Ladies and gentlemen, I'd like to welcome you to Boliden's Q1 2019 Results Presentation. My name is Olof Grjonmark, 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, Hakan 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 Buliden. We are here today because we will have our annual meeting here later this afternoon. And 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 course 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. And 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.
So I'm very happy to be here. I'm very happy to talk to all of you. Now 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 Hakan 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 there were to ever become a problem. So the tie up in working capital is not something that we are overly concerned with. Then we do have high investment, but that's also totally in line with the plans as we have communicated to you beforehand.
If we look into the market, this is of course something that's been prepared and looking over what happened in Q1 is of course interesting days to day as we've seen the copper price and other metal prices go down significantly over the last 2 or 3 days. But even without that, we can say looking at Q1 that we did have a slowdown in industrial production. We didn't see it in prices during the quarter. We actually saw that copper nickel demand was quite stable and zinc also stable even if it was not growing during the quarter. And the metal prices were up compared to Q4.
So, so 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, we're in that 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, and Hakan will take through the numbers is that for us, the higher TC is an immediate negative impact on our mines, but the positive impact on the smelters is a little bit slower because the way that we work through the inventories in the smelters and that we're still during Q1, we were treated 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, and 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, but 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 and so is lead. When we look at where we are and 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, of course, indicates there is a downside risk in terms 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 I look at this altogether and also mix index, the exchange rates that we have, you can see here that we've had probably one of the best quarters ever in and we're on this index that we have combined at around 140, which is a very healthy level for us.
And of course, we're helped by the exchange rates that have been helping us through the quarter and the increased metal prices as such. If we then go over and look into how the operations have done 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. And now it happened in Aitik, it happened in Tara and it happened in Kevitsa.
So they happened in 3 of our big mines. However, we've been good at production. Production throughput is generally on a good level. And Garpenberg even put a record with the highest throughput ever. And the Tara production stability has increased from previous quarters.
And 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. But 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 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 of Q1 as of last year. And zinc, you can see it's quite strong throughput, especially on the feed side, but also metal production has been quite stable there. And 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, Hakan, and he will take us through that.
Thank you, Mikael. Good morning. So as you've seen, we reported an EBIT, excluding process inventories, of just above SEK 2,000,000,000. It is a good number and it's the 3rd consecutive quarter that we are roughly at that level. I'm just going to get the slide as well.
CapEx is SEK 1,600,000,000. We repeat the guidance of close to SEK 8,000,000,000 the full year and this number is in line with that guidance and the key projects are on track. Free cash flow is negative minus SEK 300,000,000. I'll come back to that in a minute. And net debt to equity is stable at 6%.
Looking then at the profit comparing Q1 to Q1 of last year, we have SEK676,000,000 lower profit, and 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 €900,000,000 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. And as Mikael indicated, the impact of new zinc TCs, 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 SEK205 1,000,000 in constant currencies. Going back 1 year, we have had a fairly high inflation, as we've been talking about in earlier quarters, in energy and in consumables. So 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 are 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, euros 322,000,000 up.
And in this quarter, we saw both metal prices and currencies moving in the same direction and strengthening the result. And 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. And this number is representative of what you'll see during this year. We'll have a slightly higher depreciation level.
Moving then over to cash flow, which is down compared to last year. We've talked about the earnings with lower grades being slightly down compared to or being down compared to Q1 of last year. The CapEx is well known. It's in line with what we've been guided for. And 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 SEK1.5 billion compared to Q well, compared to the end of Q4. The main part of that is inventories. The inventory variations is a regular part in our business. And I think the main thing is the timing of deliveries of concentrates. The value of 1 individual shipload can be up to a few SEK 100,000,000.
And 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 and that has had a negative impact on working capital. Additionally, we have been building a slight some stock, quite small number in Harjavalta ahead of the upcoming maintenance shutdown. And we also have a smaller negative impact of the increased prices and currencies on the working capital.
But again, this is something that if you followed us a while, you see that it can swing between quarters and Q1 is typically a fairly weak quarter in cash flow. So we're not concerned about that. Concluding then 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 SEK10 1,000,000,000 and we still have a competitive financing with a good interest rate at 1.3%. So we feel that we are in good shape. So Mikael, some concluding remarks.
Thank you, Hakan. 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 to day, 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 lower yet lower grades than what we saw in Q1 for the coming quarters. There's nothing new around that. And the 45,000,000 tonne 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. And 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, but we're still guiding for 2021 or end of 2020 at the pace of €9,500,000 but for 2021 the 1st full year of €9,500,000 pace. We do have something new, which is a negative information for those of you who have not followed the Swedish internal domestic parties. 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, but it's very likely to go through.
That will have an annual impact on us of around SEK120 1,000,000 per year, out of which SEK100 1,000,000 is in Aitik and the SEK20 1,000,000 for the rest of the business. That would come into effect as of August 1. So of course, we wouldn't have the full effect for this year, but 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, and we will see a big chunk of that already now in Q2, but we have no change in the guidance. And the same thing regarding CapEx, we still stand with the guidance for the full year of 8,000,000 euros I'd like to summarize and you will recognize this slide from many times, but I think it's worth repeating.
We feel that we're well positioned in this market. We have mines in 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 and 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 and 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 share redemption program going.
We still have a strong balance sheet despite that. And we have several growth opportunities that we are working very systematically through. And you know about them that we're in the midst of coming through our expansions in our key mines. And 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 Tara Deep, regarding cobalt in Kirlakti. And generally, we are keeping exploration going.
That's also something that we don't talk too much about, but we keep a good pace and a good progress in our exploration program. With that, I will give the floor open maybe to you first, Olof, who will now monitor
a Q and A session. So operator, could you please go ahead with our questions, please? Thank you.
Thank you. So 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 3 questions, if I may. You mentioned that there is a limited impact from the higher zinc TC settlement in the Q1. So 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 our model in Q2 as in the cumulative for the 1st 6 months or just Q2? That's my first question.
Do you want to take that?
Okay. So in the mining division, there's a full impact from day 1. In the smelting divisions, we've produced roughly twothree of the production out of concentrate that was acquired 2018 to 2018 levels. And from so the last third and then going forward, we will see the 2019 benchmarks. It's not a significant part spot.
We have a strategy that we have a I mean, basically, most of the production is in long term contracts and about 10% is on 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 the kind of 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. And 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 Randghai smelter due to higher consumption of chemicals and higher energy, and that's related to an issue that will be sorted out in the upcoming maintenance stop. But the main part is the inflation that we saw in the beginning of last year.
And again, if you look sequentially to Q4, the inflation has come down significantly. So we see a much more normalized level there now.
Okay. And finally, I mean, working capital. So 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 Q2 2019, given that we had higher outflow in the Q1? Thanks.
I didn't quite hear the question, but I'll answer what I think I heard. So please come back if you don't get the right answer. We have significant variations in working capital. And typically, towards year end, we finalize the year or we end the year at quite low inventory levels. And 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 and thus the negative impact on working capital. So the main part of the change is more a normalization compared to Q 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.
But it's 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. So it's purely stock balances at the end of the quarter that is the issue here.
Okay. Thanks a lot. Quite clear. That's all from me.
And next question
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?
And what are the qualities that you look for in the new management team of the smelting division? Thank you.
Yes, 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 a making sure that we have now somebody that can start on a new way of doing things. Now is there going to be a very focus on something very different? No.
I mean, we are a conservative company to do basically the same thing. So the product or the product, sorry about that, 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. But that'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 for 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 and then the entire amounts unwound through the rest of the year. Based on your comments earlier, I mean, 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? And then finally, just on CapEx, can you remind us how much is non SEK based and what the underlying SEK assumption is in
your SEK 8,000,000,000 guidance? Thank you.
Let me start with the first one, then I'll let Hakan take the 2 next ones. Regarding Garpenberg, yes, it's a very strong production. And we had a very 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. But regarding what's important for you, what will happen in 2020 and going forward, the guidance on EUR 3,000,000 is still standing?
And then I'll leave you with that 2 ones.
Yes. 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 'eighteen than at the end of 'seventeen. They were at a very low level in the end of December. So 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 deal for Q3 last year.
And then it's roughly or slightly below 50% euro based or 50% non SEK based.
Okay. So just to clarify, it was based on a SEK assumption of around
SEK 9 to the dollar. Is that right?
Yes. Although, I mean, in this case, I think it was the euro rate that was perhaps more interesting.
The euro rate. Okay. Thank you.
And next question is from Luke Nelson from JPMorgan. Please go ahead. Your line is open.
Yes, morning. Just the sense to the group level TCEs which you provide. Just the Q2 run rate you've given sorry, the Q1 run rate you've given reflects the lag between mines versus smelting contracts. And more generally, I know it's small, but did the sensitivities or should we adjust the sensitivities for the impact from the diesel tax? Or do they already are they already reflected in that?
And then secondly, just a more general strategic question, some 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 question is 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 Hakan.
Yes. The sensitivity analysis, it reflects, I mean, the current run rates. But the diesel, the impact of diesel is not included in the sensitivities yet.
Okay, great. Thank you.
And 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 growth to dip below the 0.25 at some point during the rest of the year?
And secondly, you don't provide guidance explicitly for the other assets, unless I've got that wrong. But I mean, would you expect to normalize towards reserve grade at sorry, at Galpham Bay this year in zinc? Or are we going to remain above that around 4 level that you previously guided? And then Kevit, so 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 one stage and say, when do we guide and what kind of precision do we have in guiding for grades because it's not an easy one. And just to be clear, we have a plusminus10% precision in terms of looking at grades because it's not that easy when you're looking at relatively short term. So 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 you a little bit lower?
Well, it's still within the plusminus10% if you take the average that the fact that we're a little bit higher in Q1. So you shouldn't really change it and it's kind of within the margin of error. But 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, Kivetsa, there the answer is that we have guided that you're going to be below that we will be below reserve grades.
What does that mean then? Well, it's at least 10% below. Otherwise, we wouldn't have said anything because it will be within the kind of normal margin of error. That is something that we will expect throughout the year. We are in that transition between pushbacks number 34 when you get into relatively weak areas of the pushback number 4 that doesn't that has slow grades and it's going to take until the end of this year to get through that.
And then you asked about Garpenberg. And the Garpenberg is a little bit different. There, we have guided for this year at 4%. We have not yet guided for next year. But 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. And in an underground mine, you can a little bit better look at that. So if I were to guide for anything on grades, which we haven't really done yet, we'll do that once we know more. But anything you should not expect it to fall as drastically as down to 3.1%, 3.2% quickly, but there is, of course, going to be a direction towards reserve grades.
Great. Thanks. And then just second question on the diesel tax. You said this proposed. I mean, 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, I mean, if you read the Swedish newspapers, I think you'll come to the conclusion that this is very high certainty that it will happen. But we have 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 if it was a done deal. But it's clearly looking that it's going this will be included.
Next question is from Oskar Lindstrom from Danske Bank. Please go ahead. Your line is open.
Yes. I have one question remaining here, and it's about the inflation side. You mentioned some cost inflation in Runhar that would be fixed sort of in the upcoming maintenance stop. What has been the size of this negative impact? And should we expect that to sort of 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 consumers 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 Ronkwaer, which has a slightly higher consumption, not inflation, consumption of consumables right now. And that would be corrected in the maintenance stop. So but that's a small part.
Which in the case of Ranshui is actually Q3.
Yes. So that is a small part. The main thing Q1 on Q1 is the inflation we've been talking about over the last quarters.
And just to ask again, that inflation, the sort of energy and consumables, has that slowed or stopped? Or how should we view that?
It's 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. But looking comparing to Q4, we do not see any in normal or unnormal inflation. It's fairly stable at this time.
So we should expect that, that it's sort of underlying cost inflation is 1% to 2% or?
Yes.
All right. Wonderful. Thank you very much.
Next question is from Johannes von Finkelius from Handelsbanken. Please go ahead. Your line is open.
Yes. Hi, everyone. I have two questions. First one is back to the higher TCs for zinc. And you were very clear that they had a negative impact on the mining division here in Q1.
Is it possible for you to sort of give any quantification on this impact? And then how should we see this effect more for the full year or running 12 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
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, and we use benchmark.
Okay. And 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. But 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 2 divisions in Q1.
Yes. But 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 higher zinc TCs.
Okay. So 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 SEK77 1,000,000. That is, of course, across all metals, but you got the numbers in there.
Okay. Yes, I see it now.
Okay. Thanks for that. And
it is zinc that is varying. I mean, copper is very stable.
Yes. Okay. That's very helpful. And then 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.
The unit 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 on detail. I can answer first that the crusher is working fine. We don't see that the crusher is now a capacity limitation. Now we have moved the bottleneck to other places in the production chain in Aitik, which was the point. Then it's a question, what will happen to maintenance costs around this and unit costs.
And let us come back to that over time as we're getting some more stability around that situation. But of course, this should help downwards. The question is by how much.
Okay. Thank you.
Next question is from Ole Sodermark from Kepler
Schuvreux. Sorry for coming back to questions about the working capital. You're indicating that you're going to release some over the coming quarters. Is it possible to quantify how much working capital you're going to release if you assume stable prices in a normal level?
Okay. Just to put try to put some numbers to it. And if you take the full amount of roughly SEK1.5 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. Now 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.
So we've normalized the inventory level. I mean from time to time, we'll be lower. But 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 of working capital and the other part, an inventory buildup ahead of the maintenance stop. And of course, that will be reversed for sure.
Okay. Thank you. Very helpful. And you're writing in the report that you have signed a new agreement with a miner at Tara. And Tara also were above 600,000 tonnes in this quarter for it was actually quite a while since you had this kind of normalized production.
Can we expect to be above 600,000 tons throughput Tara coming quarters as well? And 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 and 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.
Good morning, gentlemen. Just going back to the question on zinc TCs. If we look at the EBIT bridge for the smelting business, there was EUR 140,000,000 uplift against Q4 from treatment charges. Can you also how much of that was down to the new zinc contracts? And is it reasonable to assume that we get roughly double that benefit Q on Q in the Q2, given you're saying that onethree of the volumes are priced on the new contract in the Q1?
Let's see. I'm just going to find numbers here. But twothree I mean, the main part of the changes in TCs compared to the comparisons is zinc TCs. We were actually a bit lower on copper, but that's in relation to fairly small amounts. So the main part of what you see in the bridges is zinc.
And we've taken onethree so far, so you could expect twothree additional going forward. But do look at the sensitivities as well.
Okay. And then just a follow-up. I guess, with respect to energy costs, you're saying that inflation from energy is slowing down a bit, but 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. It's also I don't think we'll guide specifically for that going forward.
Okay. And then last question, just to ask, have you seen any progress with the lava permits 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. But 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. So I just have 2 brief follow ups to what has been discussed before. So the first is that on your grade and now we understand that across the mines, you're 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 errors over some period? Or it's more like a graduate decline after the result, right?
Let me take that one. I think it's a difference between 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 kind of in a cycle. So 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 5, 7 years, we will be shifting pushbacks there as well and coming to low grades and then we'll come up again. So that's more going on a cycle.
In terms of the in underground mines, you don't really have a cycle. You of course, there will be a decline because you can't beat the average in the long run, but it's not that it has to go down and then come up again. So 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. But you might always be mining above the average of whatever is remaining.
I don't know if I'm clear in my comments, but I think that's that. So 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. And then the second question is, so far that we understand the crusher has been working well in Aitik? And then going forward, if everything goes well, when would be earliest time that you also brought a similar upgrade initiative at other mines, continuing your electrification program?
Well, 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 oil crushers that did not work. However, we will but that's a totally different thing. We've been clear about that, 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 do something about that. So that's about that.
Then it comes to everything, what are we doing about all the other pieces on the program? Well, the big thing for us right now is to make sure that we secure the expansions of the 3 big mines that we're doing Aitik, Kevitsa and Garpenberg. And as we said earlier today, there are no changes in what we've said before regarding those. And then comes to your next question, okay, what about more things? Are we ready to take on the challenges of electrification programs and so on?
And there the answer is, we will tell you once we're ready to tell you. 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.
And 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.