalFree Zn metal: 54.5% x (95.5% − 85%) x 2,500 USD/t-Zn 143,1Sum Free metal 143.1 22%

By-productsH2SO4: DMT Zn concentrate (30%S) x (98/32) x 98% = 0.882 ton H2SO4 x 75 USD/t 65.5Sum By-product 65.5 10%

Metal premiumZn premium: 1 MT Zn metal x 54.5%x 95.5% x 150USD/t 78.1Sum Metal premium 78.1 12%

Sum Raw Material revenue 641.4 100%


9. Share of raw material valueSmelters share referred here consists of the realised TC and the free zinc contribution

0%

20%

40%

60%

80%

100%

Mine 61.558.253.647.155.254.952.355.355.356.152.651.054.860.461.262.565.771.860.5

Smelter 38.541.846.452.944.845.147.744.744.743.947.449.045.239.638.837.534.328.239.5

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Source: Brook HuntNote: 2008 figures have been calculated using YTD Zn price on Sep 30th 2008


10. Business cycle of metals Availability of raw materials

Availability of metals

–

+

+ –

High metal prices Low TC/RC

High metal prices High TC/RC

Low metal pricesHigh TC/RC

Low metal prices Low TC/RC

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