Jervois Global Ltd (OTCQX:JRVMF) Q2 2022 Earnings Conference Call July 21, 2022 7:00 PM ET
Company Participants
Bryce Crocker – CEO & Executive Director
James May – CFO & Executive GM, Finance
Conference Call Participants
Timothy Hoff – Canaccord Genuity
Adam Baker – Macquarie Research
Andrew Hines – Shaw and Partners Limited
Operator
Thank you for standing by, and welcome to the Jervois Global Q2 2022 Results Investor Call [Operator Instructions].
I would now like to hand the conference over to Mr. Bryce Croker, CEO. Please go ahead.
Bryce Crocker
Thanks, Annie, and a pleasure to be here again with James May, CFO today. I guess just turning to Slide 4 in terms of the highlights, a solid result that we certainly able to have to take towards the end of the quarter, which has continued on in July, which we’ll touch on as we move through the materials. The cool diesel spot demand has reduced due to the impact largely of the current China COVID shutdowns. Although we have limited direct sales exposure into China, it certainly remains the largest and most impactful contributor to the copper and cobalt market, significantly impacting initiatives, travel trade out of China.
And over the course of the last month that were indicated flow-through into Western pricing. Jervois achieved EBITDA of slightly under USD 12 million for the quarter or just south of $27 million for the half, which given the drop in June sales volume associated with the [indiscernible] that I’ve spoken about with regard to global purchasing due to those China shutdowns. From our perspective, I thought it was over solid. Reducing the cobalt price defining our ’22 earnings guidance significantly. For context, our method is not to forecast. So we typically take the prevailing price at the time of the earnings — what that has meant is that we shipped in USD 39.75 a pound that was prevailing at the end of the last quarter when James and I updated you down to $27.50 today. With today’s cobalt price actually a little lower than that. The big base of the guidance that you see is based on the $27.50. Certainly, that’s the most significant factor in reducing the earnings guidance or EBITDA then of USD 35 million to USD 40 million, lower sales volumes and also reflected current market weakness, which are embedded within that.
Despite the lower guidance, certainly, there’s been many positives. Balance sheet, access to liquidity, particularly in the context of the current market, very strong. James will touch on that. It’s provided us the flexibility to absorb market volatility and ensure that we maintain the business on a strong footing for future rebound, which we expect.
I guess turning to our assets. [indiscernible] construction continues to pace. I passed through Idaho a couple of weeks ago on route to Brazil. And it’s really pleasing to see the level of progress that the team has achieved. Again, I’ll touch more on that as we move through the slides. We closed the acquisition of the S&P refinery here in Brazil, where I’m taking the call. I spent the last fortnight here with the corporate team as we accelerate and enhance our restart plans.
At Jervois Finland’s expansion indicates continued together with the ownership of San MigaltaLista, these are contributing to significant inbound interest from the users of cobalt, we are expecting significant increases in the consumption rates to the rollout of electric vehicles in years to come despite the weakness that we are seeing today.
If we move on to Slide 6 with regard to sales performance. As I mentioned, I think obviously, COVID shutdowns in China led to a short-term decrease in demand in the battery sector, which has triggered significant destocking. The subsequent fall in cobalt price across Q2, particularly towards the end of the quarter. And as I’ve mentioned, continuing in to July has had a significant impact on spot or uncontracted business across nearly all products and geographical markets. We saw them. So what we see in — for this quarter, the lowest quarterly sales volume from a Jervois Finland since Q4 2019 before Jervois owned the business.
On the positive, despite the weaker end markets and lower cobalt pricing, quarterly revenues still above USD 90 million. So certainly, for a company our size, robust. I guess what’s really the key question for cobalt across the rest of 2022 into 2023 is China. China turned back on — history has shown that industrial activity typically rebounds and restocking occurs just as aggressively and dramatically as is recently transpired. And as I mentioned, we are well-placed to respond to that expected uptick in demand.
Moving on to Slide 7, just to provide a little more context. Just to remind you that our sales restructure in the 3 segments, which are, the commercial team typically looks to balance to proactively balance sales and commercial exposure, optimizing premium profitability and also commercial or concentration risk across customer demand segments of geography, we have what we refer to as the CCC, catalysts, chemicals and ceramics, down to metallurgy and batteries.
As I mentioned, sentiment has recently weakened across all customer segments as China destocking associated with travel restrictions and consequential impacts to economic activity flow through other markets as the travel [indiscernible] out. We move through some of the specifics in terms of what we’re seeing from our industrial customer base. Catalyst demand has been stable. New opportunities are emerging in North America later this year associated with oil prices and that impact on refinery investment.
Customers continue to book volumes across key investments, copper electron, animal feed, et cetera. In Asia, we’re seeing more competition with the mass destocking of the Chinese industry in cobalt [indiscernible], which is reducing premium. And as I’ve mentioned a couple of times now, you’re also seeing that flowing through the [indiscernible] base pricing. Ceramics demand is moderating. This is typically a good industry, which is more opportunistic in their purchasing. So when cobalt prices fall typically — to orders, orders stable, still impacted — for those of you that have been following some of the OEM quarterly semiconductor supply chain is still impacting all of those across many of the key geographies, including [indiscernible] that we sell into all space, just the dynamics in aerospace are interesting for the powder business, for the powder metallurgy businesses we see a return of movement of people and goods across the globe. The same spending in the West, many expect to rise associated with the time geopolitical instability.
Battery demand has softened as customers wait for price stability, but certainly, we’re confident that in the medium and longer term strong demand and significant growth from OEMs continuing to express interest in delivery commitments increasing over time.
I guess on that overview of the market, I’ll pass over to James to run through the financial performance in more detail.
James May
Thanks, Bryce. Turning to Page 8. We can see the quarterly revenue chart on the left hand side, showing revenue of $91.2 million for the quarter, which is a 13% decline in revenue prior — compared to the prior quarter. As Bryce noted, in just a few moments ago, the lower sales volume was a key driver of this decline, offset by higher average prices compared to the prior quarter.
I think notwithstanding the impact of these external factors, we look back to the history of this business, the quarterly revenue performance of $91 million represents a solid result in the wider context of long-term performance. Overall, in terms of EBITDA result, the adverse effect of lower sales volumes was more than offset by the benefit of relatively low realized fee costs in the P&L during the period and also the favorable impact of price lag and mark-to-market effects to deliver an overall EBITDA outcome for the quarter of USD 11.5 million.
Realized cobalt pre-costs were low in the quarter in terms of the active cobalt hydroxide price as a payable percentage payment of the common price for the quarter. And this is due to a number of factors, including the knock-on affected purchases made in prior periods at lower prices on the average cost of inventory that is, costs recorded across from inventory into the P&L as cost of sales to match the corresponding revenue that then sort of flows through and has that knock-on effect.
The favorable impact of price of excellent revenue and the mark-to-market on open purchases principally results from the decline in prices from $39 a pound last quarter end to $31.50 at 30th of June. Mechanics of this illustrated on Page 16 and relate to commentary we’ve made previously around the business model and how that can flow through into some of these effects.
So I think, overall, despite the impact of temporary headwinds in the market, our operations do continue to perform well. We retain a sharp focus on how to best navigate the short-term volatility whilst we can currently strengthen our ability to meet long-term demand growth. will be It pretty pleasing to see the progression of our BFS to expand refinery capacity in Kokkola in terms of position ourselves to meet long-term demand growth for our products.
If we turn then to Page 9, a reduction in the spot price assumption that we used for the second half of the year from $39.75 applied last quarter to a lower price of $27.50 used for this period is a major contributing factor to the reduction in EBITDA guidance for 2022 as a whole. In addition, a reduction in our sales volume guidance, as previously noted, from a range of 5,750 to 6,000 tonnes for the full year that we announced in Q1 has now been reduced to 5,500 to 5,750 principally related to the temporary demand weakness that’s also a contributing factor to the revised EBITDA guidance.
It’s also worth noting that the guidance that’s implied here for the second half 2022, also impacted by an expectation that fee costs realized in the P&L for the year will be higher than the year average. Effectively, Americas the benefits we captured in the first half.
And finally, it should also remember that the guidance is indicative. It’s based on forecast and assumes constant prices in the second half. Price volatility can and will impact the actual EBITDA outcome as the half progresses.
We then move to Page 10. We have seen an increase in this period in Jevoir Finland’s working capital. The key driver is inventories that have increased from 1,500 tonnes approximate at 31 March to around 2,500 tonnes at 30th of June. And what we’ve previously guided to is that the optimal range tends to be around 90 to 110 days of inventory in hand which is a function of our business model and the working capital requirements that are normal [indiscernible], as you can see here, we’re sitting temporarily above that level at around 160 days of inventory on hand. This is principally driven by higher cobalt inventories, including the catch-up effect of cobalt hydroxide supply backlog following logistical interruptions that we previously noted in our last two quarterly announcements.
In addition, while declining prices ultimately lead to lower working capital levels, the impact of the recent price declines we’ve seen in June and July, will take some time to translate into that decreased working capital that we would expect there to see in the months ahead. So overall, our net working capital change was an increase of $37 million with this increase funded from internal cash flow and the drawback from our Mercuria working capital facility that we completed in June.
So overall, we see working capital at 30th of June, very much as a peak for the year. and important that we not to expect those levels to normalize in the second half. Our continued focus around working capital is to find the right balance between managing our supply chain risks, noting the volatility vacancy and some of our supply chains together with commercial objectives and balancing that against the liquidity management. So it continues to be a very strong focus on how we continue to manage working capital as we move forward.
That really is the summary of the financial section. Bryce, I’ll hand back to you to talk about ICO.
Bryce Crocker
Thanks, James. If we move to Slide 12. As you can see in the picture of the site is profoundly change, which has been really exciting as I’ve gone back over the [indiscernible] 2022. The work has been extremely favorable, pleased to report. Currently, there’s about 170 or 180 workers on site each day. The activity has increased dramatically. We’ve got around 15 work [indiscernible] daily right now with additional crews starting each week as those additional work fronts still opened up across the site. There’s been an increase in productivity completion rates, equipment being moved rapidly. And the accommodation will finally be opened in the next couple of weeks, which certainly everyone feels excited about. The concentrated building that you can see there, the quickness in [indiscernible] sales are in place, cables and electricals are accelerating. We’ve spoken previously around the drilling and the focus on expansion. The underground drilling is going well. Surface drilling has been off to a slow start. [indiscernible] around 400 feet in. From the underground drilling results coming back that’s positive. The resource model is holding up, which is obviously important for derisking early mining as we come into Q3 Q4.
Underground mining progress has been disappointing. We have less than 30 feet a day. challenge has really been staffing and consequential impacts on equipment availability, productivity. The planning goes to rectify hiring the retention rates have started to pick up in the last couple of weeks, and the team is confident that they’re in place there.
I guess some level of detail that typically we would touch on is the operational readiness and this is S&P’s first sales track maintenance plans with member support, logistics plan explained just after coming from site a couple of weeks ago, just the level of intensity around that preparation for commissioning is certainly exciting to be around the team’s working hard. We’ve got S&P and IT rollouts underway. All the controllers that we need to put in place to run the mine are being steadily implemented as they would have some of the other operations that have been done over the course of their careers.
The opening ceremony scheduled for the 7th of October, which mark as position as the only domestic cobalt mine in the United States. And again, we’re really excited to be celebrating the milestone with various stakeholders across Idaho, United States and Australia.
If we move on to Slide 13, with regard to São Miguel Paulista. So as many of you are aware, we recently completed the acquisition on the 15th of July following CBA’s receipt of all the operating permits that we required of S&P as part of the purchase negotiations.
As I mentioned, I’m here in Brazil with technical and commercial executives who spent the past 10 days. working with our Brazilian colleagues on the ground around integration and detailed restart planning. Engineering vendor selection for the restart is underway.
It’s really a focus on a staged capital-efficient approach to recommencing production. We’ve had strong inbound interest both from in and outside Brazil from nickel customers. Again, as many of you are aware, very little Class 1 nickel refining capacity coming online across a period of rapidly rising consumption associated with mining chemistry so, again, really excited to be down here in Brazil to be moving it forward at this particular point in time.
I’ll pass back to you, James, to cover our corporate on Slide 14.
James May
Thanks, Bryce. But just starting with the overall cash position for the group on the chart, you can see the opening cash balance at 31 March was $88 million. And you see the positive EBITDA generation for the group and then the cash outflows represented both by the change in working capital that we spoke about earlier and the CapEx spend for the quarter that principally relates to our activities at ICO. And then after the financing and other impact, we closed the quarter with USD 57.6 million in the bank.
On the debt side, we announced the extension in the Mercuria working capital facility from $75 million to $150 million and drew down $25 million to take the loan balance outstanding to $100 million at 30th of June. We also drew down the remaining $51 million in funds from the escrow account in relation to the ICO senior secured bonds. It’s represented here as restricted cash at 30th of June simply because we drew that date in July. But now having drawn that down that very much supports the funding for the final stage of construction at ICO, so another good financing milestone for us to achieve.
Overall, our focus is to continue to maintain a balanced funding strategy that supports our growth objectives and also provides us flexibility to navigate the current market volatility. More broadly, in the corporate sphere, we continue to be a very active team both in terms of supporting delivery of the business plan across the assets and the continued development of the global operating backbone of the company as Jervois continues its transition to become a mid-tier multi-asset operating company. This has included deployment a fit-for-purpose S&P and other systems solutions at pace and on the shoestring budget. Just one of many examples of the work we are doing to create a scalable global platform in the nickel and cobalt sector.
So overall, the way to sum up, we continue to be confident in our financial position. We’ve got good access to liquidity — and I think a good corporate team that’s continuing to support how we drive this business forward.
With that, Bryce, I’ll hand back to you for a summary and closing remarks.
Bryce Crocker
Thanks, James. So Slide 15. Clearly, we faced a number of headwinds today, particularly during the latter part of the quarter. But the fundamentals of the business are strong and got good confidence in the medium-term outlook. I do believe Finland’s EBITDA outcome was robust, given the backdrop of the market that we’ve spoken around. And whilst we’re seeing the effect of lower cobalt prices, certainly, across our business, we’re really focused on delivering the objectives and the strategic plan we have in place for Idaho Sao Miguel and Jervois Finland.
I do believe we’re uniquely placed to respond to the fluctuating cobalt market. We’re obviously really excited that we’re getting exposure again to the physical nickel market, just given the resumes of some of the nickel traders that we have on board. And James has touched on the balance sheet, but I’ll just reiterate, I think that having the strength that we have for financial flexibility, Idaho is fully funded, strong cash balance and the Mercuria facilities providing headwinds across the group and the relationship with that with Mercuria is working very well and symbolical, which has been certainly been a positive following the acquisition of Jervois.
So I’ll close on that note, And Annie if you would like to open up for questions. Let’s do that.
Question-and-Answer Session
Operator
[Operator Instructions]. Your first question comes from Tim Huff from Canaccord.
Timothy Hoff
I was just — a question around sales volume. We sort of got a trend for 3 months in a row now of falling sales. I wonder if you could just talk to that, is that something that’s temporary? You’ve got that build in inventory. Does that sort of pop back? How does the forward pipeline look at the moment?
Bryce Crocker
James, would you want to touch on the inventory side, and I can follow up on how we’re seeing the market’s trends.
James May
Sure. So in the context of inventory, there’s a couple of things going on there. The inventory we disclosed, it’s the aggregate of cobalt hydroxide raw materials as well as finished goods. And one of the principal factors there is that there is a high degree of lumpiness as we bring in cobalt hydroxide, given much of it comes through the South Africa supply chain and really that sort of extreme lumpiness that we’ve seen through the catch-up effects of shipments that were deferred from prior periods is one of the key drivers, I would say, arguably more so than accumulating excess finished goods per se.
So I think that’s a factor. And we’d expect that inventory then to unwind and see some normalization really as we set up to manage the consumption of those raw materials, and we’ll look to effectively manage our working capital in the way that seeks to achieve our internal target levels and put a level that’s normal through the business by the end of the second half.
Timothy Hoff
Can I quickly just jump in with a follow-up question on inventory? Is it one of the product segments in particular that’s growing or not moving?
James May
No. If you look at — if you go back — sorry, Bryce, do you want to jump in?
Bryce Crocker
No, James, you cover it.
James May
Sorry. Okay. if you go back to the point I was saying you wanted to go, you’ve got both sort of reasonably significant volumes [indiscernible] a processing business of [indiscernible] cobalt hydroxide and incoming as part of that inventory number and those volumes and then you’ve got finished goods as well. So it’s not like there’s sort of one specific product that’s sort of sitting in warehouses as the finish goes for 18 days. It’s really a combination of already a primary driver is that what is sort of typically lumpiness into the way we actually bring in raw materials into the operation. And obviously, that’s — that effect has become more extreme because shares noted in the presentation we’ve had this sort of catch-up effect where in prior periods, we’ve been relatively lean as you can see at 31 March numbers that are reported here. And then we have that catch-up effect that’s put us temporarily at a sort of a cyclical peak for inventories that weren’t won in the second half.
Bryce Crocker
Yes. Yes. I guess, Tim, just a context, I think if you look, one of the drivers of the business and why the finish finished goods inventory and the relationship it obviously structured the material that allows us flexibility in terms of being able to opportunistically take business in for and also sit back in view of his being commercially disadvantageous. And so if you look at cycle there’s no year seasonality in our sales volumes. If you go back 3 years, it’s going to really depend on the market at the time rather than seasonality asset and will typically float around, obviously, we’re at the lower end now and Q2 of 2021, pushing us to the higher end.
In terms of the impact across the customer segments, I think that the key driver of the cobalt price for has obviously been China, and we do softening of the EV chain. That’s largely stabilized and I think most of the commentary you’ll hear from China now is that that’s certainly — that’s the EVs brand up as we started. We’re certainly not seeing that flowing through the Cobalt Markets Day. What that below the largest direct impact on print on demand from the battery train. And obviously, that doesn’t affect us directly, but there it does affect us is when cobalt prices fall, the spot business dries up. And so that then varies across the various segments. Some of our business is more contracted. Some is more soft. And the business that is soft that I touched on, such as ceramics and others, that typically drives up more in the other materials that floater still. Obviously, there are still moving products to the product is still flowing.
And I guess it’s always easy you’ve all been around commodity markets long to enough trying to destocks and then people least expect that when China turns back on and downspace certainly would be the early signs of the figures coming out of China are positive. And we’re optimistic that the bottom will be — the bottom will occur across Q3.
Timothy Hoff
Yes. Okay. And then moving just quickly on to payabilties for cobalt hydroxide. Obviously, with price coming off, there’s a linkage there, but is there anything else in the industry sort of driving that payability much lower? And I guess is that built into your forecast now? Or are you looking back at historical payability and kind of running that forward?
Bryce Crocker
No, we have in terms of what underpins the forecast, I mean we’re running current payabilities for it. Bear in mind, when we spoke about the time of the equity raise, we spoke about a 70% to 80% contractual cover in terms of the purchase of Jervois Finland. Now that doesn’t automatically translate into 100% minus at 70% or 80% in terms of contract versus index exposure. There’s obviously some contracts we have in place, which have an index link with direct or indirect. But certainly, that will flow through over time. As James mentioned, it takes time for that to flow through.
In terms of the index, clearly, the fact that it is down at these levels were to be sustained as a significantly positive impact on refinery margins. It’s really related to the same trend that’s affecting coblat price, aggressive destocking out of China of cobalt hydroxide units over the course of the last couple of months as industrial activity slowed and then shut to be associated with the CoVID lockdowns.
Operator
Your next question comes from Adam Baker from Macquarie.
Adam Baker
Just wondering, what do you expect your EBITDA margins to be during the second half of the year? And how far do you think the cobalt hydroxide payabilities could potentially fall to? Have you got any insight to — is that going to continue to fall? Or do you think it’s going to readjust to long-term norms? That would be good.
Bryce Crocker
Maybe I’ll just cover a hydroxide question, James, and then we can touch on implied EBITDA margins from the guidance. I guess, Adam, if you look historically, I mean, cobalt hydroxide paid between, say, 50% to 90%. As I said, I think we are nearing the bottom. Certainly, if you talk to the major producers, you find secure tonnages on that basis. So it’s really distressed material that’s leaving or circulating around China, which is affecting the index — so certainly, it’s very difficult to purchase major from the major compound supplier, and it’s not material on that basis today, which is kind of an indicator in terms of where the major producers so the index is moving forward.
James, would you touch on margins?
James May
Yes, absolutely. Thanks, Bryce. Adam, we’ve generally guided previously the margin sort of fit in a typical range of 10% to 15% through the cycle and you look at sort of current period numbers and up towards 13%, 14%. And what was sort of flagging is that there will be some margin compression in the second half, not only as a result of decline in prices and sales volumes, but the way, how it falls on H1 versus H2 on realized fee costs.
And so if you sort of range the numbers and guidance we provided, you sort of started to imply that the second half margin in our guidance would be 10% there or thereabouts, maybe a little less. But then you put that together overall for the year, it’s still not a bad performance, I think, in the context of the history of the business and recognizing the impact of those external factors.
Adam Baker
Great. Maybe on S&P, now that you’ve got the keys, when do you expect the refurbishment of the refinery to start? And I’m just trying to get my head around the POX plant option that you’ve got to integrate so that you can process the ITO or is there any kind of guidance you could provide about what the costs that would be.
Bryce Crocker
I guess on Sao Miguel, we’re moving forward, obviously, as a matter of urgency. As I said, they’re running a vendor selection process for the construction now. the feasibility study for the POX will be finalized at the end of Q3. And so the feasibility study is finalized and we’ve actually got engineered kind of underpin figures. I prefer not to kind of speculate, I think that would be inappropriate. The — we’re very focused on the same approach to Sao Miguel so I’m a big believer in derisking and investing capital and we’re starting plans in a moderate measured way. And so that’s really going to be underpinned by restating the facility as quickly as we possibly can cobalt hydroxide and MHP. Clearly, the favorable oxide payabilities that we’ve been talking about in the 60s, helpful. MHP payabilities, certainly in China at around the same level, so significantly lower than what the BFS was based upon. And obviously, we’re having the good prices significantly higher than what the BFS is based upon.
So really, our focus is on getting it up to restart of as quickly as we can, assessing climbing and around that implementation of the POX. And also looking at looking at the business opportunistically. So clearly, we’ve got the default of placing the material exclusively down here in Brazil, but we’re also restarting the cobalt physics line and cobalt hydroxide, we can clearly continue doing that. And there are third parties that got [indiscernible] concentrate. And so it’s really just a case of what are the alternatives and what’s the balanced approach with regard to commercial outcomes, optionality, risk, et cetera. And so that’s really going to underpin how Greg Young and the commercial team look at that over the course of the next 3 to 6 months.
Adam Baker
Yes, sure. That’s great. And maybe on potential tolling of nickel fees for S&P, is there any insight you can provide to potential opportunities there?
Bryce Crocker
Obviously, it’s going to be important. We’re certainly without speaking on behalf of the — all the directors, I think that there is going to be an expectation certainly from my side, that we’re going to have a degree of contractual supply that underpins the restart. Now the difference is obviously the level of contractual underpinning is kind of commensurate or related to the level of capital and risk, hence why the I think I’ve got such a strong focus on low capital and derisking that restart because it just provides the commercial team much more flexibility in terms of how they go about securing some I mean there’s clearly units available and the fact that MHP’s trading at 65% tells you that there’s a lot of units available. And typically, the way the market will actually come in of a 2.5% above market. We’re growing units, which [indiscernible] 2.5% below Vietnam.
I think that various opportunities within Brazil, opportunities outside Brazil, and we’re working with the Brazilian government in terms of ensuring that we’ve got the right structure to here in Sao Paulo so that the business can be commercial success and also benefit the country material in terms of supporting its domestic industry as well as obviously facilitating the export of nickel electric [indiscernible] again from the country. So I’m excited about the opportunity to get back in the physical nickel business both on in terms of supply contracts, but also sales contracts back out into the industry.
Operator
Your next question comes from Andrew Hines from Shaw and Partners.
Andrew Hines
A couple of questions just on the numbers, just some further clarification and then one just on some timing of some upcoming events. On the numbers, James, so the guidance downgrade to $35 to $40 implies only $8 million EBITDA in the second half at the low end. That looks really low. Have you actually run the exercise of if you had kept the cobalt price at $39 what the guidance would be? I’m just trying to get an understanding of whether there’s anything other than price or volumes there? In other words, is there anything going on with the cost line with the refinery that’s causing the concerns as well?
James May
I think, Andrew, to answer your question in two parts. If you look at the guidance, EBITDA guidance in totality for the full year against what we’ve reported previously. You can actually quite systematically reconcile on that full 12-month basis through the price declines using sensitivities we published back in January and taking sort of a sensible estimate of incremental margin that’s attributed to the decline in sales volumes. And then when you look at H1 versus H2, the other thing that’s sort of giving us a slight sort of complexity and how we just think through that is that whereas we’ve seen effectively some reduction in sales volumes in H1, that’s been offset by some of the positive factors we described, including lower than expected or lower than year average fee realization costs in the P&L and some of those lag effects that are flowing from a very recent sort of decline in prices as well. And so we’re driving that to the asymmetry between H1 and H2. And then part of that asymmetry is really then not only that decline in price in the second half, but sort of a mirror image effect on the fee cost to get realized in the P&L., partly really as a function of the fact that as we described before, there’s the range of things that can sort of drive how that shows up in the P&L, not least to the timing of purchases into inventory and then how they get sort of cycle of average costs back into the P&L.
So there’s a few things going on there, Andrew, having sort of, as you would expect, gone through this in quite a bit of detail, it’s all explainable. And to the extent you want to need sort of further discussion in terms of just how to step back to our prior guidance and put those pieces together, I can obviously help to the door.
Andrew Hines
Yes. Okay. Just a further clarification on the inventory. So you talked before about there’s obviously higher cobalt in the system, some of it’s fees, some of its product. Can you give us the sort of some sort of sense on the split of that? I think you — on your Slide 10, you’re at 160 inventory covered days. And I think you said that 110, 120 sort of more normal. So I’m trying to get a feeling for how quickly that comes back to more normal working capital, what sort of cash release we might get in the second half? Is that because products have built up on site? Or is it because you’ve rebuilt the feedstocks?
James May
Yes. Thanks, Andrew. I think if you go back and sort of unpicked prior disclosures on what we sold and what we produced in Kokkola any sort of prior quarter you will conclude that the maturity is sort of back into a view that the majority relates to that phenomenon around raw materials, I described, that’s a extreme lumpiness and some of the catch-up effects which were then to sort of consume and draw down on that raw material as we go forward.
So that’s sort of one sort of key factor. I think if you want to look sort of implicitly around what would the working capital release be I think if you have to model it so anchored on that sort of typical range that we’ve disclosed previously somewhere between 90 and 110 days and sort of overlay that and let them interact with prices in your model, you’d probably get to something that would look like a pretty decent working capital release going forward.
Andrew Hines
Great. Look, final question for me, just around timing of how things unfold now really for the next 12 months, 18 months around ICO and Sao Miguel. Obviously, the refinery acquisition is closed now. You’re on the refurbishments. I presume the delays haven’t slowed you down too much in terms of when you’ll be able to get that thing operational again. But in terms of getting the product out of Idaho down there, obviously, there’s 2 concentrates, I think you’re producing a copper concentrate and a cobalt concentrate. Can you talk us through the likely timing of when first sales from Idaho are made? And what happens with the cobalt concentrate in that interim period before after production and before S&P starts up and what timing that is.
Bryce Crocker
Just I’ll touch on that, James. So copper con sold externally. So as soon as the mine commissions received initial copper con sales starting towards the end of the year. Obviously, we need built up material. We get appropriate shipments and then we know how to start in the regular course. Cobalt con, we’ve got optionality around that. So we can clearly hold material and wait until the box is ready in Brazil, but also whilst kind of cobolt sits in the ground, you can’t exercise optionality around that material once it’s out of the ground and in the bag you can. So clearly, in today’s market, the price is moving down, not up, but that can change. And I guess, certainly, the commercial team talking to third parties to the trading networks and just obviously, Sao Miguel provides a backstop here. But it doesn’t mean that necessarily over the course of Idaho’s operating life at 100% will always be in [indiscernible]. I’m not necessarily a fan of single final cash flows and having diversity and having optionality and having third-party outlets as always, if we can very risk the business, that’s good. And so I do think that we’ve got the flexibility or the backstop in terms of being able to process and Brazil. We’ve also got the now that it will be a round in bags once we commission the mine available for third parties is to step up to the plate, and I think that’s a good position for us to be in.
Operator
There are no further questions at this time. I’ll now hand back to Mr. Croker for closing remarks.
Bryce Crocker
Thank you. So obviously, challenging markets, but in challenging environments, I do look at the history of Jervois where we’ve created value has really been in times of dislocation. Certainly, the team is excited with regard to what’s happening in the market and seeing the traders love volatility, what we’re seeing in terms of the flow and implications of Sao Miguel are interesting. The team in Finland managing the business there and certainly we’re excited by the footprint and the business that we’ve established and looking forward to the second half. Thanks all for your time and reach out via James and the staff if you have further questions. Thanks, very much, everyone.
Operator
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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