Good morning, and a warm welcome to Boliden's Q4 2016 Earnings Call. My name is Sophie Jarnios, and I'm Head of Investor Relations here at Soledence. Our CEO, Lennart Efrel and CFO, Hakan Gabrielsson, will give their comments on the Q4 earnings, but also on the resource and reserve statement published earlier today. After that, we will open up for questions, both from our audience here in Stockholm as well as via the telephone. Lennox, please.
Good morning, everybody. Strange times in the metals and mining industry. The first half of last year was very difficult, and we have now published the Q4, and both the 3rd and the 4th quarter have demonstrated very strong progress in the demand in the world, and Boliden has been able to deliver strong results in basically all operations. Our presentation today will cover a lot of the production and the general operations that we have, and I think that a few of our quarterly results in the past, say, 10 years have been stronger in the general picture of operations. And that combined with strong zinc prices, a soft Swedish krona, is, of course, giving a good picture.
But bear in mind that copper prices are not extremely high, they are reasonable. And nickel prices are really, really low, even though they have been even lower at the time when we bought Kevitsa. But the overall picture is not too exaggerated on the metal prices or exaggerated at all. Swedish krona is favorable. What we have seen in terms of earnings is, of course, a year on year development.
We're delivering strong results compared with the period when we were really concerned with planning of probably temporary shutdowns and cost reductions and everything and the year on year rolling 12 months or 4 quarters, of course, is an expression of that. We have had revenues of SEK 12,000,000,000 compared to a little less than SEK 10,000,000,000 Earnings before interest and tax and excluding the process inventory revaluations were SEK 2,100,000,000, one of the better quarterly results we have seen. Cash flows SEK 1,700,000,000, which is good, and the result is coming as a result of margins in Smelters and high production volumes in the mines. More on that later. We have seen some extraordinary or unusual items we sold business in Oda, which gave a €50,000,000 one off effect on the Q4.
If we look at the full year, as you can see, we are doing one of the best years. And then, of course, the first half of that year was very bleak. So if we would have subdivided this in half years, I think it is definitely a very impressive one. Earnings were SEK 5,000,000,000 compared to SEK 4,000,000,000, so not as great as the quarter over quarter, year on year. Earnings or free cash flow was minus SEK 2,800,000,000 but that includes a SEK 6,000,000,000 acquisition.
The margin impact or the margin development in the smelters is very much a question of focusing not so much on the tonnage produced but more on the free metals and to take not so attractive for the general market, very attractive raw materials and really using all the complexity or all the capacities we have in our smelters and drive the margin. And as you can see in the results, we haven't produced an overly lot of metal tonnage in the smelters. We have kept the costs on a good level, but we have done it on the gross profit, and it's basically the free metals. And they have probably been a bit on the high side in Q4. I would say that all units have been performing well.
And as a result, you see the cash flows and profits. And with the profits are coming a dividend, which is up from €325,000,000 to 5.25 When we look at the market outlook, I think we had a board meeting yesterday, and one of the question is, was is this a Trump effect we're seeing? But I think our conclusion is that it's not. In particular, we are going to see the same curve where it's very evident that it was a sort of a jump, which came back to a very general positive sort of trend line, which started before Trump. So I think it is more China, more the general economy in the world, which is coming to the better.
In the base metals, we have seen a good growth in both copper and zinc demand of 3 percent in the global demand growth. And the price reactions are basically driven by the supply side. Copper is slightly oversupplied, but not so much because of a lot of problems in many of the copper mines. But we are slightly surprised about the short term good copper price we're seeing right now. The good zinc price is very logical, following closure of several mines and the shortage on the supply side.
On the precious metals, we can see later. It's difficult to say, but we have seen a general sort of stable demand or macro for gold and silver because of the uncertainties in the world. If we look at try to say, okay, we can see the year on year or quarter by quarter development prices. But if you go to the fundamentals, we compare price and volatility. And here, you can see the prices for our three main metals from 2,007.
And you can see the maximum main price on the vertical line with the average in the middle. And if you and the lines are representing the 50%, 75% 90% 90% 90th percentile of the cash cost. And as we can see, zinc has been down on the middle curve here in the bad times, but we are way off and we were on this level short before well, in December basically last year. And then we have been moving up very much. In copper, as you can see, we are away from the cash cost curves, but we are not very high, and we're still lower than sort of general views on long term prices.
And as we can say, we can I'm seeing writing, oh, they are lucky. We have very strong nickel price because it was 8.5 when Kevitsa was bought and now it's over 10. Okay. 8.5 is somewhere here and over 10 is where we are today, But compared with historic prices or with the cost of the industry, it's a very, very difficult price level we have. So hopefully, this will turn in a different direction.
If we put together Bullion's portfolio, so the weighted average of our metals and terms, including both TCs and metal prices. We have seen a negative development, and this was a difficult period. And in the second half of last year, we saw these improvements. And the prices have been good. And these are the average of our currency basket, which is also going in the right direction.
So obviously, the combined effect is very strong. So the external world has been very good to us. If we then move into the mines first, we see a very similar graph. And as you can see, the quarter was very strong. SEK 1,100,000,000 in earnings, so over SEK 1,000,000,000 in earnings in the quarter.
CapEx, slightly higher than last year. Good production in every unit, and I can make them 1 by 1. All of them are delivering good results, good profit, good production. So it's really a very nice story there. And Garpenberg, of course, is an unbelievable investment we did there.
It's a beautiful mine. High metal prices and dollar we spoke about, and the cost has been slightly higher, but that is primarily driven by the good production volumes. If we take them 1 by 1, I would say Aitik is still a struggle. Now the production volume was better than we have seen in the previous quarters, but cost has been high because of the volatility, the repairs, the unplanned stops and the planned stops because we have to plan for many stops now to get it up and running. I think the volatility we have been cautious about and said that until we get the new crushers in place 2018, we're going to see volatility, and that will continue.
The copper grade is was up on 0.22, and we have said 0.25 in on this year. So that's good. And the last quarter came up nicely there. Boliden area, very strong production. I would say an exceptional job by Thomas, who moved on and the new management, too.
We have been doing a great job in Boliden area. And a long time ago, we had such a positive development. Gothenburg, I already spoke about. Kevitsa, very good. We bought a mine, which was loss making for SEK 6,000,000,000.
A lot of people said, that's a brave one, and he was brave. But we thought that given what we know about open pits in cold climates, about ag milling, about a lot of things. And we got a very good cooperation going right from the beginning. So we have been sort of focusing in on important things, and it has really been paying off. And the nickel prices have been coming up a little bit.
Killianakti, good production, and that is basically one of the few bad news. We have not been in the reserve update. We have not been able to extend the life of mine. So it's really short, and it's urgent to find new resources there. Tara is another just a success story.
High cost, difficult, going to be closed soon. We have been working on the cost side, got the impact in reducing manning, increasing productivity. And now we find Tara Deep, and we start to update the vehicle fleet because now we don't need to have everything depreciated to 2020 when we were planning to close. Now we can start to also move in better equipment, better performance, higher availability and so on. So far, good story too.
The update on Kevitsa, as we have promised. Basically, it's good. Of course, you're nervous when you buy something very expensive at a very challenging time. And an acquisition is always an acquisition. You cannot know everything that the seller is knowing, so you always wonder.
A little bit. But everything has turned out basically. It's whistles and bells and ups and downs a little bit. But no, I would say, all in all, as planned. We did an EBITDA of €500,000,000 and an EBITDA of €166,000,000 We have a lot of depreciation with the huge sort of stripping we have in the beginning of this mine.
Integration is going to plan. And so far, we have been working with really the ag milling and the process improvements in the mine and how we feed the mill with an ideal sort of combination of ore size wise and quality wise. If we then turn into the update of resources and reserves, we do that once a year. Basically, on total, if you just look at the big picture, we have been replacing the ore we have mined in the year. But below that general statement, we have huge differences.
The by far most profitable mine, Garpenberg, has doubled, almost doubled the reserve. In other words, we have been looking at the resources. This volume was in the resources before. We have done our sort of plans or studies on profitability, and we have been able to say that, okay, with our long term assumptions, this is going to be mine. And consequently, we have almost doubled the life of Gakpo.
The negative is lower grades, but we come back to that. Extension of Tara. That was a previous sort of information. The Tara dip is suddenly changing the whole picture for Tara, which goes well in line with production or productivity improvements. Disappointing air mine exploration in Kiraly Lakhty and the exploration cost is what you see there.
Aitik, we haven't done much. We have a long life of mine, stable reserves, copper grades in the reserve is 0.23, so not much has happened. We have 27 years life of mine there. Buliden area. Well, the problem on this picture is that we are producing too much.
So the expansion on the top line means that we are only having 7 years because we are this concentrate around the mines. We have been so good. So the ore we have there, we are taking big chunks of it. So what we are seeing in Rovid and other promising areas is very important, increasingly important for us. Garpenberg finally, doubling almost the reserve grades are 3.2 compared to 3.9 in the reserve.
If you are a short liar or short if this would be the case in Tara or Kyli Lakhte, okay, that has an impact on probably not next quarter, but next year and so on. But of course, this is we have 30 years life of mine or 29. So in the beginning of this period, we're going to mine according to the plans that you already know. So don't expect this lower average grain to impact until later years, or it's going to take a while until that has an impact. And the NPV impact, of course, by extending this very, very profitable mine is good news.
Kevitsa, fantastic production. We are having a reserve covering 16 years. You will see that we have reduced the grade slightly, which is not it's not dramatic at all because we have a different view on how much waste that is mixed into the ore typically. And it's a little bit our sort of larger scale production philosophy that is coming in here as well. So we'll probably mine the mine a little bit different, and therefore, we get we think we will get a little bit more waste than what was in the previous plans.
So no problem on that one, I would say. Gartner Bay, this is a busy curve with beautiful color. But as you can see, the important is the doubling of the life of the mine. It's not the deposits sort of 5 kilometer away and 3 kilometers down. It's just the extension of this very massive large volumes.
So they are well placed. Kine Lakhte, that's the bad news. We have even we have mined out, and we haven't been able to fill up with any new resources there. So it's urgent now. We have to find Tara Deep, Kulelakti Deep now, and we are not able to do that.
So now we are also we're actually increasing the exploration in and around a little bit further out. So there is a scenario where we close Kielylahti, and hopefully, we can restart sometimes later with new finds. That's kind of the strategy. We have no indications at this point. Tara, finally, nothing more to say than what we have already said, good news.
And turning to the Smelters. Earnings, another SEK 1,000,000,000 here. So SEK 1,000,000,000 in Mines, SEK 1,000,000,000 in Smelters or over SEK 1,000,000,000 in both. CapEx, SEK 4.20,000,000, a little bit less than last year, high metal prices and the dollar, the same impact or similar impact, not quite as good as on the mines, but a similar price and dollar impact. TCs have also been on a good level in the year.
And as you know, TCs of this year will be considerably lower. High volume of free metals versus Q3, and I think this is something you should be a bit cautious about. The free metals level was really, really good. We had very favorable materials in the quarters, which are probably a bit more favorable than to be represented here for the long term. Capital gain, we already spoke about.
Johan Sverdrup action plan completed. And as a result, we are getting a lot of free metals compared to historic numbers in Russia. Harjavalta, the new nickel model, is really working well, and we are taking on more and more of the Kolkovitsa volume into Harjavalta, which is also adding to the good sort of model here, integrated model. Coca Cola, we had and we have some difficulties, which is when we optimize the silver recovery section with the zinc plant, we have to tune the zinc production a little bit more narrow now in order to get a good material into the silver plant, and that causes still some disturbances. Oda, good news.
We have continued to work on the cost reductions, and the P200 is slightly ahead of plan. It's going really well. And Baix just finally, we did a year on year. You can see it. It's from EUR 18,000,000 to EUR 109,000,000, so almost EUR 100,000,000.
Euros And this is good for a little unit with less than 100 people employed. Lead prices are having a major impact here, but also the work on our lean programs. And with that, floor is yours.
Thank you. Okay. So it's of course a pleasure to talk about the Q4 itself. It was as Leonard mentioned, it was the best profit operating profit that we've delivered in an individual quarter in around 10 years. We also had 2 business areas, both exceeding SEK1 1,000,000,000 in profits.
So we're very happy about that. Looking then at the income statement. Revenues increased by 25% compared to Q4 of last year, which is primarily an effect of higher metal prices. As you've seen, the EBIT, excluding inventory revaluations, increased to SEK 2,100,000,000 from roughly SEK 600,000,000 the year before. Investments, we spent a bit more in the Q4, SEK 1,300,000,000 that gave a bit more than SEK 4,000,000,000 on the full year, which is in line with what we've guided for.
Also free cash flow improved SEK 1,700,000,000 compared to very low numbers in the comparison periods and all that leading to a net debt to equity ratio of 32% at the end of the year compared to 40% in the quarter before. If we then move on to the analysis of the EBIT, what has happened between Q4 of last year, Q4 of 2015 and Q4 of this year, This is done a pro form a analysis. So we've added Kevitsa also in the comparison period. As you can see, we have an improvement of roughly SEK 1,600,000,000. Prices have helped with the SEK 1 point 3, 1.4.
We've also had good volumes in especially in the mines. All mines have improved the milled throughput. And also our open pit mines, Aitik and Kevitsa, have improved the grades. With the higher volumes also, there comes some variable costs. And then we have some positive impact on non comparable items.
This quarter, it's only one item, which is the capital gain of the sale of Nuralf in Oda, aluminum fluoride activity, giving SEK 47,000,000 to the result. Comparing Q4 with the previous quarter, Q3, we had roughly SEK 800,000,000 improvements in EBIT. The main reason is higher production, especially in mines, same reasons that I mentioned, and also higher free metals in the smelters. Basically, the free metals the good trend in free metals is a result of a good strategy, we think, and also of activity programs in our copper smelters, especially Ranskar. Having said that, I do think that the level of free metals this quarter is a bit higher than our normal run rate, which you might want to take into account.
Prices improved by roughly SEK 400,000,000. Costs were relatively high in the quarter. Most is variable costs related to the volume increase. There is also seasonal effect. Normally, if you compare Q3 with vacation periods to Q4, we tend to add about SEK 100,000,000 in personnel costs.
We also had higher cost for maintenance, exploration and technology projects in mines towards the end of this year. And then again, we have the capital gain as a non comparable item. So good improvement. Cash flow. Free cash flow amounted to SEK 1,700,000,000, which is a good step forward compared to the fairly low levels in the comparison period.
The main difference is, of course, the good earnings. Looking at working capital, the impact of working capital in Q4 has been quite limited. We had a negative effect of SEK 200,000,000. In that amount, there are things happening that are a bit more significant. We've had a price increase, which tends to push working capital up, And then we've reduced volumes.
Inventory volumes have come down quite a bit compared to Q3, giving a net of 200. So inventory levels have come down. There's still, especially in copper concentrate, slightly above average. So these are not low inventory levels. The rest of the cash flow, I think there is nothing out of the ordinary.
But anyway, a good cash flow. This gives a balance sheet looking like this. As you can see, the equity has increased in the quarter by SEK 1,800,000,000 and the net debt has decreased with SEK 1,800,000,000. That's, of course, a combination that we like, and that's what's driven the gearing from 40% to 32%. The remainder of the key ratios, payment capacity, average interest rate, etcetera, I think you can see that the company is in good shape financially.
This is also a good time to look at the full year numbers a bit more. Revenue wise, we're basically on the same level as SEK 15,000,000,000, where we are at slightly more than SEK 40,000,000,000, but we've added a bit more than SEK 1,000,000,000 in EBIT result. And that is, of course, connected to good production. 2016 was a really good year for production in mines. Regardless if you're looking by mine or by metal, you'll see that you have to go back more or less 10 years to find similar figures for most of the areas and most of the metals.
So we're very happy about that. CapEx, in line with what we guided for, SEK 4.1 billion and a free cash flow that is influenced by the acquisition of Kevitsa. And if you add that back, there is an improvement of roughly SEK 600,000,000 Earnings per share, SEK 15.49 and then again, gearing down to 32%. The profit bridge here comparing the year 'sixteen and 'fifteen, it's also a pro form a chart where Kevitsa is fully included in both periods. We've improved the profit with roughly SEK 1,000,000,000, as I mentioned.
Volume is the key contributor, SEK 1,200,000,000, primarily good production in mines. With that comes from variable costs. And on the cost side, we've also had higher costs due to the volatility in Aitik and some production disturbances in smelters. But the main part of this is variable cost related to volume. Prices, we've seen a general price improvement that has added EUR 579,000,000.
The main difference is zinc between the years. So good year. And with that, Lennart, I hand over to you.
Well, yes, to finish. I think we try to highlight those things that are important when you extrapolate or you do your forecasting going forward. In Mainz, I would say that Aitik is going to continue to have a volatile situation, and I do not think that this is necessarily a trend line. What is going to change in terms of more ongoing rate is obviously the grades or other grades. On Garpenberg, it's an extraordinary development.
The huge increase in reserves may have looked like having followed or followed by a very negative average grade. But bear in mind, with long life of mine, that's in the future. And we have not changed our production plan. At least the plan of now has not changed from what you saw last year. So this is just an addition in the most profitable unit we have.
So it's really good news. Kevitsa, good. And we think that we are on a representative level. We remind that it's winter. That's good news for some, bad news for some for miners in open pits in the north.
It's not necessarily a good thing. Nothing dramatic, so I'm aware of that, but bear keep that in your bear in mind that, that has a negative impact normally. Smelters, we have big maintenance shutdowns because we are renovating. We have been doing that for a long time. We are earning €1,000,000,000 here.
We are going to I think the copper smelters will continue to have very solid earnings. Will be less good in the zinc smelters, but that's basically a transfer price in the group. Oda is on plan or even ahead of plan when it comes to the P200. All equipment is there. We're producing.
We're going to have a couple of stops and adjustments and so on, but we are already seeing sort of the production we're doing is on the planned level, but interrupted by planned and normal adjustments. Probably recoveries will also if you remember, Garpenberg, it was recoveries were low in the beginning. But we're it's going well and better than if anything, better than planned. CapEx, Hakan mentioned, capital gain in all down SEK 47,000,000,000. So don't take that as an ordinary profit.
Probably also the free metals are on the high side. And if I would that would sort of conclude, we're extremely proud. It's a great company. We have a lot of people who have contributed, and all our units are really doing variations of good to great, I would say, with, of course, a number of problems. But I think we're doing fine.
I think we have a good position strategically with Mines and Smelters. We are in base metals. We have complemented it with a methan, which probably when zinc later on is having the cycle for this time, hopefully, nickel is coming up and copper, too. So I think we are building we have built a very good sort of package here with very good synergies, too. Kevitsa and Haraldalta, the latest.
We're working a lot with the process stability. So we tune Ipic to feed the optimum mix to or quality down to run share. So it's by having these combinations, and we are really starting to sort of tune the whole system here, which is driving sort of gross profits. Gjalfenberg, fantastic. Kevitsa, good timing, I hope.
At least, it's potential there with that production records in most units. So with that, we conclude our presentations and take your questions. Sophie?
Thank you, Lennart and Hakan. So let's open up for questions, and we will start with the room here in Stockholm. And I see Ola from Stravaech, we have a microphone on the way.
Ola Sodermaier, Swedbank. Can you give us a little bit more color on the very good results in the smelters division? You're saying that we are not going to expect it to be as high as this, but it was SEK 1,000,000,000 in the quarter. And how much free metals can we expect during the coming quarters? I think like in most situation, you can take the broad picture.
We have a strategy which should lead to more free metals, and we're delivering more free metals. So you can say what's the problem. Well, there is no problem, but it was it's variations. And we think that we have a longer term positive development. And on top of that, sort of some materials which were coming in with very sort of very favorable material mix.
So in Q4, we had a little bit more than normal. But I think the more important for most here is zinc thesis are up for pressure. And I think we're going to talk about I mean, the zinc smelters will not deliver the results going forward as we have seen so far. But most of that will be taken back by Garpenberg and Tara. So they will probably do even better profits because of that.
It was also very good in the quarter, the results with Kwikkewitz. And you are saying you are going to aim to mill 9,000,000 tonnes by 2020. How is the development going to go from current levels? Is the 7,700,000 tonnes run rate now base that we can expect during 2017? We're not disclosing our forecast or budgets or so on.
But I think that now we are it's a little bit like what we have said with Gaertenbeg. Can you expand the Gaertenbeg with this big sort of reserves and so on? Now I think the thing is with Kevitsa, keep level, keep this, get stability. June, June, reduce cost, make sure that we have a stability on this level. And then we're going to take steps because they will need some additional equipment.
We will need to decide which philosophy to adopt. And there are a couple of decision points there, and they are not immediate. But EUR 7,700,000 in run rate is the forecast. The economic forecast. But we are there obviously now, so why not?
Okay. And lastly, the ore grades in Aitik are going to increase from 2.23 in Q4 to 25 during this year. Is it going to happen in Q1 or gradually in Q1 or No. Also there, we have said that it's related to the volatility we're seeing in volume. The volatility is driven by crushers, and they are in different positions.
If one goes down, it means we have to mine somewhere else, which can lead to higher grade or lower grade depending on these volatilities. So I think that the average, I think it's an accurate number, and I hope or it is an accurate number. But where it's coming is going to be volatile because our production is not very well planned. We can keep a fairly stable production despite much more volatilities, but we have several areas where mining is not like a little underground mine when you're mining here. And if that is a problem, well, you have nothing to do.
Well, here, we have a better flexibility to work somewhere else, but it is impacting the grade. And so far during Q1, given that the large open pit mine in the Arctic, how has the production been in Kvitse and Aitik? We don't talk about that. But we if we would what we would have been doing, had it been a very bad start of the year, we would probably have been more cautious on or indicating that hasn't started brilliant. We're not saying that.
I would say normal. Nothing to report on that.
Questions from our audience here. No? So let's go to the telephone conference. Operator, do we have any
questions? Thank you. Our first question comes from the line of Alan Gabriel from Morgan Stanley. Please go ahead. Your line is open.
Yes. Good morning, ladies and gentlemen. Leonard, if I may push you again on the first question that came through on the smelters. Have you done anything fundamentally different in Q4 than what you have done before that you have captured such a big part of the free metal, if you were to put just the market factors aside? And the second question is on any brownfield opportunities within your portfolio.
So Tara seems to be 1, but the CapEx spending there is just going to be minimal. Anything else that you think would be interesting in light of your rapid deleveraging?
I think on free metals, we have sort of a trend line or a trend. We have a strategy to which is very much if it works, it will be seen in free metals. I mean, basically, what we're doing is to take challenging materials, which are difficult for many, they are difficult for us too. But we think that we are more able than most to take those materials, and we can buy them at better prices and consequently deliver good margins. What happened in Q4 is that we have been treating some of the intermediates a little bit more intermediates, which are containing, in particular, copper, free copper, which is in the for example, it's spot on the action plan for Ronnskar, which was a good contributor here.
It's in the action plan we have been working on for several years. So it's not no, I think the story is well explained with that. On the brownfield opportunities, I think that the Outokampo field is interesting. When we bought Kilauele Lacte, we bought it for the opportunity ground field, and we bought a little mine. And we said that our interest is not really the mine.
It is to get come across this exciting exploration area. And we are now not reducing the exploration in Kyler Lachtri itself. We really, really we still work very hard to get an extension there. But it's not impossible that we fail. And in that case, we are going to add resources for exploration in other exciting locations in this area.
So this is probably one I should call it's greenfield rather than brownfield. But it's probably it's quite possible to feed the present concentrator with if we would be successful there.
Thank you. Very clear.
Thank you. Our next question comes from the line of Liam Fitzpatrick from Credit Suisse. Please go ahead. Your line is open.
Good morning. I've got 2 or 3 questions. Firstly, could you just comment on what's going on in the zinc industry just in terms of the talk around the change in pricing terms and an increase in payability for Zinc Smelters. So if you can, talk about your expectations over how this could play out this year and potentially over the medium to term? Secondly, just on the CapEx side, you've increased to €6,000,000,000 I know you don't guide beyond 2017, but can you give us a feel for where you see the sustainable or right level of CapEx for this business going forward?
I mean is €6,000,000,000 the number we should be thinking about? Or could it move higher? Or would you expect it to move lower post-twenty 17? And I'll leave it there. Thank you.
On the CapEx, shall we take that first?
Yes, okay. We've increased, as you say, to the guidance to slightly below SEK 6,000,000,000 The components there are increased maintenance in Aitik, above all, and the expansion in Tara and also an accounting change in Kurelait sorry, in Kevitsa. The maintenance CapEx going forward, we expect to be slightly above SEK 3,000,000,000 and the remainder is investments that are more optional, so to speak. So hope that answers the question.
I think that it's obvious that there is pressure, which is perfectly in line with what we have said. There is a shortage of mine supply, and that is going to come across in one or another way. So therefore, we have been cautious about synthesis for a longer time. On the discussions on payables or on sort of the construction of the TC formula, I do not comment on it. It would interfere in negotiations we have INMR going on in the market, so that would be one more problem.
Okay. If I could just have one slightly separate follow-up. Just on the Smelters maintenance, the guidance is slightly higher than we thought for 2017. Going forward post 2017, would you expect that smelter maintenance to reduce back to levels we've seen in 2015 2016?
We had a big year 2016. We have a very big year 2017. And it's going to be, if I remember right, it's 1 more year with high maintenance, not probably on this level, but still high. And then it's going to be normalized, if I remember right, is it?
Rate. It's coming down from the 17% level for sure.
Okay. Thank you.
Thank you. Our next question comes from the line of David Fearnoff from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Good morning, folks. I want to ask you about hockey because that's what I usually do. But I will ask you a question about Kevitsa, if that's okay. Could you speak a little bit about both the operational and financial benefits that you see as you internalize the concentrate flow from Kevitsa both on the nickel side and on the copper side? And I guess you've talked about taking difficult material.
Does this allow you to take more difficult material from elsewhere as you internalize this Kevitsa concentrate? And how should we think about the financial benefit?
Shall we start with Hoch? I much rather talk Kevitsa, but I think I'm obliged to say something here. The hockey team had a very big bad start of the season but improving. So we probably continue our support to the team for some time more. But we are in talks with them about the results for sure.
Turning to a more serious subject, Kevitsa. We are basically moving the nickel con from external suppliers into Bouleyd, and we have the bulk of it now. And we had much of it in Q4. The copper will continue to be about, I think, about 50% or ballpark half of it is going internally, both Harjavalta and Ronsher. And the other chunk of it, the other half is, I think, a few years out.
When it comes to what we're doing with it, 1st of all, as we have said, it's a coppercon, which has which is contaminated with nickel. That is contaminated for a lot of other smelters, but good news for us because we can extract it. And so the copper contains nickel and the nickel contains copper, both giving problems. But Harjavalta was built for the ore body in Finland or for the mineralization, for the geology of Finland, which is typical of this kind. So we have a good smelter for Kevitsa.
They didn't want to sell all of us all of it to us because they were nervous that we would sell Kevitsa or Harjavalta to the Russians. And then for sure, they would have lost everything. And nickel is not a very liquid market. So therefore, they didn't want to put all the eggs in the same basket, which obviously we can do. So that's the main purpose.
Could we do more? Could we take additional advantage from other external sources? I would say, yes, I think so. But that is not the purpose and the focus right now. The good thing with an internal one of the good things with internal supply is that you can tune your process with it and you can rely on it.
You know when it's coming, you know that you have it. And then you can open up for additional from the outside. But I think short term, you shouldn't count on that one.
Just a follow-up, if I could, Leonard. And are you able to help us understand how to think about any kind of value uplift? I mean, is this something where you could be looking at a few 100 of 1,000,000 a year in extra EBITDA cash flow because you're getting better payability through running it through your own facilities?
I think the total impact, we were not very explicit about it at the time of the acquisitions. But we said it's not making the deal, but it's not totally marginal or something that I think I expressed myself something like that. So the ballpark, the numbers you're mentioning is probably not it's probably on the high side, but it's probably not entirely wrong either. But much of that is already in there now.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Oskar Lindstrom from Danske Bank. Please go ahead. Your line is open.
Yes. Thank you. First of all, congratulations on the good results. I have a couple of questions, both on the mines, the smelters and on strategy as well. But maybe I should just start on the mining side.
In Aitik, you guide for continued production volatility. Is that volatility actually going to increase in 2017 as you begin to replace the crushers? Or should we expect that to continue as it did in 2016? And then on Garpenberg, should we continue to expect production at the high levels that we've seen? Those are my two questions on the mines.
Maybe I can follow-up with the smelter and the strategy later.
I would love to say that we have a learning curve of bad availability and to be able to have some kind of a learning curve on in before the new crushers are coming in. We are on a sliding surface here. We are doing improvements, but the things are getting more and more difficult. So I would say, no, I don't think you should expect more volatility, but I don't think you I could give any comfort that this strong Q4 is a typical new level, the new normal. I don't think so.
We are going to continue, and I think continue as has been the case, and I do not see a higher volatility. No, I don't I hope not. And on Garpenberg, is a high volume going to continue? The capacity we have is 2.5, and we did 2.6. 2.6 is obviously what we do in a quarter when everything is going as planned and we have limited maintenance and realinings of the mills and whatever else.
So I do not think 2.6 is a good number for you to forecast the volume. I think you should be cautious on that level. It has been a good strong quarter.
Okay.
So actually on the smelter side, I think Mike you've covered the free metals. That leaves me I have a question on the strategy side. There was a question earlier about possibilities for Brownfield Investments. How about on the acquisition side? You've talked about that before.
Is that sort of as much of a topic or key issue for you now? Or are you have you slowed down somewhat on the sort of looking for acquisitions?
No, I think we are continuing on the same track as we've been before. We are not less excited or we're not working less. We're continuing to work. We have our favorites. We are calling on them.
We're working on them, and we see what comes out. It's good that we are not buying something now because, I mean, capital wise, we could probably fund something more, but we would like pay down a bit more of that. But more important is the human resources, which are which is very much tied with all the different projects we're working on now, Tara, Garpenberg no, Tara, Buliden area and of course, Kevitsa. So I think that we are a bit tight on the resources right now, but that will change. And obviously, we're continuing to look for good fit and good synergy opportunities.
And this last point that you mentioned that your the resources that you have in terms of human capital are quite tied up at the moment at the various projects that you mentioned. For how long do you expect that situation to continue?
No. I think on the resource side, it depends on what we choose to put it on. We have a today, we are in a lucky situation to have quite many things to work on. And would an acquisition opportunity, which is good, come up, then we would reshuffle. And I think from maybe 6, 9, 10, 12, I don't know.
A year ahead, I think we would be okay.
All right. Thank you very much.
I realize that you have quite many that want to ask questions. So going forward, just limit yourself to one question per person and then again call again if you want to ask more questions. Thank you.
Thank you. Our next question comes from the line of Daniel Major from UBS. Please go ahead. Your line is open.
Hi, there.
Most of my questions have
been answered, but a little bit more detail on the changes to reserves and the grade profile at Gaffen Bay would be useful. Obviously, the guidance for this year was unchanged. Can you give us a sense of when you would expect to revert to reserve grade in terms of the mine plan after the revision to the reserve grade?
I think we have a reserve. We're going to mine out for 15 years. That's what you had in the numbers of last year. And then we're adding a new chunk, which is coming thereafter. That's one way of seeing it.
Of course, it's not going to happen because they are deeper down. And exactly how that is going to happen, we don't know. I think we probably will put some more or give some more information at the Capital geometries and pictures. And I don't think we have it right now. What is important now is we're not going to see an impact in the near term.
Okay. So just near term, do you mean kind of 2017 to 2019 or just 2017?
5 years with the present thinking. So for several years, you're not going to see any impact. That's our feel for of now.
Great. Thanks so much.
We also have an explicit guidance for 2017.
Yes.
Thank you. Our next question comes from the line of Fraser Jamieson from JPMorgan. Please go ahead. Your line is open.
Good morning. Thanks for taking the question. A quick one just on CapEx. You've talked in general terms about the building blocks of the SEK 1,000,000,000 increase for 2017. Could you maybe give a bit more context around that, particularly on Kevitsa and the reclassification from OpEx into CapEx.
What component of the overall SEK1 billion move is that? And then, yes, how much is FX, Tara, etcetera? Thanks.
Okay, very good. So I can take them in more or less order of magnitude there. The expansion in Tara is the biggest one. It's slightly bigger than the other ones. You'll see the amount in the press release that were issued back after Christmas.
It's one component that is the actual building of the facilities management, and then there is also an increase in the fleet and so on. Then almost similar size to that, we have an increase in maintenance in Aitik, so roughly the same size. The Kevita change, I should perhaps start by saying that there is no change in the plans for stripping as such. There's no change in on the ground. There's no cash effect either.
So this is what we've done is that we've gone through pushback, pushback and calculated the CapEx according to standard bull Eden models. So basically, we've adapted the accounting in Kevitsa to Bouhilden's models, and that will lead to higher CapEx. It will also lead to higher EBIT EBITDA, sorry, as we take out the costs and put it on the balance sheet, and it will lead to higher depreciation. Those three components are similar in size. The Tara 1 is slightly bigger and the Kevitsa 1 is slightly smaller.
Then we have a currency part which is around EUR 100,000,000, EUR 150,000,000, so it's smaller than the other 3.
Okay. Thank you.
Thank you. Our next question comes from the line of Fauci Hanano from Berenberg. Please go ahead. Your line is open.
Thank you. Good morning. Most of my questions have been answered. But just one quick one. Regarding Clilati and the disappointing exploration results, just to understand from your point of view, at what point do you guys decide to just run that asset for cash?
We are running it for cash. I mean, as all depleting mines, now we have to look at sort of using the capital equipment we have as prudent and clever as possible, make sure that we're buying as little new as possible and make sure that once it's closed and the plan today is obviously to close it in 2.5 years or something and that all equipment is ready for scrap so that we have really used up everything. The concentrator, we have a slightly different view on because there, we think there is a going we are pretty convinced there's going to be a future. We don't know when. So the current maintenance situation for a time and then we start with hopeful positive exploration results somewhere else in the area is the other scenario where we're hoping for.
But primarily, of course, we hope that we do find extensions.
Okay. Thanks, Lennart.
Thank you. Our next question comes from the line of Robert Levine from Carnegie.
Can I just ask again on the great zinc guide from both? Because you're right about the reserve up grade or update that the profitability is high also in this new lower grade material. So is there something in your technical studies that sort of implied that these works will be easier to mine? Or how should we think about that? Are they very similar to the old ones, just lower grades?
So the good profitability comment is good, but worse than what you have. And secondly, you also have that comment on the 5 year period not being impacted by this. So I guess you have a feel for the 5 year period. Should we you have the guidance for 2017. But after that, the next 4 years, should we expect the old reserve grade, the 3.9?
Or how should we think about that?
Well, the guiding on between 5 10 years, we don't do. So when we're there, we're I don't know. We have today a huge flexibility to do a lot of things and to work profitably with this beautiful mine. So that's something I leave for the future or for a later date at least. On the other hand or on the other side here, what about the particulars of the new resources?
Very little. Some of it is deep. And the depth of Garpenberg is a bit of a concern. But we are very, very profitable. I mean, the big volume standing and with all the infrastructure standing on the side and accessing level by level.
It is a very, very good way of mining. But deeper is not necessarily good. Not all of it is deeper. We also have some better position higher up. But I think, no, same thing, but lower rate.
Okay, thanks.
Thank you. Our next question comes from the line of Christian Kopfer from Nordea. Please go ahead. Your line is open.
All right. Thanks, operator. Good morning. I have a few questions, but I realize I can just put the one. So I have to take it after the conference then.
But my question is related to the earnings increase in the mines, but if you take away all the impact from metal prices and so on, you saw almost an the increase in cost was almost as big as the volume increase in the mines. I think volumes were up SEK 380,000,000 correspondingly and costs were up SEK 355,000,000. So I'm just asking you, is there something special in terms of the cost you took in the mines in the quarter that we should adjust for going forward?
Thanks. Well, I can start to regret that it's too high. So and once with that, I can pass it over. It's too high, I think so. It has explanations on that.
Yes. The costs are on the high side. I mean, you're right in that. Then looking at individual quarters, you won't always get the same ratio. What we've had in Q4 is especially comparing to Q3 is an increase in personnel costs.
That's roughly SEK 50,000,000 per business area. We also have profit sharing schemes for the employees and with a stronger financial development. We've added more for variable pace. We've been lagging a bit behind in areas like exploration and technical development, so we have increased the pace there. I mean Kirillati is one area, which is means that we have an increase in between the quarters.
But most of that amount would be variable costs connected to
volume. Okay, thanks.
Thank you. Our next question comes from the line of Philippe Nogoto from ABN AMRO. Please go ahead. Your line is open.
Hi, good morning, gentlemen. I have one question on the sourcing of raw materials for the zinc smelters. For the part that you don't source internally, 130,000 tons, can you maybe comment on whether the sourcing has been secured for 20 17? And what terms you source it? So is that spot TCs or discount to benchmark TCs or benchmark TCs?
Just that.
We're well supplied, so not a problem on the supply side. On the terms, I don't want to as I said before, I think it would be wrong to speculate. I think there is pressure on the zinc pieces. You can read it in the newspapers, and we can confirm that. But any detail, I refrain from speculating on.
No. Okay. My question was not so much on the level, but I was just wondering if the part that you don't source internally, whether that's normally linked to the benchmark or that you have to source it on the spot market so that it's more on the spotty season?
No, it's long term prices or benchmark terms.
Benchmark terms. Okay. Thank you.
Thank you. Our next question comes from the line of Anna Mulholland from Deutsche Bank. Please go ahead. Your line is open.
Thank you. Good morning. My question is about licensing and permitting. And the first one is just if you can give us some sort of time frame in terms of your appeal to the government regarding the lava deposit. And I guess there's a sub question of that, sorry, I'm being a bit cheeky, but I just want to check if as you go or aim to go up to 9,000,000 tons throughput at Kevitsa, if you need any sort of change to your current license permitting, any extensions that would be required for that?
Thanks.
Okay. On Lava, I think we are surprised by the concept or the procedures behind that. So it's more of feel it, and we'll see what's going on there. It's a slightly different situation, and I think it's going too far to go into details. I'm convinced it's going to be mine.
I'm also convinced it's not going to be around the corner for several reasons and permitting is 1. On Kevitsa, I think that we are not seeing the permitting being an issue as of now. That might be a situation sometime else, but for the time being, we're
okay. Thank you.
Thank you. Our next question comes from the line of Jatinder Goel from Citigroup. Please go ahead. Your line is open.
Hi, good morning. Very quick
one on tax paid versus the income statement again. It looks like there's about 50% underpayment on 2015 and 2016 cumulative. Do you have any sense in 2017? Will there be any catch up? Or can you still continue to underpay based on where you are currently?
Thank you.
Okay. There is always a timing difference. There is timing difference in the income statement where you have deferred taxes and taxes that are connected to the actual year. And there's a timing difference between what's in the income statement and what is paid. Looking this year, the full year, I believe that the taxes paid in 2016 are very similar to the taxes charged to the income statement in 2015.
So there will always be a catch up. And if you want to break it down in different components, I think the easiest way is probably to look into our annual report because I think you need to get into the detail to get the full picture. But the short answer is yes, there's always a catch up. We will pay what we put in the balance sheet or sorry, in the income statement.
Okay. Thank you.
Thank you. Our next question comes from the line of Johannes Grunselius from Handelsbanken. Please go ahead. Your line is open.
Yes. Hi, everyone. Johannes here at Handelsbanken. I have a question on Aitik and also in particular, Nautern and next Aitik? Because you say in the in one statement today that you will go for a mining application by 2017.
So I'm wondering how should we view Nauternen? Are you expecting commercial production there in 2018 2019? Thanks.
No, Natanen. Next time we are on low grade, it's going to be sometime closer to 2025 or 2022 or something like that, beyond 2020. That is the time when we would really like to have some new deposits to fill because then we're going to be high in the pit again. And that's this is really the long term planning. But long term planning, as you know, it's now.
So we need to work very hard on this application and the permitting there. Okay. And if successful, it may come in earlier, but sort of that is when we really want it, really want it.
Okay. But is it right to assume that you moved forward in now over the year because otherwise you wouldn't have applied for the mining license?
Sure, absolutely. We are going to plan for a mine there and it's taking time, 5 years. It's just goofball gone. So no, it's urgent, but it's not for 2018. It's for 2026.
Yes. Okay. I understand then. Thank you very much for giving color on that. Thanks.
Thank you so much. Unfortunately, that needs to be our last question. We are running out of time. And we thank you so much for joining us today. And we have the Q1 results on 25th April.
Thank you.
Thank you very much.