Good morning, and a warm welcome to Boliden's Q4 2016 earnings call. My name is Sophie Arnius, and I'm head of investor relations here at Boliden. Our CEO, Lennart Evrell, and CFO, Håkan Gabrielsson, will give their comments on the Q4 earnings. 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. Lennart, please.
Good morning, everybody. Strange times in the metals and mining industry. The first half of last year was very difficult. We have now published the fourth quarter. Both the third and the fourth quarter have demonstrated very strong progress in the demanding world. Boliden has been able to deliver strong results in basically all operations. Our presentation today will cover a lot the production and the general operations that we have, I think that few of our quarterly results in the past, say, 10 years have been stronger in the general picture of operations. That, combined with strong zinc prices, a soft Swedish krona, is of course giving a good picture. Bear in mind that copper prices are not extremely high. They are reasonable. Nickel prices are really low, even though they have been even lower at the time when we bought Kevitsa.
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 a period when we were really concerned with planning of probably temporary shutdowns and cost reductions and everything. The year-on-year and rolling 12 months or four quarters, of course, is an expression of that. We have had revenues of SEK 12 billion compared to a little less than SEK 10 billion. EBIT and excluding the process inventory revaluations were SEK 2.1 billion, one of the better quarterly results we have seen. Cash flows SEK 1.7 billion, which is good. 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 a business in Odda, which gave a SEK 50 million one-off effect on the Q4. If you look at the full year, as you can see, we are doing one of the best years. Of course, the first half of that year was very bleak. If we would have subdivided this in half years, I think it is definitely a very impressive one. Earnings were SEK 5 billion compared to SEK 4 billion, so not as great as the quarter-over-quarter, year-on-year. Earnings or free cash flow was SEK -2.8 billion. That includes a SEK 6 billion acquisition. It's SEK 4 billion or SEK 3 billion, SEK 3 billion and a little excluding that acquisition, SEK 3.1 billion, as you can see.
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, really using all the complexity or all the capacities we have in our smelters and drive the margin. 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. They have probably been a bit on the high side in Q4.
I would say that all units have been performing well, as a result, you see the cash flows, the profits, and with the profits are coming a dividend which is up from SEK 3.25 to SEK 5.25. If we look at the market outlook, I think we had a board meeting yesterday, and one of the question was, is this a Trump effect we're seeing? I think our conclusion is that it's not. In particular, we're going to see the zinc 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. 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% in the global demand growth. 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. 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 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. Here you can see the prices for our three main metals from 2007, and you can see the max and min price on the vertical line with the average in the middle. The lines are representing the 50, 75, and 90th percentile of the cash cost. 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. 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, we're still lower than general views on long-term prices. I am seeing writing, they are lucky. We have a very strong nickel price because it was $8.5 when Kevitsa was bought, now it's over $10. $8.5 is somewhere here, over $10 is where we are today. Compared with historic prices or with the cost of the industry, it's a very, very difficult price level we have. Hopefully this will turn in a different direction. If we put together Boliden's portfolio, the weighted average of our metals and terms including both TCs and metal prices. We have seen a negative development, this was a difficult period.
In the second half of last year, we saw these improvements, the prices have been good. These are the average of our currency basket, which is also going in the right direction. Obviously, the combined effect is very strong. The external world has been very good to us. If we then move into the mines first, we see a very similar graph. As you can see, the quarter was very strong. SEK 1.1 billion in earnings, over SEK 1 billion in earnings in the quarter. CapEx slightly higher than last year. Good production in every unit, I can take them one by one. All of them are delivering good results, good profit, good production. It's really a very nice story there. Garpenberg, of course, is an unbelievable investment we did there. It's a beautiful mine.
High metal prices and U.S. dollar we spoke about, the cost has been slightly higher, that is primarily driven by the good production volumes. If we take them one by one, I would say Aitik is still a struggle. The production volume was better than we have seen in the previous quarters, cost has been high because of the volatility, the repairs, the unplanned stops, the planned stops, because we have to plan for many stops now to get it up 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 a volatility, that will continue. The copper grade was up on 0.22, we have said 0.25 on this year, that's good. The last quarter came up nicely there. Boliden Area, very strong production.
I would say an exceptional job by Thomas, who moved on, the new management too. We have been doing a great job in Boliden Area, a long time ago, we had such a positive development. Garpenberg I already spoke about. Kevitsa, very good. We bought a mine which was loss-making for SEK 6 billion. A lot of people said, "That's a brave one." It was brave. We thought that given what we know about open pits in cold climates, about AG milling, about a lot of things, we got a very good cooperation going right from the beginning. We have been focusing in on important things, it has really been paying off, the nickel prices have been coming up a little bit. Kylylahti, good production, that is basically one of the few bad news.
We have not been in the reserve uptake. 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, the reducing manning, increasing productivity, and now we find Tara Deep. 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 Tara, 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. An acquisition is always an acquisition.
You cannot know everything that the seller is knowing, so you always wonder a little bit. Everything has turned out. Basically, it's whistles and bells and ups and downs a little bit. No, I would say all in all, as planned. We did an EBITDA of SEK 500 million and an EBITDA of SEK 166 million. We have a lot of depreciation with the huge sort of stripping we have in the beginning of this mine. Integration going to plan. 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. We then turn into the update of resource 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. Below that general statement, we have huge differences. The by far most profitable mine, Garpenberg, has almost doubled the reserve. In other words, we have been looking at the resources that 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 mined. Consequently, we have almost doubled the life of Garpenberg. The negative is lower grades. We come back to that. Extension of Tara, that was a previous sort of information. The Tara Deep is suddenly changing the whole picture for Tara, which goes well in line with the production or productivity improvements.
Disappointing near mine exploration in Kylylahti. 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. Not much has happened. We have 27 years life of mine there. Boliden Area. The problem on this picture is that we are producing too much. The expansion on the top line means that we are only having seven years because we are this concentrate around the mines. We have been so good. The ore we have there, we're taking big chunks of it. What we are seeing in Revliden 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 this would be the case in Tara or Kylylahti, okay, that has an impact on probably not next quarter, but next year and so on. Of course this is, we have 30 years life of mine or 29. In the beginning of this period, we're going to mine according to the plans that you already know. Don't expect this lower average grade to impact until later years, or it's going to take a while until that has an impact. The NPV impact, of course, by extending this 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 it's not dramatic at all because we have a different view on how much waste that is mixed into the ore typically.
It's a little bit our sort of larger scale production philosophy that is coming in here as well. We'll probably mine the mine a little bit different, and therefore we think we will get a little bit more waste than what was in the previous plans. No problem on that one, I would say. Garpenberg. 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 deposit sort of 5 kilometer away and 3 kilometers down. It's just extension of this very massive, large volumes. They are well placed. Kylylahti. Lots of bad news. We have mined out, and we haven't been able to fill up with any new resources there. It's urgent now.
We have to find a Tara Deep, Kylylahti Deep now, and we are not able to do that. Now we're actually increasing the exploration in and around a little bit further out. There is a scenario where we close Kylylahti, 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. Turning to the smelters. Earnings, another billion here. 1 billion in mines, 1 billion in smelters, or over a billion in both. CapEx SEK 420, 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.
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 representative for the long term. Capital gain, we already spoke about. Rönnskär action plan completed, and as a result, we are getting a lot of free metals compared to historic numbers in Rönnskär. Harjavalta, the new nickel model is really working well, and we are taking on more and more of the Kevitsa volume into Harjavalta, which is also adding to the good integrated model.
Kokkola, 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. That causes still some disturbances. Odda, good news. We have continued to work on the cost reductions, and the P200 is slightly ahead of plan. It's going really well. Bergsöe, finally, we did a year-on-year. You can see it. It's from 18 to 109, so almost SEK 100 million. This is good for a little unit with less than 100 people employed. Lead prices are having a major impact here. Also the work on our lean programs. With that, floor is yours.
Thank you. Okay. It's of course, a pleasure to talk about the Q4 results. As Lennart mentioned, it was the best operating profit that we've delivered in an individual quarter in around 10 years. We also had two business areas, both exceeding SEK 1 billion in profits. We're very happy about that. Looking 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 see in the EBIT, excluding inventory revaluations, increase of SEK 2.1 billion from roughly SEK 600 million the year before. Investments, we spent a bit more in the fourth quarter, SEK 1.3 billion that gave a bit more than SEK 4 billion on the full year, which is in line with what we've guided for. Also, free cash flow improved, SEK 1.7 billion compared to very low numbers in the comparison periods.
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 move on to the analysis of the EBIT, what has happened between Q4 of last year, Q4 2015, and Q4 of this year, this is on a pro forma analysis. We've added Kevitsa also in the comparison period. As you can see, we have an improvement of roughly SEK 1.6 billion. Prices have helped with SEK 1.3 billion, SEK 1.4 billion. We also had good volumes, especially in the mines. All mines have improved the milled throughput. Also our open pit mines, Aitik and Kevitsa, have improved the grades. With the higher volumes also, there comes some variable costs. 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 Noralf in Odda, the aluminum fluoride activity, giving SEK 47 million to the result. Comparing Q4 with the previous quarter, Q3, we had roughly SEK 800 million improvements in EBIT. The main reason is higher production, especially in mines, same reasons that I mentioned. Also higher free metals in the smelters. Basically, the good trend in free metals is a result of a good strategy, we think. Also of activity programs in our copper smelters, especially Rönnskär. 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 million. Costs were relatively high in the quarter. Most is variable costs related to the volume increase.
There is also a seasonal effect. Normally, if you compare Q3 with vacation periods to Q4, we tend to add about 100 million SEK in personnel costs. We also had higher cost for maintenance, exploration, and technology projects in mines towards the end of this year. Then again, we have the capital gain as a non-comparable item. Good improvement. Cash flow. Free cash flow amounted to SEK 1.7 billion, 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 million. 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, then we've reduced volumes.
Inventory volumes have come down quite a bit compared to Q3, giving a net of SEK 200. Inventory levels have come down. They're still, especially in copper concentrate, slightly above average. These are not low inventory levels. The rest of the cash flow, I think there is nothing out of the ordinary. 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 1.8 billion, and the net debt has decreased with SEK 1.8 billion. 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, et cetera, 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 2015, where we are at slightly more than SEK 40 billion, but we've added a bit more than SEK 1 billion 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. 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. If you add that back, there is an improvement of roughly SEK 600 million.
Earnings per share, SEK 15.49, then again, gearing down to 32%. The profit bridge here, comparing the year 2016 and 2015, it's also a pro forma chart where Kevitsa is fully included in both periods. We've improved the profit with roughly SEK 1 billion, as I mentioned. Volume is the key contributor, SEK 1.2 billion, primarily good production in mines. With that comes some variable costs. On the cost side, we've also had higher costs due to the volatility in Aitik and some production disturbances in smelters. The main part of this is variable costs related to volume. Prices, we've seen a general price improvement that has added SEK 579 million. The main difference is zinc between the years. Good year. With that, Lennart, I hand over to you.
Well, just to finish, I think we try to highlight those things that are important when you extrapolate or you do your forecasting going forward. In mines, 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 the grades. On Garpenberg, it's an extraordinary development. The huge increase in reserves may look like having followed by a very negative average grade. Bear in mind, with long life of mine, that's in the future. We have not changed our production plan, at least the plan of now has not changed from what you saw last year. 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 I'm aware of, but keep that in your bear in mind 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 SEK 1 billion here. 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. Odda 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 the production we are doing is on the planned level, but interrupted by planned and normal adjustments. Probably recoveries will also, if you remember Garpenberg, recoveries were low in the beginning. It's going well, and if anything, better than planned. CapEx, Håkan mentioned, capital gain in Odda, SEK 47 billion, so don't take that as an ordinary profit. Probably also the free metals are on the high side. With 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 metal, which probably when zinc later on is having the cycle for this time, hopefully nickel is coming up and copper, too. I think we have built a very good package here with very good synergies, too. Kevitsa and Harjavalta, the latest, we're working a lot with the process stability, so we tune Aitik to feed the optimum mix to our quality down to right range. It's by having these combinations, and we are really starting to tune the whole system here, which is driving gross profits. Garpenberg, fantastic. Kevitsa, good timing, I hope, at least, it's potential there with that production records in most units. With that, we conclude our presentations and take your questions. Sophie?
Thank you, Lennart and Håkan. Let's open up for questions. We will start with the room here in Stockholm. I see Ola wants to ask a question. We have a microphone on the way.
Ola Södermark, Swedbank. Can you give us a little bit more color on the very good results in the smelters division? You are saying that we are not going to expect it to be as high as this, but it was SEK 1 billion in the quarter. How much free metals can we expect during the coming quarters?
I think like in most situations, you can take the broad picture. We have a strategy which should lead to more free metals. We're delivering more free metals. You can say, what's the problem? There is no problem, it's variations. We think that we have a longer-term positive development, on top of that, some materials which were coming in with very favorable material mix. In Q4, we had a little bit more than normal. I think the more important for most here is zinc TCs are up for pressure. I think we're going to talk about the zinc smelters will not deliver the results going forward as we have seen so far. Most of that will be taken back by Garpenberg and Tara. They will probably do even better profits because of that.
What's also very good in the quarter results is Kevitsa. You are saying you are going to aim to mill 9 million tons by 2020. How is the development going to go from current levels? Is the 7.7 million tons run rate now base that we can expect during 2017?
We're not disclosing our forecast or budgets or so on. I think that now it's a little bit like what we have said with Garpenberg. Can you expand Garpenberg with these big reserves and so on? Now, I think the thing is with Kevitsa, keep level, keep this, get stability. Tune, reduce cost, make sure that we have a stability on this level. Then we're going to take steps because they will need some additional equipment. We will need to decide which philosophy to adopt. There are a couple of decision points there, and they are not immediate.
7.7 million in run rate, is it for-
I don't make forecasts. We are there obviously now, so why not?
Lastly, the ore grades in Aitik are going to increase from 2.23 in Q4 to 25.25 during this year.
Is this 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. I think that the average, I think it's an accurate number, and I hope. It is an accurate number. 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 we're mining. It's 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.
So far during Q1, given that the large open pit mine in the Arctic, how has this production been in Kevitsa and Aitik?
We don't talk about that. What we would have been doing, had it been a very bad start of the year, we would probably have been more cautious or indicating that hasn't started brilliant. We're not saying that, but I would say normal. Nothing to report on that.
Thank you.
Any more questions from our audience here? No. Let's go to the telephone conference. Operator, do we have any questions?
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad and you will enter the queue. Our first question comes from the line of Alain Gabriel from Morgan Stanley. Please go ahead. Your line is open.
Yes. Good morning, ladies and gentlemen. Lennart, 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 so that you have captured such a big part of the free metal, if we were to put just the market factors aside? The second question is on any brownfield opportunities within your portfolio. Tara seems to be one, 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? Thank you.
I think on free metals, we have sort of a trend line or a trend. We have a strategy, which is very much if it works, it will be seen in free metals. Basically what we're doing is to take challenging materials which are difficult for many. They are difficult for us too. 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. For example, it's spot on the action plan for which was a good contributor here. It's in the action plan we have been working on for several years. I think the story is well explained with that.
On the brownfield opportunities, I think that the Outokumpu field is interesting. When we bought Kylylahti, we bought it for the opportunity brownfield. We bought a little mine, and we said that our interest is not really the mine, it is to come across this exciting exploration area. We are now not reducing the exploration in Kylylahti itself. We still work very hard to get an extension there, but it's not impossible that we fail. In that case, we are going to add resources for exploration in other exciting locations in this area. This is probably one I should call, it's greenfield rather than brownfield, but it's quite possible to feed the present concentrator 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.
Morning. I've got two or three questions. Firstly, could you just comment on what's going on in the zinc industry, just in terms of the talk around a change in pricing terms and an increase in payability for zinc smelters? Talk about your expectations over how this could play out this year and potentially over the medium to long term. Secondly, just on the CapEx side, you've increased to SEK 6 billion. I know you don't guide beyond 2017, can you give us a feel for where you see the sustainable or right level of CapEx for this business going forward? Is SEK 6 billion the number we should be thinking about, or could it move higher, or would you expect it to move lower post-2017? I'll leave it there. Thank you.
Well, on the CapEx, should we take that first?
Okay. We've increased, as you say, the guiding to slightly below SEK 6 billion. The components there are increased maintenance in Aitik above all, the expansion in Tara and also an accounting change in Kevitsa. The maintenance CapEx going forward, we expect to be slightly above SEK 3 billion, the remainder is investments that are more optional, so to speak. Hope that answered the question.
On the space, I think that it's obvious that there is pressure which is perfect in line with what we have said. There is a shortage of mine supply, that is going to come across in one or another way. Therefore, we have been cautious about zinc thesis 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 a lot more going on in the market, that would be wrong of me.
Okay. Thank you. 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 and 2016?
We had a big year 2016. We have a very big year 2017. It's going to be, if I remember right, is one more year with high maintenance. Not probably on this level, but still high. Then it's going to be normalized, if I remember right. Isn't that right?
It's coming down from the 2017 level, for sure.
Okay. Thank you.
Thank you. Our next question comes from the line of Jason Fairclough from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Good morning, folks. I won't 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? 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? How should we think about the financial benefit?
Shall we start with hockey? I much rather talk Kevitsa, I think I'm obliged to say something here. Well, the hockey team had a very big, bad start of the season, but improving. We probably continue our support to the team for some time more. 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 Boliden, 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 Rönnskär. 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, first of all, as we have said, it's a copper con, which is contaminated with nickel. That is contaminated for a lot of other smelters, but good news for us because we can extract it. The copper contains nickel, and the nickel contains copper, both giving problems. Harjavalta was built for the ore body in Finland or for the mineralization, for the geology of Finland, which is typical of this kind. We have a good smelter for Kevitsa. They didn't want to sell all of it to us because they were nervous that we would sell Harjavalta to the Russians, and then for sure they would have lost everything, and nickel is not a very liquid market. Therefore, they didn't want to put all the eggs in the same basket, which obviously we can do.
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, that is not the purpose and the focus right now. One of the good things with an 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. Then you can open up for additional from the outside. I think short term, you shouldn't count on that one.
Just to follow up, if I could there, Lennart. Are you able to help us understand how to think about any kind of value uplift? Is this something where you could be looking at a few hundreds of millions 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, we said it's not making the deal, it's not totally marginal or something. I think I expressed myself something like that. The ballpark, the numbers you're mentioning is probably on the high side, it's probably not entirely wrong either. Much of that is already in there now.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Oskar Lindström 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. 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? 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 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. I would say, no, I don't think you should expect more volatility, but I don't think 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. On Garpenberg, is the high volume going to continue? The capacity we have is two and a half, 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 relinings of the mills and whatever else. 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. Sorry, on the smelter side, I think, Mike, you've covered the three metals. 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 as much of a topic or key issue for you now, or have you slowed down somewhat on the looking for acquisitions?
I think we are continuing on the same track as we've been before. We're 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, we see what comes out. It's good that we are not buying something now because, capital-wise, we could probably fund something more, we would like to pay down a bit more of debt. More important is the human resources, which is very much tied with all the different projects we're working on now, Tara, Garpenberg, Boliden area, and of course, Kevitsa. I think that we are a bit tied on the resources right now, that will change. Obviously, we're continuing to look for good fit and good synergy opportunities.
This last point that you mentioned, that 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?
I think on the resource side, it depends on what we choose to put it on. Today we are in a lucky situation to have quite many things to work on, would an acquisition opportunity, which is good, come up, we would reshuffle, I think from maybe six, nine, 10, 12, I don't know, a year ahead, I think we would be okay again.
All right. Thank you very much.
I realize that we have quite many that want to ask questions. 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, a little bit more detail on the changes to reserves and the grade profile at Garpenberg 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. 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. 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 Markets Day, you have to look at 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. Just near term, do you mean 2017 to 2019 or just 2017?
More like five years with the present thinking. 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.
Yep.
Yeah.
Thank you. Our next question comes from the line of James Fraser from JP Morgan. Please go ahead. Your line is open.
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 billion 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 SEK 1 billion move is that? How much is FX, Tara, et cetera? Thanks.
Okay, very good. 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, there's also an increase in the fleet and so on. Almost similar size to that, we have an increase in maintenance in Aitik. Roughly the same size. The Kevitsa change, I should perhaps start by saying that there is no change in the plans for stripping as such. There's no change on the ground. There's no cash effect either. What we've done is that we've gone through pushback and calculated the CapEx according to standard Boliden models.
Basically we've adapted the accounting in Kevitsa to Boliden'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 one is slightly bigger, and the Kevitsa one is slightly smaller. We have a currency part, which is around SEK 100 million-SEK 150 million. That's smaller than the other three.
Okay. Yeah, thank you.
Thank you. Our next question comes from the line of Fawzi 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 Kirunavaara 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. As all depleting mines, now we have to look at sort of using the capital equipment we have as prudent and clever as possible to 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 year 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 are bit convinced there's going to be a future, but we don't know when. The current maintenance situation for a time and then restart with hopeful, positive exploration results somewhere else in the area is the other scenario we're hoping for. Primarily, of course, we hope to find extensions.
Okay, thanks, Lennart.
Thank you. Our next question comes from the line of Robert Jadin from Keefe, Bruyette & Woods. Please go ahead. Your line is open.
Yeah. Hi. Can I just ask again on the grades in Garpenberg? You write about the reserve upgrade or update that the profitability is high also in this new lower grade material. Is there something in your technical studies that sort of implies that these source 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? Secondly, you also have that comment on the five-year period not being impacted by this. I guess you have a feel for the five-year period. You have the guidance for 2017, but after that, the next four years, should we expect the old reserve grade, the 3.9, or how should we think about that?
Well, the guiding between five and 10 years, we don't do. When we're there, I don't know. We have today a huge flexibility to do a lot of things and to work profitably with this beautiful mine. 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. Depth of Garpenberg is a bit of a concern, but we are very profitable. With a big volume standing and with all the infrastructure standing on the side and accessing level by level, it is a very good way of mining. Deeper is not necessarily good. Not all of it is deeper. We also have some better position higher up. I think, same thing, but lower grade.
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, I realize I can just put one, I have to take it after the conference then. My question is related to the earnings increase in the mines. If you take away all the impact from metal prices and so on, the increase in cost was almost as big as the volume increase in the mines. I think volumes were up SEK 380 million correspondingly, and costs were up SEK 355 million. 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.
I can start to regret that it's too high. With that, I can pass it over. It's too high. I think so. It has explanations.
The costs are on the high side. You're right in that. Looking at individual quarters, you won't always get the same ratio. What we've had in Q4, especially comparing to Q3, is an increase in personnel costs. That's roughly SEK 50 million per business area. We also have profit sharing schemes for the employees, and with a stronger financial development, we've added more for variable pays.
We've been lagging a bit behind in areas like exploration and technical development, we have increased the pace there. Kylylahti is one area, which means that we have an increase between the quarters. Most of that amount would be variable costs connected to volume.
Thanks.
Thank you. Our next question comes from the line of Philip Ngotho from ABN AMRO. Please go ahead. Your line is open.
Hi, good morning, gentlemen. I've one question on the sourcing of raw materials for your zinc smelters. For the part that you don't source internally, like 130,000 tons, can you maybe comment on whether the sourcing has been secured for 2017, and at what terms you source it? Is it 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, as I said before, I think it would be wrong to speculate. I think there is pressure on the zinc TCs. You can read it in the newspapers, and we can confirm that. 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 spot TCs.
It's on 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. The first one is just if you can give us some sort of timeframe in terms of your appeal to the government regarding the Laver deposit. I guess as 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 million tons through Pit Kevitsa, if you need any sort of change to your current license permitting, any extensions that would be required for that. Thanks.
Do you want to take that or shall I take it? Oh, okay. On Laver, I think we are surprised by the concept or the procedures behind that. It is more of a principle question which we will continue to work on, and we appeal it, and we see what is going on there. It is a slightly different situation, and I think it is going too far to go into details. I am convinced it is going to be mined. I am also convinced it is not going to be around the corner for several reasons, and permitting is one. 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 are 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, looks like there is 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 is a timing difference between what is 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. There will always be a catch-up, 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. The short answer is yes, there is always a catch-up. We will pay what we put in the income statement.
Okay, thank you.
Yeah.
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 Nautanen next to Aitik, because you say in one statement today that you will go for a mining application by 2017. I am wondering how should we view Nautanen? Are you expecting commercial production there in 2018 and 2019? Thanks.
Nautanen is 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. This is really the long-term planning. Long-term planning, as you know, it's now. We need to work very hard on this application and the permitting there.
Okay.
If successful, it may come in earlier, that is when we really want it.
Okay. Is it right to assume that you moved forward in Nautanen 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, it's taking time. five years is just, poof, gone.
Okay.
No, it's urgent. It's not for 2018, it's for 2026.
Yeah. 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. We thank you so much for joining us today. We have the Q1 results on 25th of April. Thank you.
Thank you very much.