2019 Results Presentation. My name is Olof Gjernmark, and I'm Head of Investor Relations. Today, we will have a presentation led by our President and CEO, Mikael Staffas and our CFO, Hakan Gabrielsson. Mikael, the stage is yours.
Thank you, Olof, and good morning to all of you who are listening out there. I would like to go through this presentation this morning, and what I will summarize is actually a relatively strong performance in the Q2, and I'll come back a little bit to that, even though we have had some issues and we are foreseeing some issues in our Smelter division over the next quarter as well. So to summarize this, the projects, if we start there and if we start with all the investments we're doing, we have reported to that the projects are all basically on plan and on budget, and we had a relatively high CapEx number in the Q2, but it's all in line with the guidance that we've been giving. We've also had and I'll just mention this upfront, we won't come back to that, but some of you probably already read in the back. We have a strong safety development right now, and we're in a good position.
We are reporting our best ever LTI frequency as bullion as a company, and we Boliden as a company, and we also just can reaffirm that we have not had any environmental incidents whatsoever during this quarter. In mines, the production has been stable. We have good volumes basically everywhere, but grades have declined, partially in line with the guidance we've been given, but also some of that is more difficult to look at. But in general, this has been a stable situation, especially in the Swedish mines. In the Smelters, we have had big maintenance stops as was guided for especially in Harjavalta.
These maintenance stops ended up becoming more expensive and took a little bit longer than we thought. And as I'll come back to a little bit later, that's also going to spill in over to Q3. We also have a one off in this quarter, EUR139 1,000,000 of future reclamation in Rundsjell. As you know, we normally don't have provisions for reclamation in our smelters as these are eternal operations that will go on forever, but these are certain areas that are going to be have to be reclaimed around 10 years from now and we're therefore putting it in the reserve at this time. If you look over to the market, and we'll come to the prices in a while.
We can always read the prices, and we know that we can sell everything that we produce at the market prices. But when we look into the market, we are seeing a decline in the global manufacturing. And that's, of course, directly influencing our customers and thus indirectly us, although we'd really see any challenge. And this is especially the automotive sector that has been hit by this, which, of course, is mainly for us a zinc issue. We see a flat global zinc demand, which is a little bit different from years previously where there was always a growth in the zinc demand and especially as automotive that has reduced demand that's playing into this.
We will say that this is probably more of a cyclical thing and not anything that's long term going to affect the demand for zinc, but at least that's what we're seeing right now. We have a solid or stable global copper demand growth, and we see a solid global demand in nickel growth as well, even though there's been some more nickel supply coming out of Indonesia and China. On the concentrate market, it's a bit of a different situation. On the zinc side, there are very high TCs, both in the benchmark terms and also in the spot terms that are coming to us. Whereas on the copper side, even though the benchmark is not affecting for us, since we have 12 months benchmarks, we can see that the spot benchmark or the spot price or spot TC for copper has come down significantly in the last couple of months.
When we look into the price, and here you see both the price, but you also see the inventories, you can see that prices have held up relatively well. There's not a big movement in prices during the quarter. You can also see both on zinc, but especially on nickel, how the official inventories are coming down, which we see as a good thing for the development of the prices going forward. And this is probably one of the reasons why the prices are holding up relatively well despite the weakness in demand as we saw before. On the other hand, on the precious metals, especially gold, have been holding up very well in this time period.
And you can see here that the gold price has gone up, and that's, of course, also helping us. When you look at this graph that we show almost every quarter and when we look at the prices relative to the cost curve, the first thing that you see in looking at this is zinc, where you can see that the cost curves have come up significantly. And what is behind this, of course, the increased zinc TCs that is a cost item for the miners. But we also have lower silver prices over some time that is also affecting this cost to go up, and we're also seeing some pure cost increases. And as you can see, there's suddenly relatively strong basis for the zinc prices that were maybe previously a couple of quarters back seem to be very high.
On the copper side, as you can see, it's relatively stable development of cost in the global market, and the prices are holding up well. On nickel, it is still the situation, at least as shown here, that you see the nickel price is down into the cost curves. We've, of course, seen recently just over the last week or so that nickel prices are heading up again and maybe this is a the lower inventories are helping up the nickel price into levels that is more sustainable long term than what we've seen in the last years. When we add all this and also add up the fact that we do have a favorable situation with our currencies, you can see that we are totally in a good level in terms of the market situation. All in all, when you put into that, even though the metal prices are more back onto the average level of about 100 on our own internal index.
Looking into the mines by just stopping on this picture first. Here you see the first Komatsu truck that we have taken out of a total of 26 in our investment program that we're doing into both Kevitsa and Aitik. You know that out of this 26, roughly onethree is a replacement, roughly onethree is needed for the expansions that we're doing and roughly onethree is due to insour since that we're going to do especially in Kevitsa. This project in itself is moving also on time. And as you see here, this is the delivery that we had a few weeks back of the first truck into Kevitsa.
When you look into the mines, generally, you can say first once again that the projects are on plan and we'll come back to that as we guide later, but both in Garpenberg, Aitik and in Kevitsa, the products are moving on as we have planned. We have generally stable production, especially in the Swedish mines, but we have the lower grades. And then we have the lower metal prices and the higher zinc TCs that is really pushing down for lower prices and terms in the mining division. If you look at the production in total, you can see that copper is holding up relatively well. But on zinc, you see that the lower grades are really affecting.
You see that the throughput is very high. 1 of the top levels that we had also on the copper side, the throughput is relatively good, but the grades are coming down on zinc. And on nickel, you see that the step down, which is both a throughput issue in Kevitsa. As you know, we're in a kind of repositioning for the expansion that's coming in the years to come. But also, we had low grades as we had guided for.
We had low especially low nickel grades in Kevitsa in the quarter. There's one item that doesn't affect the P and L that we've done what we're putting in here and it's affecting the balance sheet. We have a reclamation cost increase in Kevitsa of EUR 56 €1,000,000 that is coming into the balance sheet and that will affect the depreciations going forward. And this is partially planned because partially it is that we're taking new land in use that we haven't used before and that you need to put the provisions in place. But it's also due to the fact that we have done a new plan for the decommissioning of Kevitsa that involves more landfill masses that we need to have.
And as you get them, they also become proportionately more expensive because there will be more longer trucking distance at the decommissioning stage. We're taking decommissioning very seriously, and we've gone through Aitik last year and Akivitsa, which are the 2 big mines. And I think that we are now in a situation where we have reserves in our balance sheet, which are very well reflecting of what the actual cost will be. And as I've said before and as we talked about when we had the discussion about the dividends and extra dividends, it is very important that we do have the right number in our balance sheet with regards to decommissioning. On the smelter side, as I said, we've had some issues on the smelter side.
The projects that we have both in Harjavalta and in Rundsjar are basically on plan, and we have improved process stability in Oda. We've had some minor services in Kokola. We're not quite there where we want to be in stability. And in Rundsjard, Rundsjard is really needing its maintenance stop, but it's coming up now in Q3. The planned maintenance in Q2 ended up at EUR 315,000,000 EBIT impact, which is about EUR 45,000,000 higher than we had guided for.
As you know, always when you do maintenance, you don't really know until you really take the furnaces offline exactly what needs to be done. And we saw that there was more needed to be done, and it took slightly longer than we had expected in Harjavalta, especially during Q2. We then have the one off SEK 139,000,000 reclamation provision in Rundshall. This is due to the fact that we're building out internal inventories, which will be somewhere in 10 years from now, a little bit more, internal inventories, which will be somewhere in 10 years from now, a little bit more, we will have to reclaim that land. And given the contamination in that land, it's a relatively expensive issue, and we have put that into the balance sheet.
But as this has nothing to do with future production, it comes straight to the P and L at stage. For the smelters, the price and terms are actually pretty good with the good FX effect and the high zinc TCs are helping out even though the metal prices are slightly lower. Talking about these maintenance stops. In Q2, as I said, we had EUR 45,000,000 Swedish krona extra compared to what we had guided, that the maintenance stop 2 days longer than we had anticipated, and there were more things that needed to be done in the different parts. For Q3, we are now guiding up EUR 150,000,000 compared to what we guided for last quarter.
We've had some disturbances in the nickel electric furnace in Harjavalta, and we need to take that one down or it is down for repair. That's estimated to be out for about 4 weeks. The copper line is not affected by this. And I think it's important to point out that the big maintenance stop in Q2 in Hialeah was the copper line. We did not have the nickel line.
So it's nothing that has to do with that the maintenance was done poorly in Q2 that we now redo. It is extra maintenance that had come up that we did not think would be necessary. We also have some capacity constraints in Rundsjar up until we can do the stop in September as planned, which means that we will lose some volume. It is the anode furnace that is not having full capacity, and it will not get that until we have stopped for maintenance. And that was also a little bit unfortunate.
We thought that it will be able to run at full capacity oil until the scheduled maintenance stop in September. So all in all, this means that we will have SEK 675,000,000 EBIT impact of the maintenance stops in Smelters for the year. This is a very high level, especially compared to last year, although last year was a very low year and we knew already started the year that this will be a high year. As you know, we work on a cycle and every 4th year is a big year. This is one of those every 4th year, although it's not bigger than we had anticipated from the beginning.
I don't think there's any reason to why this should become a higher norm going forward. I think that there's been more some more one offs this year. And as you know, when we look back, we've been very good at predicting normally our impact from our maintenance tops. The smelter production on copper is, of course, severely down. As I said, the copper line was down in Aitik sorry, down in Haya Valta for the maintenance stop that really affected.
There were also some process disturbances in Rundshall. Zinc production is relatively fine. Some disturbances in Kolkola, but on the other hand, we had record production in Oda, a little bit offsetting each other. And the nickel line had a good production. It had some maintenance stops that was affecting the nickel line in Harjavalta, but it produced well according to plans in the quarter.
Financials, Hakan, will you take us through the financials, please?
So, good morning. As you have seen, we have presented a result today with an EBIT, excluding process inventories, of SEK1.6 billion. Excluding then the one off costs that Michael just talked about, this means that we're CHF280 1,000,000 down from Q1 and that is basically due to lower grades and maintenance stops. CapEx, dollars 2,100,000,000 We're happy that all the projects are on plan. That also means that the numbers are on plan, and we're heading for the full year guidance of just below SEK 8,000,000,000 for 2019.
Net debt to equity increased to 14%. We shifted out SEK 3,500,000,000 to shareholders during the quarter in the form of dividends and redemption, and that is to get back to our targeted capital structure. If we then go into some more detail about comparing quarter to quarter and beginning with Q2 compared to Q2 of last year, you can see that we have SEK 700,000,000 down. Prices and terms had a fairly limited impact on the results this quarter. Metal prices are down, but that was compensated by stronger currencies.
In addition, we have better zinc TCs and we have higher prices on byproducts, for example, sulfuric acid, leading up to a positive impact of SEK100 1,000,000. Volumes on the other hand are down SEK607 1,000,000. Grades in mines explain a bit more than €600,000,000 in total. We have lower grades in Tara. We had some stability issues that left the grades a bit lower than expected in Q2.
And as we've guided before, we have lower grades in Kevitsa and Aitik as well. Maintenance stops and disturbances on the smelting side added another negative SEK 250,000,000 to the result compared to last year. But that was then compensated by positive deviations of about SEK250,000,000, for example, in the form of a good inventory result, stronger mill production in mines and higher recoveries. Going further down in this slide, you see that the costs increased by SEK 73,000,000 compared to last year. And that, I think is a good number.
The SEK73 1,000,000 is entirely connected to the maintenance stops and the process disturbances we've had in smelters. We're basically talking Gronkher and Harjavalta. The remaining units are flat or even down on costs. So as we said, the cost control in the underlying business is strong. Continuing then with the comparison of Q2 to Q1 this year sequentially.
As I said earlier on, excluding the one off items, we are SEK280 1,000,000 down. The maintenance stops explains SEK 300,000,000. You can see those numbers are a part of the volume here and part of the cost. Then we had an additional SEK 300,000,000 down due to grades, which was then again compensated by better inventory results, better recoveries and better mill production. Prices helped us with SEK 100,000,000.
And so basically, on this slide, you see the same underlying reasons and almost identical bullets. So, we are talking about grades and maintenance in principle. Moving on to cash flow, stronger than Q1 of course, but down from last year due to a lower EBITDA and higher CapEx levels. We released some working capital, roughly SEK 500,000,000 and cash flow from investment was SEK 2,100,000,000 and we also slightly higher tax payments in this quarter. As you may have seen on the balance sheet, we still have about SEK 400,000,000 short term tax liabilities.
So we will catch up on the tax payments also a bit during the second half of the year. Corresponding to 14% net debt to equity ratio. If you add back the net reclamation reserve to make it comparable to our financial targets, that means another SEK 2,000,000,000 and a ratio of 19%, which is then in line with our balance sheet targets. We also talked about in the report briefly that we issued SEK 750,000,000 of bonds in the quarter. It was a high interest from the market, and we're happy with that process.
We ended up with a 5 year bond and a 1.45% interest margin. That bond issue also lifts the loan duration to 3.9 years. We have slightly longer average loan duration at this time. Average interest rate still very competitive at 1.2 percent and net payment capacity after the dividend payments of SEK7.2 billion, which is where we want to be at this time in the business cycle. We also added an EBIT sensitivity breakdown by business area.
We normally report this as a group total in the quarterly report every quarter. But every now and then, we publish a breakdown by business area to make the modeling a bit easier. I'm not going to comment this further today, but you see, we've got it in the pack here. With that, Mikael, would you like to conclude?
Then I will conclude and also talk a little bit about going forward where there's also not much change. The guiding for Aitik is the same as we said before. It's 45,000,000 tons next year and the grade for the rest for this year is about 0.25. And I'm sure I'm going to get the question is that for the whole year or for the rest of the year, and I'm going to say that you can calculate where you want to within the plusminus10% margin of error. Garpenberg, we're also sticking to the guidance of 4% and 3,000,000 tons milled volume next year.
Kevitsa, we are also saying that for the rest of this year, we will be below the reserve grades in terms of grades, but the project for the 9,500,000 tonne pace in the end of next year, meaning in reality that we will have full speed by 2021 is very much on track. In Tara, we had the rock stability issues in Q2, which meant that we had to go to lower grade stopes to keep the volumes up and the volumes have been pretty good as you can see. Some of this will spill over into Q3 as well, but we at least plan to be back on to work on our normal stopes, which means that we're back on grade point average even before the end of the Q3. The Swedish diesel tax is not new. We talked about it before.
We will have an increased annualized cost of EUR 120,000,000 due to this starting from August 1. And then the maintenance, you had a separate slide on that before around how that will work out. And the CapEx guidance is unchanged at close to SEK 8,000,000,000. With that, just a reminder that if I've said something that I'm not supposed to say, then I haven't said it. And with that, I think we will open up for questions.
Ladies and gentlemen, that opens up our Q2 2019 Q and A session. Operator, we're ready for questions, please.
Thank And our first question comes from the line of Krishnan Agarwal from Citigroup. Please go ahead. Your line is now open.
Hi, thanks a lot for taking my question. My question is basically on the smelting cost. The number you have given in the report is implying close to 15% year on year increase in the Q2 2019. And if I were to look at the first half twenty nineteen number, the year on year increase is running somewhere between 10%. So can you comment as in what is driving this significant increase versus the last year?
And then if second quarter run rate is a better reflection for the Q3 and the Q4? And should we assume that kind of an increase to sustain for the rest of the year? Second question on, I mean, the Mike has touched upon a little bit on that, on copper TC that you have 12 month benchmark contract settlement, but there has been a recent talk about one of the competitors settling lower TC settlement with the Chinese smelters. So I mean that's sort of a 20% decline versus the 2019 benchmark. Is that something we should factor in for the next year estimates?
Or what's your thoughts around that? Thanks a lot.
I can start with your second question and then I'll leave the costs over to Hakan. Regarding the copper TCs, you're making the right comment. We have annualized copper benchmark, which means that we are not affected by the recent developments. And as you pointed out, there has been lower settlements for the 6 month TCs. Of course, this is in some way an indication that the TCs might be heading south as we're coming into the annual negotiations in the fall.
But of course, lots of things may happen between now and the fall. So I think it's too early to tell exactly where they will come out. So that will be my comment regarding that.
Yes. And looking at the cost for smelting, if you exclude the currency movements and so on, I look at the cost that we have reported in the EBIT bridges. The increases that you see compared to Q2 last year and also to Q1 is entirely connected to maintenance. It's the actual maintenance cost that we've seen in Harjavalta. And it's also what Michael talked about that we are in need of maintenance in Ronnhofar.
So we have slightly higher consumption of consumables up until then, which is then mid Q3. So the cost increases that you do see is connected to maintenance. And having said that, that means that I don't expect any such increases in Q4 and going forward. We see an inflation rate right now, which is quite low, let's say, 1% or something in that vicinity. And in addition, we have been able to take actions to reduce costs to compensate that.
So underlying, we feel that we're in a very good position cost wise.
Okay. Thanks a lot.
Thank you. Our next question comes from the line of Liam Fitzpatrick from Deutsche Bank. Please go ahead. Your line is now open.
Good morning, everyone. Three questions from me. First 2 on the smelters. Firstly, on the TCs, I was surprised at how low the TC profit uplift was in Q2 given what the zinc TC did. I think you said for Q1 that only reflected 1 month of the new TC terms for zinc.
So if you could just give us a bit of color on that point. Secondly, on the smelters, do you have a feel for maintenance levels in 2020? Should we see a material drop versus where we are for 2019? And third and final question on CapEx. Do you have any more sort of guidance on what sort of figure or range we could be looking at for 2020?
Thank you.
I'll start from the back again, and I'll leave to Joakka towards the end. Regarding the CapEx 2020, we do not have a guidance. We don't have anything to say other than what we said at the Capital Markets Day. And at the Capital Markets Day, we said that unless we come with some new grade projects, you should see a significant decline for 2020. We have not yet this year announced any major CapEx project, but the year is not over yet.
And thus, we do not have a CapEx guidance. Regarding smelter maintenance, yes, you should see a significant drop till next year even though we don't have the details. And that is, as I said before, we do have a cycle where basically every second year is a high maintenance and every second year is a low maintenance year. And out of those high maintenance years, every second of those is higher than the other one. And next year should be a low maintenance year.
So compared to this year, it should be significantly lower exactly where we will come back to. Regarding the zinc TCs and impact, Hakan?
Yes. We have compared to Q1, we have an impact of about SEK100 1,000,000 in total for smelters. That is, of course, a combination of all the metals that we have. So there is a larger impact there on zinc. But then it is a function of the amount of spot sales, etcetera, during the quarter.
So all in all, we're landing at 92.
Sorry, Hakan. If I could just follow-up briefly on that point. I mean in your own presentation, Paik, you give the sensitivity for a 10% move in TCs. And so the TC terms went up 67%. So I still can't square why the TC uplift was as small as it was.
Well, firstly, there was as you said, there were some parts of it that were already in the Q1 numbers. And then we've also had negative impacts during the quarter of a couple of the other metals that brings down the average.
Okay. Thank you.
Thank you. Our next question comes from the line of Daniel Major from UBS. Please go ahead. Your line is now open.
Hi, there. First question for me on Tara. In the past, you've had rock instability issues, seems to be sort of recurring theme. Can you make any comments about the sort of changes in the ore body as you're moving deeper and whether this is sort of more of a recurring issue? And then the second question on Tara.
I mean, if I run spot zinc price, the asset looks reasonably marginal. And given the potential growth in supply and zinc, if prices were to move lower, it certainly looks it's not impossible for the asset to become free cash flow negative. Can you give us an indication where the current cash flow breakeven of Tara is in terms of zinc pricing? That's the first question. Thanks.
Okay. I can start with that. Regarding the rock instability that as you pointed out, we've seen that throughout the times. And of course, as we get lower and get into deeper levels that it becomes, say, an issue that is more prevalent. And that I can't say that it's going to happen much more going forward, but it is an issue that we will always have there.
But I'll also make the point that these highs we have not lost any stopes. The rock stability is just that we have delayed mining of them, and we have gone to reserve stopes at lower grades instead. So that's just to point out that we should still have the same reserve average because of this. We're not losing reserve. Regarding where Tara is, of course, when you look at Tara at the normal kind of levels that we have and the lower normal kind of grades, then we do have a pretty good position and we're still pretty far away from the cash flow breakeven point in Tara.
I don't know exactly when we will publish that number, Hakan. Maybe you know exactly what the cash cost number of when we published that one, but Tara is on a relatively good position on the cash cost curve. There will be many other mines that will start sweating before Tara.
We typically come back to that in the annual report. So it's a while going forward.
Yes.
Okay. And then maybe the second question, just to push you a little bit on your comments around CapEx. I mean, I understand you don't want to give a guidance. And you're saying CapEx will go down if you don't improve any projects. I mean, can you give us any sense of whether you actually got pending projects that could be approved or any indication around that?
Are there a pipeline of projects that we're not aware of that could be approved? I mean, can you give us any more detail around that to give confidence on our estimates of CapEx for 2020?
Well, we gave some sense to it in the Capital Markets Day. Electrification is an area that we have not yet approved. We have owned a test line in Aitik, 700 meters. That's an area that could be approved. And of course, given what has happened with the diesel tax in Sweden, the economics of these investments look better, but we are not quite there from an engineering point of view to okay them yet.
So we'll come back to that. And then we also said that we have in several smelters, we have different types of debottlenecking or expansion discussions ongoing, but none of them are ready for presentation yet. So those were some of the examples that we have that we've given. We've also spoken, but that's probably not a 2020 issue. We've spoken about the Revliden extension of the Kristinverre mine as something that is also coming up.
Okay, great. So that I can interpret that as there are projects. It's just a question of timing as to when they're approved and if they fall into capital spend in 20 20 or 2021, it's kind of what we should be thinking about. Is that right?
Yes. There are things that we're working with, but we will, of course, be prudent before we approve projects that we make sure that they are very good.
Okay. Thanks a lot.
Thank you. Our next question comes from the line of Luke Nelson from JPMorgan. Please go ahead. Your line is open.
Yes, morning, guys. Apologies. I'm just going to tackle the variance of the CapEx question again. But more to do around the grade profile and the capital intensity required to maintain output at similar levels. Obviously, you do have throughput coming through at some key operations in mines, but you are also mining above reserve grades.
So is there any sort of updated expectations you can give us around the sort of medium term grade profile and potentially the sort of capital or cost that might be required to either maintain grades where they are or expectations around the sort of reduction towards reserve grade? And then second question, just a modeling question in terms of inventory levels. How are they at the end of the quarter heading into Q3?
Should I start with the inventories?
You can
start with inventories, yes.
Inventories were very low in the beginning of the year. And at this point in time, they are pretty much normal. The finished metal inventories are a bit lower than average, but that's just smaller part value wise. So for modeling, I would calculate where the normal inventory levels, both if you plan to modeling the cash flow and also if you plan to model the internal profits. So normal inventory levels.
And then if I go to your other question and talk about, if I understood it right, what kind of CapEx is needed to keep the grade profile? And I think that that's a question that I cannot answer and I will not answer and so maybe also not exactly where we look at it. We have the assets that we have. They have a grade profile. They will decline and they will for the underground mines, they will head slowly towards the average.
And for the open pits, they will circle around the average, and we spoke a lot about that before. We are investing about SEK 600,000,000 per year and something which is not even investment. It's all costed, which is our exploration. And of course, the goal of the exploration is both to find higher grades that will help us in our mines to offset the grain decline and also to find more volume. But as you know, exploration is an area where it's difficult to promise exact results.
But this far, we have been able to get good results from exploration, and that's where it comes. Then comes the question, okay, will we need to do some will we find something that's high grade that will also require some CapEx on top of that? That's way too early to tell.
Okay. Thank you.
Thank you. Our next question comes from the line of Gustaf Schwerin from Parete Securities. Please go ahead. Your line is
open. Hi, thanks for that. Three quick questions from my side. Firstly, on the throughput in Garpenberg for Q2. Now with the 1st 2 quarters of the year, I think the run rate is just over 2.8%.
I mean, there's just a reasonable number for the year. Is the throughput actually according to plan? Or are we ahead of schedule in the ramp up? Secondly, if you can give any more guidance on the sort of average grade levels in Tara for Q3? And then lastly, how you see concentration for consumables now in the coming quarters?
Thank you.
Okay. I can start with the throughput in Garpenberg and say that that's according to plan well according to plan, just to keep a good word around that. Then regarding the cost size, Johan.
I didn't quite hear the question, but just talking generally about cost. In the beginning of 'eighteen, we saw a quite significant price increase. So as if you compare to numbers older than that, then we have had inflation. But now this quarter, we've come out of that period. Overall inflation in our estimates is about 1% for purchases and then normal salary increases.
So I would describe current inflation levels as fairly low. We don't see a tremendous inflationary pressure. Also on the cost numbers that we reported today, more or less every cost increase that we have in the EBIT bridges is related to maintenance and not inflation. And then we've got actions to sort of push down the underlying costs. So I think we are in a good position.
There is good cost control, relatively low inflation and we feel confident about the cost levels.
And then I can talk about the grades and Tara and just say, we don't, of course, comment on individual quarters. The only thing I can say is the general thing that hadn't we said anything else, you would look at the grade or the reserve average. But we have said that at least in the beginning of the quarter, we have had some issues. So you will have to prudently in Q3 take that a notch down, but you should of course have a number that's higher than what we had in Q2.
Okay. Thank you.
Thank you. Our next question comes from the line of Olof Soderbergh from Kepler Cheuvreux. Please go ahead. Your line is open.
Yes, hello and good morning. Follow-up question on the smelters. Is it possible to quantify how much the higher degree of consumables and consumable cost you need at Ronca before the maintenance stop, just in order to have a a get a grasp of the underlying and earnings?
I think that we talk about roughly an extra cost in the vicinity of SEK40 1,000,000 to SEK50 1,000,000 per quarter and then we talk about a part of the 3rd quarter then. Yes.
Okay. That's great. And on Aitik, are you still on track to reach 42,000,000 tonnes at Aitik for this year?
The 42,000,000 tonnes has never been guided for. It's a number that is coming from somewhere else. We are on track for the 45,000,000 tons next year.
Okay. Thank you.
Thank you. Our next question comes from the line of Oskar Lindstrom from Danske Bank. Please go ahead. Your line is open.
Hi. So three questions from me. First off on Aitik, you're continuing to guide for 2025 for the full year. Does that I mean, should we really expect a sharp decline in H2? My second question is on cost inflation.
You say that you don't see any tremendous inflation pressure going forward and say you're quite sort of confident in the current levels. Does that include the diesel increased cost for diesel as a result of the tax? And then just my third question is on the Runcara and Kevitsa reclamation. Is that a result of a kind of any change in policy perhaps from your side? And should we expect more similar reclamation actions in other units?
Let me take some of these first. If we start in the end again with the reclamation, I think you should look at the Kevitsa one in line with the one we had in Aitik 12 months back. They are the biggest units we have. They are the ones that are going to have the biggest reclamation cost. The underground mines are so much cheaper than the surface mines.
We have now done full studies that I commissioned when I got in of these 2. And hopefully, we should not see big movements of this for a while. And you can say that before this time, the studies that we had based our reclamationals were too old and not really done up to modern standards. So that's there. So I think the answer is that you should not really expect because of that.
The one on run chart is a different story. Here, as you can say that we've had an accounting principle that we don't have any reclamation reserves in Smelters because they're going on forever. And we've also looked into here and said that regarding these specific areas and these specific places, that is not prudent because we will have to do reclamation. Even if our run share continues forever, we will have to do reclamation because they're a little bit on the kind of on the side of Rundshall even though they're on this industrial side, they're not really into the operational areas. We don't really have similar situation in other smelters even though we will look into that as well and see whether there's something else there where we have not been prudent enough in looking so that we have operations that are actually not eternal, but are actually short more short term cited.
But that should not I don't think that there are very much of them. So that's on the reclamation side. On the IT grades, it is, as I said, when I presented, it's a little bit difficult to tell. And you should know that all our guidance that we have on grades is always with a plusminus 10% to it. We will see a decline.
It will come down. We will, for the whole year, be within 25% plusminus10%, and we will be lower in Q3 and Q4 than what we were in Q2, exactly where you will have to guess yourself. Regarding the cost inflation, I can just say quickly that the diesel tax is not included in the inflation. That's a separate item that goes outside. And I don't know if you can just reiterate what kind of that that apart from that, we are confident, right?
Yes, correct. So in the inflation number, tax is not included.
All right. Thank you.
Thank you. Our next question comes from the line of Amos Fletcher from Barclays. Please go ahead. Your line is open.
Yes, good morning, gents.
One question, actually most of mine have been answered already, around your exposure to spot TCRs in copper in particular. Of the external concentrate that you purchased, can you just remind us of how much or what percentage of that is sourced on spot versus contract? Thank you.
Well, we typically say that ours that we have roughly 15%, 1% to 5% of our sourcing on spot, and that's a kind of good benchmark number to use. 85% benchmark and 50% spot. And that mix is a good mix to use, I should say.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Christian Kopfel from Nordea. Please go ahead. Your line is open.
Yes. Thanks, operator. Thanks for taking my questions. Sorry, but I cannot just let you go on the guidance for Itik. I mean, it's possible that you keep the guidance, to be honest.
I mean, if you look for 2018, you also guided for 0.25 percent and it ended up, I think, 16% above, which is really outside the plusminus10 percent for the full year. And I mean, just keeping the guidance for the sake of keeping it seems a little bit strange to me. So I mean, is this really your best guess for the full year to be at 0.25 because that means that you really expect that to and Michael, you said you can put in your numbers yourself. But what is your best guess? Is that you should come down to $0.22 $0.22 for the remainder of the year then?
We don't want to look at individual quarters because you know that there is an up and down factor of that. But there is it is clearly not going to be 0.27.
Sorry, say again, Michael, I didn't get the
No, I said we don't like to guide for individual quarters. We like to guide for longer terms. But if you look at the quarters in the fall, 34, it's not going to be 0.27, which what we've seen is going to head down. And it will be I know that the guidance last year was too conservative. I think that this year, even this far, you can say that the 27% that we have right now, that's the 10% above, And we will creep into this to be inside and closer than 10% to the average by the end of the year.
But you were guiding on specific quarters last year, I remember. You can go back in the presentation material and have a look because then you said the specific quarters will be on a specific rate. So you have been guiding on
Yes, but this year, we choose not to. And there is also a reason why we don't do this. And that's because we are a little bit in a situation right now, but we have very high grades still in the bottom of the pit. And we have quite low grades in the S3 pushback, and we have quite low grades right now in Salmiarevi. And thus, if we, for different reasons, choose to have a different mix and for all kind of reasons and without going into too much detail, we did have a problem with the ramp in Salmijarvi during Q2, which meant that we took more than we had planned from the bottom.
And so therefore, you can say that we have a little bit depleted the options in the bottom and therefore we had a 0.27. But exactly how this works out in Q3 and Q4, I will not really go into details around that. It's easier, of course, if we were to have 3 places that we're mining and they're all they're roughly the same grade, then it will be easy. But we're mining at 3 different places with 3 very different grades.
Okay. Do you expect the recovery ratio to come up? Do you expect the recovery ratio to come up in IATIC?
Yes. We expect it to come up. The lower recovery ratio is due to the S3 pushback that we're working on that has is still close to the surface and has more oxidized ore. And that is slowly coming we're slowly coming down in S3 and that should then take care of that problem.
So around 90% is a fair number, right?
Around 90% is a fair number for the targets.
Yes. Okay. And then for the full year volumes, right, you said that you have not guided for it, but you have I mean, the head of mines have really guided for it. So I mean, it was very clear that the expected 42,000,000 tonne for 2019. So I mean it has been on the Capital Markets Day and so that's official, I guess.
Yes. Well, it's a number that has been mentioned, but and we're working and
we I mean, the Head of Aitik has mentioned it. So it's not just one guy in the firm.
It's a number that has been mentioned. Yes, Christian?
You can't comment on it on, I mean?
No, but I can say that we are we did the 20 and some in the first half, right? So that's 42, we need to do 22 and a little bit less to get there. We have a kind of summer quarter and a winter quarter to reach that. And will we make that? Well, we still have a budget that says that, but can I say exactly where we're going to be?
I don't know.
Okay, fine. And then on the Gallopingberg, what is I'm sorry if I missed it, but what is driving improved grades for the remainder of the year in Galpin Bay?
No, Galpin Bay is always going up and down. And you say that you can see that we had 3 points was it 8 now in the last percent? And that's all due to scheduling of individual stopes. Here, there was not really anything else. And you can say that for different reasons, we were slightly lower grade stopes and we are heading to higher grade stopes for the end of the year.
That's why we're standing at the 4 for the average.
Okay. And then for Kiewitze, finally, you expect grades to be meaningfully higher for next year, right?
Yes. We have only guided for this year and said that they're going to be meaningfully lower than the reserve average. And then for 2020 and forward, we haven't guided anything else. So the reserve average is a good thing to go, which is, of course, lower than they were in 2018 when we had much higher than the reserve average.
Right. Okay. Thank you very much.
Thank you. And our next question comes from the line of Jantin Nagarwal from Exane BNP Paribas. Please go ahead. Your line is open.
Hi, good morning. Just a question on grades, but not on 2019 as a relief. On your comments about open pit holding around reserve grid and underground gradually moving towards it and focusing on just Aitik and Garpenberg, How long will it take for Gothenburg to get to reserve grade? Is it a 5 year time line or longer that we're looking at? And for AATIC, from 0.25 to 0.22, how long is that journey?
Is that 2 years time line? Or would you expect a switch to reserve grade? Because that's been your guidance in the absence of anything else, but is it realistic that you get 2.2 to next year? Thank you.
I will say I will answer these general in general statements without going into too much detail. But if you take an underground mine like Karpenberg that has a 35 year life of mine plan and has an average for the 35 years, of course, you will always, when you do your mine planning, look to get the higher ones before. And then you will have lower in the end. So you will kind of mine above reserve average almost all the time because what happens when you take in the better areas, then your reserve average also goes down. So in an underground mine, you tend to mine always above reserve average and then reserve average goes down unless exploration or other things can help you and get that up.
And given that we have a 35 year time horizon in Garpenberg, it's not going to go down to reserve average very fast. It will be above, but heading down, but above for quite some time. Regarding the open pits, it's a shorter time cycle. I usually say this generally that you can say we have very good grades if you go back to years 2010, 2011. Then we had a couple of years of pretty bad grades and now we've had for 2016, 2017 or May 2017, 2018, 2019, we've had good grades again.
And we will be heading down maybe the cycle in a mine like Aitik is like a 10 year cycle. So then it may say it takes about 5 years to go or 5, 6 years, maybe it's a little more than 10 year cycle. It takes 6 5, 6, 7 years to go from a good year to a bad year and then about the same time to go up again. Just to have a sense of the orders of magnitude.
Great. That's helpful. Thank you.
Thank you. And as there are no more questions registered, I now hand back to our speakers for any closing comments.
Well, thank you all. I wish you all a very good summer, and I wish you all the best, and I look forward to seeing you all again in about 3 months when we report the Q3. Thank you all.