Ladies and gentlemen, I'd like to welcome you to Boliden's Q1 2019 results presentation. My name is Olof Grenmark, and I'm head of investor relations. Today, we will have a results presentation led by our President and CEO, Mikael Staffas, and also our CFO, Håkan Gabrielsson. Mikael, the stage is yours. Welcome.
Thank you, Olof. Pleasure seeing you all this morning. We are today not in Stockholm as we usually are, but we are in Boliden. We are here today because we will have our annual meeting here later this afternoon. I'm right now in what is our new core archive. We have built a big new core archive to be able to handle our cores better and to be able to continue the exploration that we've done before. This is right now an empty building, and in this empty building, we have built up a stage to have our AGM in, and also a very nice exhibition.
This exhibition has been built up as part also of our continuous cooperation with the local society, and we have had over 3,000 people visiting us here during the last week as we've been preparing for this day today, which will be the final day of our event week. I'm very happy to be here. I'm very happy to talk to all of you. Let's see if we can get this one going as well. You've seen the numbers. You've seen them coming out. We had a, what I would consider, a good quarter. We've been producing according to plan. We have lower grades in our comparison, but that's nothing new. We've told you all that beforehand that that was going to happen. We have a negative free cash flow, and Håkan will talk more about details. I am personally not too worried about that.
We do have a working capital situation that goes up and down over quarters, and we should not worry too much about that. We are in a business where working capital is extremely liquid if that were to ever become a problem. So the tie-up in working capital is not something that we are overly concerned with. We do have high investment, but that is also totally in line with the plans as we have communicated to you beforehand. If you look into the market, this is, of course, something that's been prepared and looking over what happened in Q1. It is interesting days today as we've seen the copper price and other metal prices go down significantly over the last two or three days. Even without that, we can say, looking at Q1, that we did have a slowdown in industrial production.
We didn't see it in the prices during the quarter. We actually saw that copper and nickel demand was quite stable, zinc also stable, even if it was not growing during the quarter. The metal prices were up compared to Q4. Far we didn't see any kind of signs of any slowdown. In the concentrate market, what has really been the news is the change that we've seen in the zinc market, where zinc concentrates have become readily available. For us who are a net smelter, this is very good. We've seen the new benchmark coming out with significantly higher TCs than historically.
What happens in a quarter like this, Håkan will take you through numbers, is that for us, the higher TC is an immediate negative impact on our minds, but the positive impact on the smelters is a little bit slower because the way that we work through the inventories and the smelters, that we're still during Q1, we were treating quite a lot of concentrates that would have the terms and conditions as of Q4. The concentrate market for copper has been quite stable, you can say. The TCs are slightly down, but it's a relatively good situation anyway. As we said, looking at the metal prices, they were up during the quarter, they were at quite healthy levels, both for copper and especially for zinc.
Nickel price is still in our mind a little bit too low, hanging on pretty well and doing an improvement in the quarter. If you look at precious metals, they've also been holding up pretty well, especially on the gold side. Silver is down a little bit, so is lead. When we look at where we are, I'm coming back a little bit to how we look at our price levels in general, you can see here that both zinc and copper for the quarter were pretty significantly above the cost curves, which is always indicates there's a downside risk in case something were to happen. Whereas nickel is right down in the cost curve, we see a very low downside potential of the nickel price, rather an upside potential.
When we now look at this all together, also mix in the exchange rates that we have, you can see here that we've had probably one of the best quarters ever, we're on this index that we have combined at around 140, which is a very healthy level for us. Of course, we're helped by the exchange rates that have been helping us through the quarter, the increased metal prices as such. If we go over and look into how the operations have been and look into the mines first, what we said already is that the grades are down. This should be no news to anybody. We have been guiding pretty clear that that were to happen and expect it to happen. Now it happened in Aitik it happened in Tara, it happened in Kevitsa.
It happened in three of our big mines. However, we've been good at production. Production throughput is generally on a good level. Garpenberg even put a record with the highest throughput ever, and the Tara production stability has increased from previous quarters. If you look at that, what that spells into, you can see on this one pretty clear that the throughput levels, especially in zinc, but also I would say in copper, are pretty good. In nickel, they were a little bit down because in Kevitsa we've had some issues in keeping the throughput on a very level that we would like to have.
In total, you can also see the metals are not doing quite as well because of the lower grades as had been well guided for. If we go to the smelters, which is probably the very nice thing to talk about this quarter, as our smelters have had quite a good run. The prices and terms have been helping, and this is despite the fact that the full TC effect of zinc has not come through yet. We've had stable production. We didn't have any big maintenance stops in the quarter, and thus we've been having good results going through altogether and thus also seen a good result. If you look at in terms of production, yes, you can see that copper is slightly down compared to previous quarter, but very much in line with the typical Q1 as of last year.
Zinc, you can see it's quite strong throughput, especially on the feed side, but also metal production has been quite stable there. In terms of nickel and nickel in matte, we had a record production in Harjavalta, which is also, of course, helping us as that is a quite strong market as of right now. If we look into the financials, I would like to invite you, Håkan, you'll take us through that.
Thank you, Mikael. Good morning. As you've seen, we reported an EBIT excluding process inventories of just above SEK 2 billion. It is a good number, and it's the third consecutive quarter that we're roughly at that level. Just going to get the slide as well. CapEx is SEK 1.6 billion. We repeat the guidance of close to SEK 8 billion for the full year, this number is in line with that guidance, and the key projects are on track. Free cash flow is negative SEK -300. I'll come back to that in a minute. Net debt to equity is stable at 6%. Looking at the profit comparing Q1 to Q1 of last year, we have SEK 676 million lower profit. The main reason to that is grades. You can see here on this slide, just above SEK 500 negative volume impact.
The impact of grades is actually higher than that. It's roughly SEK 900, and then it's compensated by good throughput in the mining side. Prices and terms is a fairly limited impact. We can see the negative correlation here with the stronger dollar compensating for the lower metal prices. As Mikael indicated, the impact of new stronger zinc TCs is very limited in this quarter, as the smelting division has mainly been producing out of inventories that were sourced to last year's levels. Cost is up SEK 205 million in constant currencies. Going back one year, we have had a fairly high inflation, as we've been talking about in earlier quarters, in energy and in consumables. I think those are the main components of the change Q1 to Q1. Moving over to a sequential comparison, Q1 to Q4. As you can see, most numbers here, the deviations are smaller.
It's a slightly stronger result. Volumes are down, again due to grades compensated by good mill production and higher free metals in smelters. Prices and terms helped a lot sequentially, SEK 322 million up. In this quarter, we saw both metal prices and currencies moving in the same direction and strengthening the result. Again, the impact from new TCs is fairly limited. Depreciation is also higher than Q4, and we are mining in capital-intensive areas, and this is then primarily stripping in our open pit mines. This number is representative of what you'll see during this year. We'll have a slightly higher depreciation level. Moving over to cash flow, which is down compared to last year. We've talked about the earnings with lower grades being down compared to Q1 of last year. The CapEx is well known. It's in line with what we've been guided for.
For those of you that has been following us a while, you know that our working capital from time to time varies quite a lot. In this quarter, we're down SEK 1.5 billion compared to the end of Q4. The main part of that is the inventories. The inventory variations is a regular part in our business, I think the main thing is the timing of deliveries of concentrates. The value of one individual shipload can be up to a few hundred million SEK, of course, the timing of when we get those shipments around quarter ends has a big impact. Last quarter presentations, we talked about inventory levels being very low. We've now increased them to a more normal level, that has had a negative impact on working capital.
Additionally, we have been building some stock, quite small number in Harjavalta ahead of the upcoming maintenance shutdown. We also have a smaller negative impact of the increased prices and currencies on the working capital. Again, this is something that if you followed us a while, you see that it can swing between quarters. Q1 is typically a fairly weak quarter in cash flow. We're not concerned about that. Concluding by looking at the balance sheet, the capital structure, and the financing. It's a stable and strong balance sheet. We are at 6% gearing. We have a strong payment capacity of close to SEK 10 billion, and we still have a competitive financing with a good interest rate at 1.3%. We feel that we're in good shape. Mikael, some concluding remarks.
Thank you, Håkan. Maybe I should also point out regarding this slide that you just showed, that what has also happened after the end of the quarter is that we have prolonged our main facilities with an extra year, as you can read in the report, and thus, if you were to look at the day today, we have even better duration of our average facilities. Going forward, this is going to be very much repeating what we said before. We have no new guidance at all. Aitik will have yet lower grades than what we saw in Q1 for the coming quarters. There's nothing new around that, and the 45 million ton guiding for next year is still in place. In Garpenberg, we have no change either in guidance regarding grades or in guidance regarding the volume for next year.
In Kevitsa, it's also no change from what we said last quarter. We will have a tough year this year, where we will have low grades, even substantially lower than the average for the reserve, we're still guiding for 2021 or end of 2020, the pace of 9.5 million, for 2021, the first full year of 9.5 million pace. We do have something new, which is a negative information for those of you who have not followed the Swedish internal domestic politics. There is now a proposal to change the diesel tax for mining that's in the new budget. It is, of course, not a done deal until it's a done deal, it's very likely to go through.
That will have an annual impact on us of around SEK 120 million per year, out of which SEK 100 million is in Aitik and SEK 20 million is for the rest of the business. That would come into effect as of August 1. Of course, we wouldn't have the full effect for this year, it will be a full annualized effect coming right away. The maintenance stops are still very large for this year, as has already been guided before, we will see a big chunk of that already now in Q2, we have no change in the guidance. The same thing regarding CapEx, we still stand with the guidance for the full year of SEK 8 million. I'd like to summarize, you will recognize this slide from many times, I think it's worth repeating. We feel that we're well-positioned in this market.
We have mines and smelters. We know that that's a strength when it comes to financial stability as the price and terms do not vary absolutely the same way. We do have base metals and precious metals, where we've not streamed away any of the precious metals. They also tend to be weakly correlated and helps us to get a stability. We do have a high productivity, we have a stable production as we've proven now again in the quarter that we've had. We have a high profile on corporate responsibility. That's also nothing new. We have a long life of mine of our key mines, we're in stable jurisdictions.
We have a strong balance sheet, even despite the fact that we're going to have a sizable, or most likely I should say, as the AGM has not happened yet, but most likely we will have a sizable dividend and a share redemption program going. We still have a strong balance sheet despite that. We have several growth opportunities that we are working very systematically through. You know about them, that we're in the midst of coming through our expansions in our key mines. We are still also working, even though we don't have any specific news right now on the potential new projects that we have regarding Terrafame, regarding cobalt in Kylylahti. Generally, we are keeping exploration going. That's also something that we don't talk too much about, but we're keeping a good pace and a good progress in our exploration program.
With that, I will give the floor open to maybe to you first, Olof, who will now monitor a question and answer session.
Yes, please. Ladies and gentlemen, that opens up our Q1 2019 Q&A session. Operator, could you please go ahead with our questions, please? Thank you.
Thank you. Ladies and gentlemen, if you do have a question, please press 01 on your telephone keypad and you'll enter a queue. Once you are announced, please ask your question. The first question is from Krishan Agarwal from Citigroup. Please go ahead, your line is open.
Hi. Thanks a lot for taking my question. I have three questions, if I may. You mentioned that there is a limited impact from the higher zinc TC settlement in the first quarter. I was wondering if you can give us an idea as in how much of the volumes you have on the spot TC basis for the zinc, and then how much of the impact we should build in in our model in second quarter as in the cumulative for the first six months or just the second quarter? That's my first question.
Do you want to take that?
Yeah, okay. In the mining division, there's a full impact from day one. In the smelting divisions, we've produced roughly two-thirds of the production out of concentrate that was acquired 2018 to 2018 levels. The last third going forward, we will see the 2019 benchmarks. It's not a significant part spot. We have a strategy that Basically, most of the production is in long-term contracts and about 10% or so spot, and that is stable through these quarters.
Okay, quite clear. Second question is on the operating expenses. If I look at the number for both the mines and the smelting units, the year-on-year increase is running as close to 8%. Can you please give us a little bit of color as in, is it a kind of a cost inflation running high, or how should we see this operating expenses going forward in the rest of the 2019?
If you compare Q1 to Q1, in the earlier part of 2018, we had a quite significant inflation in energy, in consumables and so on, that we've been reporting quarter after quarter. In a comparison Q1 to Q1, you still have that fairly big number. We talked about an overall inflation of about 6%. On top of that, in this quarter, we have a slightly higher cost in our Rönnskär smelter due to higher consumption of chemicals and higher energy, that's related to an issue that will be sorted out in the upcoming maintenance stop. The main part is the inflation that we saw in the beginning of last year. Again, if you look sequentially to Q4, the inflation has come down significantly. We see a much more normalized level there now.
Finally on working capital. Second quarter is seasonally a quarter where you see a reversal of the working capital as in the release of the working capital. Do we expect a higher magnitude of release in this quarter, in the second quarter 2019, given that we had higher outflow in the first quarter? Thanks.
I didn't quite hear the question, I'll answer what I think I heard, please come back if you don't get the right answer. We have significant variations in working capital, typically towards the year-end, we end the year at quite low inventory levels, this was no exception. This was very low inventory levels at the end of the year. We've increased that to more or less normal levels at this point in time, thus the negative impact on working capital. The main part of the change is more a normalization compared to the end of the year. However, there is a small part that is a buildup in relation to maintenance stops that will happen in Q2. That, of course, will swing back.
There's no sort of structural change in that we're tying capital in increasing the inventories overall or having longer payment terms or something like that. It's purely stock balances at the end of the quarter that is the issue here.
Okay, thanks. That's quite clear. That's all from me.
Next question is from Alain Gabriel from Morgan Stanley. Please go ahead. Your line is open.
Good morning, gents. Just one question from my side is on the management changes in smelting. Clearly, you will have a new incoming management team. The smelting business, what are the priorities and what is the mandate of the new management team? Is it more pro-growth? Is it more focused on the operations and stabilize it or consolidate it where it is? What are the qualities that you look for in the new management team of the smelting division? Thank you.
I can take that one. As you all know, last week we went out that Kerstin Konradsson will leave this summer. That's of course the basis on discussions around lots of things, including the fact that she's been around for quite some time, and we were looking maybe for making sure that we have somebody that can start on a new wave of doing things. Is there going to be a very focus on something very different? No. We are a conservative company that do basically the same thing. The person spec for the person we're looking for, and we don't have a person yet, is quite similar. Somebody who is very good at operations, who can make sure that we continue the good operation, very good at developing brownfield projects so that we can extract value out of the existing operations.
Somebody who has a good strategic vision, who can handle the changes that we will see in the markets going forward. There's no big change from what it used to be.
Thank you.
Next question is from Liam Fitzpatrick from Deutsche Bank. Please go ahead. Your line is open.
Good morning. Three questions from myself. Firstly, just on Garpenberg, it was a very strong quarter in terms of throughput. Just interested to know whether you think that level would be sustainable through the rest of this year. Secondly, I just wanted to come back to working capital. What we saw last year was a seasonal build in Q1, then the entire amount unwound through the rest of the year. Based on your comments earlier, is that what we should expect, or is there an element of the build that we've seen in Q1 that won't fully unwind through the rest of the year? Finally, just on CapEx, can you remind us how much is non-SEK based and what the underlying SEK assumption is in your SEK 8 billion guidance? Thank you.
Let me start with the first one, then I'll let Håkan take the two next ones. Regarding Garpenberg, yes, it's a very strong production, and we had, in that sense, a good quarter with basically very low maintenance stops. Regarding levels, we haven't really guided for this year, so you will have to make your best efforts on that, but maybe we're not quite ready for the levels that we've seen there quite yet, as some of the investments are coming through during the year. Regarding what's important for you, what will happen in 2020 and going forward, the guidance on SEK 3 million is still standing. I'll leave to you for the other two ones.
Yeah, working capital, it's not unrealistic to expect a similar development as last year with the difference that stock levels at the end of the year were lower at the end of 2018 than at the end of 2017. They were at a very low level in the end of December. Maybe the effect will be slightly smaller. When it comes to CapEx and currencies, the exchange rate is based on the time when we announced the deals for Q3 last year. It's roughly or slightly below 50% EUR based or 50% non-SEK based.
Okay, just to clarify, it was based on a SEK assumption of around nine to the dollar. Is that right?
Yes. Although, in this case, I think it was the EUR rate that was perhaps more interesting.
The euro rate. Okay. Thank you.
Next question is from Luke Nelson from JPMorgan. Please go ahead. Your line is open.
Morning. Just the sensitivity group level TCs, which you provide. Does the Q1 run rate you've given reflect the lag between mines versus smelting contracts? More generally, I know it's small, but do the sensitivities or should we adjust those sensitivities for the impact from the diesel tax or are they already reflected in that? Secondly, just a more general strategic question. A domestic European smelting peer, obviously going through restructuring at the moment. How do you see that progressing and is there any potential for you to participate in any way if assets were to become available? Thank you.
Well, I can start with the second one. Of course, we cannot really comment what happens to our dear friends in the market. I think they will answer for that for themselves. We don't really know. The second part of your questions, what if opportunities were to arise, will we be ready to look at them? Yes, we're ready to look at them. We'll see if there are any opportunities that will arise. Regarding the first one, I'll give it back to you, Håkan.
Yeah. The sensitivity analysis, it reflects the current run rates. The impact of diesel is not included in the sensitivities yet.
Okay, great. Thank you.
Next question is from Daniel Major from UBS. Please go ahead, your line is open.
Hi. Two questions. Firstly, on the grade profile, clearly quite strong grades across a number of assets in Q1. Firstly, Aitik, can you clarify whether the grade guidance of 0.25 is for the remainder of the year or average for the year, i.e., would you expect grades to dip below the 0.25 at some point during the rest of the year? Secondly, you don't provide guidance explicitly for the other assets unless I've got that wrong. Would you expect to normalize towards reserve grade at Garpenberg this year, in zinc? Or are we going to remain above that around the 4 level that you previously guided? Then at Kevitsa you noted you expect grades to go below reserve. Is that an average for the year this year or just dip below at some point? Thanks.
Thank you for the questions. Let me just step back 1 stage and say, when do we guide and what kind of precision do we have in guiding for grades? It's not an easy one. Just to be clear, we have a ±10% precision in terms of looking at grades, because it's not that easy when you're looking at it at relatively short-term. Then comes the question, how should you look at Aitik given that we were a little bit above 0.25 for Q1? Should you correct that and do the rest of the year a little bit lower? It's still within the ±10% if you take the average that the fact that we're a little bit higher in Q1. You shouldn't really change it and it's within the margin of error.
Answering the other part of your question is that, yes, you can expect that maybe at some stage during this year you will see below 0.25 as well. That is perfectly plausible. Regarding the other ones, Kevitsa, there the answer is that we have guided that we will be below reserve grades. What does that mean? It's at least 110% below, otherwise we wouldn't have said anything because it would be within the normal margin of error. That is something that we will expect throughout the year. We are in that transition between push backs number 3 and 4 when you get into relatively weak areas of the push back number 4 that has low grades, and it's going to take until the end of this year to get through that. You asked about Garpenberg is a little bit different.
There we have guided for this year at 4%. We have not yet guided for next year, with an underground mine, especially one with such a long life of mine as Garpenberg, it is not to be expected that we will go directly back to reserve grades. We will have some kind of decline around that because, of course, we're trying to get to better grades first. In an underground mine, you can a little bit better look at that. If I were to guide for anything on grades, which we haven't really done yet, we'll do that once we know more. You should not expect it to fall as drastically as down to 3.1, 3.2 quickly, there is, of course, going to be a direction towards reserve grades.
Great, thanks. Just a second question on the diesel tax. You said it's proposed. Are we assuming that this is almost certainty that it's coming in, or is there any reason why it wouldn't be introduced?
Well, if you read the Swedish newspapers, I think you will come to the conclusion that this is very high certainty that it will happen. We do have a relatively, what you call it, interesting political situation in Sweden, and the budget is not going to be a done deal until it's a done deal. It's clearly looking that this will be included.
Okay, great. Thanks a lot.
Next question is from Oskar Lindström from Danske Bank. Please go ahead, your line is open.
Yes. I have one question remaining here. It's about the inflation side. You mentioned some cost inflation in Rönnskär in the upcoming maintenance stop. What has been the size of this negative impact? Should we expect that to reverse then in Q2 or Q3?
What I said was that if you look at the Q1 compared to the Q1 of last year, the vast majority is the inflation that we've been talking about, a general inflation in energy, in consumables and so on. We talked about an overall inflation rate of about 6% comparing to Q1 of last year. In addition, there is a minor part that is related to Rönnskär, which has a slightly higher consumption, not inflation, consumption of consumables right now, and that will be corrected in the maintenance stop. That's a small part.
Which in the case of Rönnskär is actually Q3.
Yeah. That is a small part. The main thing Q1 on Q1 is the inflation we've been talking about over the last quarters.
Just to ask again, that inflation, the sort of energy and consumables, has that slowed or stopped, or how should we view that?
It has slowed.
Difficult to understand.
It has slowed down. As long as we're looking at comparisons a year back, you will still have it in the numbers. Looking compared to Q4, we do not see any normal or abnormal inflation. It's fairly stable at this time.
We should expect that its underlying cost inflation is 1%-2% or?
Yes.
All right. Wonderful. Thank you very much.
Next question is from Jonas Gonsalves from Handelsbanken. Please go ahead, your line's open.
Yes. Hi, everyone. I have two questions. First one is back to the higher TCs for zinc. You were very clear that they had a negative impact on the mining division here in Q1. Is it possible for you to give any quantification on this impact? Then how should we see this effect more for the full year or next running 12 months? We have the sensitivity tables, which is very helpful, but what should we think about the magnitude in higher TCs? Is the global benchmark a good proxy here, or what would you suggest? Thanks.
I can say yes, the global benchmark is a very good proxy. We use the benchmark for our internal trade, which is the majority of our zinc sales from the mine division goes internally. We use benchmark.
Okay. The first part of the question here, what sort of negative impact did you see on the mining side, everything else equal?
I think you have it in the report, the negative impact that we see in each comparison period in mines. The sensitivities are valid on a 12-month basis. It's just that this transition that we get to the impact at slightly different speeds in our two divisions in Q1.
Yeah, in the comparison quarter-over-quarter or year-over-year, that's for the full group. I'm sort of after the isolated impact on the mining division on higher zinc TCs.
Okay. If you look at the EBIT bridge that we do for mines, you will see that we have a negative impact compared to Q1 of last year of SEK 77 million. That is, of course, across all metals. You got the numbers in there.
Okay. Yeah, I see it now. Okay, thanks for that.
It is zinc that is varying. Copper is very stable.
That's very helpful. Thank you. I also have a question on Aitik and how the new crusher is progressing. Looks to be very good given the volumes you are presenting. How should we think about the unit cost here, what you have seen in Q1 and more on a 12-month rolling basis? Is the unit cost coming down here in Aitik, so it has a material impact also on the mining division, or could you elaborate on that one, please?
It will be different to elaborate that in detail. I can answer first that the crusher is working fine. We don't see that the crusher is now a capacity limitation. We have moved the bottleneck to other places in the production chain in Aitik, which was the point. Is the question, what will happen to maintenance costs around this and unit cost? Let us come back to that over time as we're getting some more stability around that situation. Of course, it should help downwards. The question is by how much.
Okay. Thank you.
Next question is from Ole Slorer from Capital Sugar. Please go ahead. Your line is open.
Yes, good morning. Sorry for coming back to questions about the working capital. You're indicating that you are going to release some over the coming quarters. Is it possible to quantify how much working capital you are going to release if you assume stable prices and a normal level?
Okay. Just to try to put some numbers to it then. If you take the full amount of roughly SEK 1.5 billion negative in the quarter, out of that, I would describe 50% as normal variations in inventory levels and timing of deliveries and so on. The starting point at the end of the quarter was very low inventory levels, and we're not necessarily wanting to go back to that because that was on the border to create some production issues. We managed to get through that position. We've normalized the inventory level. From time to time we'll be lower. Anyway, that's one part. The second half of the increase is related to roughly equal parts, one being stronger metal prices and stronger currencies that lifts the value working capital, and the other part an inventory buildup ahead of the maintenance stop.
Of course, that will be reversed for sure.
Okay. Thank you. Very helpful. You are writing in the report that you have signed a new agreement with the miners at Tara also were above 600,000 tonnes in this quarter. It was actually quite a while since you had this kind of normalized production. Can we expect to be above 600,000 tonnes throughput Tara coming quarters as well? Is it a good situation now with the workers at Tara?
We do have a collective bargaining agreement that we're very happy with. I think also that our counterparts are happy with it. We've seen improvement in the working relationships there, which have been quite good, then you see the result. We don't really guide anything more than that, but we are quite pleased with the level that we had in Q1.
Okay. Thank you.
Next question is from Amos Fletcher from Barclays. Please go ahead. Your line is open.
Yeah, morning, gentlemen. Just going back to the question on zinc TCs. If we look at the EBIT bridge for the smelting business, there was SEK 140 million uplift against Q4 from treatment charges. Can you answer how much of that was down to the new zinc contract? Is it reasonable to assume that we get roughly double that benefit quarter-on-quarter in the second quarter, given you were saying that a third of the volumes are priced on the new contract in the first quarter? Thanks.
Let's see. I'm just going to find the numbers here. Two-thirds, the main part of the changes in TCs compared to the comparisons is zinc TCs. We were actually a bit lower on copper, that's in relation fairly small amounts. The main part of what you should see in the bridges is zinc. We've taken one-third so far, you could expect two-thirds additional going forward. Do look at the sensitivities as well.
Okay, thanks. Just to follow up, I guess, with respect to energy costs, you were saying that inflation from energy is slowing down a bit, the oil price is up quite meaningfully year-to-date. Should we expect a bit of acceleration in inflation rates as we go forward through the year?
It's difficult to predict actually the inflation in oil, energy, chemicals and so on. I don't think we'll guide specifically for that going forward.
Okay. Last question just to ask, have you seen any progress with the Laver permit under the new government in Sweden?
There is no formal change of opinion, that it's still on the back burner. We hope with some of the general remarks that's been done by the new government, that it will be moved from the back burner to the front burner and that there will be some action going on. We don't have any kind of classified information above what we read in the statements that has been put out by various new ministers.
Okay. All right, cool. Thank you.
Next question is from Olivia Du from Bank of America. Please go ahead. Your line is now open.
Hi. Good morning, gentlemen. I just have two brief follow-ups to what has been discussed before. The first is that, on your grade, and now we understand that across the mines, everyone's heading towards the reserve grade, but how about the pattern of grade change over the long time? i.e., is there any potential for we to go back to higher grade areas over some period or it's more like a gradual decline down to the reserve grade?
Let me take that one. I think it's a difference clearly here between the open pits and the underground mines. If you take the open pits like Aitik, where we've been at very high grades for a while, where we're heading down, here you go in a cycle. We will go down heading towards the reserve grades, and then we will also come below the reserve grades for a while as we shift. We will then in, whatever, five, seven years, we will be shifting pushbacks there as well and come into low grades, and then we'll come up again. That's more going on a cycle. In terms of the underground mines, you don't really have a cycle.
Of course, there will be a decline because you can't beat the average in the long run, it's not that it has to go down and then come up again. There's more of a kind of slowdown towards the average, and then as you do that over time, the average will actually go down because the average of the remaining will become less as you're mining nicer parts. You might always be mining above the average of whatever is remaining. I don't know if I'm clear in my comments, I think that's that. Underground mines, a slow decline heading down, not necessarily ever coming under the average, but the average might go down. In the open pit, the average doesn't really change that much, but you will be circulating around the average also being below the average.
Okay. Thank you. The second question is, so far that we understand the crusher has been working well in Aitik, going forward, if everything goes well, when would be the earliest time that you also roll out a similar upgrade initiative at other mines continuing your Electrification Program?
First of all, crushers, hopefully we'll never have to do one of those again. That was a one-off in Aitik with a specific situation with the old crushers that did not work. However, we will, but that's a totally different thing, we've been clear about that as we're expanding the pit, we will have to do something about the in-pit crushing going forward, but that's still a few years out until we'll do something about that. That's about that. It comes to everything, what are we doing about all the other pieces on the program? The big thing for us right now is to make sure that we secure the expansions of the three big mines that we're doing, Aitik, Kevitsa and Garpenberg. As we said earlier today, there are no changes in what we've said before regarding those.
Comes your next question, okay, what about more things? Are we ready to take on the challenges of Electrification Programs and so on? There the answer is, we will tell you once we're ready to tell you. We have lots of things that we're working on in the background, nothing that we're ready to talk about today.
Okay. Thank you very much.
That was our final question for today, so I'll hand back to the speakers for any closing comments.
Well, thank you, and thank you very much all for attending. It's been a great day. I hope that you're having a great day wherever you are as well, and we will now step out and start mingling with some of the shareholders who are physically here at the AGM. Thank you very much.