Good morning and a warm welcome to all of you here in Stockholm and also to those following us on the webcast. I'm so pleased to see so many interested in Bolide's story. My name is Sophie Jarnios, and I'm Head of Investor Relations and today will also be your moderator. We have a full day ahead with us, starting with presentations from our executive management before heading off to Kievitsa in Northern Finland to look around our newest mine and see what we are doing to achieve 9,000,000 tonne by 2020. Looking at the agenda, you can see there are 2 clear themes for this year's CMD.
Firstly, in an increasingly volatile world, Voliden's consistent and balanced strategy has delivered 1 of the highest levels of total shareholder return in the industry over the last couple of years. Secondly, with our strategy of embracing some of the smartest technologies available, we have achieved even higher levels of operational excellence across our mines and smelters. We firmly believe that the focus on technology, some of it controlled by smart tablets like this one, is important to stay competitive. Of course, there will be opportunities for you to ask questions, both from our audience here in Stockholm as well as via the web. Finally, I've briefed on safety.
If we need to evacuate, you have the emergency exits located behind you and also in that direction. Assembly point is just outside the entrance from Dovtiviragathan. And now let's get started with a deeper look on how we are delivering value through operational excellence. It's a great pleasure to welcome our CEO and President, Lennart de Brel onto stage. Please, Lennart.
Thank you. Welcome, everybody. Great pleasure to have you here. Last time we met, it was over a year ago. We had just been buying Kevitsa.
Dollars 700,000,000 paid or we hadn't paid it at that time, but we had announced it. Dollars 700,000,000 for a loss maker. Copper was SEK 4,500,000, nickel was SEK 8,500,000,000 and many were asking, are you sure this is a good deal? We are going to visit Kevitsa obviously today or tomorrow and we hope that you will like what we did with your money. You all know what Bolin is about.
So just to take a short repeat, I mean, we are a base metals company. We are doing also precious metals and they are very important because you're balancing sometimes the base metals. Mines and smelters, I will show later on a later slide are balancing each other very well. Technology and responsibility, we showed upstairs. And we think for a high cost country our profile, it's natural and important for us to take a leading role there.
Our goal is to be a leader in our industry. We have chosen not to say shareholder value. We have chosen not to talk too much about different individual stakeholders. We are so dependent on shareholders, on employees, on politicians, on suppliers. We had a procurement conference yesterday with 200 people supplying us a lot of equipment but also technology.
We call it the cluster. So this is very important. We would like to have we be good in value creation, environmental performance and social responsibility. Thomas will take us through this later. The strategy, we sometimes say creep, walk, run, do the simple things first, is a fundamental.
We are capital intense. If we can train our crews to maximize, really capital normally needed because we're going to most probably excel also with new things. If we are saying the grass is greener on the other side, we're just doing so so and we spend SEK 1,000,000,000 on something, we're going for sure to be so so also with new things. That is not the way to run a capital intense business. We take an enormous pride and responsibility in the huge capital we manage.
My presentation will start about cycles. I think there are some new things. I spend we spend a lot of time on thinking about the volatility of prices, and of course, that has a major impact. On cycles, we can start to look at demand side. Nothing new here.
I mean basically, base metals are used for growing growth or improved standard of living basically in poorer countries. We see an acceleration when the wealth is going from extreme poverty up to $5,000 per capita on the lower line. And then we see an acceleration in metal demand. In this case, it's kilo of copper per capita. We also can see that when the standard of living is good, we don't need so much more infrastructure.
It has already been built. The cities have been built, the trains and airports and whatever, the power systems. And therefore, we see a clear leveling off of the demand. This is the pattern and explains why if we look at today's development, industrial production, it is very you see the global the world there. The general demand for industry in general is good.
However, if we look at our 2 largest segments, it's construction. Well, the infrastructure in the explosive expansion of infrastructure in China is leveling off and has an impact on the total construction market. If we look at the transport sector, which is the 2nd largest part of demand of base metals, we see low growth this year. So despite very good economy, our biggest segments are not growing as much as they should. Still, we are enjoying good metal prices.
What is that then? Well, we think that technology is probably on the way to change this traditional pattern. Today, we know that new sort of energy systems in the future, we're going to see electric cars. I think also the old world will start to drive growth of base metals. This has not been the case going forward and also impacting the metal mix perhaps.
That we invested in nickel, not a bad idea considering nickel is about a third of a lithium battery. The other thirds are cobalt and lithium. And Mikael will talk a little bit about the cobalt we have in Finland. If we then look at the prices, we have the volatilities here, the 10 past years, and we see the maximum the minimum prices and the average for each of the years. And you the horizontal lines, they are showing the cost level of the industry.
The higher line is the 90th percentile, 90% are making a positive EBITDA and 10% negative EBITDA and the lowest line is 50th percentile. In other words, half the industry is going with EBITDA profit and half with EBITDA loss. We can see that there has been a very, very strong correlation cycle after cycle. So we can go 20, 30, 40 years in copper where we have very long history. We can see that the turning points are typically there.
That's where the mines are pulling out and are put in care and maintenance. And then when the prices are going very high after a number of years, investments which are fueled of course or the by the high prices will come in production. But we suggest probably that these cycles will probably change. Probably also going forward, the supply side of the cyclicality is probably more important than the quite stable demand. And what will happen with the future cycles?
Well, the traditional fundamentals in capital intensity industry that we're cyclical, no pricing power for the companies, commodities, that's the same. But the future may be different. We have longer lead times for expansions. That's very evident where we are. Permitting is our biggest issue and has been and we're really pumping the politicians in the countries we are that permitting have to be faster, more sort of understandable processes and appeals have to be swifter and faster.
So longer lead times for permitting, but also for the fact that capital intensity is increasing. We spend even more money on automation and on capital intense things. So more capital, longer lead time, longer permitting, longer lead times. Price peak will probably, we suggest, therefore, probably be higher and times of high price will probably be longer. And certainly today when the prices are good, we hope that it stays like this for quite some time.
But I think this is quite interesting. On the other hand, the downside on the bottoms, the floors will probably continue to be as they have always been. There will be sort of you take mines and smelters into care and maintenance, that's taking a couple of months. You have to plan for it for quite long times because the start and stop is costly. But I think the downside will look the same as before, but the cycle will probably be longer.
So what do we do in a situation like this or what will be the through cycle sort of strategies? We have to have the dynamics in deep tour, close to our hearts here. Well, first of all, to correlate, to look at the negative correlations, to have precious metals balancing base metals, to have smelters balancing mines. All of these correlations we are looking at, even if they are small, we're careful what is energy normally doing in different times and so on. It's important to keep that in house, to do streaming contracts and sell the gold because you get a better price earnings ratio, I think it's a small gain compared to the value of stability in this very, very volatile industry.
Scenario planning, we work with floor prices. We work with stress tests. We look when we buy Kevitsa, for example, we see we could have been hedging some of the metals to sort of ensure our financial stability even in bad times. We didn't think it was necessary. With our planning model, we were strong enough and we could absorb the $700,000,000 CapEx planning is something else, of course.
Financial planning, how we work with the banks on the debt side. Dividend policy is very adapted. We never try to have a constant dividend. Many companies try. We said at an early point, no, we're not going to do that.
Shareholders should support. In the bad times, everybody have to hold back. Bonus schemes, we have sort of special clauses. When times are bad, it doesn't matter if we are performing well as a management, no bonuses. Everything we do is to cover the downside because that's where the value can be created.
Then our planning model is, of course, net present value, very important and that is always our number one sort of metrics on what we do. But does it necessarily give the maximum value? No, not at all. But it's a good first proxy. If we just go straight on the NPV, well, we lose the dynamics here, which I think is the big difference between, for example, us and some the less successful companies.
Unrealistic capacity plans, holding capacity to the last moment and do it only when necessary and not a minute before is a bad idea. To do it when money is available, when we're strong and have a chance to probably go for 6 months with very small development and pushbacks is a much better value creation over the cycles. Value destruction at recessions is the number one value parameters, I think, in this industry. We are all making money, making value in the good times. Much of that value is destroyed in this industry in a bad time.
So value destruction in bad times, very important. Stability, stability, stability. And if we are doing this right, we can also be having a better visibility for shareholders. More people will understand what we're doing. So what we are doing, smelters and mines, I think it is great combination.
Some years back or quite many years back, it was suggested to sell off the mines or the smelters and I think it's a bad idea. We have good synergies and for this reason also very good. Based on pressures, operational excellence, industry adapted dividend policy, as I said. And if we look at the past 10 years, we have smelters and mines here. And actually, of course, with China's growth, it has been a decade of mining, no doubt.
So 6 of the 10 years, mines have been making a bigger profit than smelters. 3 of the years, smelters have been having higher profits than mines. And last year, it was same same. If we leave that and go back to the strategy again, well, creep, walk, run. I explained that in the beginning.
That's really what we try to do. Don't expand until we're really good in what we're doing. And I think that the number one bolder or step, stable and efficient upstairs how we apply modern technology and we think the mix with people or how the technology can be used with people. Here I have Garpenberg online. It is not to be online and have mobile solutions for me obviously, but it is for the people to connect and be engaged and not needing management time, solve things where we are and we are the people most involved.
Decentralized Organizations is something that we have by tradition in Scandinavia. Many countries and many places, capital intense companies also here for that matter are very top heavy and top down managed. They will never get the benefits of things like this compared to what we have. Big data to the few who already have too much is not necessarily a good thing. And how we do this is very much with what we call New Bull in a way, our lean management system.
To the right, we work with technology and other things. It's a checklist of what we're doing in the different operations, 28 areas. And we work with areas which are the most appropriate for the situation in the different places. To the left, we have more the people side of it, who we are and we have similar tool to many companies. But let's have a look at the 3 in the middle, passion for improvement and personal commitment and value chain.
Here, Jenny Forsberg is very passionate at work. I mean, she I've been on meetings with her. She is really leading her operators in a way which is really she is living the values. Personal commitment, if you look at our new managers, I think the ice there is a good symbol of what I mean or what we mean with that. And this is a very different one.
LEGO, toys, a lot of people in the value chain discussing now how is modern technology going to impact. Because in the end of the day, the visibility, the visible flow and down to earth with people in middle. The technology is to support the people. And this is a true picture of something I don't even know where it is. Thomas, do you know where it is?
No. Somewhere. They're working with a value chain and who is doing what and how. So high-tech, very transparent of the least transparent sort of industrial situations. It's an underground mine.
And to open up and create transparency here. It's a great move forward, and we're going to develop this for quite some time. The final thing I will talk about is Nickel Finland. We started 2010 to look at our strategy. We had an exclusive arrangement with a nickel a large nickel company.
And it was not until 2015 we decided to build our own business on nickel. It was followed by a new view on nickel for Bulidan. The geology in Finland is very sort of need in it is very much nickel there. So we had to develop this, we thought, and the continued development in the smelters were good. We bought Kevitsa.
The synergies came in there, and the EBIT improvement compared in the period is SEK 1,000,000,000 and we spent about SEK 8,000,000,000, most of it on the acquisition, but also a lot on renovating Harjavalta. And the acquisition in Kevitsa, we're obviously going there. We did the 1st year owning it. We 13,000 tonnes of nickel and 26,000,000 copper and we did an copper and we did an earnings of €53,000,000 compared to a year earlier when we the mine was doing a minus or a loss of 20 2. I think this is we are very proud of the development we have had.
We are focusing on all the stakeholders. We have been running excellence, and we have in total shareholder return on 1 year, we're in the middle. But on 3 5 years, we are the leader in this peer group. And with that, I will hand over to next presentation. Or
Yes. Thank you. Thank you, Lennart.
Thank you.
As you know, corporate responsibility is part of our DNA across the organization. Our next speaker, Thomas Soderqvist, will describe more what we are doing within sustainability, especially focusing on the environmental side.
Thank you, Fokker. Thank you, Sophie. I will focus on one pillar of one aspect of our 3 pillars of sustainability, and that is environment there. But I would like to start first by saying a few words about the other pillars also. The social responsibility, what can possibly be more important to us than not to hurt or negatively affect the health of our employees?
And how are we doing on that? Well, the KPI, the key performance indicator that we're using there is called LTI, lost time in Urea Frequency Rate. That is the number of accident that occur in the operations that leads to a day off from work additional to the day when the accident happened actually. And we divide that by SEK 1,000,000 then to get a reasonable number of that. And that's normally what is used around the world.
Our frequency is 7.7, a little bit, marginally down from last year actually. In Nordic conditions, that's kind of an average number, I would say. But if you compare to peers like BHP and others around the world, it's actually not a good number. So we have looked at what they're doing. Our solutions to attack that situation is to work on the culture of the organization, trying to get people more aware of the risks and be more engaged themselves.
But we also looked at others. What are they doing that we're not doing? And we put on some pretty stringent now mandatory things to be done in the next few months. Another pillar there is economy. How do we affect the society in the places and the countries where we work?
Actually, one employee in Boliden creates roughly 4 additional jobs. So being a little bit more than 5,000 employees, we create something like 25,000 jobs in Sweden, Finland, Norway and Ireland. 1.8 of those additional are contractors, suppliers working for us and so on. And 2.2 are what is called induced jobs. That means that there's nurses needed, teachers needed to teach the children of our employees in Sodankylen, which we will pass tomorrow.
And that rates up to 2.2. And Sodankyl is a good example perhaps because we are active in less densely populated area. You who follow us there will definitely sign on that one. We are very important employees in these areas of the countries where we are. And I'm going to say that also that the vast majority of our employees actually live close to the operations.
We checked that in Sweden. We found that together with LKB and Lundin, over 90% actually lives very close. There is a myth saying that mining jobs doesn't create any local jobs. They're just fly in, fly out, and that's false actually in these countries. So over to environment.
Then I've said something about metals being part of the solution, whether you want to solve and build the situation in many countries where you don't have a good infrastructure, where you have much poor people and so on or if you in countries like ours, want to move towards a more sustainable environmental situation, metals are needed there. And we are, of course, also working on reducing our impact when producing those metals. It's important to state though that we want to have our own agenda when doing that. We don't want to be driven by authorities changing the permit limits for emissions or discharges or whatever it is. We want to run the operations as we see fit because nobody knows our operations better than we do.
So some key performance indicators. Metal emissions are down 20% in the last 10 years. That's a mix between emissions to air and discharges to water, and I will get back to that in the next few slides. SO2 emissions are down 14%. CO2 intensity and intensity in this case is tonne CO2 emitted per tonne metal produced.
We're not improving there, and that's something that we will have to act upon. When going back 10 years comparing to today, we can see that our environmental investments have find a way to evaluate those investments so that Bouille Den and the environment sort of gets a bang for the buck here, that we don't spend on something that actually has no positive effect on the environment. We'll start with metals to air. The first pie chart there is just kilograms of metal. The other one, we recalculated that in with a formula into how toxic what is the worst toxic material.
And you can see that we should focus our efforts on arsenic and lead. I should say that also this is did I disappear? A change. We should focus on arsenic and lead. And this is a question about copper smelters.
And we are. We just last Board meeting, a decision was taken about changing a filter at the Rungehr smelter that will reduce the lead emissions to air. And there will be more like that coming also in Harjavalta and Runge. Over to water. You see that zinc is by far the biggest metal that we discharge to water.
But where we really should focus together with mercury then is arsenic, lead and copper because they are the ones who create the most toxicity in the recipients. And here's one case where we really focused on that. This is a new water treatment plant at the Runkvaer smelter. We invested SEK150 1,000,000, reduced the metal emissions by 2.7 tonnes of metal equivalents per year. And as you see, it was precisely those 3 that I mentioned, copper, lead and arsenic.
SEK 58,000 per kilogram metal equivalent per year was sort of an efficiency of that investment. Compare that to the other one there, which is about 80 kilometers away from there. It's a mine. The mine water had to be clean before we send it out to the Szelefte river. SEK 35,000,000 spent, only 70 kilos of metal equivalent and it was basically zinc.
It's SEK 500,000 per kilo of metal equivalent. And by doing this and all these kind of investments, we're building up a knowledge about what is really a good environmental investment and what is not, so that we can hold a better dialogue with authorities. We want to discuss with other mining companies, of course, see if we can get them interested in this way of looking at it also. And we're talking to certain consultants also. CO2 emissions.
Well, first of all, we look at 2 scopes. We get CO2 emissions in 2 ways. The first one is when we fill up a truck at Aitik and rise that truck, the diesel engine exhausts CO2. When we add coal and coke into smelting process, that emits also CO2. The second one is when we plug in and we get electricity from the grid.
Depending on which country it is and what profile that country have for producing their electricity, we get an emission factor that we calculate then. Like Norway has a lot of hydropower, very low emission factor. Sweden, a little bit higher Finland, even higher and Ireland is quite high. Quite high, I said, but not that high to be frank. They have liquid natural gas.
Other countries like Australia have mainly coal. That's way, way higher. And you can see here that the mines are quite competitive in that respect. What we're doing to decrease this now is, for instance, in Aitik, we have taken a decision about putting it's called pantographs, you know what the train has on top to bring electricity down to drive the train. We're putting that on Ford trucks in Aitik.
So when they go uphill towards the waste rock dump, they will go on electricity and the diesel engine will idle. It's when they go uphill that they, of course, consume most diesel. In the underground mines, we're looking also to electrify. The strategy here is to electrify. For instance, we're already buying now from both our main suppliers, Atlas Copco and Sandvik, battery driven drill rigs.
And next year, we're also going to test a battery driven loader for underground purposes. There's actually no diesel engine on it. Instead, it's where the diesel engine used to be. There's a big battery there. So batteries is important.
I'll be back to that one. Looking at the smelters, you can see that CO2 emissions is basically a copper smelter issue. We are adding coal and coke to reduce the oxygen content in the melted material and that is what creates the CO2 emissions. When looking forward, I'm sure Kerstin is going to talk about that later on. One of our challenges when it comes to the environment and smelters is to actually productify as much as possible.
It's not like iron where you send in iron pellets and it's basically iron pellets and it's basically iron
that you send in. When you send
in the concentrate, there's a lot of other metals. And we want to have a sellable product of as much as possible, partly because of economic reasons, but also to reduce waste from the operations. And some of the processes here are actually in contradiction to reducing CO2. They actually that we're looking at certain processes that actually could raise the CO2. And then it's very important to be able to evaluate that also, what is best for the environment.
We have a very strong position in recycling. We're part of the circular economy here. Electronics, we have one of the biggest smelters for electronic components at Runfair. Components from computers, mobile phones, etcetera, etcetera. The metal content is recycled here.
This is also a source for CO2, by the way. And it will continue being that because these layers of plastic and metallics are so thin that you can't separate them before smelting. So they will emit some CO2. A place where we can separate plastic from the lead that is resmelted there is at Verisure. We're right now investing in a separation plant that will separate the plastic from the lead of the car batteries or whatever we're melting there.
And that will give us a sellable product in form of plastics and it will also reduce the CO2 emissions by 20%, 25% from that smelter. So going forward, I am convinced we are considered one of the most sustainable mining companies. And when we apply our NBV concept with operational excellence also in this field, I am convinced that we will maintain or perhaps even enhance that situation.
Thank you.
Thank you, Thomas. So we will open up for questions. And please wait for the microphone and then state your name and institutions. And we'll also open up for questions from our audience via the web. So please post your question.
So do we have any questions from the audience here in Stockholm? No questions. Yes, we have one question here.
Thank you very much.
Into this? Yes, we know we have a very clear grip on it. 1 of the better synergies is between Harjavalta and Kevitsen. But we don't like to disclose them because that is one of the numbers which will make sort of the contacts with different vendors of concentrators to us sort of more complicated. So this is an area where we choose not to talk about them.
But they are quite important and I think that you will get a lot of examples of that in Kerstin's presentation, not the numbers though.
And with regards to the synergies between Keretsa and Haravata, have those synergies been realized in full?
Yes. Okay. Thanks.
Thank you. And we also have one question from Jatinder. There is a mic on the way.
Good morning. Jatinder Gaur from Citi.
On your strategy on mining and smelting, you're long smelting currently at the moment. Do you see any value in full integration so that you're not exposed to a shortfall of any potential concentrated also exposure to TC market movements or market structure changes, which could be a potential outcome in the end.
Do you feel the need to
be more integrated on either of the commodities? Thank you.
No, we don't think so. And to take one of the reasons is was in my presentation here when I'm looking at the balancing factors, I mean, smelters are having bigger sales, but smaller margins. And if the I mean, if we have the same tonnage, mining and smelting, the whole business will be totally weighted over to the mines, which are more capital intense higher margin. So if you want to have a balancing factor, you have to have a lot more smelting capacity than mining capacity. But that is not the real reason.
The real reason is it is very favorable for smelting to have a base load internal and to do what will talk about, to be active in buying low priced difficult material in the market. If you are only relying on external suppliers, that is a very risky business to be in because it is the low prices for a reason. So I think a base load with an opportunity to shop around if you like. We do long term contracts, but that is to us a very ideal mix. So bigger smelter than miners, both for stability and for the business concept of the smelter, favorable.
Thank you.
Yes, we have one question from Oskar Lindstrom.
Oscar Lindstrom from Danske Bank. The decision to move into nickel, when was that taken? And could you consider other metals as well?
It came gradually. I think we are Finland and Sweden to a large extent. We didn't have mines in Finland at the time. And I think geologically, it's probably a more favorable place to be mining probably in Finland than in Sweden. So we looked at Finland.
And in Finland, there was sort of copper, some gold, but everything included nickel. And we didn't like nickel. It's not very visible or visibility is low, volatility is high. It's not a very attractive metal as such. But for us, we've said we have to start to like this metal because we're in it in Harialalta, but only in this cooperation setup.
But if we want to do mining in Finland, we're going to be there. And then we started to learn and then we started to develop and then gradually we decided to go separate Harjavalta and then we bought Kevitsa and Bivolu and Kirli Lefty, both including nickel. So that was kind of natural. Of course, we're going to look cobalt. I mean cobalt, there is cobalt in Finland.
So and we have it in our minds. This is nothing we are going to change the strategy on. It's a small, but an interesting byproduct. I think we are going to stay with the metals we have today.
Thank you.
We have a question from the web, and it's for Thomas. And it's where will you prioritize your attention when it comes to sustainability going forward?
Well, our first absolutely most important priority there is to reduce the number of people who are getting injured at our facilities. Absolutely, the biggest focus will be there. 2nd to that, I think we need to reduce the emissions to air and CO2.
And then we have a question I see here from if we can have a microphone to Johannes, please.
Hello, it's Johannes Priscilla here, Handelsbanken. So you touched upon that you have some small volumes of cobalt and I know from the production report that you have cobalt in Kevitsa and the price have gone through the roof there on cobalt. But could you maybe say something about the profits from cobalt? Do you get full paid for cobalt in the payable terms at this point?
I think we leave that for Kerstin and Eikesh's presentations. It's not a big thing right now with sort of long term prices. It's we have 2 expensive processes to deliver any profits. But today, it starts to be somewhat interesting. And would it continue up?
It will be interesting.
And just a second question, please, on the CapEx that you revealed today for 2018. Maybe we'll go into the details later. But is there anything new on that CapEx, some new growth CapEx or what's some details there, please?
You were asking the questions too early. Let's take a look. We're coming back on that, yes.
So let's have a question then from Olof also.
Olof, Kjellmarck, ABG Sundal Koerler. You have a slide here with a strong position in recycling. And as you described, would it be possible to quantify what you mean by that versus your peers? And maybe some kind of quantification what you earn from recycling as of today? Well, when we built the plant, the Kaldon plant in Urarture, it was the biggest in the world and we became the biggest recycler of electronics in the world.
Now we are seeing 1 or 2 Japanese and we don't know exactly where they are, but they have been growing to similar size as we are. On the profit, we're making good money. And the rumors and the truth is that the value of metals in electronics is going down, but we are paid to a large extent to TC sort of price for the process and free metals. So we are having a very good business which links together with the rest of our processes. So it's good.
We have time for one more question. Daniel, we have a microphone on the way.
Daniel Lerch from Maxson BNP Paribas. Just one quick question on capital allocation. You mentioned briefly your metal exposure. There have been reports recently that industrial end users, for example, car firms, battery producers are thinking about partnering up with mining firms on projects to secure volumes. Is this something which could be interesting probably or is this something you're discussing already?
Could be interesting. It could be interesting, I would say. So if we have a Volkswagen or people listening to our Capital Market Day, well, yes, absolutely. We have some and we could probably consider doing some kind of a day there.
Thank you, Thomas and Leonard.
Thank you.
So continuing on the theme of operational excellence. Our next speaker, Mikael Stavas, President of Boliden Mines, will now take us through a how to improve performance. Michael, please.
Thank you, Sophie. It is also for me quite a difference standing here today than it was standing here 18 months ago when we had the last Capital Day. As Lennart pointed out, we had just made the acquisition of Kevitsa. We had not yet closed a deal that was still 2 months out. We had just published, I think, a month earlier the 4th quarter result that was barely a breakeven for the business area mines in total.
And with that, the $700,000,000 investment. And also, by the way, which we should not forget and I'll come back to that, we're also taking on an investment that we knew was going to take more investment because Kevitsa was in early stages of the stripping, and we would have to take that on. It's, of course, a difference today. I was going to say also that on top of that, we had a due diligence plan. We felt good about the due diligence plan, but a plan is only a plan.
Today, we feel much better about that, that plan is actually materialized. I'll come back to all of that and a little bit more. And today, it feels much better. Today, I will talk about basically 2 things. I will go through some of the things that we're doing generally and where we feel that we have our knowledge and where our knowledge makes a difference in what we're doing.
And then I will go through all the individual assets that we have and talk about the different challenges and opportunities that we do have there. But first a little bit just reflecting on the year. As I said, I feel much better standing here today than I did standing here 18 months ago. And maybe that's not so strange. We've had an extremely good year.
We've had profits that are probably tripling what they were last year. And of course, the year before that back in 2015, they were close to 0. That is, of course, very much due to favorable metal prices and terms that we can't really do much about. But of course, we can enjoy a sunny day just like everybody else can do. We have though that where we do affect ourselves, we have been increasing production and increasing production in our main facilities in Aitik and now in Kevitsa, which is a large asset that we have, which we are proud that we've done.
Then also we do have high grades and this is something that I'll come back to towards the end because there's sort of flip sides of that. But in this stage today, it has been of course an advantage that we've been mining above the reserve average that we have in some of the major reserves or the major mines that we have both in Aitik and in Garpenberg and in Kevitsa. Another thing that's been happening lately is linked to a little bit more volatility. And I think that some of you have been a little bit surprised both positively in Q2 and maybe negatively in Q3 regarding our profit level. And what has happened is that maintenance, which is nothing new, we've always done maintenance, has started to become a bigger issue.
And why is it becoming a bigger issue? Well, when you have low prices and terms and you don't really make much money, Then having a relining stop in the middle does not affect your EBIT so much because while you're having the relining stop, you continue to produce ore, you put the ore into storage and you do that at a cost. But when you don't have so much margin, that cost is similar to what you get for the finished product. Now when you have high prices in terms, then of course, there's a big difference between the cost and the price you're achieving. And then it's suddenly so much more important to get the product out.
And then we have a maintenance stop and building up our inventory that really shows your P and L. And if we go through here, you can see through different quarters how the numbers of days that we stood for realigning, which is the major planned maintenance that we do, how that changes between quarters. You can see there's not really this here. There's not really any seasonal pattern in it. It goes a bit up and down.
And it's also difficult for me to give you a good long term guiding on how this will affect because we always check even though we might have a budget to do a maintenance stop in June, we will check-in May whether it's can do it until July or until August and then we will postpone. Sometimes we will take it earlier. So that will vary over time and we will not know exactly when this happens, but it will continue to vary. And as you can see here, the fact that I think we said everybody, we had a very good run-in Q2, where you can see that easily we only had 11 day stop for realigning. And then in Q3, we had 44 days realigning altogether.
It was, by the way, affecting all the 6 units. Now before you start doing too much math on this, I should also say that a day is not the same everywhere. So you can't really say that average day costs something because they're different, but just gives you an indication. And also giving a little bit of a guidance for Q4 that Q4 should be more of an average. It's not going to be another Q2, it's not going to be another Q3, it will be somewhere in the middle.
But then we will see how we go forward where we should start guiding a little bit more, but that will, in that case, be quarter by quarter because long term, it will be more difficult to give guidance. Talking about what we do and what we feel that we do well. I think many of you have seen this exhibit before many times. It measures the productivity that we have going up the y axis and the size going to the x axis and it shows where Aitik is when you look in terms of open pit copper mines in the world and it shows where Garpenberg is when you look at underground zinc mines in the world. Nothing new to many of you who have been around here.
You see that these two assets, however, you talk about it, they're world class assets. And we see that. I mean everybody or basically almost everybody around the world wants to come and visit these assets, which we are, to some extent, happy to do and to some extent, maybe not so happy. It depends on who they are. Now the question is, why have we achieved this?
Well, specifically, we have done very different things. But what we have done in all things is that we've used our own engineering capability, and I'll take the ITIG example first. We've used our own engineering capability to do what is best for the particular asset that we have, the specific situation with the mineralogy and so on. If you take the IT example, what is characteristic here? Well, everybody knows we have low grade.
That's a bad thing. But we have a couple of good things as well. We have a relatively an ore that is relatively easy to grind and it can be grind relatively easily using autogenous grinding, which means that normally when people use autogenous grinding and we'll talk more about that regarding Kevitsa, you typically need to do crushing in several stages because you need to make sure that you get the fraction sizes to fit for chargers grinding. Now in Aitik, we are happy or lucky that we can do that in only one step crushing. That is not so easy and
you can say it's easy
that we can do that. It of course takes lots of detailed calculations to put that together, but we do it in 1 step crushing, not in several stations, which means that we don't have to store ore anywhere. We just take it once into the crusher. We can use very efficient conveyor systems because we don't have to move it around. We don't have to store the ore or anything.
And by doing this, we've gotten a really low cost structure how we handle this ore by using that fundamental pasta that we have. By doing getting the lower cost, we also use another fundamental here, which is that there's lots of what you can call marginal ore that now can qualify as ore, which means that we get a lower stripping ratio. And the stripping ratio is also low. That is not necessarily wouldn't have had to been there. Had we had not such an efficient process, we would have had a higher cutoff, we would have much higher stripping ratio and the whole fundamentals of the IT Corporation will be totally different.
So that's what we've done. We've done that. It was quite a lot of nerves in setting up the concentrator the way it is and the crushing system the way it is. You know that we've had issues with the crushers. I'll come back and talk about it then.
But it hasn't been about the setup as such and how is to use the mineralization the best. There's been more mechanical issues regarding the crushers that we'll talk about. But as this concept and as a setup, it has worked very well. In Garpenberg, which is the other case, we used other things that are fundamental. In Gartenberg, once again, the grades are not that great.
They may be more average in terms of looking at zinc mines. But we do have one advantage. The ore body is standing straight, standing straight up. We've used this advantage to put in a shaft very close to it. By putting in the shaft very close to it and the way that we plan the mine around it, we managed to be at very short driving distances.
By then using the open stoping mining method, which is not unique, but the way we twisted it is very well fit to this particular ore body. By using that and then the short distances getting it into the crusher system and getting it up, getting it into a mill, which is once again designed specifically for this, once again, autogenous grinding fits very well with the crushing way that we're doing it there. We can actually do a autonomous grinding there as well without having to have a second or third crusher. We can do it only in 1 crusher step, which is something that maybe not everybody would dare to do when they set up a new mine, but we did it and it's working very well. Then we have a more complicated mill as such because here we have to separate into 4 different concentrates in order to get the full value out of the ore as opposed to an Aitik where we have used even one more advantage.
We're just doing it everything into one product and one concentrate and can then keep the cost down even further. So that's a little bit underpinning what we're doing. And when we start to look to talk about Kevitsa and we'll talk about it in a while, a mine that we did not decide, that's a mine that we have bought and we've inherited, but we're trying to do the best of it. There are other levers. They're not going to be copies of Aitik nor copies of Garpenberg.
We're using the specifics there and I'll talk more about that once we come to talk about Kevitsa. What's the basis for this? Well, the basis is that we feel that we have a strong technological know how that we built over many years. And maybe this is not in terms of what IP we can say that we have in terms of what we build with our own R and D. That is not the main thing.
The main thing is that we have a good understanding of what we need, with a good understanding of what is available and thus we can use it. And how have we gotten there? Well, we used to put up similar slides to this one where we talk about the cluster, the Scandinavian mining cluster as such. This cluster has been very good for us, and I think we have been good for the cluster as well. We have in Scandinavia in mining and in mineralogy very big world leading institutions, and they have proven to be quite happy to spend their R and D money in our mines.
And we're really good at giving them good chances. We've also worked very hard on making sure that we can be trustworthy, making sure that data from one company will not lead to their competitor who might be in another Burieden mine doing similar type of setups. We worked around that to get this virtuous circle going where they get to develop products that we then can be an early adopter. We can buy some of them early. And Thomas gave some examples before about some of the products and some of the projects that we're doing, where we feel we're early adopters.
He spoke about that we're getting battery powered vehicles in. That's been partially developed in our mine. He spoke that we're right now together with some other guys doing trial tests around what we call trolley assist or electro trolling. We're putting in 4 big cat trucks with electricity take down and we're having a 700 meter test line up 1 of the waste rock dumps and we will see how that will work out. And if that works out fine, we will see much more of that because it's an important part of cost saving as we go forward.
Lena spoke about some of the examples we have more on the milling side where we've gotten the information much closer to the operator. I will give another example just to sense what we're doing. Once again, this is not unique and it's not our IP, but just to have a sense of what can be done. Just to get the background of this, I often ask the question, what is the most thing that we produce in an underground mine that we take up to the surface? And people start talking and it takes a while.
The true answer is air. The weight of the air that you take out for ventilation in an underground mine is typically much heavier than either the waste rock or the ore that you're taking up. So this is a big operation of ventilating a modern mine to keep the good working conditions down underground. What we've done here with ventilation on demand is smart ventilation. We know where everybody is, people.
We know where all the machines that cause exhausts are and we can then steer the ventilation to where it's needed and not everywhere. And by taking where it's needed, we will save OpEx. And in this case, you can see that we saved 50% on the energy in Kanpai, which is a small mine, but we have to start somewhere. And then in the longer run, you'll also save on investments because you don't need to do new ventilation shafts as often as you would otherwise since we can be smarter about how we use ventilation and still having exactly the same air quality for the people on the ground who are the ones who are depending on having good air quality. Moving over and talking more about the specific things around the individual assets.
And as I do that, I will actually start talking about something that goes across all assets, which is a social license to operate. This has always been an important topic, an important topic for all of us. We've been working on this topic for many years and we're working even harder now because it is an area where we need to focus even more. How do we do this? Well, we do have a strong in house competence.
It doesn't mean that we don't use consultants. Yes, we use consultants as well, but mainly we have the in house competence around this. And it's around the key areas around environment, stakeholder contacts and around permitting. Permitting is both an environmental part, but is also a legal part around this, and we can manage these processes well in house. We do have a good environmental performance.
Thomas spoke a little bit about it before and we can give many more examples. I feel that, as I usually say, we can be tested and we can be tried and we are not ashamed of showing anything that we're doing. We feel very good about that. We're also spending some money taking care of history. One project has been pretty well renowned is the Stekkenjok Dam.
This is a mine that was decommissioned, I think, 30 years ago, where the old dam has proven to not be fully up to the standards we wanted to. We have spent about SEK 100,000,000 to revamp this dam up to a quality that should be standing there until the next ice age. And that's, of course, what we want to have with all of our close mine sites. And as you also probably know, we have about 30 minuteesites that we're responsible for, closed mine sites. And these mine sites, Some of them were decommissioned back in the '70s and back in the '80s with the technology that back then was considered to be good enough and that we today know is not good enough and that we need to work on and that we'll need to come back with.
Dialogue with stakeholders is very important. As you also know, we'll get to that in Aitik. We are right now moving 2 villages in Aitik. It's quite important for those villagers that live there that have a good dialogue with us. This thing has been working, I would say, relatively well, even though we're not through the process yet.
We need to continue working on it. But we feel good about our dialogue and the dialogues that we do have, even though they're not always easy. Last point is something that Lennart already spoke about. The regulatory framework, especially in the Swedish context, is tricky right now. It is not as good as we would like it to be.
And we're working together with some of our colleagues in the Swedish industry to see what we can do to improve the regulatory framework. As you might know, there hasn't been a new mine commissioned in Sweden for the last 10 years. And that's basically due to that the permitting process has come to grinding halt, which is affecting us, for example, in the Lauver project, where we are also now in an appeal circle with the government. Moving into the real assets, and here's maybe what's interesting today. Garpenberg before my time and any time has been nothing but a success.
I think that the actual project itself combined with the engineering and the way it was set up and the way it was ramped up has worked very, very well. Even in the bad times, if you include 2015 and forward, we've had a 35% return on capital employed in this operation, which I think is almost unheard of in a brand new invested operation. So that one we feel very proud of. Today, we will announce that we are in the final stages of a feasibility study to take us to 3 1,000,000 tonnes from the 2,600,000 tonnes that we've had last year or 2,500,000 tonnes that we actually promised. As I said, the feasibility study is finishing up and we are planning to reach the new design capacity by 2020.
The next question comes, okay, what's the investment for this? And there's a number up there and people ask me, well that's nothing, that's peanuts, it's €60,000,000 What's €60,000,000 for? Well, that's right. It's a very small amount that is needed to actually get the capacity up to handle 3,000,000 tonnes. In terms of the fixed installments, in terms of the getting the concentrator geared up and getting the paste factory geared up and other things.
Then of course, when you increase production, all the sustaining CapEx will go pro rata. So of course, development, the underground mobile fleet and so on, including tailings and everything else, will grow proportional. There is no economies of scale and that is, if anything, maybe a diseconomy of scale. Then another question is, okay, why haven't you done this earlier? Well, it is not too easy to get this planning right and it's for two reasons.
As I think many of you know, there are issues with rock mechanics and rock stability in the Grappenberg mine. By increasing and thus mining at more places at the same time, it does create some problems or some issues. We've been working through these and before we said this feel good that we can increase the production, but it is not self evident and it is in the planning of the underground mining and that's where the challenges are around this expansion that we need to continue working on. There is also a challenge which is linked to grades. You can see here that we're now guiding for 4% zinc for next year.
That's in line with previous guidance. That's nothing new there. Regarding the years after 2019 and so on, we will have to come back because of course once you start mining faster, we will get into the lower grades faster because the average in the reserve statement is I think 3.1. So of course the faster you mine, the faster you will get down the grades and this we also need to work around how to handle that situation, which is not self evident. Garpenberg needs a new environmental permit.
You know that in Swedish context, you get an environmental permit for 10 years at a time. We'll need a new environmental permit for the tailings facility, not for the actual operations, but for the tailings facility in 2020. That one will be going in later this year. And we don't think that there should be any major issues in that permitting as we see it right now. Kevitsa, we acquired it and took it over in the 1st June 2016, that's a year and a half back.
We've been working hard the situation here and it's been optimizing around the autogenous grinding even though the grinding itself has not really changed so much. It's been around how to handle the specificities with this ore type in order to get the right ore mixing. Here we do mix ores that we don't do in our other mines. We do mix ore and we have to mix ore here. There's not really any feasible way of getting around that.
But also to get the fraction sizes right to optimize the actual grinding has been important and putting the primary, secondary and tertiary crushing right to get the right size distribution has been very important and we've been quite successful in doing that. Then there's also a little bit of, if you want to call it, luck that we've been into soft roars than historically that has helped us to come up. We have reached now a plateau that is about as far as you can get with the existing equipment, and we need to make an investment, as we always said, to get to the 9,000,000 tonnes. And we are also here in the final stages of the feasibility study to put in 1 more mill into the concentrator and with that get up to 9,000,000 tonnes. And that has a a preliminary CapEx of €70,000,000 and we'll talk much more about that as we are out traveling.
But the primary the preliminary time for commissioning is in 2020 for this project. I spoke about the stripping and I spoke about the fact that we took on an investment when we bought Kevitsa. And this just to be very clear, this is the mining plan, hasn't changed ever since before. We are in years of very heavy stripping in Kevitsa and actually 2018, 2019 2020 are the heaviest stripping years that we have in the current mining plan. And then you see stripping goes down pretty strong after 2026.
And don't try to read anything in detail over here about exactly what is the plan or production. This is just put in as a reference that this is roughly SEK 9,000,000 going forward from 2020, but it's more to put into consideration compared to the waste production that we have that we need to do. In Tara, this is not really new. We've spoken about this before. We want to prolong Tara.
The first step in prolonging Tara is to get an improved or engaged or prolonged tailings facility to be able to put the tailings into. That investment as we announced before is EUR 30 3,000,000 It still stands at the same. We've gotten the permit for it. We're on the way slightly late in the start because we're waiting for the permit. We're still on track to get it in place for mid-twenty 19, which is when we need it because that's when we're running out of the old tailings facility.
With this, we have tailings capacity up to 2026. We don't quite as of today have enough ore to get us to 2026 in the existing mine, but we're too worried about that given the history of what we've been able to find. But of course, what is most interesting in Tara is that we're buying ourselves time to work on the Tara Deep. This is just a sense of where Tara Deep is compared to the present mine. The present mine is, of course, is reddish and the magenta color, whatever you call it is where we have the indications of Tara Deep.
Tara Deep has been published 10,000,000 tonnes at higher grades than we have in existing mine, however, at deeper depth. What is important with Tara Deep is that it's open in every direction. So we don't know exactly how big it is. We are exploring a little bit on Tara Deep today, but not really that much because we're building the drift and you see the drift being put into the exhibit out there. And while putting in the drift will give us possibility to do exploration from underground because given the depth of the deposits, the exploration from surface is very expensive and thus we're not we're trying to be economizing on the amount of drilling we're doing from surface.
So once we get in the mid-twenty 19, we will start getting up to where Tara Deep is, then we will be able to start doing exploration much more from underground, having a much better understanding of what the actual body looks like, the mineralization, what then hopefully will become an ore body and how we can start making a project around this. But that's still in days to come, but we feel very confident about this project as such.
In Aitik,
the big discussion in Aitik is long time been around crushers. What you see here up here is you can believe it's an open pit, but it's actually what the hole that was dug to fit in the new crusher just to have a sense of the size of things. This is 1,500,000 tons of waste that was taken away just for the hole to put the crusher in. That's a pretty decent size open pit for many other places. We are on track with this investment for somewhere in the summer of 'eighteen to have it commissioned and online.
Once we get that online, we will have both the most stable infrastructure to be able to get our stable production to get the production up. And also we should be able to get some of our maintenance costs down as the present facilities have been sucking lots of maintenance out of us. The exact numbers are difficult to point out. If you look at this was the open pit as it was being dug. This is what it looks like today.
It doesn't really look that much because it's all now into this open pit. It's all been put in there. But just have a sense of it, it's 74 meters high. This is a pretty big tall building. It's just it's all or most of it is underground.
Just have a sense of numbers. If you take the Friends Arena in Stockholm, for those who are from Stockholm, or just think of any big arena anywhere in the world, the cement that we have put in the crusher is basically 1.5 times the cement needed to build a big sports arena. If you think about the Globe Arena, which will be special to Circle Ice Hockey Arena in Stockholm, the capacity that we have of crushing, just to get a sense of it, will fill the global arena in 6 days full of rock, crushed rock. The reinforcement bars and the reinforcement that goes into concrete is equal to about 5,000 automobiles just to the sense of things. And what you see here on this exhibit is then you see the top here coming up, which will be where the actual tipping points will be, where the trucks will unload into the crushers.
And then you see the holes coming out of the ground down at the bottom is where the conveyor is going to come out with the crushed rock coming up this direction and the holes on the entrance on the middle that's for maintenance to be able to come in and do maintenance in an easy way. So this is one of the fundamentals that we put into Aitik that we worked around to be able to get a better position. And we like to talk about these big projects because they're fascinating. They are not so we can talk about all these interesting numbers. But equally important or even more important are the projects that maybe do not attract such big headlines because they're a little bit more dull, a little bit more boring and that's this.
Just to have a sense of what you're seeing here, this is the existing the grayish thing here is the existing tailings facility in Aitik. As part of the environmental permit, but we shouldn't take this because of the environmental permit because we suggested this ourselves, we will start separating the tailings in Aitik into high sulfur and low sulfur. That is done by us voluntarily because we do actually want to have this because it will make decommissioning of the low sulfur tailings cheaper and we will only have to do with the expensive covering of the high sulfur part. By putting this into place, putting all these dams into place around this, it means moving electrical framework. It means moving a road that we have there.
It's new dams, new water management, including all these things you see on the right there, new water facility. What you see down here with a little line is a new spillover, which has nothing to do with the fact that we're going up to 45,000,000 tonnes, but just the fact that we're continuing to operate and raising the tailings facility over the old spillway means that we need a new one. And all these things together cost more than the crusher we just saw. But we don't talk so much about it because we call it mine sustaining it. But it's also one of the reasons why we are in a relatively intense mine sustaining investment phase over the next couple of years.
And Hakan will talk more about the exact numbers. Moving over to the Boliden area. Here in the Boliden area, as you all know and has been around for many years, the Marliden mine is depleting. 2017 is the last year of full production. We will have some production still coming out in 'eighteen and also in 'nineteen.
But in the Bulin area, we will not be able to pick and fill that slack of the depleting Mauriden mine from the other 3 mines that we have, which means that the mine production will go down with an estimate of about 200,000 tons per year for the next couple of years until we can find something else to replace those tons. It's a little bit of a pity since the actual concentrate has been going so well
for the last 2 years.
And Lena showed the picture of Jenny who might be part of that extremely well developing of the concentrator. Here again in Berlin area, we do store ores and we've had safety stocks of ore. Those stocks of ores are relatively low right now because the mill has been going so good compared to the mining that they've been chewing in some of that reserve stock that we've had. And therefore, we will have to also slow down the mill now as the mine becomes the really constraint here. In also when you're modeling and I think this is stating the obvious, but Maurelidien pit is, of course, an open pit as opposed to the other mines which are underground.
And as we're doing this, the cost, if you look at average cost, will go up because it's underground, proportion will go up to 100%. On top of that, we're also having some rock stability issues in the Kristneberg mine, which will cause higher costs in the next period and also higher development as we've had since experiencing some rock instabilities, which means that we need to do a different type of development than we had thought. Now what are we doing to extend the Bulin area? Well, similar to Tara, we also here have a limitation of the tailings facility. We are and we said this before investing in extending the Hoeghschen tailings facility with its Phase 2.
That project is ongoing, underway, should be in place also around somewhere around 2019 where when the old one will get full, which also gives us production that's up until about 2028 in this case. But we also need more ore and where we hope to get the more ore is out of the mineralization that we have in Rebliden. Very similar to I think we're building here a new drift to get access to the new ore. This is west of the Kislneberg mine. We're about halfway now.
We will reach the endpoint also around 2019. And around that time, we can also start much more intensive exploration from underground to get the this what is now I think officially a 7,000,000 ton mineralization to see if we cannot find it larger. It's also open in very many directions and we have good hopes that with more exploration this one can become bigger. And then we can start getting a permit and product around this so that it's somewhere between say from 2021 and 2022 can come into production. Curilati is another area where we may not have so many good news in terms of exploration, unfortunately.
As you know, Kyllakti is a short mine. We have not been able to get the breakthrough that we had hoped in terms of exploration in Kyllati. And so we don't have any great news there. However, cobalt is an interesting thing and maybe the big thing of bullion and cobalt is not a big that's important. But for Kirlakti it's important.
Those of you who read the R and R statement and thought a little bit for a while, you know if you do the insito value and especially if you put in the present market prices in there, cobalt is the biggest metal. And that comes the question, okay, so why don't you talk more about it? Why Hematria cover it? Well, it does have metallurgical challenges that we've been quite aware of for some time, which has made it difficult for us to get any high payable from it. Of course, with the higher cobalt prices, this thing has put some speed into our engineers and we're working as much as we can to find solutions regarding how to develop this further, how to get better recoveries, how to get better payabilities, which is also a question of finding the best smelter to take this that can recover the most of the cobalt into the next step of the process.
But as I said, this is something that we're working intensely on and it could make a difference for Kurelakti even though it might not be so big for Boliden. It could also make a difference for the availability of cobalt, which of course is something that lots of people are looking into and where most everything today is found in the DRC and this could be at least a small alternative source for cobalt. When we look into exploration in the Otokompe area, we are continuing. We are focusing here you see the Kyulakti mine and you see the old Oortokompo mine. In the line in between there is where we're focusing a lot of our exploration.
You see also up to the very left hand corner you see the Lokornakti mill. And of course, we have exploration rights in the Lokornakti mill and we also have exploration rights in other parts of this area to be able to fill the mill going forward. Just one slide and one word on exploration. If you were to look at many of our colleagues, I think most of them have said that they're stepping up exploration by now. They also stepped it down quite a lot.
I'm going to stay here and say that exploration is going to be roughly the same. We never really scaled back exploration even in the tough years, because we know it's an important part of getting the future to be able to work through the future. And we will continue there and we don't really see any reason to extend exploration at this time. We will continue this investment of about SEK 500,000,000 per year even though it's from a financial point of view taken as an OpEx. The focus is also very similar to where we are.
We're going to focus roughly 2 thirds near mine and the other last third or so what we call field or sometimes should call near mill, because you can see here on the targets that we're looking at, we're never really far away from where we are, which means that if you were to find things there, it could be things that could be potentially trucked into an existing mill, for example, in Kurelakti, Lokanlakti or for that matter in the Buliden area. Sophie is standing up there, so I understand it's time to summarize. We've had a very strong 2017, and we feel very good about 2017. I have today also spoken about the Garpenberg 3,000,000 tonne feasibility study that we're finishing off and that we have good hopes that we will have it around in 2020. We also have potential.
I spoke very quickly briefly about Lava, which we still feel is a good potential even though it's right now stuck in a legal mire that we can't really get through, but we're working on. We have ITX 45 that is very well progressing according to plan. We have Tara Deep and the Rebliden in the Boliden area, which are still very much online and we're working on even though we don't have so much more new things to say. On the negative side, well, everybody knows and you all know that we have been mining over reserve grade. That, of course, means that you cannot do that trick forever.
At some stage, we have to come down. And how exactly how we come down, we are working on every day. Mauryd is depleting, also not any news about that, which means that we will not be able to run the concentrator in the Bolid area fallout for a couple of years. We have a high investment cycle. Hakan will talk more about the money and the effect on the balance sheet, but I will myself talk more about the fact that we're doing these things internally, many of our investments internally.
It's also putting a strain on our organization to make sure that we can handle these things and do them well. On the minus side, no exploration success in Gilaty. I don't want to end on a minus, I'll end on a plus. We have good technology potential. We feel very good about the developments and the Kevitsa integration has worked out very well.
Thank you.
Thank you, Michael. So we will open up for a few questions to Michael. Let's start with we have from Elen Gabriel here.
Thank you. Alain Gabriel from Morgan Stanley. Michael, three short questions, I may, on Garpenberg. Firstly, on the grade profile post expansion. You said you'll come back to that at a later stage.
Can you give us a sense of magnitude of dilution in the medium term? Is it 5%? Is it 20%? That's the first question.
I don't exactly mean there's not really dilution effect. Of course, the grades will go down. But how fast I will come back to.
Okay. And second on the incremental maintenance at Garpenberg, should we take 2016 CapEx as a base and grow it by 20% as a percent? Yes.
That's a good that makes sense. It should be pretty linear.
And thirdly on the rock stability issues, do
you mind giving us
a bit more color on what is causing those? They seem to come back quite often. And then how should we think about those in the medium term?
Well, Gothenburg, I mean, this is part of it's a great mine in many sense, but it does have a negative part of it. That is rock stability. It is affecting us in different ways. The typical way that it has happened is that when we are doing drifting, so when we're doing developments, we do tend to get problems sometimes, which means that we need to bolt much more than we should do. This slows us down.
And in order to not lose production, we sometimes need to do the developments in different order than we had originally planned. So that's one thing. But we've also had issues inside the ore where sometimes the ore does not behave exactly the way you want to. And some of the stopes, we have not yet had to abandon any stope, but we've had to let some stopes wait until we have been able to put up the stability and rock fill and cement fill around certain areas before we can go and take these stops.
How are you thinking about the solution about those stability issues going forward because
I don't think there is an absolute solution to it. There is no silver bullet on how to handle this. It's going to be a day to day struggle to handle these things. But as I said, up until today, we have not lost any stop.
Okay. Thank you.
And the stability has been an issue since I ever area. I don't know
if anybody heard that, but it's not a new issue. It's been around forever.
And we have one more question from Lee
Yang. It's Lee Anne Fitzpatrick from Deutsche Bank. A couple of questions. Firstly, on labor. Can you give us an idea of the current issues that you're facing and how you might overcome them and any sort of steer on timing of that project?
And secondly, in respect of the stripping CapEx throughout the business, can you give us an actual number for this year 2018 2019?
If we start with Lava, the challenge is the following just to be very brief. It was used to be very easy. At first you got a mining license. Mining license was built on proving that there was ore in the ground. Then you got an environmental permit, because once you knew that you had the right to the minerals, you could then spend the money to get the environmental permit, then you can start a mine.
The challenge has come into this are twofold. Number 1, stand alone, there's been much more there's been a court case in Sweden where much more emphasis has been put on the environmental consequences already in the permitting of the mining license, much earlier than the mine, but that's one thing. The second thing that comes in play here is Natura 2000, which is around the area, not exactly lava, but close to. In order to be able to work there, we need to get a Natura 2000 permit. In order to get a permit, you need to do a very full environmental consequential analysis around that.
The Swedish authorities have claimed that you should get that first. Even before you can apply for the mining license, you should get Natura 2000 permit. And we have appealed that order because we say it's not really sensible anyway. We should get the mining license the way we've always gotten them and then we'll deal with Natura 2,000 together with environmental permit. That's the legal issue that's right now been in face of the Swedish government.
Regarding the amount of stripping, I'm looking a little bit at Hakan. You will come to that in your presentation, right? Yes. Yes. So I'll leave that one to Hakan, and he will come back to that in detail.
And we have time for one more question. Olas, the microphone can have a microphone. It's on the way. No, it's over there.
Ulla Sodermaier, Kepler Cheuvreux. Just a follow-up on CapEx. Should we expect CapEx to peak next year 2018? Or and can you tell us a little bit about the difference or the difference between the CapEx in mines and smelters and I
think that's an excellent question to lead to Hakan, because he will talk about both of these issues after lunch.
Perfect. And that was our final question for Michael for this turn. That leaves us to we will have a break. And for you here in Stockholm, lunch is served upstairs. And I encourage you to look at our exhibition where my colleagues from mines and smelters are showing different technologies and processes on how we are improving our competitiveness.
And we will start here at 1:15 p. M. Sharp. So please be back by then. Thank you.
So welcome back. I hope you enjoyed the lunch. And now turning to the other part of our balanced strategy. I would like to introduce Cestin Konradsson, President, Bulid and Smelters, to share specific examples on how we are maximizing value across our organization. Kerstin?
Thank you. So we have during the last years managed to strengthen Smanta's competitive position. And I'm very proud of where we are today. I feel very confident in the strategy we have. And my focus is to continue to strengthen and increase the competitiveness of our cementers.
So which are the most important factors for smelters in order to create value? Well, first of all, we need to have stable processes. Stability is always key. And if we manage to have stable processes, then we can maximize the value from our existing operations and we can maximize the value from our existing raw material feed. The second one is to strengthen our technical capabilities in order to take more different kinds of raw materials because if we can open up and take more challenging materials, meaning raw materials that few other smelters can treat, then we can select the most profitable ones, and we can work even more in optimizing the value from the raw material mix.
Have we been successful in doing this? I will say yes. So if we take a look at Wood Mackenzie's cash 20 12 compared to 2016, we can see that basically all smelters but Harjavalta, I will come back to Harjavalta, have managed to quite substantially improve their competitive position. If we look at Harjavalta, if we now would include a new Nikke business model we have in Harjavalta, in this comparison, you will see that Harjavalta is a very competitive copper nickel smelter, which I will come back and prove to you later. So first, let me now try to explain why stability and technical capabilities are so important for smelters.
So taking a look at the gross profit. Gross profit from smelters is built from treatment and refining charges, free metals, byproducts and premiums. And they are impacted by external and internal factors. The internal factors are the ones in the light blue column. They are the ones set by the market.
And here, we are just a price taker. So my focus is on the internal components because these are the ones where our performance can make a difference, and that's the one in the light gray. I've already talked about process stability, technical capabilities and raw material mix. I should also add that the customer mix place has an important the it means that we need to have high availability of our equipment, and we need to have high capacity utilization. But it also means that we need to have a process and balance.
We sometimes talk about this. And what does that mean? Well, if I would put it very simple and say the material we feed into the smelter must come out as products. If we have an unbalanced system, the feed doesn't come out as products. They stay as intermediates building up stocks.
And this is creating big problems. So if we can manage all this, have the stability, then high FEED, high production will contribute to high treatment and refining charges. Good recoveries will contribute to high free metals, and we will have revenues coming from the how we work on optimizing the raw material mix. But first, I would like to give you some examples on how we have worked with problems. They never fed what they had in the plans.
And also, they built up intermediate stocks. So what we did was that we started quite intense and very well organized program working on the availability. We improved the maintenance planning. We replaced old equipment, and we also worked on the process balance. We looked at the feed and how we could optimize it.
And actually, as a result, you can see on the left side that we have managed to increase feed in Harjavalta, giving more treatment charges. And also to the right, you see that we have managed to increase the value of free metals coming out. And in order to make this comparable now, the free metals are based on the met value now end of September. So this is really showing the underlying improvement in Harjavalta. The big jump you see in 2016, that's, of course, related to the new Nikke business model we took in operation, so not only coming from copper.
If we look at Renkare, slightly different, you can see that the FEED has been more stable. But I guess most of you remember the problems we had in 2013 when we ran into an unbalanced system. We started an improvement program in 2014. We closed that in 2016. The main target of that program was to address this problem of unbalance but also to work on reducing costs.
At the end of last year, we reported an EBIT improvement of SEK 275,000,000, which was in line with our plans. You can also see that 2016 compared to 2012, we have also managed to increase the value coming from free metals. So this is copper smelters. Contrary to copper smelters, we have this year reported a lot about production disturbances in our zinc smelters and especially in Kokola. So to elaborate a bit on the problems in Kokola.
First of all, I would like to say that this is a problem isolated to the cell house. It's a very complex problem. It has consisted of many small, some bigger, different problems, all together adding and creating a big problem. Secondly, I would like to say that this is a problem that was hidden to us for some time because we had other problems in Coca Cola. We had a reactor breakdown.
We had a reactor fire breakdown. We had a fire in the cell house. So actually, this took away our focus from the cell house. So unfortunately, it took some time before we started to see the problems. But about 1 year ago, we reported problems in the cell house.
This graph shows the capacity utilization of the cell house, and you see the level of 100%. This is if we have full operation, no maintenance stops, no nothing, then that's the level where we should be. Of course, there are natural variances compared sort of related to these stops. What you can see, especially in the Q2 this year, then the problems escalated. And we saw that in terms of having poor physical quality of the zinc, and we had low current efficiencies.
So we had to reduce production quite dramatically. So the question then, what have we done? Well, we have done a lot of things. We have worked on the mechanical equipment. We have improved planned maintenance.
We have improved procedures. We have replaced all worn equipment. And I would also say that we have done very extensive research work. This is a very chemically very complicated process. And we have used internal expertise and external expertise, dare to say that today, we know much more about the process of a sell house than we did some time ago.
And I would also like to say going forward then, because I guess your question is, is problem solved or what can we expect? If you look at the graph, you see end of Q3, that's actually mid September. Since then, and this is now 2 months later, we have had very stable production. Positive. I should say, however, that there are some still unknown factors to us, and there are still some activities remaining to be put in place.
But I spoke to our General Manager, Jan Moranen, this morning and he confirms that we are still on this good level. So we are positive about Oda Kokoda. Going into Oda, because here we have had a big maintenance shutdown in Q4, We have replaced, we call it a doom of the roaster. It's the roof actually. It was original going back more than we are now running at full speed and CapEx, time wise, everything on plan.
So coming back to technical capabilities and raw material mix. We quite often talk about complex raw materials. And what do we mean with that? Well, a complex raw material is raw material that very could be impurities, but it could also be that the physical properties as such are difficult for us to treat. So they are often traded at the market at a higher gross profit.
So the alternative to complex raw material is something we call a liquid raw material because that's something you can always put on the market and a smelter can treat it. So if you look on the right side, you see the typical components of a gross for a liquid material. You had benchmark TCs, some small penalty and free metals. On a complex raw material, they are often traded at higher treatment charges. One example has been the copper concentrates containing arsenic, for instance.
The penalty element is also quite often high due to impurities, could be mercury. The free metal part is also quite often big. It could be low due to lower payable contents. One example here that we use is copper concentrates contain quite often nickel, nickel. And not all smelters can handle nickel.
Nickel used to be a penalty. Today, it's a free metal. So what ever nickel I can extract in my copper smelter counts as a free metal. So if we now compare the gross profit for a complex raw material and for a liquid raw material, we see that there is a profit margin. Then of course, we should remember that treating a complex raw material often comes with a higher cost because you need to have more process steps and most likely you also need to do more maintenance.
But these things we take into consideration when we do the modeling because we do model this and we do calculate which is the most profitable feed. So in the end, we will come to a net margin. I will say this principle only applies in a long market when concentrates are available because in a short market, everyone fights to fill the smelters and then we are prepared to pay also for the complex ones. So I will try to show you now how we work on this more practically. Taking a look at the picture on the right side, this shows well, prices and demands they prices and terms, they are driven by the demand situation, demand supply situation for metals and concentrates.
The picture indicates the normal business cycle and how it favors smelters and mines. So if we just now look at the concentrate part, which is the horizontal axis And if we would start looking at copper, you see that copper in 2012, we had a deficit. There was a shortage of concentrate. My focus was to fill the smelters. Now during the last years and also even this year, there is still an oversupply, meaning that I can select from a broader range and I can pick the most profitable ones and I can combine an optimized feed mix.
And if we now look at the left side graph, this indicates our numbers. And this is now, I would say, the difference between the gross profit of our feed versus a liquid feed. But here, we have also taken can say. And we can see that going from 2012 to 2016, we have managed to increase the value coming from copper concentrates. And of course, this is due to the market, but it's also due to our technical capabilities of taking a broader range of concentrates.
Looking at zinc, it's the opposite. So you see that in 2012, we had more or less balance. And today, we are in a clear deficit and we can see that the curve is well, the reversed one. But still, I would say that thanks to our technical capabilities, we have still managed to keep this on a fairly high level. So we believe that working with raw materials creates some clear advantages.
And if we can combine the strong technical capabilities with having very good waste solutions, we can create very competitive smelters. And I will give you 2 examples, and then I will come back to why the broad range of smelters can add even more value. So my first example is Rangkaj. And if we take a look at Rangkaj, we have some unique technical capabilities. We have the fuming furnace.
Not very many copper smelters have a fuming furnace. The main benefit is that we can take in different kinds of raw materials, primaries and secondaries containing zinc, and we can take out the value from that. We have the lead Caldo, which is dedicated to treating lead concentrates. We have the Icaldo dedicated totally to recycling electronics. We have the roasting furnace, which is very good in terms of taking out impurities like arsenic, antimony and some other difficult stuff.
And then we are building the deep underground opportunity to look at it in the exhibition during lunch. Actually, where we are today, we have finalized this is actually building a mine under Renrenkrai. We have now finalized the ramp. So we are now at a level about 300 meters below surface level. And now we start a process to build the storage rooms.
And this will be in operation in 2019. So what's so good about this? Well, several things. First of all, we have technical capabilities to take care of impurities. And when we have done that, we don't need to send any hazardous waste by transports somewhere else.
We actually just take it downstairs. And this offers a unique I mean, I would say that our suppliers, especially the ones that sits on these more complicated raw materials, they see this as a clear benefit. We become a preferred customer because they feel that their raw material is safe in our hands. They know where it ends up. So what does it give Ranghe as such?
Well, if we look at Ranghe, it's, I would say, a medium sized copper smelters. We don't really have any big economy of scales. It's also you have seen it before, it's a very sort of expensive high cost smelter. We are on the 93rd percentile from a cost 18th percentile. My second example is Oda.
Oda is slightly different. Here I will say that we have 2 different process routes for the concentrate. We have the direct leaching process. That's very suitable for instance, fine grained material. The roaster doesn't like fine grained material, but the direct leaching does.
On the other hand, the roaster is very good in taking care of, for instance, chlorines and fluorines. So what we can do with the raw material mix is that we can direct it between these two process routes and try to make the best out of it. We also have and this we have had now for many years. And those of you who followed us to Oda last Capital Market Days, you actually had opportunity to go into the mountain caverns, which you can see on the right side. They are located in the mountain on the left of Oda.
So what we do is that the waste, the gyrocyte, the sulfur and we also even have special chambers for mercury, we bring into a safe storage into the mountains. Another thing with Oda is that we are located in Norway. I think Thomas spoke about this. And what's so good about that? Well, zinc smelters are very electricity consumers.
They are very are very electricity consumers. They are very big in consuming electricity. And Norway is producing their electricity from hydropower, meaning that our carbon dioxide footprint in Oda is extremely low. So once again, looking at the conclusion from this, well, Oda is also medium sized zinc smelters. They don't have and that's a problem, but they don't have so many byproducts besides zinc.
So they need to compete with cost. And that's what they have been doing now in the P100 program, in the expansion of the P200 to stay at a cash margin position of about 44th or mid percentile. So coming back to then why is it so good to have a broad range of smelters? This is 2 smelters isolated. I have 5.
So what happens when I combine them? Well, first of all, I have talked about the raw material part, what goes into the system. And I have talked about how we work on optimizing the feed mix. Actually what this gives me is not only the optimization for 1 smelter, but I can actually access the total raw material portfolio for all the 5. And I can, depending on the situation, actually also redirect raw materials.
And to some extent, I can also work on trying to reduce and minimize stock levels. So that's one thing. I have also talked about the value of extracting free metals and byproducts. And we do that by reprocessing the residues that each and every smelters produce. A lot of this is done internally.
For instance, in One is the silver concentrate we produce in Kokola. We have been selling that externally. Now starting next year, we will reprocess it in Rancher and refine it into final silver product. Another example is that some of the zinc concentrates, they contain copper. That's an example.
Both Oda and Kokola, they can extract copper as an intermediate. We call it copper cement, which we send to Juncker and Harjavalta. They remelt it. They refine it. And in the end, it comes out as refined copper product.
And there are many, many more examples of how we work on reprocessing the internal waste streams. And all in all, I think Mikael spoke about they're producing 10 different elements. In this system, we actually take out almost 20. The third one is, and this is something Thomas spoke about from the sustainable point of view, waste. So why is reduction of waste so important?
Well, of course, one thing is that it contributes to our CR perspective CR strategy. And I think personally that but this is a way for us to contribute to a resource efficient world. That's great. But of course, there are other reasons as well. If we can extract more value before we put it into waste, we will increase our gross profit.
And if we can reduce the volume of waste we need to deposit, then we will save costs. So there are many good reasons for us to focus on the reduction of waste. So I will say, and I was very happy when I saw this one, that our strategy has actually contributed to quite a substantial increase of our gross profit during the last years. So going from SEK 7,300,000,000 in 2012 to SEK 9.4 billion in 2016. That's an increase of 30%.
And then of course, you could argue and you could say that well, market terms have improved and so on, and that's true. But actually, I would improvements, our internal performance. So what's behind this? Well, I have talked about some of the activities that we have already accomplished. I will come back to 2 of them to give you some more details.
I will talk about expansion in Oda and I will talk about the new Nikke business model in Harjavalta. And then just for your indication, we do have ongoing activities that we strongly believe will be very important for us in continuing this journey. And of course, there are more ideas, but these are the ones that we have decided. So starting with Oda, This is very much in line with what I said before, improving the cost competitiveness of Oda by expanding economy of scale. This was an investment of SEK 350,000,000 and I'm very happy to say that we were on plan both on CapEx on and in terms of putting the capacity in place.
We reached it in the Q2 this year. Then unfortunately, due to all the problems we have had with other parts of production, we have not been able to utilize this new capacity. But now after starting up the roaster, our target is to as quick as possible be back on the 200,000 tonnes annual pace. My second example is, I would show the I would say, a really great one. First of all, it's several things.
I talked before about the copper, the development and stability in copper. And you can see same graph here how we have managed to increase the copper feed. Then we have the nickel part. You know that up until mid-twenty 15, we were doing tolling. Now we turned it into our own business model.
And so we are in charge of our own raw material portfolio, and we sell the math to customers. You can actually see here that from 2015, the feed of nickel has increased. And that is actually due to the fact that now when we have everything under our own control, we can work more on optimizing the processes. And of course, the new Nikke business model also gives us different value. So all in all, it looks very impressive.
We have doubled the earnings in the EBIT in Harjavalta during the last years, some related to prices and terms, but very much related to these improvements. So what does it all means in terms of profit and return? And looking at this 5 year period, you can see that there is quite a dramatic stepwise improvement. 2014, I should say that terms started to be more in favor of smelters than they have been before. But still going back to the gross profit development and all the other things I have showed you, I would like to claim that a major part of this improvement comes from all our activities.
So to sum up, improving process stability, strengthening our technical capabilities and optimizing our raw material mix, they have been the key success factors in order for us to improve Smelter's competitive position.
Thank you.
Thank you, Kerstin. So we will now open up for questions. And let's start with Daniel here. We have a microphone on the way,
yes. Thanks. It's Dan Major from UBS.
I mean,
we've sort of seen this presentation and running as Sousa drivers of kind of what impacts profitability in the smelting business before, but it remains quite a difficult business, I think, for most of us to model. Can you kind of give us a sense, I guess, you said a lot of the driver of improvement in profitability has been internal. Are Assuming external parameters remain constant, do you think you can still increase margins and increase profitability in the business by internal drivers?
Yes.
Can you give us such a magnitude of that?
No. Okay. Fair enough.
All right. Thanks.
I think also Chris and Jan, yes.
Okay. Thank you very much. A few follow ups here. Firstly, on the free metals, you mentioned that you have seen a pretty good trend over the last few years. Do you expect the trend on free metals to continue?
Or was 2016 an unusually good year?
No. I mean, I gave some examples. For instance, reprocessing the silver cones in Langhall. It was on the slide. We are opening up the nickel capacity in copper cones in Harjavalta.
So we do take some small steps in order to continue to increase the level of free metals.
Right. And on Compact Materials, do you see that trend also continuing going forward? And on the competition side, do you expect to see tougher competition?
I see the trend still I see the trend continuing. And yes, I see that many smelters have a similar strategy as ours. So
Okay. And finally for me on where you can see I'm really happy to see that you have made a lot of improvements here in Q4. Is Oda the smelter that you see biggest improvement potential from the current run rate into 2018? Or is it someone else smelter?
I would say that we see potential in all smelters.
All right. Thank you very much.
And we have a question here also.
Hello. Hi. Thanks for handing us here today. It's Olivia Du from Merrill Lynch. So a real quick one.
So a few years back, you mentioned that your net exposure in self smelter is probably like 75% zinc and 25% copper. Does that still remain constant? Sorry if I missed that answer previously. And second thing is, could you give us a bit more guidance on TCR C going to next year? Thank you.
Yes. Well, first of all, we get about 70% of the zinc internally and 30 copper. I'm not sure if that was what you said, but the rest would go out and buy on the market. Regarding TCs going forward, I think that's an ongoing discussion. And you will get a different answer coming from Mikael than from me because we are in the process of negotiating.
But I will say that what I see is that the sentiment for copper is very good. There is still oversupply. So I don't see a big reduction, maybe some, but I basically, I would expect to have it the same level. Zinc is slightly different because there is clearly a deficit now. On the other hand, we see that there are a lot of new mines mine projects coming on stream and there is also idle capacity.
So I will say that depending on when the benchmark is set, that will have a big impact on the outcome. Normally, the benchmark for zinc is set during the spring.
Sorry?
Yes. Around March, yes. And our final question here from Johannes.
It's Johannes Handelsbanken here. So I'm just curious what do you hear and see when it comes to smelting closures in China, because we hear this in other industries like steel, like in aluminum. It's the same thing going on, on the smelter side in China according to your knowledge.
Well, I've not heard much about closures. But for instance, if you look at zinc smelters, you have very many small zinc centers below 100,000 tonnes of capacity. And with the same rationale as they closed down the small steel mills, I think that they should be closed down and replaced by bigger and more modern one. But we don't see that yet. Healthy cash flows and stable earnings are a key part of our value creation story.
And now our CFO, Hakan Garebresson, will summarize on how we will continue to deliver shareholder value. Please, Hakan.
Thank you, Sophie. First of all, it's a pleasure to be here, and I'm happy that so many of you could show up. It's my first Capital Markets Day for Borliden. 1.5 years ago in this building, this room, I had roughly the same status as Kevitsa, announced but not yet the property of Boliden. I'm going to cover 3 areas in the next 10 minutes or so.
1 is the financial position and our current performance. Second, a few words about our financial targets and finally, some facts that will help you model next year's results. Let's start with cash flow. We are currently running at SEK 6,500,000,000 free cash flow. This is done rolling 4 quarters.
If we take out the CapEx, then we have SEK 11,000,000,000 cash flow from operating activities. And as you can see here, it's a very positive trend over the last 5 years. In the beginning of the period, we had heavy investments in Garpenberg, an investment that's proved to be well timed and that had contributed a lot. Following that, we had a couple of years with healthy cash flow on stable levels in spite of fairly challenging market conditions. And then over the last year, we've had, in fact, a sharp increase in the cash flow since Q3 of last year.
Of course, strong cash flow also has an impact on the balance sheet. At this meeting, as both Leonard and Mikael has commented, this meeting last time, Kevitsa was just about to be acquired. We were at 21% gearing net debt to equity. And immediately after acquisition, we increased to 45%. So a quite steep increase in a difficult market.
At that time, we said that the top priority was deleveraging. And it's I'm happy to be here today and say that we have actually delivered on that. We're down to a gearing which is lower than when we started. So from that perspective, you could say that the Kevitsa acquisition from a financial perspective is sort of paid. So we have a solid balance sheet, but we also have a solid financing in place.
We have SEK 13,500,000,000 committed credit facilities, out of which roughly SEK 6,000,000,000 are utilized. We have a strong payment capacity. We have a duration where most of the maturities happen, 'nineteen to 'twenty one, and we have a really strong interest rate. So financially, in just a couple of words, we're in good shape. I would, however, also like to look a bit on some of our peers and compare Boliden.
That goes back to what Lena talked about, the strategy with low volatility, low risk and preparing for the downturn. This is a bit of a busy slide, but the vertical lines represent the span of return on capital over the last 5 years. So at the top, you have the best year, the bottom, the worst year and in the middle, you have the average. And then the gray shaded area behind is the total return over the same 5 years. There are two areas where I would like to draw your attention to in this sense.
And the first one is the size of the span. Voliden is actually the smallest span between the best and the worst among all the peers over these 5 years, meaning then we have a clearly lower volatility than the average in this industry. The second, which is perhaps even more important is if you look at the what it looks like the worst year, the lower part of that chart, Boliden is actually better off during the worst years than almost all other peers. And of course, this comes back partially to our asset base with smelters and mines, precious metal, base metals, not streaming, etcetera. But I would also say that it's attributable to the focus and the strategy that we have in the company.
We do focus on the next downturn. We strive always for a low volatility and for a low risk. And I think that is also one of the explanations to the good return on the share that we have had over the last years. Moving over to financial targets. They have been around for quite some time.
They've served us well, and we confirm that it's the same targets that are still valid. Return on investments, at least 10% in real terms. Net debt to equity, 20% in a good business cycle, and we have a fixed payout ratio of onethree of the net profit in dividend. These are there to manage cycles and to create value over business cycle in this volatile industry. Moving over then to the capital allocation side.
We summed it up in one picture here. I mean, firstly, obviously, with the cash flow from operations, the first thing we do is to we pay for the maintenance CapEx to continue producing at the current levels, and we pay for our fixed annual dividends according to the onethree of the net profit payout. Then the rest, that's basically a decision of finding the right balance between capital structure, acquisitions and CapEx. And just a few words on each one of these three boxes. Acquisitions, we want to do them when the valuations are attractive.
We want to do them when the right assets are out in the market. This is no news to you. I think Kevitsa is a good example of that. And for those two reasons, I believe that the likelihood of a major acquisitions in the very near future is probably quite low. Regarding CapEx, we have not changed the decision criteria for CapEx just because we happen to have a stronger balance sheet.
We stick to the same decision criterias. We don't spend more money because we have cash. It's perhaps obvious, but the decision to go into larger growth projects is more a function of when the opportunity arise and when the organization is question in question is ready for such a big investment. You've seen that we talked about the total CapEx of just over SEK6 1,000,000,000 for next year. I will come back to that shortly.
And then finally, adjusting capital structure. So far, at least since I joined the company, the main focus on adjusting capital structure has been to reduce leverage. Starting from 45,000,000 working our way down quarter by quarter. And then finally, a month ago, we reached a 20% level that we've been striving for. Any further adjustments on capital is not a topic for this Capital Markets Day, and if that should be the case, we will have to come back at a later stage.
All in all, I think I mean we talked about the shareholder return. I cannot sort of I cannot stop myself from showing it one more time. This is, of course, a picture that a CFO loves. We've had a good growth in dividend payouts year by year since 2013. And the total shareholder return, we've outperformed the world index, the Stockholm OMEX 30 index and the Global Mining Index over the last 5 years.
So as you saw from Lena's presentation earlier on, this is also true if you pick some other time span. So it's a really strong return over this period. Then moving on to CapEx. Mikael got quite a few questions that he referred to me, and I see what I can do to answer them. CapEx is our CapEx plan is slightly above SEK6 1,000,000,000 for 2018.
We had a guiding for 2017, which was just below SEK 6,000,000,000, so roughly the same level. We reduced it to SEK 5,500,000,000 and some is pushed into 2018. The main increase is in maintenance CapEx where we move from SEK 3,500,000,000 to SEK 4,000,000,000. And in maintenance CapEx, the big part is stripping in Kevitsa and in Aitik. Mike will show that we will have a period of high costs in Aitik or in Kevitsa for the last for the coming 2 years, and that is also something that will have an impact on years to come even if we don't guide for this at this time.
In addition to the maintenance CapEx, we had 3 big projects that we talked about at the Capital Markets Day a year ago. It's the surface crusher in Aitik, it's the sulfuric acid plant in Heijerwalta and it's a deep underground repository in Ranghar. Altogether, these 3 add up to roughly SEK 1,000,000,000 in 2018. Growth CapEx is smaller numbers. We had something in Kevitsa, which Mikkel talked about, EUR 70,000,000 over 2, 3 years, and we have a smaller amount in Garepembe.
So that's the main areas of growth in the CapEx. Then the remainder is debottlenecking, margin enhancements, some smaller environmental investments. And just one more word around maintenance CapEx. The big part there is mine development work, stripping, tailings dam and replacement and the replacement equipment is a smaller part. 80% is mines, and out of those 80%, 60 percentage points is the mine development, stripping
and the tailings
and 20% is smelters. Stripping and the tailings and 20% is smelters. Maintenance shutdowns. We had a year 2017 with extensive maintenance shutdowns, SEK 450,000,000 in EBIT impact. The good news is that 2018 is going to be lower, SEK 200,000,000.
And EBIT impact here means primarily lost revenue due to production stop but also part of maintenance cost. Finally, internal profits, perhaps a bit more technical part, but that is an item that has had a significant impact on a few quarters during last year. It does so when prices are good. Essentially, this is a matter of timing for revenue recognition. It doesn't have any impact on the long term cash generation, but it does have an impact on short term quarterly results.
And just to give some to try to give an order of magnitude, a 10% increase in metal prices will lead to a one off effect negative of SEK 180,000,000 on EBIT, so it's substantial amounts. 10% change in the internal inventory is a smaller impact, negative of SEK80 1,000,000. This is then assuming current prices and average inventory levels. So that's to give an order of magnitude what you should be looking for. However, I do need to emphasize that the mix effect is significant.
So it's not easy to model depending on whether we have the inventories in finished metals or in concentrate and the level of precious metals. But this is at least an order of magnitude. So as a summary, financially, we're in good shape, good cash flow, good balance sheet, stable financing and our strategy and financial targets remain firm. So with that, Sophie, questions?
Yes. So do we have any questions? Yes, we have one from Connor. Ilona is on the way with the microphone.
Conor Rowley from Credit Suisse. I'm just looking at one of your financial targets of net debt to equity below 20%. This used to be, if I remember correctly, a lower threshold. So if it's now a sort of a ceiling target, where would you want to see net debt? In the absence of any further
that is sort of the level we want to achieve, 20%. And of course, with the current cash flow, we will continue to work our way further down given the CapEx guidance and so on. And whether the board and the AGM wants to handle the cash, that's basically a decision for them. But we don't have an operational need to go lower than 20%, if that answers your
And one question also from Alain.
Alain Gabriel from Morgan Stanley. If I may go back to the CapEx guidance for 'eighteen and beyond, there looks to be a step change in your maintenance CapEx from SEK 3,500,000,000 to SEK 4,000,000,000. And you highlighted for the next couple of years, we're probably going to be at the same level. If you look at the strip ratio slide that Michael has shown, it looks like stripping ratio is going to be higher until the early 2020s or 2023 or so. Is it fair to assume SEK 4,000,000,000 as a normal run rate ex Garfenberg going forward?
I think if you look closely on Michael's slides, you can see exactly which years that are the peak. And I think we're talking about this year, next year and to some extent, the year after that. And during that period, I think that's that level of stripping is reasonable. Then stripping makes up stripping and rock development makes up roughly 60% of the total maintenance CapEx. And how we time the pure replacement of equipment, I mean, that's typically not anything we need to do one specific year.
We cannot wait too long because then we put the business at risk. But for sure, the stripping will remain on a high level for this year, next year the following year.
Okay. Thank you.
We have one question
Dan Major from UBS. A follow-up question on your CapEx guidance. If you look back at the last few years, you've consistently underspent versus guidance. And you've explained in the past that's in part the deferral into the following year. If I take your guidance for 2018, or is there any reason to believe that you will not be able to do the same again in 2018?
So actually, SEK 6,000,000,000 is SEK 5,500,000,000.
Looks like you're going to say something. In fact, I mean, it is a critical area for us to keep the pace in the stripping and the rock development. If we don't, it will have a it risks at least having a negative impact on the production. We've been working hard with the priorities for this year. And I do think that I mean, for sure, we will do our utmost to spend the money that we have said.
This is not sort of a wish list. This is something that we really need to do to keep the production going.
SEK 6,000,000,000 SEK 6,000,000,000?
It is.
Okay, thanks.
And we also have a question from Liam in the back there.
Just on the CapEx. On the environmental side, we were told earlier that spend has been going up over the last 10 years and it's going to continue to go up. So within your CapEx numbers, can you break out the amount that relates to environmental spend? And do you have any sort of idea on the sort of growth rate we could see in that over the next 3, 4 years?
I think if you look at that as a long term average, it might be right. However, in the 'eighteen numbers, we have 2 very significant projects that are related to environmental performance. 1 is the sulfuric acid plant and the other one is the underground repository. I mean there are 2 other 3 constituting that SEK 1,000,000,000 in this year only. So these are huge investments.
And it's not necessarily so that we're going to launch a new one of that size every year. But I think it's fair to say that over time, we have seen an increased focus on environmental aspects, and I think we'll see that across the industry. And I mean, it's not unlikely that, that's going to continue, although I think that we've probably taken the biggest step in that increase.
Thank you. That was our last question for Hakan. Thank you so much, Hakan. And before Lennart sums up, I would just want to give you some practical information. I'm so pleased to see so many of you joining us to Kevitsa.
And besides the guided tour, we will also look at what we have achieved so far and also the route to 9,000,000 tonne, as Mikael mentioned. And the bus departs from the corner of Grivtubrugarten and Linea Garten. You have received a map, those of you who are going to Kevitsa. And I also have my colleagues helping you. So please look for them at the entrance.
And it's also please note that it's not possible to check-in directly at the airport. You check-in at this bus. So Leonard, please go ahead.
Okay. On the way to Kevitsa or before we leave, I think we have conveyed a number of messages today. The company is in good shape. We have outperformed the industry, thanks to many of the technology changes we have done and other things. We have enjoyed similar prices as our competition.
We have had some luck with currencies. But all in all, I would say that currencies and terms or currencies and metal prices have been similar compared to the bulk or the majority of competition. The strategy remains intact. It has been successful. We think it's fundamentally important to excel with what you have before you buy new things.
New things in this industry is very expensive. When we excel with what we have, we tend to excel also with the new stuff. And selective acquisitions is high risk. We should do them, but we should be very careful. And today, from presentation, you have given a lot of information, so some can backtrack the synergies we had with Kevitsa.
So good deal there. I spoke about the cycles. I think it is quite interesting or compelling. I mean, everything in the world, doesn't matter where you are. Permitting is taking longer time.
Capital intensity is increasing. Bigger investments take bigger time or longer time to decide on because people get nervous. And obviously, they take longer time to build. And therefore, the cycles may be longer. And in the case of copper, zinc and nickel, with a similar demand pattern, they're ending up in different sides of the prices at this point, which is evidence of the supply cycles being so fundamental for the development for us going forward, much more so than the demand.
People and technology is very much what Mikael and Kerstin have been talking about. Growth of Aitik to 45,000,000 tonnes, growth of Garpenberg to 9, growing Kevitsa to 3, sorry, and Kevitsa to 9. Hopefully, with a bit of luck on cobalt, maybe we can do something with Kulelakti. And Tara was going to deplete now. We are seeing a quite well, a clear avenue or a road to 2023, quite likely to 2026 and then we have Tara Deep for
a longer
life. So I think that's exciting. On the smelters, and some of that comes with lower grades, which is normal grades variations or grades are varying around the average. On the smelters, doubling the profit in Harjavalta, part of that being due to a strategic move in a new metal. Oda 200,000, we're not there because we had bad luck, I would say, with something which broke down right at the ramping up.
But we're hopefully having that behind us and we're going forward now. The biggest and most stable smelter we have is Kokkola. You saw the bumpy road there and we probably lost 10%, 15% production in that period. And cross fingers, it's too early to say that we're through it because you have seen the bumps have been coming a bit time to time during this period. But we think we're done.
We hope that we're done by now. And of course, the ultimate result is what we can do in terms of total shareholder return. We looked at this one, but probably just as important was the volatility of return on capital employed that Hakan showed and the fact that if you triangulate that high returns on shareholder and less volatile than the business in general, I think that is making the goal for us to be an admired company, to create a great business or what however we face it. So this is what we have tried to accomplish. And touch wood, so far, we're quite happy where we are.
We're actually very proud. We're actually very, very proud. I think that concludes the presentation. If we have time for a few questions, otherwise or what's the time plan?
I think we should end. And
Wasn't it have passed? What? Yes.
Sophie, I don't have Okay. One question. Who dares to say have one question? So we have Amos. And then we have a logistic problem because we have no microphones.
We have one on the way. Or no? Yes, we have one on the way, because my colleagues handling the microphones are your helping you to the buses.
Did I miss the program? I apologize.
Yes. As always, Dennis. As always. As always.
Thanks. So it's just really a philosophical question. Do you think a 10% IRR is high enough in your investments? Well, most of our investments are much higher or IRR than 10%. As a threshold, it may be a good guidance what we don't like to do.
But in reality, I mean, in the school book probably you ranked all the investment opportunities from high to low and then you cut something in between and then you try to do everything over 10% in this case. But of course, that's not how we do it. We do it for a lot of other reasons. Sometimes it's combined with environment. Sometimes it's a very long term.
And we know that the IRR as we can see it now is probably not that great, but it's something which is really fundamental for the long term success. And something is debottlenecking normally rather 20% or 30% IRR. So I'm not sure that, that is a very, very important number. I think we give it as a guidance that below that level we don't like, and maybe we should increase it, by the way. I don't know.
And thank you so much for joining us today and also for those who have watched via the webcast. And for those that is now going to Kievertz, please find my colleagues that will help you to the buses. And hopefully, you will really enjoy this site visit. Many thanks.