Aurubis AG (AIAGF) Q1 2023 Earnings Call Transcript

Aurubis AG (OTCPK:AIAGF) Q1 2023 Earnings Conference Call February 6, 2022 8:00 AM ET

Company Participants

Elke Brinkmann – VP, IR

Rainer Verhoeven – CFO

Roland Harings – CEO

Conference Call Participants

Ioannis Masvoulas – Morgan Stanley

Christian Obst – Baader Bank

David Varga – Metzler

Bastian Synagowitz – Deutsche Bank

Maxime Kogge – Oddo BHF/Commerzbank

Rochus Brauneiser – Kepler Cheuvreux

Operator

Good afternoon, ladies and gentlemen, and welcome to the Aurubis AG Conference Call regarding the publication of the First Quarter Results. At this time, all participants have been placed on a listen-only mode. The floor will be opened for questions following the presentation.

Let me now turn the floor over to your host, Elke Brinkmann. Please go ahead.

Elke Brinkmann

Thank you, and a warm welcome from me as well. I’m sitting here together with our CEO, Roland Harings; and our CFO, Rainer Verhoeven, who will present the Q1 figures and current developments at the Aurubis in a moment, as well as there’s my colleagues from Investor Relations. Before I hand over to Roland Harings, here’s already the key combination for the Q&A session. [Operator Instructions]

And with that, I hand over to Roland Harings.

Roland Harings

Okay. Thanks, Elke. Also from me, welcome to our Q1 conference call today and good afternoon to those here in Europe. Aurubis has made a successful start to the new fiscal year. Also, the comparison with the previous year shows a differentiated picture. We would like to clarify the situation once again. The previous year’s quarter wasn’t extraordinary good, even record quarter in the company’s history.

In fact, we started so well that we are going to take this opportunity to specify the forecast corridor of EUR400 million to EUR500 million operating EBT today. We expect for the current fiscal year, our operating EBT to be at the upper end of the prognosis that we have shared with you. Of course, we also confronted with higher inflation and increased energy costs in particular. However, the measures we have taken in energy management have allowed us to mitigate a larger part of this. We will come to this in course of the presentation later.

If you look at our metal result, it also decreased compared to the previous year. But as you know, this always depends very much on the input materials in the respective quarter, so subject to fluctuations. Sulfuric acid was a very successful earnings driver in the past fiscal year. Although prices have fallen in the new fiscal year, they are still at a good reasonable level.

Our cash flow is subject to significant fluctuations during the year. This is due to the fluctuations in working capital; the money, which is tied up in our inventories. This will even out as you have seen over the past, over the course of the fiscal year. So all-in-all, starting from a stable operating performance, and here our smelter in Pirdop deserves a special mention and promising market conditions make us very optimistic for the current fiscal year.

But let’s be more specific. Our revenues are largely driven by metal prices. This was also the case in this quarter. Copper prices in particular were lower than in the previous year. Gross profit was only slightly below the very good level of the previous year. The reasons were a very good operating performance at our Pirdop site as already mentioned, with concentrates throughputs at the high level of the prior year.

In general, high demand for our products, for our copper products and consistently high refining charges for other recycling materials. This was offset by a lower metal result, due to the input material used, slightly lower sulfuric acid revenues due to lower sales prices and lower refining charges for copper scrap and higher costs, in particular, higher cost for energy. Fiber, last but not least, with an ROCE of 16.3%. We exceeded also this quarter our ROCE target of 15%.

Looking at the market conditions, the copper price underpinned by low inventory levels and ongoing demand showed positive development during the reporting period. Copper prices increased from levels around $7,500 per ton to $8,500 per ton. Currently, copper prices range well above $9,000 per ton.

Let’s look at the different markets. Aurubis saw a good supply situation in Q1. Spot term conditions showed stable development around the newly set benchmark for calendar year ’23. With the new benchmark set at $88 per ton and 8.8% per lib from framework contracts in calendar year ’23, Aurubis will benefit from this increase. Aurubis is in line with our strategy, well supplied with concentrates into Q3 ’22-’23 fiscal year, so we are maintaining this strategy of long-term commitments with our mining suppliers — mining partners.

Looking a bit at the recycling markets. During the reporting period, we have seen a stable supply of scrap materials on Aurubis sourcing markets with satisfying RCs during specifically Q1. But nevertheless, the generated RCs were at a reduced level in comparison to the very high level from the previous year for copper scrap and here specifically copper scrap number 2.

CRU estimated an average RC of EUR363 per ton during the first quarter for copper scrap number 2 without logistics, slightly above the previous quarters. This is significant lower than the respective year number in previous — in the last year’s respective quarter. The RCs for more complex materials remained more stable also in comparison with previous year.

Looking forward, our production sites are already supplied with material beyond the second quarter of this fiscal year.

Talking about sulfuric acids. The sulfuric acid markets have been a further — have seen, sorry, a further normalization from a very high previous year’s prices, which we saw well into Q3 in the past fiscal year. Given the reduced demand from the European chemical and specifically, fertilizer industry, which is with reduced capacity due to the very high energy prices, although, acid prices declined, but stabilized during the reporting period at a lower level. Given the longer term orientation of Aurubis contracts, we only participate in the spot market to a limited extent.

The earnings contribution from sulfuric acid sales were slightly below the Q1 of previous year, however, remained at a decent level. Given the current market situation, we expect lower earnings contribution from asset sales for the remainder of this running fiscal year. ACP, our Aurubis copper premium has announced for this calendar year ’23, we set this premium at $228 per ton, reflecting the strong demand for copper in Europe. This higher ACP will apply in Aurubis contract from Q2 onwards in our fiscal year ’22-’23.

The last point, US dollar, Aurubis as you well aware has a long position of approximately $500 million, also in this fiscal year ’22-’23. Within the scope of our hedging strategy, we are hedged at 70% at 1.133 for this current fiscal year and at around 36% at a rate of 1.085 for the fiscal year ’23-’24.

And with this, I will hand over to Rainer to talk in more detail about the results.

Rainer Verhoeven

Thanks, Roland, and good afternoon also from my side. Looking to the next page, talking about the gross margin, the splits for Q1 ’22-’23 remains rather stable year-over-year, reflecting a balanced contribution of the different earnings sources of the group. Despite lower metal prices in the reporting period, metal gains remain a significant income component for the group. Both earnings drivers, the TC/RCs and premiums and products showed slightly positive developments year-over-year at a total gross margin slightly below last year.

Total costs of the group increased by 9% to EUR457 million compared to prior year quarter, while the distribution within the costs also remains rather stable. Energy cost and other operating expenses are the biggest contributor to the groupwide cost increases year-over-year. Energy shows the biggest increase in cost with an increase of 18% from EUR62 million to EUR73 million year-over-year, we go more into detail in a minute. Personnel costs were on previous year’s level at EUR139 million. The performance improvement program continues to stabilize this cost factor. Cost for consumables like chemicals and packaging material have also seen an increase, mainly due to the steep increase in prices for certain input materials.

Coming to the energy, the discussion about energy price development remains one of the prevailing topics in our company. Overall, energy costs in Q1 increased by 18% year-on-year to EUR73 million, but the rise was much more moderate than in previous quarters. A main driver of the increase in costs are the gas prices compared to the previous year, we saw a peak here, especially in Q1. Gas prices are currently falling significantly. While we were hedged — well hedged in the last fiscal year, the level of hedging in the current fiscal year is considerably lower.

For electricity, we are well protected by our long-term supply contract in Germany, whose main price components are CO2 and coal. Prices for both components are also increased, but comparatively moderately. Coal prices on average for Q1 rose by 37% to $236 per ton, compared to $172 per ton on average for Q1 in the previous year. The CO2 price on average for Q1 ’22-’23 increased by 13% to EUR77 compared to EUR68 on average for Q1 ’21-’22. With our hedging activities, we could limit the effects on the electricity side.

Just as a reminder, the figures displayed show the energy cost minus any deductions from indirect CO2, electricity compensation, as well as state refunds provided to our sites, for instance, in Bulgaria. Looking forward, we will continue to work on the further electrification of our production processes and invest in decarbonizing oil production. Secure energy supplies at reasonable prices remain very relevant topics for Aurubis in general.

Looking at our KPIs, the key performance indicators continue to show a very solid and robust picture. I’d like to draw your attention in particular to our strong equity ratio of 54% and the debt coverage ratio of minus 0.3, both of which continue to be the strong foundation for our strategic growth part. Due to high inventory levels, the minus EUR64 million net cash flow in the first quarter of fiscal ’22-’23 was only slightly better than the year before.

Net cash flow, as already mentioned, is subject to substantial fluctuations throughout the year and will balance out over the course of the fiscal year. The increase in capital expenditures resulted mainly from investments in our new recycling plant, Aurubis Richmond, USA and the second stage of our industrial heat project here in Hamburg, as well as preparatory measures for the maintenance shutdown in Pirdop in the third quarter of our financial year.

Let’s have a look at the segments. Financial and production figures from the multi-metal recycling segment. All-in-all, the throughput volumes and cathode production have been in line with the previous year’s first quarter. Although, the segment benefited from solid metal gains, the operating EBT at EUR35 million was well below the previous year. Please bear in mind that last year was an extraordinary year.

In total, the refining charges for recycling input were moderate or let’s say, below last year. In addition to the reduced income components, the profitability of the MMR segment was burdened with increased costs, especially for logistics and transportation, but also the energy costs. As a result, we showed a reduced EBT in line with a lower ROCE of 18.7% compared to last year, but still above our target rate of 15%. By the way, a quarterly breakdown of our restatements of operating EBT can be found in the appendixes to this presentation.

In the Custom Smelting and Products segment, the operating EBT increased from EUR94 million to EUR108 million in the reporting period. The segment benefited significantly from higher revenues from TC/RCs for the concentrate, increased metal gains and an ongoing strong demand for copper products throughout Q1 of fiscal ’22, ’23. Positive market conditions combined with good concentrate throughput, especially at our primary smelter in Pirdop, led to positive earnings contributions from treating concentrate.

On the product side, demand and corresponding prices for rod and shapes remains at a very high level. On the cost side, the segments were faced — or the segment was faced with headwinds from higher energy costs and increased cost for transportation. The production volumes of flat rolled products is lower due to the parcel sale of the former FRP division, which are still included in the previous year’s figures. The return on capital employed in line with the better earnings situation reached 18.9% compared to 12.6% in the last year. This is well above the target threshold of 15% despite the increase in capital employed compared to the previous year.

Let’s move to the market outlook for the remainder of ’22, ’23. Both CRU and Wood Mack anticipate the continued growth of the concentrate market from both the supply and the demand side. This anticipated growth is reflected in the new benchmark set at $88 per ton and $0.088 per pound, an increase of 35%. The current spot market developments with TC/RCs at benchmark levels show a good supply from the mining side. We are maintaining our long-term supply strategy and are already supplied well into Q3 of the fiscal year ’22, ’23.

The markets, especially for copper scrap, and to a lesser extent for complex recycling materials remain short-term markets and are driven by influences like metal prices or collection activities from the recycling industry. We currently foresee a stable market for both copper scrap and recycling markets, raw materials for the remainder of this fiscal year. New regulations that offer the possibility of banning exports of recycling material from Europe could have a positive effect on the availability of recycling materials in Europe going forward. Our production plants are supplied with recycling materials beyond Q2 ’22, ’23.

Sulfuric acids, ICIS and CRU both expect reduced demand from the European fertilizer and chemical industry due to high energy costs. Given the latest price expectations, we foresee a reduction of the earnings contribution from sulfuric acids. Given the longer-term contract situation, asset sales are still expected at reasonably high levels in ’22, ’23.

Coming to the copper premium, the ACP for calendar year 2023 has been set at $228, well above the previous year level from which we expect positive earnings contributions from Q2 onwards.

Coming to our copper products, rod shapes and the flat rolled business, we foresee a continued strong demand trends for copper products and expect this to continue during the fiscal year ’22, ’23. Only the construction sector shows a reduction in demand. All-in-all, product demand for rod shapes and the flat-rolled business is still expected at high levels for the foreseeable future.

With this, I hand back to Roland. Presenter

Roland Harings

Thanks, Rainer. So talking now about the guidance for the current fiscal year. Based on our latest assumptions, we are now more optimistic about the forecast for the group result and we expect the operating EBT at the upper range of our financial guidance of EUR400 million to EUR500 million operating EBT. The operating ROCE, we do expect between 11% and 15%, also at the higher end of this range.

Specifically talking about the segments, the Multimetal Recycling segment, we continue to expect an operating EBT between EUR100 million and EUR160 million and an operating ROCE between 11% and 15%. Important to mention, I will come to this in a minute, is that this anticipated ROCE is mainly also influenced by sizable investments that we are doing now in our new plant in the U.S. in Richmond. For the Custom Smelting and Products segment, we expect an operating EBT between EUR350 million and EUR410 million and an operating ROCE between 11% and 19%.

Coming to Richmond, as just announced. Now let’s take a look at our key strategic projects, and I’m very pleased here to share an update with you. Our most important growth project, and you see the picture is the fast growing is — entering the fast-growing market for recycling materials in the U.S. with our new recycling site, Aurubis Richmond in Georgia. Last December, we informed you that the Supervisory Board approved the investment for the second module. Due to the very good market outlook, we decided to accelerate this investment, you will remember, and you saw the pictures that we programmed for the first module in June 2022.

Our projects continues to progress well. Over the course of the year, additional contracts for the construction of the plants were completed and although, the pending regulatory approvals have been granted for Phase 1 and also and already for Phase 2. And we have consequently started with the recruitment of our teams in the U.S. Due to the high proportion of copy paste, so it’s our modular design for recycling from the first module, the engineering effort for the second module will be significantly lower. Many plant areas are sufficiently dimensioned even after the expansion, for example, slack treatment casting plant to cope with the expansion from the second module.

So we have invested already in anticipation and some basic infrastructure around the plant side. And I think the picture is quite impressively show the size of the operation that we are building there. The expansion of the important is integrated in our optimized material flow on the entire site and is also connected to some of the product shipments that we plan into our European smelting operation. So we are very positive and optimistic about the progress with our significant investment in the United States.

Coming to Europe, we continue also similar to invest in our European side, strengthening the core and expanding our multimetal capabilities. And here, the project ASPA which stands for advanced slag processing by Aurubis at our bases in Belgium is moving ahead. We will there process and not sludge a very valuable intermediate product from the refining process. And here, we will combine the shipments from Lunen and from our Beerse plant. We pro-crowned in mid-December ’22 and officially started construction on this state-of-the-art hydro-metallic recycling plant.

The investment is EUR33 million, and the plant will go into operation in our fiscal year ’24, ’25. The new process will enable faster extraction of more precious metals such as gold and silver as well as the full recovery of tin from the energy sludge. With this project with ASPA, Aurubis is strengthening its position as the most efficient and sustainable integrated smelter network worldwide.

One other aspect, which we are very actively pursuing is decarbonization. On October 21, Aurubis started a test series for the use of blue ammonia in the copper rod production. The ADNOC, the Abu Dhabi National Oil Company shipped the first 15 ton — 13 ton, sorry, of blue ammonia required for this test series from the United — from the Emirates — United Emirates. This demonstrates that the creation of a blue and in the future, green ammonia value chain between Germany and the United Arab Emirates and some other countries is not just theoretically possible, but practically feasible.

During the running test series, low emission ammonia will partially replace the natural gas in the rock plants. If the pilot project is successful and the first test results that we see are very encouraging, up to 4,000 ton of CO2 per year could be saved in the Aurubis plant in Hamburg alone. And to highlight, again, this highlights again our pioneering role that we play in the decarbonization of the copper industry.

Looking at this footprint picture. In the area of sustainability, we have set the objective of achieving carbon-neutral production well before 2015, and we are well on our way. In just eight years, the carbon footprint of copper cathodes from Aurubis has decreased by more than 35%. Aurubis evaluated the environmental profile of our co-product, which is copper cathodes by carrying out a life cycle assessment, which was just updated recently.

Here, we considered all the activities involved in the production of copper cathodes from cradle to gate such as copper ore extraction, smelting and refining, transportation, energy consumption and auxiliary materials. In a worldwide comparison, the carbon footprint of our cathodes is a full 60% below the global average of all copper smelters and refiners worldwide. Aurubis is thus making a real contribution to the global challenge of environmental and climate protection.

Coming now to the overall picture of our growth strategy, which has been shared with you, so this is a reminder slide of the strategic growth of Aurubis. This is the agenda we are pursuing, and these are all projects together on one slide, as we also shared during the release of our annual report. In total, we have now EUR1 billion of approved CapEx for our growth projects in execution, like Aurubis Richmond, like CRH, the complex recycling in Hamburg, like the fleet treatment project in Olen and the ASPA project where I just shared the slide with you.

The project in our medium-term planning, like better recycling are constantly developed until they reach the majority needed for the approval of the Executive Board and subsequently the Supervisory Board. We will provide an update on the growth projects and our strategic agenda later this year on a Capital Market Day in June 13. And here, I would cordially like to invite you to join us in London at the stage. But Elke will probably talk about this also later again. So looking forward for that.

And finally, we are ahead of our annual meeting — general meeting on February 16 and which is only 10 days to go. And for a change, we will, after all the COVID years, we will hold again a physical meeting in Hamburg, and we are proposing a dividend on the AGM of EUR1.8 per share, which is the highest dividend in the history of Aurubis.

And with this said, after, let’s say, a solid or, let’s say, a good start in our first fiscal year, I would like to hand back to Elke. Thanks.

Elke Brinkmann

Thank you, Roland, and Rainer. I would like to provide you an outlook into the next event following our Q1 publication. As Roland already mentioned, the Annual General Meeting is on February 16. And shortly after our Q2 results in May, we will follow up with the Capital Market Day in June. This event will take place in London on June 13. More information will be shared with you in due course on the website and via mail. We very much look forward to giving you an update on the strategic projects and development of our strategy.

With this outlook, we would like to thank you for your attention, and I would like to ask the operator to take over for questions.

Question-and-Answer Session

Operator

Thank you very much. [Operator Instructions] And the first question comes from Ioannis Masvoulas. Please go ahead.

Ioannis Masvoulas

Yes. Good afternoon and thank you very much for the presentation. A few questions from my side. First one on energy costs. If I look at the run rate for fiscal Q1, it’s in the order of EUR300 million on an annualized basis. And if I’m not mistaken, at the full year results, you indicated [Technical Difficulty] full year energy cost in the order of EUR400 million to EUR420 million. So could you please confirm whether that’s the case? And that would suggest that your implicit guidance upgrade doesn’t fully reflect the energy cost tailwind. If you can provide a bit of comment here, that would be very useful.

Roland Harings

Yeah, Ioannis. It’s Roland speaking. No, thanks for your question. Energy cost is a very, very interesting topic obviously. And you saw the numbers for the last quarter with EUR73 million spend. And we have hedged during although now better market conditions, a certain amount of energy, gas and also electricity. Rainer explained, and you’re well aware that we have certain pricing components in our — specifically in our German contract with Vattenfall (ph).

So today, we stayed — we are hedged for this fiscal year at a rate of about a day two-thirds where we have security and pricing security also anticipated in our forecast. However, this means one-third is still exposed to spot markets. And here, therefore, the guidance, and we are conservative, we have also taken some higher energy costs on the spot side in the next coming quarters into account. So therefore, your number of about EUR300 million, if you just multiply the first quarter by four is probably a very, I would say, ambitious number. We are more conservative on the energy side.

Ioannis Masvoulas

That’s very clear. Thank you very much. The second question, again, on the same topic. On the full year results, you indicated possible switch of 40% of your gas consumption in Germany to LPG fuel oil and other energy inputs. Given the decline in gas prices, is the switch really happening or are you keeping the gas consumption intensity at similar levels to last fiscal year?

Roland Harings

No. Good second question here. So we had decided for these investments because we were concerned in Germany that there might be a shortage of gas supply. This was the main driver to ensure our production. It was not mainly driven by pricing assumptions and so on. So the installations are proceeding or they are being finalized as we explained in one of our last calls. So we are ready to go.

And now we are taking a more, let’s say, short-term approach, what is the better source of energy, which means more cost-efficient energy. And given that LPG would also come with some higher CO2 emissions, we tend, if possible, to stay with natural gas. So it’s a, let’s say, cost decision and ESG decisions that we look at case by case.

Ioannis Masvoulas

Okay. That’s very useful. And just to clarify, on the CO2 component of LPG, there is no rebate, the way you receive it on the power side, right?

Roland Harings

No. This is extra CO2 will require extra certificates that we have to hand in.

Ioannis Masvoulas

Perfect. That’s clear. And just a last question for me, if I may. On the Multimetal Recycling business. If I look at the numbers for fiscal Q1. It accounted for 46% of your cathode production, but only for 28% of your group EBT. Do you see this as a reasonable share of EBT contribution based on the existing footprint and ignoring the growth projects or is this business under earning in the current fiscal year?

Rainer Verhoeven

Now, I would say, hey, this is Rainer speaking. So I would say, this does not necessarily reflect earnings potential that we have with MMR. There would have been some effects that were subdued in the first quarter. So over the, let’s say, the coming quarters, we expect a more reasonable share. But don’t forget that the cathodes that is produced in the MMR segment is pretty much fully going to the CSP segment because we are producing rotten products from those cathodes. And there, as explained with the high ACP $228 and the, I would say, very good pricing that we could get from our products, of course, a good earnings contribution comes from that end.

Ioannis Masvoulas

Okay. So just to clarify, so the cathode premium that multimetal recycling producers through the cathode volumes is that reported under recycling or under the CSP division?

Rainer Verhoeven

It is shared between the segments.

Ioannis Masvoulas

Thank you very much.

Operator

And the next question comes from [indiscernible]. Please go ahead.

Unidentified Participant

Good afternoon, gentlemen. Two questions, if I may. The first one was to get a bit more color around your comment that scrap collection remained fairly even during this period where clearly, industrial production in Europe was down. So I wanted to understand a little bit better whether you’ve diversified sourcing to procure scrap or how is it that the relationship between industrial production and scrap generation no longer hold. My second question is on First Quantum. We’re experiencing challenges to say the least in Panama at the moment. Just wanted to know if they were one of your suppliers of concentrate. Thank you.

Roland Harings

Yeah. Roland speaking here. First, scrap collection. I think here, our strong flexibility, our flexibility in sourcing all kind of different scraps for our recycling activities plays out. So we had to be flexible. Some scrap, for example, shredder materials from dismantling end-of-life cars. The supply is relatively limited these days, whereas other segments are doing well. And we are also globally sourcing certain scrap qualities globally like in the U.S. market, where we have a good supply of scrap materials. So therefore, scrap collection even with some — in some segments, lower industrial or I’d say, economic activity, scrap collection was still sufficient for our demands.

And regarding mining activities and partners, you know that we are not sharing the details of where we are sourcing our materials. However, Cope Panama, I’m very convinced will find a solution with the government because there is too much at stake for both. If you see the importance and how excellent this project has been performing and that they are meeting even highest ESG standards with their operations, and they are providing 40,000 well-paid jobs to the country I would be surprised. I would be very surprised if they don’t come to solution soon.

And what we know, what we hear from the market is that the mine is still in full operation. There is no reduction of production whatsoever. And again, my personal take is this is also not going to change, but they will find and my Capital Solutions.

Unidentified Participant

Thank you.

Operator

And the next question comes from Christian Obst. Please go ahead.

Christian Obst

Yes. Good afternoon. I have three questions, if I may. First is, can you give us the amount of energy related stake refunds for Pirdop for the first quarter and for the full year? Is that possible? The second one is, can you give us some kind of an explanation concerning the agreement with Codelco. So what can you deliver into that kind of possible joint venture or whatsoever. I will follow with the next question afterwards.

Roland Harings

Okay. Then, I’ll just take the first — the second question first, Christian. Codelco, we have signed this MOU last week, in Chile in — with together on this delegation with our Chancellor. I think Codelco is a long-term, let’s say, business partner, even if we are not really significant sourcing material from them. But clearly, we are seeing Chile as one of the key countries for the supply of copper and copper concentrates to the world.

And on the other side, we have been always in very close exchange with Codelco and you might remember that we even had a joint venture in Germany until 2018 with Codelco. And they always admired and respected how excellent our environmental technology, specifically in Hamburg is. And we were, for them, as for many others, always the technical environmental benchmark. And we use this opportunity also of the visit to formalize to put something in writing that we are going to support Codelco with our latest environmental technology to make their operations, specifically on the smelting side, better and cleaner if it’s regarding sulfuric acid — sorry, SO2, sulfur dioxide and also on some other emissions.

And the overall interest for us is that the whole copper industry is a better industry, is a cleaner industry and then also the support for new very important mining projects in Chile is given by the government and also by the society. So it’s a bit a bigger picture in order to be a really important player and a leading player in this industry. And what we also agreed, which is, again, an interest of us and also the copper industry that most companies or all companies will certify according to the copper mark, which is the label and the kind of feel for a very responsible and sustainable copper production. So these are the elements in the corporation or in the MOU that we have written with Codelco.

Christian Obst

Okay. So that does not mean that you are investing there, but you are bringing your know-how and then you’re getting fees for that, possibly?

Roland Harings

So it’s not that we are going — we have the interest that we — that the copper industry, specifically in South America, and you know there are some political, I’d say, challenging situations in South America, especially also in Chile that the copper industry is seen as a very good citizen meeting higher standards. And here, we see our responsibility to provide this leading technology also to a player like Codelco. And there is no direct payment plan. It’s really the overall interest that we are sharing here. So there will be no — but it bluntly, there is no income combined with that.

Christian Obst

Okay. Thank you.

Rainer Verhoeven

So then, Christian, to your question with regards to the Bulgarian energy, our statement in the past always was we have, in total 2 terawatt hours electric energy consumed in the group, there of roughly 1 terawatt hour abroad and you can state that almost half of it, so 500,000 megawatt hours, it is a bit less, it’s, let’s say, 350,000 to 400,000 megawatt hours are consumed in Pirdop.

In Bulgaria, we have an energy price cap, which was in place in the last calendar year, resulting in roughly EUR140 per megawatt hour that is including all the distribution charges. Therefore, I say roughly. Now in place from January ’23 onwards for the full calendar year 2023, we have a price cap of, I think, 200 Bulgarian Lev, which including the distribution charges then ends up in roughly EUR120 per megawatt hour, which can be read, let’s say, pretty much on the Internet pages in Bulgaria.

Christian Obst

Okay. Perfect. Thank you. And then I have a question concerning the related metal result currently and how that fits to the decline of your metal sales volume. So there is a decline when it comes to quarter or year-on-year, first quarter year-on-year minus 18% when it comes to nickel, minus 50% zinc, and minus 36% in PMGs. So nevertheless, the metal result is only down by EUR20 million for 8%. Can you give us an idea how that works and this is despite the fact that the comparable prices are also down year-on-year.

Rainer Verhoeven

Yeah. I’ll give it a try. I think that is pretty much in the machining room of Aurubis here. The amount of metals which we are selling has not necessarily something to do with the metal gains that we are earning from three metal components. That’s a different thing. So we have certain metals we are paying for, and we are producing them, and selling them again. But there is metals, our metal result where we have free metals in and we digest them, so to say, and sell them. So therefore, there is not necessarily a dependence between the sold metal amounts and the free metal that we are generating.

Let’s put it this way, the more complex the materials that we, let’s say, digest or that we process in our plants, the higher, the free metal components. So it always depends, and that’s what we also said and Roland said on the complex recycling side, the more complex those metals become or the materials become, the more free metal we gain and we earn with those input materials.

Christian Obst

Of course. That makes sense. Okay. I tried it from another way in the end, a different question. When it comes to zinc for instance. So there is a constant decline more or less than the output of zinc over the last nine quarters. And we see also some kind of a decline when it comes to the output of nickel, is that some kind of a trend or can you explain that?

Roland Harings

Yeah. Roland speaking here, Christian. Specifically, zinc and you have seen this with other companies in Europe, zinc is a very energy electricity intensive production, specifically also with our tumor technology in our plant in Beerse. And here with today’s electricity prices, the zinc production was reduced because it’s just with the boundary conditions of energy, it’s just not economically feasible to run production there.

And I think we talked about this also one of our last quarterly calls that this was the area with high energy prices where we decided to reduce production output. And nickel here, this is more mix and there is no general trend. It’s availability of certain concentrates, certainly input materials, certain shifts within production loading, there is definitely no trend in nickel, rather the opposite. We are investing and we are going to expand our nickel output going forward.

Christian Obst

That’s what you’ve talked about before. And — but when it comes to some kind of, when I look at some charts for these for zinc. Okay, you explained that for PMG and for nickel, there is some kind of a downward trend a little bit over the last nine quarters. But okay, you’re investing and you try to increase the output going forward, if you understand you’re right.

Roland Harings

Yeah. And again, please be careful. These are in the report. These are sold tonnage. This doesn’t really mean that this is processed. As Rainer deferred to the component of which metals we have bought and sold and what is free metal and premium. So I would rather ask you to look a bit at the total year’s number, a quarter might be a bit as misleading to draw these kind of conclusions.

Rainer Verhoeven

Maybe to add that, Christian, also consider what has been tied up in our net working capital. So you have seen that we have quite some elevated inventory levels at this point. There is certain reasonings behind that. And there will be further metal components coming out. So as Roland said, don’t too much go quarter-on-quarter. It’s not like the Swiss railway here with our metal production.

Roland Harings

But also give you one hint, perhaps one last hint. You have seen that ACP for copper went up. We also see this for other methods. So why selling just to put it bluntly, why selling and pushing something out in the last week of December if I get a better pricing in the first week of January.

Christian Obst

Okay. Thank you very much.

Operator

And the next question comes from David Varga. Please go ahead.

David Varga

Hi. Good afternoon. Thanks for taking my question. I have two. The first one is, I was wondering if you could shed some light on how to start into the calendar year was? Is it fair to assume that in view of higher TC/RCs, a substantially higher copper premium and higher metal prices, you saw a sequential step-up in earnings in January versus your Q1. That’s the first one.

Rainer Verhoeven

Yeah. absolutely right. The whole product — new pricing for product business kicks in from January onwards yes, that’s completely correct.

David Varga

Okay. Thanks. Good to hear. That being said, I have another question following the guidance and related to the current trading. So if we look at your Q1 result of EUR125 million, and we consider the IT attack and the maintenance work in Lunen, which cost you EUR7 million each, then the operating — underlying operating performance was more in the area of, say, EUR139 million, all else equal. This means the fiscal year run rate — operating run rate is more like EUR542 million.

And if we then deduct the scheduled maintenance shutdowns in Pirdop in Lunen Q3 then we — then you say this will probably cost you about EUR29 million in total. Then the current operating run rate stands at roughly EUR530 million. And then we have the step up you confirmed in January with the TC/RCs coming in with the higher cathode premium coming in. And we have at least currently fading energy costs. So I’m quite — yeah, I’m wondering why the guidance is still conservative and why you refrain from just rising the upper end of the guided range to say 550 or something.

Roland Harings

Yeah. No, thanks for Davis for your math. As I mentioned in my short introduction, we are conservative on the energy prices. Spot prices we are still exposed. We are conservative on sulfuric acid despite that we are not fully exposed to spot markets and we are living still in a very volatile world. Let’s face it. The war is by no means over. We are seeing today a strong product demand, but in our forecast, as we always do, we tend to go to the conservative side. And yet, we have also announced that our guidance is at the upper limit of our range.

So if you take this into calculation, you’re perhaps a bit more optimistic view on certain market elements, our — let’s say, conservative view, then you see that we are not that far apart. So give us another, the running quarter, and then we have six months in the book and probably although much better visibility of the coming six months, and then I think we will be more precise. And we have also then certainly a better outlook on the sulfuric acid market, how this is going to develop. And then we’ll share with you our latest view then after Q2.

David Varga

Okay. Thanks very much But is it fair to say that your guidance includes a worsening in the — on the energy cost side and also probably some economic related risk? And if everything would remain as it currently is, the run rate would be higher. Is that fair?

Roland Harings

That’s correct. Yeah. That’s fair.

David Varga

Yeah. Thank you very much.

Operator

And the next question comes from Cameron [indiscernible]. Please go ahead.

Unidentified Participant

Thanks. Just two questions from me. First one, completely, can you give us an idea of sustaining CapEx in your two business units? And then second of all, how much of a headwind is the decline in sulfuric acid price has been this year? Perhaps if you could give us some kind of quantification of that. Thanks very much.

Rainer Verhoeven

Yeah. For the CapEx, we have something between EUR600 million and EUR700 million for this fiscal year. So the main topics are our big stand still in Pirdop. And — but the big chunk for sure, will go into our recycling plant into Richmond into the U.S.

Roland Harings

Perfect. So sustaining CapEx, just — also sustaining CapEx is at the range of about EUR200 million. This is the investment in the standstill what just Rainer mentioned, and our growth CapEx will be in the range between EUR400 million to EUR500 million. So EUR200 million and EUR400 million. So total CapEx spend, EUR600 million to EUR700 million is the range that we foresee for this fiscal year. Sorry, the second question, yeah, Cameron.

As it what we always state is in a normal year or the as it results for Aurubis, they are around EUR50 million in a normal year and a bad year, it’s around EUR15 million to EUR20 million. Last year, we had a very good result, which was even three digit. So that’s really the area with 2.5 million tons of asset sales per year where we play. So therefore, today, we are assuming a more, let’s say, normal year with some downside. So that’s without disclosing your detailed numbers, just to give you an idea in which region we are playing here.

Unidentified Participant

Thanks very much.

Operator

And the next question comes from Bastian Synagowitz. Please go ahead.

Bastian Synagowitz

Yes. Good afternoon. Thanks for taking my questions. Could you please talk about the demand dynamics which you see in the downstream businesses, please? And then maybe also remind us what the broad utilization rates in those rolled product businesses are?

Roland Harings

Yeah. So specific — Hi, Bastian. Roland speaking. It was FRP. You asked for FRP or general?

Bastian Synagowitz

The downstream business is the rod, so obviously, so rod sorry, exactly.

Roland Harings

No, the demand for wire rod is very strong. And our, let’s say, contracting period has delivered very good outcome in pricing and volumes. And if everything would continue as we see it today, but again, I make two caveats, again, volatile world and so on, we would have to introduce some extra shifts from the next quarter onwards. If this demand from our customer base really materialize as anticipated in their forecast. So we are nicely loaded today and we will need some extra production capacity, which we have, by the way. So we have spare capacity in our four redlines around Europe so that we could and can meet the demand of our customer base there.

Bastian Synagowitz

And so basically, from what you say, obviously, the market is very hot and very strong. So does it mean you basically run pretty much close to, I don’t know, like 85% — is like 85% utilization rate and you can still squeeze it up a little. Is this more or less how we should look at it?

Roland Harings

No. It’s at a bit lower than that. You see we run normal shift operations. So we have typically no weekends and even have some longer standstill in summer and in periods. So we have capacity available in our system with a reasonable shift model nicely above of our today’s production volume. So there is enough headroom for additional production.

Bastian Synagowitz

Okay. Perfect. And then my second question is on the primary side. It seems like there’s still some capacity coming back to the market, for example, looking at what’s happening at Vedanta. What is your view on that situation and the overall market balance in the primary segment now?

Roland Harings

Yeah. Just refer to, I’d say, all of the Wood McKinsey [indiscernible], the numbers that you’re probably familiar with, we see a very good supply of concentrates and also new mining projects coming on stream, some of them, especially Peru and Chile, even ahead of schedule and faster than scheduled. So today, all with our long-term contract strategy, we are well supplied with the right quality and quantities going forward.

There are also some very attractive new mining projects and also expansion projects of existing mines. One, I referred Codelco, why we did this MOU and why we’re supporting here, in order to get them in an accelerated path. But at the foreseeable future for the next years, we don’t see any shortage in the concentrate supply in the marketplace. What’s then — I know there are some statements around what could be in three, four, five years.

But this is still, from a smelter point of view, still a bit too far out because projects are not decided regarding smelter expansion, specifically not in the Western world. So we are optimistic that, and what we see with our contract situation that we are well supplied also for the midterm future.

Bastian Synagowitz

Okay. Excellent. And my last question is just coming back to — on your strategy. And obviously, when you announced your expansion plans when you obviously top those up at least the situation around the IRA in the U.S. was still pretty young. And I guess now the plans are maybe a little bit more mature. Can you please update us on whether there is any chance that you can tap the IRA via tax break or so for your U.S. expansion? Is there anything in for you?

Roland Harings

Yeah. Bastian, we took the decision to go into the U.S. because we see the excellent market opportunities with our recycling technology. We are the first complex smelting provider in the U.S. and also the feedback from our client base has encouraged us to even pull the second phase forward. IRA has not been a driver, not a reason for us to move. We’ve got an attractive package with the site selection in Richmond in Georgia. And today, copper is not part of the IRA agenda.

However, if you look what has been incentivized, it’s the production of renewable energies or the generation of renewable energies it’s e-mobility with some significant incentives being put on the table. So we are very optimistic that this will have a positive say, impact on our metals on specifically on the copper demand. So therefore, you could say indirectly, IRA support us, but we are not taking any direct IRA subsidies or support into account in our business decision.

Bastian Synagowitz

Okay. Thanks and thanks for clarifying that.

Operator

And the next question comes from Maxime Kogge. Please go ahead.

Maxime Kogge

Hey. Good afternoon. So I have a first question on your cash flow generation for Q1. It was relatively weak, and that followed an already quite weak performance last year, given the maintenance works at Hamburg. So what was the reason for this higher working capital variation, notably in Q1? And how do you see the cash flow shaping up in the rest of the year?

Rainer Verhoeven

So it was — Maxim, thanks for the question. So it was a mixture of two things. On the one side, we are not really fully happy with the performance of our Hamburg smelter. We have stated that. So we had a long standstill with quite some investments, which still, let’s say, need a bit of time to really come to the good operations that we had in the year before, while Pirdop is still doing fine.

And if such a big smelter has a hiccup, then this immediately has an impact in the inventory levels and in our net working capital. So that’s the one side. And the other side, as Roland mentioned already, if you have a chance to sell material from the January 1, 2023 onwards with an ACP of $228, you’d rather do it, which means you don’t sell it in December. That’s the other part of the explanation.

Maxime Kogge

Okay. And so if we look at the spot prices for TC/RCs you’re currently significantly done from the peak in November, December. I know that most of your revenues are based on the contractual prices. But do you still see this lower spot prices as a risk to Q3 or Q4 results and therefore your guidance?

Roland Harings

Yeah. I think — Maxim, thanks for the question. We are very consistent with our strategy of long term supply of annual contracts and we are hardly buying concentrates from the spot market. Some complementary small volumes we do. So in general, as you can imagine, we are in favor of higher spot prices of higher markets because they will be towards the end of the year, be also the reference for the next benchmark discussion.

But today, the benchmark is set for this calendar year at 88 and 8.8. And that’s the major reference point for our concentrate pricing, the TC/RCs we are going to receive in our equation with the domain partners as in any calendar year. So therefore exposure to spot markets is very limited on our side.

Maxime Kogge

Okay. And just a last question on sulfuric acid. So current market prices are really depressed, but given the fact that the end markets there are fertilizers and chemical industry should be positively impacted by lower energy prices. Do you see the market rebound, perhaps not in the current fiscal year, but rather next year? And I mean, based on your discussions with clients in that area, what’s your view?

Roland Harings

I think rebound is a bit too strong at this point in time, I would say, stabilizing on a level with a slight upward strength. What we see from some of our clients is new sourcing strategies, which means ammonia is a worldwide commodity, which is the main point of — I’d say, subject to high gas prices. So production of ammonia in Europe has been significantly reduced.

However, there is also good supply from other regions of the world where natural gas is significantly cheaper, example, U.S. So we see that new supply chains, new solutions are being built up because fertilizers are needed. So they will be produced somewhere — and assets are there, I’d say, assets, not assets, but assets are there. And so we see stabilization with, as I mentioned, a slight upward trend going forward.

Maxime Kogge

Okay. That’s all from me. Thank you.

Operator

Okay. So at the moment, there seems to be no further questions. [Operator Instructions] And we have a question from Rochus Brauneiser. Please go ahead.

Rochus Brauneiser

Hi. Thanks for taking the question. I’d like to come back on the discussion about volumes. I think you made clear that you haven’t been fully happy with the Hamburg performance. So to put this in the context with your volume guidance, I think you are seeing the throughput levels lower than last year. I think a quarter ago, you were more pointing to a flattish trend in the throughput. So what shall we read from that? Is this — are you signaling that you are not expecting Hamburg to recover quickly to the normal levels or are there other volume-related factors which are coming here into the equation?

Roland Harings

Yeah, Rochus. Roland speaking. What you have to take into account, if you look at the overall concentrate throughput is the stance that we have in Pirdop this year, this fiscal year. And Pirdop is the larger by throughput, the larger plant in our smelter network. So therefore, our total throughput will be below last year. That’s really a fact given also the size of the plant.

We are — as Rainer pointed out, we were not confident or happy with the operational performance of Hamburg. There was no major win, but it didn’t run as smoothly as it should. Improvements are there. We are seeing better performance. And — but again, given our conservative approach that we always use, also here in our financials, we have taken, let’s say, a modest ramp-up of the brands. But in nutshell, concentrate throughput this fiscal year will be below last fiscal year.

Rochus Brauneiser

Okay. Understood. And how does that were together with your demand expectations? I think you clearly stated that you have even the potential to add further shifts to satisfy customer requests. So how you will — are you planning to bridge the gap between upstream and downstream?

Roland Harings

So we will be able, with our flexibility in our system, to fill our tank houses. So the cathode production will not be impacted by any reduction on the primary smelter side, so first point. And the second point, as you know, we are also sourcing additional third-party cathodes to our footprint for logistical optimization and also for optimizing the mix. And here, we have some additional, let’s say, all the flexibility in existing supply contracts for cathodes. So in case of a higher demand, we can pull those and can really meet the demand of our customer base.

Rochus Brauneiser

Okay. That makes sense. And then also on the sulfuric acid, when I read the outlook statement, it sounded a bit more careful in terms of price expectations compared to a quarter ago. But when you — when I compare it with the statements you made earlier in the call today, it didn’t sound as bad. So maybe can you help a little bit how we shall think between the current spot price readings and what you have in terms of realized contract prices? And maybe can you also remind us what the contract proportion is for this year?

Roland Harings

Yeah. No, Rochus, a fair question. I would like to repeat what I already said about the asset. Again, in a good year, I think in a normal year, it was bouncing around EUR50 million contribution, I’d say, result contribution. And in last year, we saw numbers three digit above EUR100 million, given extraordinary circumstances with some shutdowns of key plants in Europe, large maintenance of direct competitors in the supply of sulfuric acid. This is not coming back this year. So we will be in a more normal year.

But again, restating, we are conservative year, we hope for the better. But give us this running quarter then we have cleared the numbers for the six months in our books, and we have a better outlook in this volatile world. What is going to happen in the demand situation and supply situation for the following six months.

It’s a spot market to some extent and we typically have long-term contracts in, more in Hamburg, less in Pirdop. So on the average, we stayed always around 50% of our contracts of our volume has a bit more longer-term perspective, but means with 50%, we are also exposed to spot markets. So therefore, we are taking here rather at the lower end of the spectrum in our assumptions.

Rochus Brauneiser

Okay. That makes sense. And then a more kind of technical question. I think you have started fairly low in your CapEx in the Q1. So from the EUR60 million, how shall we think about the run rate to end up with EUR600 million, EUR700 million for the whole year? Heavily in Q2? [Multiple Speakers]

Rainer Verhoeven

It will go up over the next quarter. It will go up. No, it’s really — I don’t have really the focus story in more detail per quarter. But you saw some pictures about the execution of significant investment programs that the projects that we’re running. So we will be in the range of EUR600 million to EUR700 million. Today, it would be let’s say, too early to say exactly.

Is it more EUR600 million or EUR700 million. We are pushing hard. We want to accelerate the project. We want to invest as fast as possible. And it will — I can only, sorry for this bit of provocative free market in the beginning, but it will go up in the coming quarters, and we will end up in EUR600 million to EUR700 million for the total fiscal year.

Rochus Brauneiser

All right. And maybe finally on the working capital and cash flow. I think it’s understood what the reason behind inventory is. How quickly is this resolving or turning around? And will you expect for the full year cash flow, still the same numbers as before?

Rainer Verhoeven

So numbers for the full year don’t change. We have EUR450 million to EUR500 million out. And it will — I would say, evenly spread out over the quarters to develop to that direction. Please bear in mind that we have our standstill in Pirdop, we will be considerably building up anodes on the 1 side. On the other side, we will have some relief in other inventory levels. So all in all, it will even out — throughout the year, we will end up with EUR450 million to EUR500 million.

Rochus Brauneiser

Okay. That’s great. Thank you very much.

Operator

Okay. Since we didn’t receive any further questions, let me hand back over to your host for some closing remarks.

Elke Brinkmann

Thank you. While we have no further questions, then we will close this analyst call, and thank you for your attention. Have a nice afternoon and good-bye.

Roland Harings

Thank you. Bye-bye.

Rainer Verhoeven

Bye.