Ladies and gentlemen, a warm welcome to Boliden's Q4 2019 Results Presentation. My name is Olof Grianmarck, and I am Head of Investor Relations. Today, we will have a presentation led by our President and CEO, Mikael Staffas and our CFO, Hakan Gabrielsson.
After that, we will have
a Q and 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. And now we'll go through this presentation. If you look overall on the year, you will see I'll start with the quarter, by the way, and 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 and I'll come back to talk a little bit about that in a little moment. Otherwise, production figures for the Q4 are roughly in line with what we had expected with one exception and that is that we had lower grades than we had 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 and we'll 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.
But 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. Apart from that, volumes are relatively good in the mines.
And then in the smelters, we've had a year of very big maintenance, which has also been talked about during the year. The dividend that we're proposing right now is straight according to the principles that we have, 1 third payout ratio. And then 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 and which are bigger than what's supposed you anticipated and also bigger than what has been guided for. We have been able to pull 2 big projects forward in our planning.
1 is the Kevitsa expansion where we have been able to both be quicker done with the mill and 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 9,500,000 tonnes that we had promised by the end of the year previously. That offer is very good and we feel that we've been able to adjust very well to the situation that arose. We also got an opportunity to increase the Rheinstrand mine. We got a new environmental permit quicker than we had actually anticipated for an extra 50,000 tonnes.
And we have used that as an opportunity to also partially change the mining method in the reinstrom 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 in the during the year. And then we have a few other issues that are there, which are maybe not so perfect. We have had more expenses stripping than anticipated, which has costed more money than anticipated. We've had both in Pushback IV in the Kebitsa mine, but also in the South III Pushback in Aitik. We've had more problems 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 had some currency issue as well. If we look at the market and what has happened to the market over the last quarter, you could 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.
So 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 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. And the copper is absolutely the other way around where there's not enough copper capacity around and 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 was not been much change for the base metals.
But you can also see that, of course, if you compare it to what we had last year in Q4 of 'eighteen, 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 a 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. And 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, and we are now having a zinc price that is relatively close to the 90% quartile 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. And 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 or short term speculation.
And that'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. And you can also see that the price right now is pretty much stuck on the say the 90% tile 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 booted and weighted metal price index has gone down lately.
But on the other hand, the currency is helping us still. And when you weigh these things together, yes, you can see that on lately we've had a little bit of a tip down in specialty maybe in the beginning of this year. If we move over to the mines and look where we had there, you can see compared year on year, we 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 great issue and Hakan will come back to talk around the 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 a 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 45,000,000 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 Bulin area, which of course, a smaller area, but we had a good year with good mined mill production, and we managed this year to be able to compensate from the other mines the depletion of Maurelin. Maurelin was not fully depleted. We had in the early quarter still some production from there. And that now it is fully depleted.
But as I said before, we also now have the Rheinstrum 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 2,900,000 tonnes as of now, not so much to go to the 3,000,000 tonnes that we have as a target for 2020. Kevitsa, around 7.5 We've had a relatively tough year, especially in the early 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, but we've also been now below the average for 2019. Kylllahti has had a good production year. Unfortunately, we are coming to the end of life of mine there, but you can see also that just as a point of it, we have about 500,000 tonnes of sorry, 500 tons 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 2,200,000 to 2,500,000 tonne, but the grades have gone down quite significantly from also once again grades that were pretty high, but also now for 2019 were below the long term average.
If we see if I maybe I have to do like this. No, this is stuck. Maybe somebody needs to help me. Fortunately, this doesn't seem to be much of a stuck in any direction. Maybe I can do like this is not the last one.
I will do work with a cursor. Now it worked with a cursor, it worked there. So we'll see if we can happen to the next one. Mine production in the quarter, well, 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 Gothenburg for the quarter, but the zinc production is a relatively good level. Kevitsa also 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 and R statement. We've been exploring as much as ever or actually even more than ever. We are done with the drift down to Eveliden 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 Aitikibitsa 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 in 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 4,000,000 exatons of inferred resources at very good grades. We are still very positive about Tara Deep as the exploration is slightly behind schedule because of the fact that we had to drill from surface rather than from the underground drift.
But we're still happy with what we've gotten, and Tardip is still open in basically every dimension. In Kyrolakti, we have decided to close it down. So we have also written off any remaining mineral resources that we had. Now let's see if this we got the next one. So in Aitik, we do have still 26 years life of wine as in the reserve and we have a copper grade of 0.23 right now as an average.
In the Bulin area, which is a tricky area because we're relatively short life of mine, It is very important that we get this 1 year per year upgrade. This year, we got slightly more than 1 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 resources that comes basically from further exploration at the lower levels of Kvaerneberget that we also feel good about. In Kevitsa, which is long life of mine, but also still important that we get 1 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 2,034 life of mine. You can also see the nickel grade is slightly up here, the copper grade is slightly down, but the mix is also up. In Kyllakti, we have written off whatever is left.
We have about 500,000 tonnes. We will mine out Kyllakti somewhere in the second half of the year. In Tara, we do have some increases, even though it's not fully 1 year per year in the old mine, but we also have higher grades at 6 rather than 5.7 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, also good zinc TCs helping here and also the dollar is helping.
And here 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 finished 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 Oda. For the full year, well, the full year was very much marked by the very big maintenance stops that we've had earlier in the year, especially in Rundsen that's at 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 relatively good speaking.
But 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 Oda has a record annual production as well. And the Kokkola, although it's slightly less than the year before, is also having a good production year. And Baixunau 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 number 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, slightly lower than previous year. On the zinc side, where things are going relatively well and the production record in Oda, 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 Hakan to go through and you can talk about the financials.
Thank you. So let's see. This did it works. Good morning. As you've seen, we reported an EBIT excluding process inventory of SEK 1 point 7,000,000,000 in the quarter.
We have mined, as Mikael indicated, in lower grade areas than expected in Aitik. And I will come back to grades in the peer to peer 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 SEK800 1,000,000. I'll come back to that as well. Looking segment by segment, Mines had an EBIT of SEK 890,000,000 down because of grades.
Smelters is up compared to last year due to stronger prices and terms, primarily zinc and dollars and also a bit up compared to last year to last quarter Q3. We have had less maintenance, but we also had an impact of the strike in Q4. Looking year on year, quarter 4 this year compared to quarter 4 last year, we're SEK 300,000,000 down. The impact of lower grades was about SEK 700,000,000 quarter to quarter. Out of that, about half of that was in Aitik.
In addition and those SEK 700,000,000 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 100,000,000 negative. We have slightly lower free metals in smelting, but 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 dollar and also higher zinc TCs that have been very beneficial to our smelting side.
Costs are about 1% up, SEK48 1,000,000. That's a couple of things in there, inflation, a bit more maintenance or a bit sorry, a bit more maintenance than last year and also an increased production. If we then 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 looking at the volume.
In total, we have a $300,000,000 positive impact from less maintenance stop, about SEK250 1,000,000 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, but all in all, a slight positive impact compared to Q3. Costs, just over SEK100 1,000,000 higher than in Q3. We typically talk about SEK150 1,000,000 SEK150 1,000,000 seasonal effect between Q3 and Q4 as Q3 is impacted by holiday periods.
The increase is slightly lower this year, and the reason for that is that we had higher maintenance costs in Q3. Full year, we record an EBIT excluding process inventory of SEK7 1,000,000,000, SEK8.8 billion investments, which Michael talked about, and that translates into a free cash flow of SEK635,000,000. 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.
And this year, we finished on pretty much normalized working capital levels. Looking at the development of the profit full year, we're roughly SEK 2,000,000,000 lower this year. And again, the main reason to that is lower grades. The SEK 2,500,000,000 negative volume impact here is fully explained by lower grades, primarily in Aitik, but also in a couple of the other mines. There are a few other areas that also impacts the volumes, but that offsets each other.
And one thing that I would like to highlight is that we have almost SEK1 1,000,000,000 worth higher mill production in mines 2019 to 2018. That is offset by a big maintenance years in smelting and slightly lower free metals, but nevertheless a good development of mill production in mines. Prices are SEK1.3 billion up year on year. That's primarily a stronger dollar, stronger precious metals. And 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, but then 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 SEK1.7 billion 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 translates into a high CapEx number, SEK3.3 billion. We also had slightly higher taxes paid.
We talked about that in the last quarter, and that came in as expected. And that translates to a free cash flow of 8.22 percent, which is clearly lower than last year, but the best quarter this year. And 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 3.4% loan duration. So we feel that we have a strong financing and a strong balance sheet. So with that, Mikael?
Thank you, Hakan. Let me then just summarize this by taking to 2 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 1 third payout ratio. We have hit that number more or less as exact as you can.
When you divide 21 by 3, you get 7. Then we have the discussion about the extra dividends that we've had in the previous 2 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. And 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 45,000,000 tonnes.
We might not get exactly that pace in Q1. We're still a little bit behind on the Aitik side. We're still waiting for getting some of the trucking capacity in that we need, but 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.
But as we come into Q2 and forward, we should be able to get back into also the pushback number 6, which are giving us the higher grades that we have not really been mining for the last quarter. In Garpenberg, we will get to 3,000,000 tonnes this year. A guidance that is reiterated many times around and the grade guidance is also the same as you've seen before. In Kevitsa, we will get, as we said, through the €9,500,000 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 3 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 5. The crusher number 5 is the main workhorse of the Tara system. Somewhere between 70% 80% of the ore comes through crusher number 5.
This is a kilometer and a half long conveyor that takes you up the ore up from the lower crusher number 5, 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 because we only got 23 thirds of 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. So the mill is going on the kind of small ore that has come up. We're losing 16 days of production in Tara because of this.
And regarding maintenance, you see the numbers down there, how we're guiding for the year of about SEK 300,000,000 of EBIT impact from maintenance stops. With that, we will open the floor for questions.
Ladies and gentlemen, that opens up our Q4 twenty nineteen results presentation. And we will start here in Stockholm. And the first one out is Oskar Lindstrom, Danske Bank, please.
Yes. Good morning. I'll start off with a question around CapEx. And do you have any guidance for CapEx for 2020? And how does the higher CapEx then 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 2020 in 2019 that will lower the number. But as we also start producing out of the new at the new higher pace, we will also need to do more stripping and so on. So there is a plus and minus in this, but as lack of any other information, the 7% still stands.
So 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. And 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? And really are we sure it's going to be back in production again?
Well, it was a what you called 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 you it happens, you don't know exactly what the consequence is. And 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 or It
should not have impact.
Are there any big sort of costs related to the cleanup?
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. Hannuk?
Yes, sir. Fernando?
All right. Thanks for that. Just Just to follow-up on the CapEx side because I'm a little bit puzzled here because when you had the guidance previously, it was quite late in the year, right? We were late October, and you're still guiding for around SEK 8,000,000,000. So you should and you should also probably have some contingency in your CapEx.
And you say that you blame the FX, for example, in stripping. But how come you didn't know anything about that so late in the year?
Some of those smaller numbers, of course, we knew about, but when the numbers are small enough, you don't guide around them. But the big part of that was actually things that were decided afterwards.
And you don't have any contingency, say, 10% to 15% in your CapEx numbers or
We have very much a tendency of delivering CapEx on time and on budget. And 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 a previous timing. And of course, you can argue then, no, we don't have any contingencies for doing things faster.
Okay. But do you have any contingency for the guidance for 2020 then?
I don't know exactly what you mean, Kristian. We have contingencies in all our numbers when we do things. On average, those contingencies are actually used. So 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.
So 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 top effect that you guide for 2020, SEK 300,000,000, right? So this should be a low maintenance year. But if you go back, that was SEK200 1,000,000 last time around. So 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. And that means that over time, the effect of the maintenance stop has increased. And then one further thing is that the bigger part of the maintenance stop is actually lost production, the effect of lost production. And with higher prices, you also get a higher impact in EBIT.
Okay, makes sense. So can you say over time through the cycle or anything about what is the maintenance level per year on average for the next 2, 3 years?
I think that's very difficult to say. I think it's difficult to get something better than looking backwards and doing an average out of that.
Okay.
And then for Aitik, you got 4 still lower or say remaining that the low grade should remain also for Q1, right? And does that mean that you expect grades to be higher than the 0.25% then for the remainder of the year?
Yes. Otherwise, you won't get the 25% average.
Yes. But the communication with regards to that previously has not been that clear. Okay. But that's good. Okay.
And then finally on the dividend side, I'm a little bit puzzled to be honest here because you have so strong balance sheet and you are also now below 20% even if you include the reclamation. And previously, you had not so now you include the dividend also in the net debt to or in the gearing in which supposed to be paid out in April, right? But then you should have some positive cash flows until then. So can you just explain how you can arrive at this conclusion?
I think you're always explaining yourself. Now of course, we take the decided ordinary dividend into account when we look at this. And if you look historically, that's also what we've done roughly coming into what amount of dividend we could give. So I don't think it's any change. We have a very strict and actually strict, we have a very clear policy that we've been adhering to.
But previously, if you have arrived below the gearing target, also including say, below gearing target 20% than 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. And 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. And that means that there isn't, according to our policy, room for an extra dividend this year.
Okay. Thank you very much.
Gustaf Schurin, Anders Banken.
Thank you, Rob. Firstly, 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? And if we get the normal sort of seasonality effect in Q1, we have to assume quite hefty increases in production. Should just to clarify, I mean, should we see this as total volumes for 2020?
Or is it more of a run rate sort of thing for this year? Total volume. Very clear. Thank you. Then 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 sort of reserve grade that is the best estimate?
Yes.
Great. Thank you.
Ole Sodermaier, Kepler Cheuvreux.
Yes. Good morning. Ole Sodermaier, Kepler Cheuvreux. Can you talk a little bit about stripping? It was SEK 200,000,000 effect from increased stripping in the quarter.
And this it was due to planned higher production at Kevitsa. Is it the level that is going to continue there to be capitalized?
The SEK
200,000,000 that we showed is not really due to planned higher level in Kevits. The NOK 200,000,000 that we showed is due to higher costs for stripping. And the higher cost has 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. So part of this is 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 players to the topsoil removal. So 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 CHF 500,000,000 that you saw on the first top. So the CHF 200,000,000 is actually more of a cost overrun.
So it's more one off or
It's we think it's more of a one off, but 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 with these 2 pushbacks more or less. So it should be more of a one off. But 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.
Because if you take 200 times 4, it's a meaningful number.
It is. It is a meaningful number. Now some of that is a little bit of adjustment of previous quarters, but it is a meaningful number, yes.
Yes. Thank you. And it would be great if you could kind of explain a little bit of your view of the coronavirus impact on metal markets and concentrate markets? And what happens with when concentrates are directed from China? And what kind of dynamics and the implication we can see here?
I mean, 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 the 1 or 2 or 3 percentage point lower growth, then they will also have lower demand of copper, which means the copper price goes down. And 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, and then 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 then I think we will see of course, much higher copper TCs especially. But we haven't seen any of those kind of physical changes yet.
Thank you. Robert Jardine, Carnegie.
Hi. Robert from Carnegie. Two questions, if I may. On Aitik, you talked about rates being lower at the start of the year and higher at the end of the year. So if we end the year above 0.25, how should we think about going into 2021?
Should we expect ITTIG rates 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. That's the prudent way to think is going to be on average. And you know, everybody knows that we're heading generally downwards. I mean we will also be below reserve rate average for a couple of years going forward.
Okay, right. And just bookkeeping, this SEK 100,000,000 cost in Finland related to the strikes, how did that sort of how was that on mines and smelters?
It's 3 units, and it's fairly close to onethree of each unit. So twothree in smelters for the Hayavalta and Kokkola units and 1 third in mines for the Kevitsa mine.
Perfect. Thanks.
Any more questions from the audience in Stockholm? Victor Trollstien, the Nord Stream Bank, please.
Hi, good morning. So firstly, on the finished rights, please. Could you elaborate a bit on what's happening there? And maybe potentially also how that could impact costs going forward with higher salaries and so forth?
We do have a collective bargaining agreement for 2 years, so 25 months now in place for the blue collar. The average or the salary increase of that was 3.3% over that 25 month period, which is 1.6% or so per year. But then there were other time working hour adjustments. So on our saying is that the cost of that is roughly 2% per year increase. We have since 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. So 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, but who gets to sign the collective bargaining agreement and not really about salaries.
Okay. Brilliant, brilliant. And also just a second one on cost in Aitik going into 2020. I think 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?
Well, 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. Thank you.
Operator, that opens up for questions from the web, please.
Thank you. The first question from work 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 Deeps. So 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?
And is it more fine tuning? Or are you still trying to work out what the size of the project is? Because 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 are looking I'll 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. So we still have hopes that this 2022 is just a start.
It's going to be much more. And 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, but and get it more. But as I said, it is not at all defined yet. And then coming to the other part of your question, what if it were to stay exactly where it is today, the 22,000,000 tons, which is, I suppose more like 8 years of production, will be mine or not? Well, we don't really know because we haven't done any mine planning.
But yes, theoretically, a lower tonnage could be used as an extension of the existing mine and mine it 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. How well, 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. And 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 27.
With that in place, we say that we probably need to make a decision somewhere 2023, 24 regarding Itara Deep, not to lose time. But if we're successful with exploration in the Ultera mine, that could maybe position potentially also be pushed even further out because as anybody who has done with mines knows that the more you know geologically before you start putting in any CapEx, the better it is. We want to make sure that we avoid a situation like we have in Cristina Bari 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 higher much higher NPV. But that's the fact of life that you cannot make those decision on speculation.
But in Tardive, we have the ambition to make as much drilling as possible before making decision.
Great. Thank you.
The next question is from Alan 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 our is the CapEx guidance for 2020 and beyond a bit too complacent around that mine? That's 1. And 2 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?
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 investments 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 Atara 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 tower and the Aitik resources. As you know, Aitik has a very flat grade As you know, Aitik has a very flat grade profile. That means that there are lots of wherever you put your cutoff, there's lots of volume both below and above that. And in Aitik, if you start looking at those years far out, the where we have most of those low grades, and you see they're not even in the present mine plan, they're 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 tonnes.
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. And with the update today, that seems to be creeping back into the story. So I mean, do you anticipate being able to give us an update on 2020 CapEx guidance within the relative near term, with the Q1 or Q2 results?
And when should we expect an update on 2021 guidance? And then secondly, on Aitik, can you just run us through why you didn't hit the 45,000,000 ton run rate by the end of 2019, when you expect to hit it in 2020? And based on the 45,000,000 ton per annum guidance for this year, does that imply that ultimately you think Aitik can operate above that 45,000,000 tonne 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. So yes, we did not hit it in Q4, the pace, 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 45 pace, we would not have a 45 divided by 4 number for Q1. So that is we're likely to have winter this year as well. Regarding whether we think we can go beyond EUR 45,000,000,000 well, we have an environmental permit for EUR 45,000,000 so we cannot go beyond that without a new permit.
New permit or permit revision is up for a grab at 23 anyway. And 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 then move back to the CapEx for 2020 and 2021, it is clearly our ambition to come back in Q1 about 2020 2021 in Q3.
Okay. Thank you.
Next question is from Luke Nelson, JPMorgan.
Yes, good morning. Again, just to follow-up on the CapEx this year. Can you give an indication of how much stripping is budgeted now in the €7,000,000,000 guidance? And also if you can break out the debt denomination versus euro USD denominated CapEx? And then my second question is on Tara.
Is it possible to give 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 Atara, I think it's fair to just assume that we've lost 16 day production and you can see what that does on revenues. Then you save some costs on electricity, but maybe have some higher costs on maintenance while you're down. So let's assume that's a fair way and you can do the numbers yourselves. Regarding CapEx and stripping, we have guided that 4.5 out of the 7 is mine sustaining, that is including stripping, underground developments, dam races and so on. And out of that, Hakan, how much is stripping roughly?
The SEK 4.5 billion is replacement CapEx, so including replacement investments. Stripping is about SEK 1,700,000,000 if you talk about the 2 open pit mines SEK 1,700,000,000
Yes. And the currency mixture totally for us is roughly, say, SEK 50,000,000 just to give a rough number. But this, of course, varies with the projects and 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 Itik. I guess, I wanted to ask you 3 months ago, you were asking sorry, you were guiding for 0.25% over the next 5 quarters. Does that still effectively stand including the fact we've had 0.22% in Q4 and sounds like that might continue in Q1?
I want to remind you that we do have a plusminus10 percent 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 ended up to be 25. Now we're guiding for €25,000,000 and it's very hard that it's end up going to €25,000,000 but we know that the next quarter is going to be below.
Okay. And then on a quick question on the 2020 CapEx numbers. If we're not getting €500,000,000 reduction in 2020 from the extra CapEx on accelerating Kevitsa in Boliden area, doesn't that just mean there's an overrun on those projects?
Well, no, because number 1, 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 Kevits that has a 5:one stripping ratio. So in order to if you assume that we're going to get 2 more 1,000,000 tonnes, now this is for 3 quarters, so it's 1,500,000 tonnes and you take a stripping ratio of 5, it's basically €7,500,000 kind of ongoing tonnes of stripping that you need to do to be able to do that just production wise, just because you're getting in earlier. So it's not as easy as just taking out the €500,000,000 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. And then just finally, I wanted to ask, I suppose, a question for Hakan. 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 labor, 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.
Okay. Thank you very much.
Ladies and gentlemen, 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, etcetera, 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?
And I guess looking at ongoing projects approvals and improvements, is it realistic to think that CapEx will always sit above that long run sustaining CapEx level?
Well, as you said, long run sustaining CapEx, that's well, we have only guided for this year at 4 point 5, right?
Yes.
We haven't really done the long run, but you can assume that, that one is similar or will go up slightly as we are increasing production in several areas that will increase the sustaining level slightly. And then you can say then the rest, 7 minuteus 4.5, that's 2.5, 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 1 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 0 because of environmental issues or other, But it will be like, of course, much less.
But the other thing is that we tend to believe that we the part that we want to do is to find investment opportunities that do give us value added. So we want to make sure that the number is big rather than small. And hopefully, if we are successful in doing what we want to do and find growth projects, and you know about the Tardip even though it's a couple of years out, and there are other opportunities on the mining side. And so I was pointed out, basically, every smelter has some kind of extension projects in the back of our mines. 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. So just pushing that slightly. So would that be fair to assume then a sort of €6,000,000,000 to €8,000,000,000 CapEx run rate is sort of appropriate, say, over the next 5 years?
I will not really answer that because some of these are much one off. Will we decide to make some expansions or not? And that we will tell you once we make the decisions.
Okay. And then 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 €450,000,000 delta on lower maintenance. You've also, I guess, coming towards the end of completing just over €3,000,000,000 3,500,000,000 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?
We got the maintenance side and you got the CapEx side and then, of course, prices and terms. I think that would be the main point.
But we do have some growth coming through in Harjavalta on the copper side, right?
Yes. In
line with the CapEx guidance.
In line
with the CapEx guidance that we have for the 1. So it's not just the same business.
Okay. So we have your sensitivities for the inputs, FX, TCs and prices and the like. So we should be thinking you add the delta in the maintenance plus some organic upside through that the volume growth and other margin as a 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 28. Thank you very much.