Ladies and gentlemen, a warm welcome to Boliden's Q4 2019 results presentation. My name is Olof Grenmark, and I am head of investor relations. Today, we will have a presentation led by our President and CEO, Mikael Staffas, and our CFO, Håkan Gabrielsson. After that, we will have a Q&A session starting here in Stockholm, and then followed by the web. Once again, a warm welcome. Mikael Staffas, the stage is yours.
Thank you, Olof, and good morning, everybody, both here and over by your computers. I think we have a lovely morning here in Stockholm with very great weather. Now we'll go through this presentation. If you look overall on the year, well, I'll start with the quarter, by the way. You will see that we have maybe the biggest discussion we'll have is around how we've been able to put some of the CapEx projects that we've had forward. I'll come back to talk a little bit about that in a moment. Otherwise, production figures for the Q4 are roughly in line with what we had expected, with one exception. That is that we had lower grades than we had expected in Aitik, which basically, I think, is what is explaining any differences that could have been seen. This was unforeseen.
We had to, for different reasons, move into other part of the pit. This will, by the way, also continue into Q1 of 2020, but we, as we will talk about when we come back, we are still guiding for unchanged grades for the whole year. In the smelters, we've had also a relatively good quarter. We were interrupted in Finland by the Finnish strikes that we talked about separately in the press release. Apart from that, we've had a relatively good quarter. The working capital that had been high in previous quarters due to the big maintenance stops that we've had has more or less normalized in Q4. If you look at the whole year, we have also had a good year, generally speaking. The volumes are lower, but that's all due to grades, which is known and which we had well communicated beforehand.
Volumes are relatively good in the mines. In the smelters, we've had a year of very big maintenance, which has also been talked about during the year. The dividend as we're proposing right now is straight according to the principles that we have, one-third payout ratio. We do not have a balance sheet strength at the end of Q4 when we adjust for the ordinary dividend that takes us over the 20% threshold for extraordinary dividends. Let's talk a little bit about the CapEx numbers that you've seen, which are bigger than was both you anticipated and also bigger than what has been guided for. We have been able to pull two big projects forward in our planning.
One is the Kevitsa expansion, where we have been able to both be quicker done with the mill, the mill test is going on as we're speaking, and we have everything in place. We've also been able to time the trucking capacity that's linked to that, the shovel capacity linked to that, and also the stripping linked to that well so that we should be able to, as come Q2, be able to ramp up production to the 9.5 million tons that we have promised by the end of the year previously. That all feels very good. We feel that we've been able to adjust very well to the situation that arose. We also got an opportunity to increase the Renström mine. We got a new environmental permit quicker than we had actually anticipated for an extra 50,000 tons.
We have used that as an opportunity to also partially change the mining method in the Renström mine from cut and fill to open stope mining, which also takes some CapEx in order to get the developments ready, which has also contributed to the higher CapEx during the year. We have a few other issues that are there which are maybe not so perfect. We have had more expensive stripping than anticipated, which has costed more money than anticipated. We've had both in Pushback four in the Kevitsa Mine, but also in the South three Pushback in Aitik. We've had more problems than anticipated with getting the pre-stripping and getting the first levels done. That's always an issue when you're working with open pit mines, but it turned out to be more than we thought about, and then we have some currency issue as well.
If we look at the market and what has happened to the market over the last quarter, you can say it's relatively stable. We see maybe a slight slowing up of demand for our metals. It's still flat in zinc, and it's still slightly growing in both nickel and in copper, even though the growth might be on a slightly lower level than we have seen before. There is something there behind, but we're still seeing a fundamentally good demand, and there are fundamentally very low inventories in the supply chain, which I'll show in the next coming exhibits as well. Regarding the markets around concentrates, what has been a special situation earlier in 2019 has also continued into Q4, where we're seeing very high spot TCs on zinc with a relatively limited capacity in the zinc smelting industry to take on the concentrates that's coming from the mines.
The copper is absolutely the other way around, where there's not enough copper capacity around that it's pushing the spot TCs for copper down. Looking at the prices, you can see that sequentially quarter-on-quarter for our metals, there has not been much change for the base metals. You can also see that, of course, if you compare to what we had last year in our Q4 of 2018, of course, we do have a lower level than we had then. You can also see here that the levels of the official inventories are quite low, and they are on the level that's more or less as low as we have seen them in the last couple of years. On the pressure side, you can see that year-on-year we're up. We're up especially on gold, but also silver is up on year-on-year.
You can also then see that sequentially, not so much difference compared to what we've seen before. We usually put up this exhibit here just to see where the prices are compared to the cost level in the global industry. You can see that zinc has come down actually quite a lot compared to the cost curves in the industry. We are now having a zinc price that is relatively close to the 90th percentile in the zinc industry, which means that we feel that the zinc price is actually relatively safe and cannot really go much further unless there will be major cost cutting going on in the industry that we don't really see. On the copper side, there is still some margin between the cost curve and the prices.
That means that there is room for things to maneuver down before anything will happen on the supply side. Maybe that's also what we've seen in the last few weeks with the coronaviruses that has pushed down the copper price short-term on short-term speculation, and there's always a possibility when you're having a situation like this. On the nickel side, you can see that the cost curve is moving upwards, which I think is quite normal. You will see that because you see some more nickel mines coming online, and they tend to be slightly higher cost than previous mines have been. You can also see that the price right now is pretty much stuck on the, say, the 90th percentile on the cost curve, which means that there's not so much room for at least any lower nickel prices.
When you add all these things together, you can see that the Boliden weighted metal price index has gone down lately. On the other hand, the currency is helping us still. When you weigh these things together, yes, you can see that lately we've had a little bit of a tip down in especially maybe in the beginning of this year. If we move over to the mines and look what we have there, you can see that compared year-on-year, we've had stronger prices and terms, and we've had the projects that are ahead of schedule that we've already spoken about. The volume are lower, and the volumes are lower than expected, and that's basically only or is fully only a grade issue, and Håkan will come back to talk around exact numbers around that.
We do also have the Finnish strike that has played into these numbers here with the Kevitsa mine being affected during December. If you look at the full year, and I think it's good time to sum up the full year for the mines there as well. Aitik has had a good production year where we are ramping up, and we will still aim it for the 45 million tonnes this year, and the copper grade has been around the 25% that I think we've spoken about for the whole year. In the Boliden area, which is, of course, a smaller area, but we had a good year with good mine mill production. We managed this year to be able to compensate from the other mines the depletion of Maurliden. Maurliden was not fully depleted. We had in the early quarter still some production from there.
Now it is fully depleted. As I said before, we also now have the Renström mine coming up, which means that we feel we'll be able to compensate also for 2020. Garpenberg is moving on, I think very much according to what we've said and what it should be. We're up at 2.9 million tonnes as of now, not so much to go to the 3 million tonnes that we have as a target for 2020. Kevitsa, around seven and a half. We've had a relatively tough year, especially in the earlier part of the year in Kevitsa, and that's especially true for the grades. You can see the grades have come down significantly. That is from a very high level. The grades in 2018 were way above the long-term average that we have, we've also been now below the average for 2019.
Kylylahti has had a good production year. Unfortunately, you can see also there that just as a point of it, we have about 500 tonnes of cobalt that we have produced in that mine over this last year. In Tara, the production has increased quite a lot compared to 2018, from 2.2 million to 2.5 million tonnes. The grades have gone down quite significantly from also, once again, grades that were pretty high, but also now for 2019, we are below the long-term average. Maybe I have to do like this. No, this is stuck. Maybe somebody needs to help me. Unfortunately, this doesn't seem to be much of it is stuck in any direction. This is now the last one.
Now we do work with the cursor. Now it work. With the cursor, it worked there. Mine production in the quarter, where we've had the effects on the strike and the lower grades, which, of course, affected the copper production quite a lot, whereas zinc production has actually been quite good, although we did have lower grades also in Garpenberg for the quarter, but the zinc production is a relatively good level. Nickel also affected by the levels in Kevitsa. At this stage, let's also talk about what we do every year, talk about the update on the R&R statement. We've been exploring as much as ever, or actually even more than ever. We are done with the drift down to Rävliden, and we're halfway in the drift for Tara Deep. That is, by the way, not according to plan.
We should have been further on by now, but we've had issues during the year to move that one on, and we've been doing exploration from surface instead and Tara Deep. In the long life of mines that we have in Aitik, Kevitsa, and Garpenberg, there are limited new reserves, which is also in line with our practice because these are relatively far out. I'll come in a little bit into the detail, which is interesting to point out, is that we're actually having higher grades this year in Aitik compared to last time we did this, and that's despite that we've been mining above reserve grade average over the year, which normally should put the rest of the average down, but we've been able, with optimization and new geological information, to get this one up slightly.
We have Tara Deep, about 4 million extra tonnes of inferred resources at very good grades. We are still very positive about Tara Deep, as the exploration is slightly behind schedule because the fact that we had to drill from surface rather than from the underground drift, but we're still happy what we've gotten, and Tara Deep is still open in basically every dimension. In Kylylahti, we have decided to close it down. We have also written off any remaining mineral resources that we had. Now let's see if this, we got the next one. In Aitik, we do have still 26 years life of mine as in the reserve, and we have a copper grade of zero point two three right now as an average.
In the Boliden Area, which is a tricky area because we're relatively short life of mine, it is very important that we get this one year per year upgrade. This year, we got slightly more than one year in a year, and we also have slightly improved grades in the Boliden Area, which we feel good about. In Garpenberg, which is also very long life of mine, we do not have so much difference in terms of the reserves. They're very much alike where they were last year. We still have 25 years reserve life. Those of you who read the details will see that we have quite a lot of more resources inferred, or resources that comes basically from further exploration at the lower levels of Kvarnberget, that we also feel good about.
In Kevitsa, which is long life of mine, but also still important that we get one year per year. Here we have slightly more than a year in this year, and we have 14 years left, which means this now is a 2034 life of mine mine. You can also see the nickel grade is slightly up here. The copper grade is slightly down. The mix is also up. In Kylylahti, we have written off whatever is left. We have about 500,000 tonnes. We will mine out Kylylahti somewhere in the H2 of the year.
In Tara, we do have some increases, even though I know it's not fully one year per year in the old mine, but we also have higher grades at six rather than five point seven that we all feel good about, and then we have the extra resources coming down into Tara Deep and also, by the way, some other inferred resources around the old Tara Mine. In the smelters coming into the quarter, we had better prices and terms. Good zinc TC is helping here, and the U.S. dollar is helping. The projects are on plan. The maintenance that was done still in this quarter was on plan. We've had some lower volumes here. It's basically the Finnish strikes, and to some extent, if you look on metals, it's lower grades in the raw materials.
We've had some disturbances in the copper smelters, including the fact that we did some more maintenance, but it's relatively small. We have a production record in Odda. For the full year, of course, very much marked by the very big maintenance stops that we've had earlier in the year, especially in Rönnskär, that's had an all-time high in terms of maintenance. It's also marked by the nickel failure that we had during the summer in Harjavalta. Those are all history, but they're relatively good speaking. The other thing that's been really good this year has been the zinc smelters, both in terms of prices and terms, but also stable production, where you can see that Odda has a record annual production as well, and Kokkola, although it's slightly less than the year before, is also having a good production year.
Bergsöe now with the new plastic separation plant in place, has also had a very good year. If you look at it in the quarter, well, the quarter numbers were affected by the strikes in Finland, and on the copper side of some disturbances, but you can still see it's picking up from the very heavy maintenance quarters that we had before, but slightly lower than previous year. On the zinc side, things are going relatively well, and the production record in Odda, of course, helps. The nickel matte production is down, partially due to the strike, and also partially due to catching up a little bit from the old nickel furnace meltdown, taking a while. With that, I will leave this to Håkan to go through, and you can talk about the financials.
Thank you. Lets take a look. It works. Good morning. As you've seen, we reported an EBIT excluding process inventory of SEK 1.7 billion in the quarter. We have mined, as Mikael indicated, in lower grade areas than expected in Aitik. I will come back to the grades in the period-to-period comparisons later on. Projects in CapEx are ahead of plan, which led to higher CapEx, and that translates into a cash flow of just over SEK 800 million. I'll come back to that as well. Looking segment by segment, mines had an EBIT of SEK 890 million, down because of grades. Smelters is up compared to last year due to stronger prices and terms, primarily zinc and USD, and also a bit up compared to last quarter, Q3.
We've had less maintenance. We also had an impact of the strike in Q4. Looking year-over-year, quarter four this year compared to quarter four last year, we're SEK 300 million down. The impact of lower grades was about SEK 700 million quarter-over-quarter. Out of that, about half of that was in Aitik. In addition those SEK 700 million you can see in the volume line here. In addition, there were a few other things that had an impact on volumes that all offset each other. We had an impact of the strike, about SEK 100 million negative. We have slightly lower free metals in smelting. We do have higher mill production in mines. Looking at prices and terms that had a positive contribution compared to last year, primarily due to a stronger U.S. dollar and also higher zinc TCs that have been very beneficial to our smelting side.
Costs are about 1% up, SEK 48 million. That's a couple of things in there, inflation, a bit more maintenance than last year, and also an increased production. If we move over to Q4 compared to Q3, there are two things that have a big impact here. That's basically the lower level of maintenance shutdowns in smelting and the grades in mines. We're slightly up EBIT-wise. In total, we have a SEK 300 million positive impact from less maintenance stop. About SEK 250 of that shows up in the volume line here. That is, however, offset by lower grades in mines. Relatively small movements in prices and terms. Most metal prices up, the exception being nickel, all in all, a slight positive impact compared to Q3. Costs just over SEK 100 million higher than in Q3.
We typically talk about SEK 150 million seasonal effect between Q3 and Q4, as Q3 is impacted by holiday periods. The increase is slightly lower this year. The reason to that is that we had higher maintenance costs in Q3. Full year, we record an EBIT excluding process inventory of SEK 7 billion, SEK 8.8 billion investments, which Mikael talked about. That translates into a free cash flow of SEK 635. The explanation to the lower cash flow is primarily then, of course, the lower earnings and the higher CapEx. There is some effect, but not as big in working capital. We finished last year on almost critically low levels of working capital. This year we finished on pretty much normalized working capital levels. Looking at the development of the profit full year, we're roughly SEK 2 billion lower this year. Again, the main reason to that is lower grades.
The SEK two and a half billion negative volume impact here is fully explained by lower grades, primarily in Aitik, but also in a couple of the other mines. That offsets each other. One thing that I would like to highlight is that we have almost SEK 1 billion worth higher mill production in mines 2019 to 2018. That is offset by big maintenance years in smelting and slightly lower free metals. Nevertheless, a good development of mill production in mines. Prices are SEK 1.3 billion up year-on-year. That's primarily a stronger U.S. dollar, stronger precious metals. At the other hand, we've seen lower copper and zinc prices. This price change has been very beneficial to smelting, while mines is roughly flat year-on-year. You'll find that in the bridges by business areas.
Cost increases, roughly 4% up. Inflation we feel is at around 1% level, we've had a production increase, and as I said, 2019 was also a year of heavy maintenance. Moving over to cash flow. We released 1.7 billion SEK from working capital in the quarter. So with that, working capital is now normalized, and you can see that the cash flow from working capital is better in Q4 this year than Q4 last year, and above all, better than Q3. We're ahead of the CapEx plans, which translate into a high CapEx number, SEK 3.3. We also had slightly higher taxes paid. We talked about that in the last quarter, that came in as expected, that translates to a free cash flow of SEK 822, which is clearly lower than last year, the best quarter this year. That translates into a strong balance sheet.
We've got a gearing of 13% if we count the financial debt only. If we add the net reclamation debt, we're up to 18.4%. Financing is robust, 1.1% average interest rate and three point four loan duration. We feel that we have a strong financing and a strong balance sheet. So with that, Mikael.
Thank you, Håkan. Let me just summarize this by taking two areas of, I think, interest to you. Let's see if this one works. The dividend, just to remind everybody about our dividend policy, we have one third payout ratio. We have hit that number more or less exact as you can, when you divide 21 by three you get seven. We have the discussion about the extra dividends that we've had in the previous two years. When we add up the gearing that we have and add up the net reclamation debt, and also take into consideration the dividend that we are proclaiming regarding the ordinary dividend, we are ending up, I think, around 23% gearing, which is higher than the 20% threshold that we usually have for giving extra dividend.
Therefore, the board and I were quite in agreement as we discussed this late last night, around the fact that this is not a time for extra dividends. That will come when the balance sheet is stronger, and we're sticking exactly to the policy that we have announced. Going forward, well, Aitik is now ready and going, and we're aiming up to get to 45 million tonnes. We might not get exactly that pace in Q1. We're still a little bit behind on the Aitik side, and we're still waiting for getting some of the trucking capacity in that we need. Basically we are there. On the grade side, we will continue to see similar grades in Q1 as we saw in Q4.
We're still in slightly lower grade areas than we would like to be, as we come into Q2 and forward, we should be able to get back into also the pushback number six, which are giving us the higher grades that we have not really been mining for the last quarter. In Garpenberg, we will get to 3 million tonnes this year. That is a guidance that is reiterated many times around, the grade guidance is also the same as you've seen before. In Kevitsa, we will get, as we said, to the 9.5 million pace by Q2, which means that Q1, we're not quite there yet. We're still test driving and getting the mill up to speed. The grades will also be lower there in Q1.
For the whole year, they will be slightly below reserve, as we said before, but they will be lower than that in Q1, as we are also there in parts of pushback number three with relatively low grades that we need to come through before we get into the better grade areas. In Tara, we've had a breakdown of a conveyor from the crusher number five. The crusher number five is the main workhorse of the Tara system. Somewhere between 70% and 80% of the ore comes through crusher number five. This is a kilometer-and-a-half long conveyor that takes the ore up from the lower crusher number five, which is almost 1,000 meters below surface. That one broke down, and when these kind of conveyors break down, you also get the rock falling backwards into the system. So we've had quite a lot of work to clean up this.
We only got 23% normal ore, we've also stopped the concentrator during this time. We built some ore. We're starting the concentrator I think, actually today. We hope that we have the conveyor online again early next week. The mill is going on the small ore that has come up. We're losing 16 days of production in Tara because of this. Regarding maintenance, you see the numbers down there, how we're guiding for the year of about SEK 300 million of EBIT impact from maintenance stops. With that, we will open the floor for questions.
Ladies and gentlemen, that opens up our Q4 2019 results presentation, and we will start here in Stockholm. The first one out is Oskar Lindström, Danske Bank, please.
Yes, good morning. I'll start off with a question around CapEx. Do you have any guidance for CapEx for 2020? How does the higher CapEx than guided for in the Q4 here of 2019, does that impact your CapEx for 2020?
As you will have read and will have seen, we have not said anything about CapEx guidance. That of course means that in lack of any other information, the old information that we gave last quarter still stands. What happens here and what we are working on right now is that, of course, we've done certain things that were supposed to be done in 2020, in 2019. That will lower the number. But as we also start producing at the new higher pace, we will also need to do more stripping and so on. There is a plus and minus in this, but as lack of any other information, the SEK 7 still stands.
Just to understand, the previous guidance did not include more stripping due to higher production levels?
No, the previous guidance was based upon that we were going to reach the higher production only in the end of the year.
Now we're reaching the higher production already in Q2. That will require more stripping.
Right. Just a second question, if I may, a little bit on the Tara conveyor. When was the breakdown and what caused it?
There was really-
Are we sure it's going to be back in production again?
Well, what do you call it in English? The conveyor belt ripped apart, which happens now and then in conveyors, and if you're unlucky, you get more severe consequences like we got this time. It happened, I think, January 29 or something like that. Of course, once it happens, you don't know exactly what the consequence is. As we've been working with it, there were more consequences than we thought. We didn't think that it was going to be 16 days originally. Now the best estimate is it's going to take 16 days, which is, I think, starting up again on Monday.
All right. Will it have any impact on your grades?
It should not have impact.
Are there any big costs related to the cleanup other than the lost production?
No, there should not be lots of costs. There will be some costs. There should not have any impact on the grades. It's basically a loss of production, because, as you know, in Tara, the mine is a bottleneck. In Tara, we can have a stoppage in the mill, and we can catch up, but we cannot have a stoppage in the mine and catch up.
All right. Thank you, Al.
All right, thanks for that. Just to follow up on the CapEx side, I'm a little bit puzzled here. When you had the guidance previously, it was quite late in the year, right? We were in late October, you still guided for around SEK 8 billion. You should also probably have some contingency in your CapEx, you say that you blame the FX, for example, in stripping, how come you didn't know anything about that so late in the year?
Well, some of those smaller numbers, of course, we knew about, but when the numbers are small enough, you don't guide around them. The big part of that was actually things that were decided afterwards.
You don't have any contingency, say, 10% to 15% in your CapEx numbers?
No, we have very much a tendency of delivering CapEx on time and on budget. Now we're ahead of budget, and I think that regarding Kevitsa, you know that we have guided previously for what the total cost is, both around trucks and around everything else, and we have not guided today for any overruns. It's just previous timing. Of course, you can argue then, no, we don't have any contingencies for doing things faster.
Okay, do you have any contingency for the guidance for 2020, then?
I don't know exactly what you mean, Christian. We have contingencies in all our numbers when we do things.
Yeah.
On average, those contingencies are actually used. On average, that's why we typically come in on budget, because we use the contingencies that we have in there. We don't have contingencies just hanging around. We have contingencies that make sure that the operations have the right kind of ambition to be able to land on time and on budget.
Okay. On the maintenance CapEx that you guide for 2020, SEK 300 million, right? This should be a low maintenance year.
Yeah.
If you go back, that was SEK 200 million last time around. What is the reason for this quite material increase? Well, I'm not sure that you can compare year on year in that sense, but you're right that the average maintenance cost has increased. We have expanded a number of the smelters, added process steps, added capacity. That means that over time, the effect of the maintenance top has increased. One further thing is that the bigger part of the maintenance top is actually a lost production, the effect of lost production. With higher prices, you also get a higher impact in EBIT.
Yeah, okay, makes sense. Can you say over time, through the cycle or anything, about what is the maintenance level per year on average for the next two, three years?
I think that's very difficult to say. I think it's difficult to give something better than looking backwards and doing an average out of that.
Okay. Then for Aitik, you guide for still lower, or I will say remaining, that the low grade should remain also for Q1, right? Does that mean that you expect grades to be higher than the zero point two five then for the remainder of the year?
Yes. Otherwise, you won't get a 25 average.
The communication with regards to that previously has not been that clear. That's good. Finally, on the dividend side, I'm a little bit puzzled to be honest here. You are so strong balance sheet, and you are also now below 20%, even if you include the reclamation. So now you include the dividend also in the net debt to, or in the gearing, which supposed to be paid out in April, right? You should have some positive cash flows until then.
Yeah.
Can you just explain how you can arrive at this conclusion?
Well, I think you're always explaining yourself. Of course, we take the decided ordinary dividend into account when we look at this. If you look historically, that's also what we've done roughly coming into what amount of dividend we could give. I don't think it's any change. We have a very strict, and of course, not just strict, we have a very clear policy that we've been adhering to.
Previously, if you have arrived below the gearing target, also including below gearing target 20%, then you have been previously very clear that you will pay out an extra dividend.
I think what we have done, at least over the last years when this has been on the table, is that we've looked at the balance sheet year-end. We've added the effect of the normal dividend, the ordinary dividend. If it's still below 20%, then it has been considered an extra dividend. This year, I think when you add back the ordinary dividend, we're up to around 24%, including the reclamation debt. That means that there isn't, according to our policy, room for an extra dividend this year.
Okay. Thank you very much.
Gustav Sjödin, Handelsbanken.
Thank you, Olof. On the Aitik volume ramp up now for 2020, just to clarify a few things. I think your run rate now is slightly below what was at least indicated at the Capital Markets Day last year. If we get the normal seasonality effect in Q1, we have to assume quite hefty increases in production. Just to clarify, should we see this as total volume for 2020, or is it more of a run rate sort of thing for this year?
Total volume.
Very clear. Thank you. Secondly, on Tara, I think we saw stable now zinc grades for the first time in a while. Any help on how we should view that in the short term? Is it the reserve grade that is the best estimate?
Yes. Great. Thank you.
Ola Södermark, Kepler Cheuvreux.
Yes. Good morning, Ola Södermark, Kepler Cheuvreux. Can you talk a little bit about stripping? It was SEK 200 million effect from increased stripping in the quarter, and it was due to planned higher production at Kevitsa. Is it level that is going to continue?
No
be capitalized?
The SEK 200 that we showed is not really due to planned higher level in Kevitsa. The SEK 200 that we showed is due to higher costs for stripping. The higher cost, some part is due to the increased diesel tax that we got because diesel is usually used for stripping much more than is used for the actual ore transport. Part of it is due to that, but the larger part is actually due to simple cost overruns on stripping, which had to do with problems that we had both in Aitik and in Kevitsa on the new pushbacks and getting through the top layers of the topsoil removal. It's more of a cost overrun.
Actually, the extra stripping that we've done in Q4 to be able to get going in Q2 with a higher level, that's actually included in that first SEK 500 million that you saw on the first top. The SEK 200 million is actually more of a cost overrun.
It's more one-off or.
We think it's more of a one-off. Of course, this has puzzled us a little bit. What should make it more of a one-off is that this topsoil removal that has caused all the problems, we're actually through that for these two pushbacks, more or less. It should be more of a one-off. We're also trying to get a little bit deeper into exactly what the cost has been and why we have not achieved the productivity, which is the other side of the same coin in the stripping as we would have liked to see.
If you take 200 times four, it's a meaningful number.
It is a meaningful number. Some of that is a little bit of adjustment of previous quarters, but it is a meaningful number. Yes.
Yes. Thank you. It would be great if you could explain a little bit of your view of the coronavirus impact on metal markets and concentrate markets and what happens when concentrates are directed from China, and what kind of dynamics and implication we can see for you.
I can say the main thing that we're seeing has nothing to do with any physical flows or any reality. It is due to speculation in the markets when people start speculating that China will have a one or two or three percentage point lower growth, they will also have lower demand on copper, which means the copper price goes down. Especially when you have a copper price that is above the cost curve numbers, there is a headroom downwards, if you want to say so, that happens. In terms of real impact, we have not really seen anything yet that concentrate that was heading for Chinese smelters for some reason could not go to China. That we have not seen yet. If that were to happen, well, I think we will see, of course, much higher copper TC, especially.
But we haven't seen any of those kind of physical changes yet.
Thank you.
Robert Hedin, Carnegie.
Yeah.
Hi, Robert from Carnegie. Two questions, if I may. On Aitik, you talked about the grades being lower at the start of the year and higher at the end of the year. If they end the year above zero point two five, how should we think about going into 2021? Should we expect Aitik grades above reserve grade average?
We haven't guided for that yet because we are not that far in our planning, but I think it's prudent not to think that they're going to be above the average. The prudent way is to think it's going to be on average, and everybody knows that we're heading generally downwards. We will also be below reserve grade average for a couple of years going forward.
Okay. Right. Just bookkeeping this SEK 100 million cost in Finland related to the strikes. How was that on mines and smelters?
It's three units, and it's fairly close to a third at each unit, so two-thirds in smelters for the Harjavalta and Kokkola units, and one-third in mines for the Kevitsa mine.
Perfect. Thanks. Any more questions from the audience in Stockholm? Viktor Trolstén, Danske Bank, please.
Hi, good morning.
Morning.
Firstly on the Finnish strikes, please. Could you elaborate a bit on what's happening there and maybe potentially also how that could impact cost going forward with higher salaries and so forth?
We do have a collective bargaining agreement for two years, so 25 months now in place for the blue collar. The salary increase of that was 3.3% over that 25-month period, which is one point six or so per year. But then there were other time working hour adjustments. What our saying is that the cost of that is roughly 2% per year increase. We don't have it signed yet, but we basically have a white collar agreement in place since earlier this week. That is on very similar levels. That's the lower white collar union. The higher white collar union, we still haven't really signed, but let's assume it's going to be the same. The strikes should hopefully be over. We do still have one issue, which is not really us, but electricians in Finland are striking.
It has more to do with union fighting with each other about who gets to sign the collective bargaining agreement and not really about salaries.
Okay, brilliant. Also just a second one on cost in Aitik going into 2020. I have looked at previous transcripts that you have been talking about significantly lower costs in 2020 due to higher volumes and so forth. What are your expectations on costs now going forward?
We're not going to guide a specific number, but of course, as we ramp up to a higher production volume, the idea is to get clear cost benefits from that.
Okay. Yeah. Thank you.
Operator, that opens up for questions from the web, please.
Thank you. The first question from web is from Conor Rowley from Credit Suisse. Your line is open now, Mr. Rowley.
Hi there. Thank you. I just have one question on Tara Deep. You've done a lot of exploration on it this year, and you've seen some increase to your resource. What's the schedule now for the next couple of years in terms of more exploration on that project? Is it more fine-tuning, or are you still trying to work out what the size of the project is? I'm just sort of looking and based on, let's say, today's run rates of production at Tara, that Tara Deep looks a mine life of about 10 to 12 years. I mean, is that enough or do we need to see more exploration success before that project is viable?
We definitely, I will put it this way, we're not working to get it from inferred to indicated, so we're not working on more dense drilling. We're working to still figure out how big it is. As I said, it's open basically in every direction. We still have hopes that this 22 is just a start. It's going to be much more. As we hopefully towards Q3 this year, we'll come into position with the drift so that we can start underground drilling and get more cost-efficient drilling going on. We can speed this up and get it more. But as I said, it is not at all defined yet.
Coming to the other part of your question, what if it were to stay exactly where it is today, the 22 million tonnes, which is, I suppose more like eight years of production, will be mined or not? We don't really know because we haven't done any mine planning. Yes, theoretically, a lower tonnage could be used as an extension of the existing mine and mined through the existing infrastructure. Relatively cheap, low CapEx, but high OpEx because of long underground transportation. Our ambition is not to do that. Our ambition is to see that we can get this one big enough to motivate new infrastructure to get down the OpEx in Tara. We're timing this in the sense that we want to push it out as far as possible, but we don't want to close the Tara mine and then restart it again.
Right now, as you saw, we got another year, or almost another year in the old Tara Mine that now has a life of mine up until 2027. With that in place, we say that we probably need to make a decision somewhere 2023, 2024 regarding a Tara Deep, not to lose time. If we're successful with exploration in the old Tara Mine, that could maybe potentially also be pushed even further out, because as anybody that has done with mines knows that the more you know geologically before you start putting in the CapEx, the better it is.
We want to make sure that we avoid a situation like we have in Kristineberg, where we today have a very unfavorable infrastructure, because at no single individual time in the last 30 years has it been possible to motivate a major CapEx into investments, into infrastructure or into new shafts. But had we known what we know today, in 1990, we would have done a major investment and we would have lowered the total OpEx, and we would have had much higher NPV. That's the fact of life that you cannot make those decisions on speculation. In Tara Deep, we have the ambition to make as much drilling as possible before making a decision.
Great. Thank you.
The next question is from Alain Gabriel, Morgan Stanley. Your line is open now, Mr. Gabriel.
Yes. Good morning, gents. Two questions from my side. Firstly, on the Tara, the old mine, given the recurring operating issues there, should we think that the operations there is undercapitalized and by extension is the CapEx guidance for 2020 and beyond a bit too complacent around that mine? That's one. Two is on the resource update that we have seen this morning. It has been a meaningful cut to your Aitik resource base, almost 26%. Do you mind shedding a bit more color or light on the reasons behind that meaningful drop in resources? Thank you.
Yes. Regarding Tara old mine, Tara is an old mine, and Tara does have old infrastructure. That is true because it has not motivated lots of big investment for a long time. We do not see that we have a major problem that we will have to redo major things in Tara, and that Tara with maintenance and other OpEx will be able to remain throughout this kind of useful life for 7 or 8 years without any major investments. Regarding the resource update, you're absolutely right. We're having a cut in the Tara and the Aitik resources. As you know, Aitik has a very flat grade profile. That means that wherever you put your cutoff, there's lots of volume both below and above that.
In Aitik, if you start looking at those years far out, where we have most of those low grades, and you see they are not even in the present mine plan, they are above beyond that. There are areas that we could not make economically viable with a higher cost. This is partially due to the diesel tax that has come in, which makes mining more expensive, and partially due to a general update of cost estimates for that part. In terms of value for Aitik, this should not be a big issue because these were marginal tonne s.
Thank you.
Our next question is from Liam Fitzpatrick, Deutsche Bank. Your line is open.
Hi, thank you. First question on just coming back to CapEx. It was only last year when there were fairly big concerns in the market around your go-forward investment levels. With the update today, that seems to be creeping back into the story. Do you anticipate being able to give us an update on 2020 CapEx guidance within the relative near term, say with the Q1 or Q2 results? And when should we expect an update on 2021 guidance? Secondly, on Aitik, can you just run us through why you didn't hit the 45-million ton run rate by the end of 2019, when you expect to hit it in 2020, and based on the 45-million ton random guidance for this year, does that imply that ultimately you think Aitik can operate above that 45 million ton on a steady state basis? Thank you.
If I start with the second one, there is, as you know, a seasonality in Aitik that has to do with winter and summer. Yes, we did not hit it in Q4. The pace is partially because we had winter, partially because some of the investment that was needed, including the pebble crusher, were only commissioned very late in Q4. For Q1, with normal winter conditions, you could argue that even if we have a kind of 2045 pace, we would not have a 45 divided by four number for Q1. We're likely to have winter this year as well. Regarding whether we think we can go beyond 45, well, we have an environmental permit for 45, so we cannot go beyond that without a new permit.
New permit or permit revision is up for grab at 2023 anyway. Of course, we're thinking about whether to apply for a bigger permit or a new permit with bigger numbers or not. That we will come back to over time. It's not yet decided. If we move back to the CapEx for 2020 and 2021, it is clearly our ambition to come back in Q1 about 2020, and 2021 in Q3.
Okay. Thank you.
Next question is from Luke Nelson, JPMorgan.
Yes, morning. Just to follow up on the CapEx this year. Can you give an indication of how much stripping is budgeted now in the SEK 7 billion guidance? If you can break out the SEK denomination versus EUR/USD denominated CapEx. My second question is on Tara. Is it possible to quantify the EBIT impact from that 16-day shutdown, potentially between the volume effect and also any additional maintenance? Thank you.
If we start with the Tara, I think it's fair to just assume that we've lost 16 day production. You can see what that does on revenues. You save some costs on electricity, but maybe you have some higher costs on maintenance while you're down. Let's assume that's a fair way. You can do the numbers yourselves. Regarding CapEx and stripping, we have guided that four and a half out of the seven is mine sustaining. That is including stripping, underground developments, dam raises, and so on. Out of that, Håkan, how much is stripping, roughly?
Well, the SEK four and a half is replacement CapEx, so including replacement investments. Stripping is about SEK 1.7 if you talk about the two open pit mines, SEK 1.7 billion.
Yes. The currency mixture totally for us is roughly, say, 50/50 EUR/SEK, just to give a rough number. This of course varies with the projects done over time. There's a little bit of dollars involved as well, but that's not so much.
Okay, great. Thank you.
Next question is from Amos Fletcher from Barclays. Your line is open now.
Good morning, gentlemen. A couple of questions. I guess first question on Aitik. I guess I wanted to ask you, three months ago, you were guiding for 0.25% over the next five quarters. Does that still effectively stand, including the fact we've had zero point two two in Q4, sounds like that might continue in Q1?
I want to remind you that we do have a plus/minus 10% margin of error anytime we say anything about grades on a quarter. Over time, we tend to be much more exact, even though we've kind of gone up and down between quarters. I think we guided for 25 in the beginning of 2019, and it ended up to be 25. Now we're guiding for 25, and it's very hard that it's end up going 25, but we know that the next quarter is going to be below.
Okay. A quick question on the 2020 CapEx numbers. If we're not getting a half billion reduction in 2020 from the extra CapEx on accelerating Kevitsa and Boliden area, doesn't that just mean there's an overrun on those projects?
No, because number one, when you start operating a mine, you will need to do more stripping all the time when you're operating at a higher level. That's especially true for a mine like Kevitsa that has a five to one stripping ratio. If you assume that we're going to get 2 million tons, now this is for three quarters, so it's 1.5 million tons, and you take a stripping ratio of five, it's basically 7.5 million ongoing tons of stripping that you need to do to be able to do that, just production-wise. Just because you're getting in earlier.
It's not as easy as just taking out the half billion, but there are other things that comes in and out because of this, and therefore we have decided that the number that we have put in there historically is a number that you can work around, and we'll come back with more details.
Okay. Just finally, I wanted to ask, I suppose the question for Håkan. You said cost inflation running about 1% last year. What's your sort of broad expectation for 2020, please?
Well, we are roughly at the same level. It's around 1% or possibly even slightly less where we stand right now, and that's basically what we see going forward as well.
That's for non-labor, and.
Yeah
As you said, in Finland is basically at 2%. There are big labor negotiations coming up in Sweden at the end of March. Before that, it's difficult to tell.
So.
Okay. Thank you very much.
Ladies and gentlemen, a short announcement for the participants in the conference call. If you would like to ask a question, please press zero one on your telephone keypad. If you would like to ask a question, please press zero one. We have one more question from Daniel Major from UBS. Your line is now open.
Hi, thanks. First question, just to set the record on the number of questions asked on CapEx. Your changes you've, I guess, identified in terms of higher stripping, et cetera, I know you've indicated that some of those could be one-off in nature. Can you give us a reminder on your long-run sustaining CapEx? I guess looking at ongoing project approvals and improvements, is it realistic to think that CapEx will always sit above that long run sustaining CapEx level?
Okay.
Well, long run sustaining CapEx, we have only guided for this year at SEK four and a half, right?
Yes.
We haven't really done the long run, but you can assume that one is similar or will go up slightly as we are increasing production in several areas that will increase the sustaining level slightly. You can say then the rest, seven minus four and a half, that's two and a half. That's things that are not sustaining CapEx. That's something that we have to do either because of expansion or environmental something else. Number one on that is that even if we were to do no more expansions, there will be something in that category anyway. It's not going to go down to zero because of environmental issues or other, but it will be like, of course, much less.
The other thing is that we tend to believe that the part that we want to do is to find investment opportunities that do give us value added. We want to make sure that the number is big rather than small. Hopefully, if we are successful in doing what we want to do and find growth projects, and you know about the Tara Deep, even though it's a couple of years out, and there are other opportunities on the mining side, and as I always point out, basically every smelter has some kind of extension projects in the back of our minds. Hopefully, we will keep on having a high investment and CapEx number, but of course, it needs to be followed up by very clear statements around that they make value or add value.
Okay. Just to push on that slightly. Would that be fair to assume then a sort of SEK 6 billion-SEK 8 billion CapEx run rate is sort of appropriate, say, over the next five years?
I will not really answer that because some of these are very much one-off. Will we decide to make some expansions or not? That we will tell you once we make the decisions.
Okay, thanks. The second question on the smelting business, granted it's not the easiest business to model, but if we look into this year, 2020, you've got about a SEK 450 million delta on lower maintenance. You've also, I guess, coming towards the end of completing just over SEK 3 billion, SEK 3.5 billion of CapEx that I'm assuming will generate a return that will come through the earnings line. Is there any other factors we should be thinking about in terms of modeling that organic growth or the growth number in earnings from smelting into 2020 beyond the delta in maintenance?
You got the maintenance side and you got the CapEx side, and then of course, prices and terms. I think that would be the main points.
We do have some growth coming through in Harjavalta on the copper side, right?
Yeah.
In line with the-
With the CapEx guidance.
in line with the CapEx guidance that we have for the one. It's not just the same business.
No.
Okay. We have your sensitivities for the inputs, FX, TCs, and prices and the like. We should be thinking you add the delta and the maintenance plus some organic upside through the volume growth and other margin as this consequence of the CapEx. Is that a fair assumption?
I think it is, yes.
Excellent. Thank you very much.
At the moment, we do not have any further questions from the conference call.
Okay, ladies and gentlemen. Thank you very much for attending. Our time is out. We will be back with the next report on April 28th. Thank you very much.