To the presentation of Boliden's Q3 2015 results. My name is Sophie Arnius, and I am Head of Investor Relations here at Boliden. Our CEO and President, Lennart Evrell, will comment on the results together with our CFO, Mikael Staffas. After that, there will be an opportunity to ask questions, both from our audience here in Stockholm as well as from our audience via the telephone conference. Lennart, please go ahead.
Good morning, everybody. We are very pleased with the result, obviously. It is a strong demonstration of our concept. It is a result that came out strong despite quite severe problems in the mines. In other words, we have had a very good performance in the smelters. I think that is the strength of being a bit diversified in smelters and mines, precious and base metals, that we can take sometimes problems and compensate it with good performance elsewhere. If we look at the presentation set here, the revenues were up from the previous year. The nickel business is now part of our sales. Before it was a tolling, so it was not part of the sales numbers, so it is coming across quite a lot on that growth. Earnings before interest and tax and before revaluating the process inventory was SEK 1,055 million as compared to SEK 711 a year earlier.
The cash flow was very strong, even though it is a little bit exaggerated because of the low tax level, which is calculated on the previous year's profit level. Mikael will talk about that later. The sharp fall in metal prices that we have seen, in particular in the end of or in the later part of Q3, has not been compensated by currencies if we compare with the previous quarter. The currencies are still a supporting side of our industry. If we compare with other comparable companies in the zinc world or the copper world, they have had approximately the same currency situation as we have. I would say that compared to most comparable companies, we have had a very similar weakness or support from currencies. We have a strong result in smelters production, disturbances in Aitik, more on that later.
On the macro scene, obviously, what is happening is a slowdown in both the mature economies and more important, China is slowing down or the growth rates are coming down. We think that the statistics are quite difficult to understand in some cases when maybe the Chinese development is softer than the GDP numbers or industrial production numbers would indicate. On the base metals markets, we see the combination now of a slower demand or slowdown of the demand with the effect of increased numbers or increased capacity from the copper mines in the world. The overcapacity is probably not as severe as one could have expected given the demand side. There have been many disruptions, many production problems in many of the mines across the world. Therefore, the oversupply is not that great. On the zinc side, the big Century Mine closed a month ago.
The concentrator continues for a little, but it is closed. I spoke with the management there only a week ago at the LME Week where I met them. Lisheen in Ireland is another big zinc mine that closed, but there are other zinc mines increasing capacity, for example, Garpenberg. The increase in stock levels that we will note later on is primarily not a function of the fundamentals we think, but more a reshuffling of hidden stocks or stocks that has been held by different parties, traders and producers and whatever, and flowing into the LME stock. You can sell and create cash flows selling to the LME, which is putting pressure on the price, which is increasing the inventory, but is probably not an effect of production or supply demand in the short term.
Metal prices are down. The prices are closing up to the cash cost curves, and we see that on next slide. Here we see the max and min metal prices in the different years. The lines are showing the cash costs. The cash cost, as you can see, it is a different quartile. The yellow line here, if the price is on that level, 10% of the mines in the world are going with EBITDA negative and 90% are EBITDA plus. As you can see here, the bottom prices, which is pretty much what we have seen lately in the past or recent period, is closing into the 90th percentile. Typically, the floor level of copper and zinc prices can go down to, say, 75th and a little below the 75th percentile, if we look in history. That has been the traditional turning points.
We can also see that in the copper world, cash costs are going down. It is not a question of rationalization, it's a question of the currencies, the soft currencies that we share with Chile, for example, but it's also energy prices and a couple of other factors. If we look at the currency index to the right, it's a combination of the metal prices and currencies. On this curve, you can see that the combined impact from our prices in terms have been flat or even positive at times, but has been turning sharply down lately. If we look at the average of them, it's another slide to look at it. On the zinc price, prices are going down, inventories are going up. As you can see, the shaded part here.
We suggest and believe that most of that is reshuffling of stocks more than fundamentals in the market. On copper, we have seen the similar, probably more of the fundamentals of the new mines overproducing here. In the precious metals, they have been going down as well, but less so than the base metals. In all, we have a stabilizing factor from gold and silver here. Looking at the mines first. Disappointing result. SEK 260 versus SEK 355 a year earlier, on SEK 650 in Q2. Of course, this is a disappointment. What has happened? Well, we have the metal prices, but more important is Aitik. What happened was, in the beginning of September, we had a pretty significant breakdown of a gearbox. We have three crushers. We can produce with two for a period. This was unexpected, and we didn't hold this or carry this in stock.
As a consequence, we started the repair. It's a big thing. Only a week after, believe it or not, we had a major breakdown in another crusher. Now we're standing with one crusher in a fair part of September. This was not good. One of them is still out of production. Now we have two in production, so basically we can hold up in a good way. This was bad luck, and I must say it is not really the same problems we have had before. We are not happy with the crushers. That is well known. The kind of major breakdown, we haven't seen many, and certainly not at the same time. It's a rather unusual and bad situation. You can say it can happen, but it may not happen. Of course, we are going to review spare parts.
We're going to review the whole situation. We had continued strong development in Garpenberg. We are turning in nice numbers there. Even though it wasn't a super quarter, we had some smaller things. Basically, it's details. Garpenberg is performing perfect. We had a weak period in Tara as well. We are changing from the upper to the lower parts, and we have somewhat weak production there. If we look at this, we can see the impact on the ore production on the bars. We can also see that on contained copper in concentrates, it's a lesser negative development because of the higher grades we have in Aitik. On the zinc side, it's holding up in ore tonnage, and we have slightly lower grades, which is impacting the metal in concentrate production. In the smelters, well, have a look at this.
SEK 825 in earnings compared to SEK 460 a year before, and SEK 600 in Q2. Of course, Q2 had more of maintenance than we have in Q3. Metal prices are having an impact also here on the free metals, obviously, and we have TC's development and other. Basically, we have a very strong production, stable and high production in the smelters. The new nickel business is also a good thing. We are securing the supply of nickel material to new customers, and we have signed contracts for nickel concentrates, partly with new mines and in new contracts with the mines delivering before. Well, that's true also on the front end that we're also supplying some of the material to old customers or takers. On the maintenance, we had the maintenance. We're going according to plan. We had SEK 85 million in impact in the quarter.
Production, good volumes, good throughput both in zinc and copper. I continue to note that Odda was at the far end, negative end of the competitive position before, and we have moved Odda upwards, both with our own actions but also with currency effects. I think we are very, very pleased. Of course, in a depressed market, it's very important to have good cash cost positions. When the metal prices are high and TCs are high, it doesn't matter. Everybody's earning money. The quality of companies is in the difficult times, and that we have moved all the operations with new Boliden away and with many small day-to-day operational improvements. I think that is the importance here. With that, Mikael, if you can take us through the financials.
Thank you, Lennart, and good morning, everybody. I'd like to get just quickly through the numbers here as we've seen them. The numbers are, as you heard before, they're all through relatively well. They've done well throughout. Especially positive cash flow, I'll come back to the cash flow in a little while. Looking first into the bridges and how we have moved over in terms of our profit, you can see here comparing quarter after quarter that we have a very strong volume effect of about SEK 100 million. That is to a large extent the lack of maintenance or the lesser maintenance that we're doing in this quarter compared to the previous one. Also generally good production across. You see we have a quite negative price in terms.
Shouldn't surprise anybody, SEK 600 million altogether, basically all coming out of lower metal prices as the currencies have been relatively stable between these two quarters. I know that somebody will ask, I'll give you the answer beforehand about what is the effect of the month after month pricing that we have in our minds. There is an effect there that comes into the price and terms of about SEK 35 million. That is the revaluation of the Q2 result that comes in the Q3 because of the lower prices averaging in July compared to the end June price. Of course, when you look at this, you should always remember that the prices that we have in the mind is the average of August and the average of September, plus the end price in September. That goes into this quarter because of this pricing quarter after quarter.
Somebody who's looked at the numbers and trying to assess them, just looking at the average prices in the quarter will get this effect not quite right. Costs, very good. This is partially a seasonal effect. We always have lower costs in Q3 because of vacation times and because we're having some mines that are shutting down for vacation. Even with that, and also the fact that we're having less maintenance, even having said that, it's been a very good cost performance in general in the quarter in both units. Looking compared to last year, we have a very nice volume development. This volume development that you see here is of course due to the Kylylahti mine that was not in the numbers a year back. You also have ramp-up in Garpenberg and a very good performance across the board.
The volumes have developed quite nicely in this perspective. Compared to last year, you see almost no or very little effect on prices and terms. As you see that little small line, it's quite a number that's small because of two numbers taking out each other. It's a very strong positive currency effect and a negative metal price effect that in our case turned out to be almost close to zero. Costs are up. Once again, considering that we're having the Kylylahti mine in place and the strong volume development in there, these costs are doing quite well compared to last year. We're quite pleased also in this comparison with the cost effect. Cash flow, as we said, has been very strong. It's the second quarter in a row that we have a very strong quarter.
There are two numbers here that I think are the most remarkable ones, and those are number one, that we have managed also after that we got SEK 400 million out of working capital last quarter. We're still getting a little bit more out of it. Having to remember that we've also now started a nickel business, which is in there. The rest of the business has done quite well in getting out working capital. The second line there you can look at the bottom is the taxes paid. Taxes paid are quite low, and that has to do with the provisional tax system in both Sweden and Finland that lags a little bit. You've looked at this over the year, can see that we have now paid almost SEK 400 million less this year than we have as tax charge.
When you're comparing that, this is a little bit of a forward statement that these taxes, of course, will have to be paid towards the end of the year. That's a little bit on Q4. As a result of strong cash flow, strong balance sheets, and we're getting now down to 24% gearing, which is quite pleasing as such, to have a strong balance sheet in these times. Looking at other things, there are very few terms that are changing here. We are getting a slightly shorter tenure on the debt as we have not refinanced any major debt during this quarter. With that, Lennart, I'll give it back to you to summarize where we're standing after nine months.
Nice numbers, Mikael. I would say the positioning here is the trick. We have not had everything good. We have actually had a poor performance in our traditional largest profit maker, Aitik. Against that stands exceptional results in smelters, and I think a normal situation would probably be a little bit more balanced. It's also a fact that we have been looking at this volatile industry. It is good to have a bit of a metal mix, a bit of the smelters and mines, a bit of different and many different units. We're not dominated by Aitik now. Garpenberg is the largest. Another time, maybe Kokkola or Rönnskär is the largest. I think it is important. We are made up of 10 different units, different combined lives with a lot of synergies, but partly also different lives.
That gives us some kind of a risk situation which is playing out well. Productivity development has been difficult or important all the time, and when prices are good, it's very easy to just relax and enjoying fantastic numbers. I think we have been very devoted in moving on and working with a lot of details, and not least in the smelters, carving out nice little margin business left and right and doing things with a bit of difficult concentrate there, clean concentrate there, finding out the best margin volume and manage this. Very complicated. It goes wrong at times. We have seen it. When it's playing in well, it's going well. Metal prices, currencies, and the rest we have seen. We will now look at the going forward. Copper grades in Aitik are going to be on 0.21 in 2015 and 2016.
Garpenberg pace will be at 2.5 million tons by the end of the year, and we plan to be there. Tara was not performing well, and we have the improvement plan continuing to deliver, and has to deliver because it wasn't a great quarter. On share action plan, we took some major step in the beginning of this plan on the cost side. When it comes to the production stability and process situation, we said that this is taking longer time, and you have seen it, but we are moving according to plan. The nickel business on own books has been working as we had hoped. That we can not tick off really yet, but the first quarter is of course critical and we have the material coming in.
We have customers for the front end, and we're carving out a good margin, and we are employing more capital as we have said. Odda expansion going to plan. We did the P100, which was cost primarily and contracting production or condensating it into only one cell house. Now we are taking the idle cell house in production, and we're investing with respacing and basically repeat the success we did in the other cell house. CapEx will be slightly lower than previously guided for, and the maintenance will be SEK 25 million in the quarter. I think with that, we just conclude. We're happy with the situation, and we are prepared to take your questions.
Before that we take the questions, we just want to highlight that we will have a capital markets day in March next year. We will be in Stockholm on the 16th and going to Odda for a site visit on March 17. I hope you can join us then. Let's take the questions both from our audience here in Stockholm as well as from the telephone conference. We will start with the floor here in Stockholm.
Ola Södermark, Swedbank. Given the good results for smelters, how shall we view the smelters going forward? Is it sustainable? How does the terms look when we are looking into 2016?
We had the LME week last week. That's the beginning of the negotiations of TC terms. The fact that the combined profits for mines and smelters are shrinking with lower prices, we don't know, first of all, but we expect them to remain on a favorable level. Will they be as high as or as good as this year? We don't know. All of this is quite public, what's going on there, and we know the spots where you can probably get some kind of an indication. Is it sustainable in the smelters? I think the smelters will continue to deliver well. I think on production and everything, of course we didn't have much. We have no issues whatsoever this quarter.
In a way you can say that it was a very good quarter and probably more than an average over time. On the other hand, the mines are obviously below what is good over time too. I think that it's a bit exaggerated probably the result in smelters probably.
The strong cash flow and balance sheet, the gearing target is coming closer and closer. How are you going to address it?
When you are in a tumble dryer, which we all are, we are in a turmoil. We don't care so much right now, or we don't think so much about good news. If you had 28% gearing and we're 24%, a line diagram suggest 20% then after Q4, but that's not true because we have the tax situation Mikael said and a couple of other things, but we are nearing the target. What we do there is going to be a discussion in our board suggesting the shareholders what to do. No, I shouldn't say anything. We are nearing that point. That's good news.
Thank you.
Thanks. Good morning,
Christian Kopp from D.A. Firstly, on mines then you mentioned that you have run into some production issues in the quarter. We should really look at Aitik, Tara, and Garpenberg, all of those three performing better in Q4 in terms of volumes. Garpenberg, yeah. Absolutely. Nearing the 2.5.
Great.
Yep.
Then on the nickel business, were you enjoying some profits already in Q3 from the nickel business, or is that still to be seen in Q4?
Basically what we do, before we had someone else's material coming in and the same owner, we ship the resulting sort of value added product, nickel matte too. Against that, we get a tolling fee. Now we are buying material and we are selling material. It's a normal business concept. You buy and sell, and you do something in the middle and hopefully you add more value than the cost, or if you add value, you can get a margin higher than the cost. The thing here is that the startup is not very dramatic. It's not a startup of a new business. We are continuing. The guys in the smelter continue the same as they did before, but of course, the feed is coming from somewhere else, and the commercial team is selling it on different terms. The margins are improving, and the capital is increasing.
The net result, we are not breaking it down because we're still early days and it's still a startup. We are building inventory and so on. It's going according to plan, and it's a profit addition to it, but it's not making the story of the smelters.
Great. Finally from me on CapEx, you mentioned that you took down the guidance for 2015. Looking into 2016, is that still to be in the region of SEK 4 billion, or?
We do not have any revised number at this time. You can say that there might be a risk of it going up because some of this that's going down now is being pushed out. It's a question, will we then try to push something out in the other end as well? It's a bit too early days. We are in the middle of this planning right now. For the time being, I would stick with the old guidance for 2016.
That's great. Thanks.
Hi, it's Johannes Gunzilius, Handelsbanken. A question on the copper smelter and the terms. Could you indicate how much of the terms of the gross profit from this copper smelter that is coming from contracts which is non-linked to LME prices?
We'll say that all contracts have a reference to LME prices. Some of them are electronics recycling, some recyclable material is more contract by contract, but they are basically all of them having a metal component. Metal prices is one component, TC is another component. Increasingly in our concept is, of course, to work with recyclable material in Rönnskär and nickel in Harjavalta. Of course, just taking just a smelter term model and apply it is not giving the complete story, which is probably reducing the visibility a bit for you. Of course, we're doing visibility as good as we can, but we're not doing our business in order to get good visibility. We're here to make money. That's probably a negative for you, that it's a little bit more difficult to follow at times.
Perhaps as a general rule of thumb, 10%, is that fair in your ears?
10% what?
Of the profits are linked to LME prices for the overall compensation for the smelter.
Maybe. I don't know. I cannot say. Tell, my heart. Do you have a number?
I'm-
I have it there.
I'm trying to just understand your question. If I understand you right, you're talking about how much of the profit is linked to the LME price.
Yeah, or free metal.
which is the free metal. We've typically said that free metal is normally about a third of the gross profit within the smelters, and that's true both for copper and for zinc. It might be slightly lesser these days because of the lower metal prices and the relatively higher TCs, but we're talking still that order of magnitude.
You obviously had very good output from the smelters, good yields. Is there any explanation for that in terms of the feeding quality? Have you changed any contracts or feeding from miners or anything like that?
You have two effects. First of all, it is that we have come from a place where we don't like to be, basically. We tried too much to get better margins by taking more complicated things. When you're over that level, suddenly on the other side, it's creating quite big problems, and it's taking a lot of time. Unless you are prepared to test that level, you will always be buying a lot of low-margin stuff and have good productivity and stability and not earning any money. It's a balance. Improving that is one thing. The other one is the market is opening. Yes, we have better choice. We have learned from the lessons, and I talk Rönnskär, and the availability of concentrates are improving, so we can mix a little bit more.
We know more how to mix, and we have the option to do so as well. A bit of both.
Just a follow-up question on Aitik. You said that two crushers is enough to keep the production level at an okay level. Does that mean 10 million tons or below or above that?
If you have a hole in the ground, you have one, two, three. Okay, you can work for a while, but you're exhausting the area. If you're one, well, you can take what is there and it goes well. Even one is okay for a couple of days. Two is probably okay for a month, and three is needed over the long term because you don't have the truck fleet. We don't have the shovels, and the top speed of a shovel is 0.5 kilometers per hour or something. You don't drive around with them. If you have plenty of time, you can work reasonably well. Fundamentally, we need the three crushers now as the production plans are. It depends on time.
Is there any, the timing on the new crushers, do you have an update on that?
In the current market with low prices and turmoil everywhere, we are saying that, okay, if we are earning huge money in Aitik, we save no Time is everything. With low profits, with low prices, we can think twice. Now we have to rethink. Can we do it a little bit smarter? Can we do this and that? Can we delay some CapEx? Can we do a little bit smarter? We are recalculating the whole plan several times now, and we're taking a little bit of time. That delays the CapEx. It has unfortunately also probably increased the risk level because we're dependent on crushers we don't really like, and so on. The timing is we are working on the plan and everything is what we have said before. We're going to do an update, if anything, on the Capital Markets Day.
Operator, will you please let through the first questions from our telephone conference?
Thank you very much. Our first question comes from the line of Alain Gabriel from Morgan Stanley. Please go ahead.
Yes. Good morning, ladies and gentlemen. Just two questions, mostly directed to Mikael. Firstly, the first question is on the Aitik outage during the quarter. What is the financial impact, roughly speaking, of that outage? Or what's the opportunity cost of having the crushers down for that quarter? The second question is, we have seen working capital movement. If you split it between inventories and payables, those are fairly large numbers. How should we think about the evolution of both items during Q4? Thank you.
I'll start with your last question. There are always movements in our case between inventories and payables because of the concentrate that we're buying and the fact that it moves in and out of those two categories. You should look at the total. Don't look too much on the individual details, but look at the total. As I hinted in the presentation, we don't give any forecast, but we've been very good at absorbing or lowering working capital for two quarters in a row now. Also, this quarter, considering that we had the nickel business in, and we have a fluctuating working capital, it will go up at times as well. Moving over to your first question about the economic impact of the crushers.
You can do your little bit back of the envelope yourself having that, but I would say that losing 15% of your production in a quarter like we've done in Aitik compared to our own plans, we are talking close to SEK 100 million, a little bit less than SEK 100 million.
Okay.
You can do that math yourself.
Perfect. Thanks.
Do we have any more questions from the telephone conference?
Thank you very much. Our next question comes from the line of Liam Fitzpatrick from Credit Suisse. Please go ahead.
Morning, everyone. Two questions. Firstly, on capital allocation. I appreciate you made the comments that it's a board decision. Do you anticipate a balanced approach between cash returns and reinvestments? From that, how urgent do you see the reinvestment needs of the business? Do you think you need to start sinking capital next year, or is it more of a medium-term 2017, 2018 type issue? Secondly, on the working capital. I know you've made some comments already. Can you just confirm that the new nickel strategy is fully reflected in the Q3 working capital balances? Thank you.
I can start with the second one, I'll give the first one to Lennart and say that the answer is yes. The nickel business is fully reflected, with the quarter in there, we have you can say that the full working capital, which will also be fluctuating, by the way, we have basically full working capital in there. I'll leave you with the first question.
Yeah. On cash and investments, I would say that in the guidance, we have not revised our guidance. We see that something is pushed in from this year to next year, we see will we push also some from next year to the year after. I think that we are in a quite heavy investment period on maintenance CapEx. As you know, we have several quite big maintenance CapEx things in the plans. We have not exhausted, I think it is important to say, we have held back CapEx to partly, or of course we are always holding back CapEx. We have not been in the squeeze to do sort of value destroying total holding back necessary investments, so now we have a big burden just rolling in. I wouldn't call our situation like that.
I think we are moving on in a good balance and with maintaining the capital and the assets we have, I think, in as good way as possible. We are not under-invested. We are not spending money just because we earn them. We try to keep sort of the right kind of investment levels to maintain and develop our assets. That's what we are trying to do. What do we do with a surplus if terms and everything is going to as we hope? We are going to pass the 20% level, when we are below 20%, we are going to look at this as not capital we need. What shall we do with it? We will have a discussion on the board about that. A lot of questions on that, we are not answering it for the simple reason we haven't had that discussion.
We had a board meeting yesterday. Someone was asking the question, "Is it time to start discussing this?" We said, "Okay. No, it's not. We are not there." Time will hopefully come.
Thank you. Sorry, part of my question was probably a little bit unclear. I wasn't really talking so much about CapEx for this year or next year. It's more about sort of your longer-term production profile and some of the life of mine issues that you have. Do you feel any urgency that you need to reinvest within the next six to 12 months, or do you think the business is well-positioned?
Okay. Well, I partly covered that with maintenance CapEx, but if you look at, for example, exploration, we are working hard on exploration. We would like to find new opportunities where we can invest in good returning mines. We are continuing to look at clever ideas to develop our smelters. Of course, we are looking at that. Bear in mind, we have been very clear that we are not investing because we have the internal generated funds. They should be turned back to shareholders as much as to the investments. If we are short of funds and we have good investment, we should go to the market and finance them. I think it is important to understand, we are not the kind of company who thinks that the money belongs to the company, and therefore now it's flowing in, we have to get use for it.
It's a wrong rationale. I think some other companies at times are thinking that way. We don't.
Okay. Thank you.
Thank you. Our next question comes from the line of Gustaf Sundström from Danske Bank. Please go ahead.
Thank you, operator. Congrats on a good result. I have a question on coming back to CapEx and whatnot. Laver, according to some local news, there was a denial in the counter, the minister of the board on your appeal there for your mine concession. Given that you now, if this turns out to be right, you need to go through further appeals, what is a blue sky scenario for you to actually start with that project and sink in first amounts of CapEx into Laver from where you can see now?
First of all, you're right in the appeal process. It's not going exactly as we have thought, but this is partly normal that you have a process on a very large scale possible investment. It's not going as smooth as we would have hoped. On the other hand, we are not ready with all the details. Had everything gone our way on the permitting, we would still not have been exactly in a situation to decide yet. It's still one or two years forward before we can take any decision for feasibility study reasons.
Right now, of course, the uncertainty right now, Q3 2015, we would probably have been saying that, "Oops, we have to understand China a little bit more when things are stabilizing before we make our long-term views and what kind of risk assessments we would do." I think that problem on the process or permitting process, the project goes on, and that's it.
Just to follow up on that, is it fair to say that you will not be spending any material CapEx on Laver for the next three years?
Three years I couldn't say, but two years I think. Well, maybe three years, because the beginning after a decision, it's not major CapEx in any case in the first year, so maybe three, but definitely two, I would say.
Perfect. Coming back to your downgrade of your CapEx guidance for 2015, could you give us any flavor on where you found that cost? If you pushed cost forward or actual downgraded cost guidance?
It is a mix of lots of things. One that has been well communicated is that we have postponed the crusher that was part of the Aitik 45 project. That's one. Apart from that, we have been able to both across [Bergsöe], also Rönnskär has quite lower than expected. Some of the environmental linked investments in Rönnskär are running a little bit behind schedule. Also the P200, even though it's running very well, it is also in terms of spending money, a little bit behind what we had in our original plans. We are also somewhat behind with our development. That is, of course, something that will come back, that cannot be postponed forever. That's the mixture of the total SEK 1 billion.
Perfect. Thank you.
Thank you. Our next question comes from the line of Jason Ferkler from Bank of America Merrill Lynch. Please go ahead.
Good morning, gentlemen. Just two questions from me. First on M&A. There's more and more interesting assets floating around in the market. Lennart, you've talked before about being pleased with the nice acquisition currency that the market's rewarded you with. How do you think about these opportunities? How do you think about the buy versus build trade-off? The second question, this is probably the more important one. Let's see if I can pronounce it correctly. Skellefteå, so your hockey team, how do you fancy the chances this year?
Such a nice day. We won yesterday night, just now the hockey team is probably the balancing. Boliden is going well. The hockey team is not quite as successful as before. When it comes to the acquisition market, it's true that many projects or many assets are out there. It's a sharp difference from before. We have seen for several years that sort of high cost or less interesting assets have been in the market. Now we're seeing a few quite interesting ones. We have been entertaining or participating in the processes, and we have also been talking with owners of distinct assets we think that could fit well in our portfolio. The probabilities are increasing today compared to before. That said, we are not going to buy because we have the money. We are going to buy if it is a good value story.
Of course, we are touched also by the fact that China, the super cycle, the whole macro, we have to be prudent. Unfortunately, the sellers, even if they are in trouble, they still continue to argue for long-term price, which has been very modestly adjusted for. The calculations are not the asset prices, demand prices for assets, are no way as volatile as the companies owning them. If you see that you can buy companies for cheap money just to assume a lot of debt, which is typically there on the most volatile stocks. If you look at asset values, quality is costing in the ups and the downs. Quality is more important if we are going into a more gloomy market longer term than the dramatic positive days we have seen in the past 10 years.
I think that it's interesting, and we have a point of strength, and we are using that, and we are looking, and we are going to continue to be prudent. Perhaps we buy something, and if not, we don't. We're not going to buy just because we have the money flowing in.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Rob Clifford from Deutsche Bank. Please go ahead.
Good morning, all. Thanks for the questions. A couple just on Tara. There are a number of producers that are shutting mines at the moment for either price protection or because they're loss-making. How do you think about the eventual wind up of Tara, or do you continue to eke out a living there and hope the prices go up? Secondly, on Aitik, I might have missed it, but which of the mills has returned? The one with the gearbox issue or the one with the other issues? What were those other issues? Just finally, Kylylahti. If you can give us a bit more of an update on the progress there.
On Tara, we are, of course, working hard on exploration to see if we can extend the life of mine. The scenario right now is zinc positive, and that after low prices, we get high prices. The tendency is that everyone gets depressed here. After low prices will be high prices, and zinc has a good outlook. We hope, and we work hard to continue production in Tara. That is very much a question of how can we implement our plans, cost reductions, and exploration. Right now we have a life of mine of 2021, right?
2020.
2020. We are continuing on that route, fighting hard and believing that we can earn good money in Tara if the better price scenario will come. On the gearbox, well, one of the big gearboxes for running the whole crusher when that is breaking down, that's a very unusual situation. We are asking ourselves why don't we carry one in stock? Now, for the simple reason that they don't break down. We have a redundancy in the system with three crushers. That would have been true. We were extremely disappointed and surprised when it broke down. We had the other one with another breakdown of a bearing or something, but in the crusher, and we got some follow-up effect on it. In the end of the day, the crusher is destroying itself and major repairs. Should we have done differently?
Absolutely, in retrospect. I think that we probably planned right, but it went wrong. In Kylylahti, good progress on production. It's going like a rocket. Updates on where we stand with Kylylahti will follow with the updates of exploration we do normally together with Q4.
Great. Thanks for that.
May I ask.
Do you have any addition to that?
I can just on the Aitik one, just to be clear, it is the one with the gearbox that is back running. The one that is still not running had problem with the apron feeder and the plates in the apron feeder, which takes longer to repair. It also had some follow-on issues with those apron feeder plates breaking down.
Thanks, Mika.
Before we continue with our questions, may I ask you to limit yourself to one question at a time? Thank you. Thank you. Our next question comes from the line is Luc Pez from Exane BNP Paribas.
Hi, gentlemen. One question for start. With regards to Aitik, maybe if you could be a bit more specific. Trying to understand to what extent it affects the ongoing plan to ramp up to 45 million tons.
I think that, first of all, you didn't ask about Q4. We have one standing still for the time being, and we're going to start it again, the one with the plates. On Aitik 45, we don't have an impact of this one. Of course, it's indicating an instability we have had, and we have a worse situation than before. A little bit of prudence could be probably worth having, but I think that the plans are not changing.
Right.
We are looking at the different alternatives. We take a little time on building the new situation or the new crusher and the crusher positions in the pit. That takes time, but we have not changed our time plan.
To what extent does it affect the previous guidance you were on with regards to next year mines throughput, which was, if I remember right, in the tune of 40 million tons?
We have not guided for 2016. What we have guided for is for 2017 to be at 45 million. We don't have any revision to 2016 as we have never guided. Regarding 2015, we haven't revisioned the guiding because with one quarter left, it becomes a little bit late in the year. We are, of course, trying to be on that original 40 pace also for Q4, but there's no way that we can take back the lost tons as we're so far behind.
Okay, understood. My second question is regarding to Harjavalta new nickel model. Would it be possible for you to quantify more specifically maybe, even if ballpark, both the profit impact quarter on quarter and the working capital requirement increase as well?
We refrain from doing that. It's not a very liquid market either in the front or back end, we are in negotiations, it would be wrong to do so. It's not the biggest thing, but it has a positive impact. On the other hand, we are employing capital to it as well. It's going as planned, the plan was quite good and nothing to exaggerate. One of the small things that I think a good company should work on, many small bits and pieces to make a more logical business model. We're copying or we're doing what we're doing with copper and zinc the way we are used to. We use our full strength of our commercial buying and selling material and concentrates and with the contacts with all the suppliers having both copper mines, zinc mines, and nickel mines.
We take the synergies or the full benefit from the organization. More than that, we cannot say at this point.
Thank you.
Regarding working capital, I can just say that we have guided before that under some kind of normal nickel prices, this is around a SEK 300 million working capital tie-up. Since the nickel prices in the world are now kind of lower than par, we're slightly lower than those numbers in terms of what has been built up and what's in the numbers here.
Thank you.
Thank you. Our next question comes from the line of Jatinder Goel from Citigroup. Please go ahead.
Good morning. I'll restrict myself to just one. Are you able to explain a little bit more about the cash tax lag? Because even in 2014, you paid less than 50% of your book taxes. Looking back in three years, fourth quarter hasn't been a high cash tax paying quarter at all. Just trying to understand how will the cash tax payments work going forward and what kind of lag is reasonable to build in the models. Thank you.
There are two effects in this. Try not to make this too complicated. One is the simple effect that in the Swedish and also the Finnish system, you tend to pay provisional taxes based on your earnings last year. Therefore, when you're, as we're doing, earning more money this year than compared to last year, it usually takes a while for the tax authorities to catch up. In the end, you have to catch up. That's one effect. You also have another effect that's especially in the Swedish system, but it's I think is common in many tax systems, is that when you do high investments, you get to do, tax wise, much higher depreciation than you do in your books. We're having that effect in Garpenberg with the investments in Garpenberg, which are depreciated for tax purposes over three or over five years.
It depends a little bit on exactly what you're doing. Of course, those effects are in there for a while, so we will not really catch up because of that. Having said that, we had a similar thing with the Aitik 36 project, which is about five years ago, where we have had accelerated tax depreciations that of course are biting us back now because now we don't have any tax depreciation left, only book depreciation. I'm giving you three hints, and you can make out the balance yourself.
Sorry, just to follow up, is there a number in mind? How much will you eventually pay this year versus the book tax then?
No.
Okay. Thank you.
Thank you. Our next question comes from the line of Olof Grenmark from ABG. Please go ahead.
Good morning. Just coming back to what Lennart said regarding treatment charges terms. You said that you just started the negotiations here at the LME week. I also heard you saying that we should take the spot price development as an indicator where we've seen quite dramatic changes downwards in terms of copper. Could you just please clarify, going into 2016, are treatment charges for copper and zinc heading down or what's happening there, please?
Well, good you take it. No, you can follow the spot terms and of course you have to look at cyclicalities and other things. Be careful in believing that I said that the new benchmark levels will be on spot terms. I don't think so. I think the tendency might be on the negative side, I still, as I said in the beginning, we hope and we think that this will hold up well. Listen, this is going to be public, it's very hard to forecast anything here.
Fair enough. The second question regarding acquisitions, you said that you're now more likely to buy than you were before, et cetera. Given that there's not that much for sale in the Nordic arena, does that mean that you could also go beyond the Nordic arena in terms of acquisitions?
Yeah, we have all the time been looking at possible acquisitions around. Of course, the further away, the more benefits we have to see, the more synergies we have to see, because some synergies are declining with increased distance. Yes, we are looking elsewhere.
Okay. That's all. Thanks.
Thank you. Our next question comes from the line of Julien Bear from SEB. Please go ahead.
Thanks very much. Good morning, everyone. Lennart, you said that you're still ramping up the nickel business. When I'm looking at the Harjavalta nickel concentrate throughput by quarter since end 2013, it looks like the Q3 rate was pretty similar to the average then. Do you have spare capacity? What is the spare capacity in the nickel operation at Harjavalta?
I don't know the precise, exactly what I said or how I phrased it. What I mean is we are continuing to develop the contracts. We have to because of the low liquidity. We are building a book of long agreements or long partnerships both in the front end and back end. It was not referring to the production volumes. We have not changed the production in any major way. We have changed a bit of the shipment lines, and we have been doing things, but they are not related to capacity. On the capacity, you can look at historic numbers and the present quarter. There's no change there.
Okay, you might be able to improve the profitability of your contracts, is that what you're saying?
No, it's not what I'm saying. We are continuing to make contracts in order to secure the low liquidity sort of buying and selling. That's what I'm saying.
Yeah. Okay. I'll follow up with that one later on. Thanks very much.
Do we have any more questions, operator? Our next question comes from the line of Chris Welsh from Pareto Securities.
Morning, gents. Thanks for making the time to answer all these questions this morning. Just two from me. Could you give us a bit more color on the movements in the operating costs? You seem to be churning through a similar sort of amount of ore and concentrate as well at the smelters and costs come down. I just wondered, beyond the seasonal effects, what else you're seeing in terms of operating cost inputs, consumables, et cetera. Also another question on platinum group metal production. Taking the nickel concentrate processing in-house, have you seen an increase in the amount of palladium-free metal that you're also producing and booking? Thanks.
We are producing some materials from the nickel and from electronics and from copper and to some extent zinc in PGMs and in other expensive materials. We are not disclosing those, and they are not major, they are not as a little piece, they are valuable for us, and it's very important to have them and not losing them in the material flows that we buy them. We hopefully get them as free metals and that we can sell them in a format where we get the full value. It's not a huge part of the business. When it comes to the cost, Mikael?
Yeah, there is a seasonal effect which you already alert to yourself. Apart from that, there's always the question, what is the underlying inflation in the environment where we are? We've said before that we are basically in a zero inflation environment in terms of the input cost that we see. It's not true for every category. They go a little bit up and a little bit down, but on average, that's around what we're seeing, or maybe even slightly a negative inflation when you add those up, which of course helping us a little bit on the OpEx side. Apart from that, it is managing the business. I don't think there's anything else to it.
Great. Thanks very much.
Thank you. Our next question comes from the line of Jatinder Goel from Citigroup.
Hi, gents. Thanks again. Are you able to indicate how much was the total cost to fix both the crushers, including the one which is already fixed and the one which still needs to be fixed?
I actually don't really know the numbers. I cannot give it to you, the major problem is not the repairment cost. Of course, there's a cost to repair it. The major problem is the lost volume from the outage.
Okay. Do you have any visibility into 2016 maintenance shutdown on smelters? What impact will it have on EBIT given you don't have a CMD this year?
We have not yet done our full budgeting for next year regarding maintenance stops and other things, and we will get back to you next quarter once we have the budgets and the plans ready.
Great. Thank you.
Thank you. Our next question comes from the line of Philip Lacarte from EBM. Please go ahead.
Yes. Good morning. I have one question. Most questions were already asked. Maybe a follow-up. It is on Tara mine. You disclosed the cash cost at year-end 2014, but I was wondering if you are able to indicate at what level you currently are, what the cash cost currently is, and what level you are also targeting or what you think you can achieve from that mine also, given the current price environment.
Regarding the first one on cash cost, not ready to reveal that at this stage. It will come when we come into quarter four. Your second question, I did not quite get or your follow-up on that.
I was wondering how much additional cost given that you are looking at reducing cost, how much you think you can reduce the cash cost by, and maybe also in what period do you think you can actually achieve that lower cash cost?
There are of course two different effects in Tara that is going on, which I think you are all aware of that yes, we are working all the time to reduce the cash costs. We are also working a little bit on a slippery floor because we are going into deeper parts of the mine, and we are going into the parts of the mine where you have smaller geometry, and to some extent, although not very much, but also the grades are slightly declining as we are moving down as well. Everything else equal, the cash cost will go up. We are working with efficiencies around this, to you can say trying to contain that natural movement. I think that gives you some flavor of where we are getting.
Okay. Thanks.
Thank you. That was our final question. Thank you for joining us today. Our Q4 results will be published on February 11th. Thank you.
Thank you.
Thank you.
Ladies and gentlemen, that has concluded our conference for today. Thank you very much for your participation. You may now disconnect your lines.