Good morning and a warm welcome to this call regarding Boliden's announcement today on extending our zinc mine, Tara. Present from Boliden on this call is our CEO and President, Lennart Evrell, President Boliden Mines, Mikael Staffas, and myself, Sofia Arnius, Head of Investor Relations. The presentation material is available on boliden.com. After the presentation, there will be an opportunity to ask questions via telephone. Let me now hand over to Lennart.
Thank you. Good morning, everybody. Interesting start of the year, to put it mildly. It's with great excitement we announce the news on Tara zinc mine. The background is, of course, this is a very large zinc mine. It's the 8th largest in the world. It has had a high cost position, but with improved global macro and higher prices, it has become a more and more profitable unit. Certainly also because of the rational way or the improvements we have accomplished in the past two, three years, following many years of improvement and Boliden technology and relations with the unions and with everything else. Tara today is a good mine, and we, of course, regret that the end of the life of Tara was 2020. For several years, we have seen the life of mine be limited by ore.
Since last year, it was limited by the dam for the first time. The dam cannot take more production than through 2020. Now we have done something interesting. It started 2012 with new methods of exploration. Until then, we typically work with geophysics, but here we have been working with seismic technology and for the first time in Boliden history. 2012, we hit something, or we started and hit something quite immediately, which we later understood was what we now call Tara Deep. This is a very exciting development which continued with drilling last year, and we realized, wow, this is probably a real extension of Tara. That whole story I would like you, Mikael, to take, and please continue from there.
Thank you, Lennart. I will refer to the exhibits as they are in the presentation, and I will go to exhibit number two. As you already heard, we do have good news today. We have an increased Mineral Resource. This increased Mineral Resource is both the new mineralization of 10 million tons of Inferred Resource that we are announcing today at Tara Deep. I'll come back a little bit to that in a few exhibits. Also the general R&R statement update that we're having today, where we, as I'll also come back to, we have almost been able to cover one year of production with new reserves in the present mine in the SWEX region. That's the positive news there. Based upon this, we have decided to extend the tailings dam. That gives us infrastructure to go through 2026.
The calculations that we have done are based until 2023, because that is as much as we have ore now, and we have reasonable resources to be converted. Of course, we have great hopes to be able to continue beyond 2023. We have also decided to build a drift to this new Mineral Resource, Tara Deep, that is also included in this package. That gives us the possibility to continue to do exploration and to be able to upgrade from Inferred Resource to Indicated Resource during the coming years as we will have better access. It also, of course, reduces cost compared to continued drilling from the surface, given how deep this is. This also sustains Boliden's position as a zinc miner. Tara is roughly half or a little bit less than half of our production, and this now continues for well into the 20s.
Looking into the history of Tara, some of you have been with us for a long time and will know lots about this. We have done smaller investments, or I say a big investment in 2009 when we had a new concentrator, especially the milling section of the concentrator was rebuilt. We have worked with improving the situation that was historically maybe not always so good. We worked with flexible organization. We worked with headcount reduction. We have upgraded the mobile fleet. This initially caused some production disturbances, and 2014 and 2015 were clearly not good production years in Tara. In 2016, as you've seen for the first three quarters of the year, we have been able to improve that a lot. We have a much improved production situation.
Also we were working during 2016 with the new mineralization that we had that now in the statements that we're releasing today are up to 10 million tons. With that comes now in 2017, the decision to invest in a dam and in a drift. If we take a look on the next exhibit on the actual R&R statement as it comes out right now, I think I would like to just point out that the total Mineral Reserves have gone down from 17 million tons to 16.5 million tons. Given that we have a rough production of about 2.5 million tons per year, this is actually new ore of about 2 million tons that has been added. As you can see, the grades are very similar to what they were as of released last year.
You go down to the Mineral Resources. Here you see a total increase of about 9 million. 10 of that is the new body or the new mineralization that we have found, Tara Deep that comes into that, which also means that you can see, especially on the Inferred line, you can see a high increase of grades as this has higher grades than we have seen historically in Tara. If you were to look, as it says in the heading, just individually on the Tara Deep, that's 10.2 million tons at 8.5% zinc and 1.8% lead. The decision today is to invest in an extension in the tailings facility. If we were not to do that, we would have to shut by the end of 2020.
As you see on here on the picture with the extension to the north, we will be able to have capacity through 2026. The CapEx for this is EUR 33 million. Construction period will start in the spring and will go all the way up into 2019. We have gotten a permit in the basic ground. This one was approved in November. However, it is appealed, and we are looking to get a final approval somewhere in the end of Q1 or maybe early Q2 to this extension. Looking at the next one, you get a sense of where we're talking about with Tara Deep. We are roughly two kilometers away from the existing mine that you can see very clearly lined out. We're slightly deeper. We are today mining down to about 1,000 meters in Tara, and the Tara Deep is from 1,200 to 1,900 meters depth.
As I said, about two kilometers out. We will put an exploration access drift in place here to be able to both do, of course, more exploration in the areas in between that have maybe not been so well explored, but also to be able to get into closer contact with this ore body to be able to increase the quality of it. Hopefully also be able to increase the size as this is clearly open in lots of directions, as you can understand, not having done more exploration than we have done. If you look into the financials around this, the CapEx for the extended tailings dam is EUR 33 million. The new drift is EUR 11 million. That will come as both OpEx and CapEx. As you know, we have a principle of always putting the exploration cost into OpEx.
This is a drift that will have a combined usage and therefore is a split between them. The prolongation of Tara also means that from an accounting point of view, that we will have lower annual depreciations from 2017 compared to what we would have had we not done this one, of the order of magnitude EUR 10 million less depreciations per year. To sum this up, we do have an attractive IRR investment. We have not come up with a particular number, but what we have said is that we are right now in this calculation, only basing this that we will mine through 2023 as this is a conservative assessment based on what we actually have as ore right now. We have based it on Boliden's long-term planning prices of zinc at 22 and a euro dollar at 115.
That clearly makes it an attractive investment just by itself, and gives us then the upside of the additional three years that would come without any extra investment linked to dams or access drifts. It's also sustaining Boliden zinc mine production. Of course, in that sense, also longer-term securing supply to our smelters. I would also like to point out to a news which is maybe not big enough to warrant a press conference, but it was announced, and you could have read the news on our website in December already. A year back, we announced that we have a similar situation in the existing Bergmine, where we have the Rävliden ore deposit, or I should say mineralization. This was in the R&R already a year back.
We have been continuing drilling and are quite hopeful to be able to upgrade this Mineralization from Inferred to Indicated and further on. We have decided to make this both faster and more cost efficient to invest also here in a drift, in this case around 3-kilometer drift, to be able to get access points for underground exploration here. This one is a total cost combined CapEx, OpEx of SEK 130 million, which we'll have mainly in 2017, 2018. This is on a smaller scale than Tara, but also, as I would point out, a statement that we are positive around what we can do around the existing Bergmine. With that, I give it back to you, Lennart, to summarize.
Thank you. Obviously this is very exciting for us. We have a history of rather short life on mines, and we have extended step by step several of them. Certainly Tara, but also to an extent Boliden. We're short on life on mine, and we're now building 2 exploration drifts in the direction of substantial finds or discoveries. This is certainly exciting, and both of them are of Tara is zinc, and Rävliden is combined, but predominantly zinc, and the world is in need of zinc. That's why the metal prices have been rising quite steadily, and the outlook, the macro, makes us believe that the world is needing these new deposits to be mined. We're extremely happy about them.
They are still conditional to an appeal in Tara, and the level of knowledge is still on a lower level, but we are building, and we want the market to know, instead of rumors going out, what are the guys doing here. With that, shall we take your questions?
Yes. We will open up for questions now. Operator, please go ahead.
Thank you. Our first question comes from Jason Fairclough of Bank of America Merrill Lynch. Please go ahead. Your line is open.
Yeah. Thanks very much for the opportunity. It looks like quite an exciting project. I just wanted to ask a little bit about the Resource grades. You've said here 8.5% for zinc, 1.8% for lead. If I compare that just to the Reserve grades, it's higher. Should we think about those actually converting through into higher Reserve grades, or are there some modifying factors that mean that that 8.5% will be lower once you actually mine it?
There are no modifying factors. This is really higher grades that should come across. We're not at that stage yet, but it is deeper, so of course, we will need also higher grades to motivate the higher cost that will come with that. We are not at all at that stage yet to quantify what that will be.
Okay. Have you got any feel for a cost per ton to mine this ore?
No.
Early days?
It's early days.
Okay. Thank you.
Thank you. Our next question comes from Christian Kopfer of Nordea. Please go ahead. Your line is open.
operator, good morning. Just a few questions from me. Firstly, you said that the D&A charges will come down in Tara after 2017. Could you give us a hint how much it will come down?
Which charges, sorry?
Depreciation. Sorry.
We said roughly EUR 10 million.
All right. Also you said that it's obviously an attractive IRR in this investment. I mean, it's early days, but still on Euro dollar 1.15 and zinc assumption on SEK 2,200, if I understood you correctly, what kind of IRR are we talking about?
We tend not to go into detail. The only thing that we can say around it, that it's of course above our cutoff grade at 12. It is.
Okay. Meaningfully above your WACC?
Yes.
Okay. Cool. Thanks.
Could I add, that is to the 2023, then we have the optional value. We are of course looking at an optional value in addition, but even without the optional value, without Tara Deep, we have a clear profitable investment only to 2023, at the long-term prices. You understand, if you take a more aggressive price view, if you put in the optionality value of any kind, well, then it is a very good deal.
That's great. Thanks.
Thank you. Our next question comes from Conor Rowley of Credit Suisse. Please go ahead. Your line is open.
Hi. Thanks for the question. Just one on, I assume the extension to 2026 of the tailings just covers the current reserves in the current pit and some resource-to-reserve conversion. Just trying to get a sense of, if the new Tara Deep does become attractive after more exploration, what is sort of the next step in making that a full-fledged part of the mine plan? I mean, how much more do you need to extend the tailings pits, does it involve more infrastructure in terms of another shaft or anything like that? What kind of cost would that cost?
These are also very early days, and as I said, we don't even know the potential size of Tara Deep. You're right in the sense that we would have to look into that project more in detail. We have a few years. What is also clear is that extending the tailings dam beyond 2026, as we're doing right now, will entail quite a project, because there is no easy extension after 2026 on the tailings dam. Yes, there is a big project on tailings dam. There is a project on access and mining of the actual resource that we don't know how big it is and how big it could potentially be, and everything linked to that. I would say it's a big unknown.
Okay. Thank you.
Thank you. Our next question comes from Ole Solum of Swedbank. Please go ahead. Your line is open.
Just a follow-up question on the possible extension of the tailings dam from 2026. Do you mean you have to build a completely new tailings dam then if you are going to extend the life of mine further?
Let us not dwell into detail. I'm just going to stay where I said. There is no obvious extension after 2026. It could entail a brand new one. It could entail something else, but it's not easy to extend where we are.
If I just ask you about your gut feelings, is it possible to have some parallels with Garpenberg and the discovery you made there for a while ago?
That's also very early days.
Okay.
Thank you. Our next question comes from Frank Gallo of Deutsche Bank. Please go ahead, your line is open.
Yes, thank you. Morning, gents. Thanks for taking my questions. The first one, just can you give us a sense in terms of the timeline for the drift that you will build at the new deposit?
The timeline for the drift is
Yeah. Sorry, say that again?
Yeah, I said the timeline for the drift is roughly 24 months.
24 months. Okay. Just my second question is in terms of cost and drilling cost. You said in the press release that the structure of the ore is more complicated, especially at the greater depth. Is it fair to assume that even though the grades are relatively higher than the reserve level now, and if open conversion, these grades become higher as well, the drilling cost and the sort of mining cost will be a little bit higher than they are now at the rest of the mine?
It is also very early days to say. What we have said is that the actual mineralization is similar, meaning that the actual in the mill and the actual concentration will be similar to today. There we should not do as much. It is a deeper depth and what the potential cost and how we would mine it's very early day to say.
Okay. Thank you. That's all for me.
Thank you. Our next question comes from Ian Rossouw of Barclays. Please go ahead, sir. Your line is open.
Morning. Just a couple of questions from me. I know you said it's early days on the cost per ton sort of figures. Can you give us an indication what you assumed for cost increase just based on or compared to current cost at Tara? Also maybe just give us an idea historically what the typical conversion rates have been from a resource to reserves just to give us an idea of what we can expect for this Inferred Resource. Thanks.
Well, yeah, life there was easy for me because as we said, we've only done the calculation that we're going to mine till 2023, and we're going to do that full mining in SWEX where we are today with very similar cost what we have today, because that far we can plan relatively well. That's the easy part. I did not have to put any cost estimate for this optional value of going further. In terms of resource conversion, I don't have a real number, but anybody who's been following us, I would suspect that the resource conversion rate has been, I wouldn't say 100%, but it's in the actual SWEX area that we are mining right now, we have had very high conversion rate. Now we're talking about Tara Deep.
It's a new ore body which of course means that past history and past experience might not be fully relevant.
Okay, would you expect similar high rates or is it just too early to say at this stage?
It's way too early to say regarding Tara Deep. I think that regarding the mineralization that we have in SWEX, which is basically the rest of the statement, if you take away the 10 million that is Tara Deep, you have the rest that is SWEX. There we have a history of proven high ability on conversion, but regarding Tara Deep, we don't know.
Thanks. Sorry, just to follow up on one of Frank's questions. You were saying on the mineralization it's similar, so you would expect similar recoveries. Is that what you were saying on the mill and concentration?
Yes.
Okay. Thank you. That's all for me.
Thank you. Ladies and gentlemen, if there are any further questions on the line, please dial zero-one on your telephone keypads now.
Okay. Should we then conclude there are no further questions? Let me then summarize. Exciting morning to put it clear. We are extremely excited. It's a lot of people employed in this mine and in this area of Ireland. We're going to extend, provided now that appeal is ruled in our favor. We can continue to employ not only our own people but the employment effect of a factor four or something. This is important socially, it's important financially, and for us as a copper zinc base metals company, it's very important for us and certainly for our shareholders. I think that what it really means, I hear your questions. You talk about is this a new Garpenberg? What's the cost of it? What's the planning? All of those questions can be answered very simple.
We're building a ramp which is justified by the mine we have now and with the extensions we have been able to accomplish in the mine itself. We have an optional value where the value may be very large, which can be a new mine or it can be zero. It's on great depth, we think we know that the grades are good, the quality of the concentrate in Tara is great. The world is needing it. The incentive price for a new zinc capacity in the world is very high, this may be very competitive. We don't know. It's a deep mine or a deep deposit, seemingly with very high quality. Yes, it could be a Garpenberg, it could also be nothing. It will take years to come.
By 2019, we will start drilling up the area, the years thereafter will tell if this is a great optionality which turns into something profitable or if it was a lost money for a drift and a lot of exploration money. That's the nature of our business and we are hopeful, otherwise we wouldn't have built the drift, obviously. With those concluding words, we thank you for attending and we look forward to hearing or talking with you after when it's time for Q4 and so on. Thank you very much.