Good morning and a warm welcome to the presentation of Voliden's results for the Q1 2015. We are live today from our zinc mine, Garpenberg, in Sweden. My name is Sophie Jarnes, and I'm Head of Investor Relations here at Boliden. Today's presenters are our CEO and President, Lena Tevard and CFO, Mikael Staffas. After their presentations, there will be an opportunity to ask questions via the phone.
We will also have our AGM later today. So the event today is planned not to take more than 1 hour. Leonard, please go ahead.
Thank you. Good morning. Well, we are presenting the Q1 result. Maybe a bit of a disappointment to some, but when it comes to production numbers, but most of the production decline year, we have a very strong production development. If we look at the summary, we had sales of SEK 10,400,000,000 compared to SEK 8.5 billion the previous year.
Earnings before interest and tax and without the revaluation of inventories were €1,100,000,000 compared to €385,000,000 so almost 3 times or 3 times up compared to the year before and on the same level as the Q4. The cash flow was low. We ended the year with very low inventory levels and we had a buildup in the Q1. We're not nervous about this buildup. We see and I think many will say that okay, the Q1 is very much a result of strong or strong U.
S. Dollar compared to weak Swedish krona. But there is a different story, which is long term that we have followed the strategy and we have positioned ourselves with mines and smelters. When the mines are now having more difficulties than in the strong periods a few years back, we can now see that it's the smelters, which are driving the profits to a large extent. Strong U.
S. Dollar is, of course, an impact of the situation or the good results, but also the smelter terms and premiums. So the terms have been more favorable for the smelters and for the mines. The expansion of Garpenberg continues on and we are very proud and we have the Annual Shareholder Meeting here today. And it's a great project we are going to show.
The lower volume in the 4th quarter is compared to the previous quarter, but strong on year development. Cost is under control. The working capital is higher as we know. Have an appeal regarding the diesel tax that has been in Aitik, which has been an ongoing process. It has been rejected and the demand side, the macro continues to be soft on the global industrial growth and as a consequence the base metals demand.
And it's driven by China and the rest of the world is a mixed picture, but there is growth in the demand. The metals markets are therefore softer and driven by the global macro and the growth continues, but on a lower level in China. The zinc is in deficit and the copper is in a slight surplus, not as as expected or anticipated some time ago. And the dollar to most currencies development is well known to you. If we look at Bouhilden's particular sensitivity to the terms, We can look at the portfolio of bollidermous metals.
And if you put them together with their proper weights and we look at them in our cost currency or primary cost currency Swedish krona, we can see that the impact on the currencies and metal prices combined is that we have recovered the downturn in 2013 2014 and we are approximately on the same level as we were in 2010 2011. On this particular page, we can look at the Swedish krona development, the dark blue, but we can also see for those not being European that the euro has had a similar development or very similar development as the krona. We sell everything in U. S. Dollars.
And if we look at the zinc prices, they have been essentially flat over a long period of time. But in the last couple of quarters, we have seen a decline. The average of the Q1 was clearly below Q4, but we saw a recovery towards the end of the quarter and in the beginning of the new quarter. If we look at the copper, the long term trend is down, not flat as with zinc. And we see this decline into Q1.
The average was considerably lower than Q4 in dollars, but also here an improvement towards the end of the quarter. The precious metals, gold and silver, have had a long term decline, continues basically in line with the gradual deterioration we have seen in the stronger decline than we have seen before. And we do not we had not expected this soft lead development. If we go into the different business areas and we start with the mines. Profits were much, much higher than last year primarily because of the improved terms, but also the ramp up of Garpenberg.
But also we would like to mention the Buliden area, which has had low profits for a long or several years and which is delivering very promising results now. Good development in Aitik when it comes to grades, but lower production. So the grade improvements has come as forecasted and the production has been lower also as forecasted. There was winter this year as every winter of course, but this time it was probably less affected by extreme low temperatures, but more of very heavy snowfalls. We are driving the trucks in steep hills and it's dangerous to drive them without clearing the snow and also the snow is coming with the ore into the conveyor belts and ore storages and create size and other issues there.
Normal seasonality in other words. The Garpenberg success is there, but we see compared to Q4 slightly lower production. That is perfect in line with our guidance before. We had built up an ore storage over several years, which was depleted by the end of the year. And now we are continuing the ramp up of the mine, which will be in full production at the end.
And therefore, when we go into the New Year without the stockpile, we go to a slightly lower level. Actions in Tara continue. If we look at the numbers in ore production, we see the decline. And also compared to a year earlier, it's a rather low ore production in Q1. But we see the solid or the line diagram on slide 11 copper production was holding up partly because or primarily because of higher grades in Aitik, but also the Kirillakti mine which is adding which we didn't have a year ago, but we had it in the previous quarter.
If we look at the zinc production, it's up, of course, with the start up of Garpenberg the issues in Tara, which we assume will be over in the end of this year or in the second half. If we go on to the smelters, a huge increase in earnings as seen on this picture, which is a result of the action plans we have been talking about, but primarily also on the sequential development because of the terms, which is playing well into the hands of the smelters. Compared to less than €200,000,000 a year ago and on the same level as in Q4. Stronger dollar improved terms are the main drivers here. If we look at the tonnages in copper, it's a reasonable and well quite good quarter, but not as good as the outstanding Q4, which was very, very strong.
In zinc, we have a reasonable quarter too, but not good as the outstanding or very, very strong Q4. And here we have some issues in Coca Cola, which we hadn't planned for. And now I hand over to you Mikael for the financials.
On this first page, you're seeing the summary of the numbers that we're having. The main number as always is the profit excluding the process inventory valuation, sorry about that, at $1,102,000,000 I will briefly actually comment on the EBIT before or after revaluation. Here that one is slightly lower. I'll come to that. We've done some adjustments to the valuation model for the process inventory revaluation that comes out about $40,000,000 less than it would have done otherwise.
The investments that you can see here are also slightly lower than previous periods and the free cash flow close to 0 and I'll get back to the cash flow and see what's happened there. If we look at the bridge and looking what's happened, we can see that the volumes compared to last quarter are clearly less. We've had Aitik with winter impact, but also more maintenance as Lenis has said. In Garpenberg, we had a very strong Q4 because we were milling from the stockpile. The stockpile ended very early in the year and we did not really have that effect at all during Q1.
We had a very strong smelter production in Q4 that we could not copy in Q1. And also a last point, which has to do with the way that we set up these bridges. We've changed one thing. We have on the group level taken away the internal profit elimination and we've taken that into its pieces, which is a volume effect in reality. And because of this, we've had some buildup of inventory and this buildup of inventory gives a negative volume effect as well.
Price and terms are positive and that's over explained by the currencies that we heard before. The metal price is actually working the other way around. Costs clearly lower than the previous quarter, of course, linked to the lower production, but we also feel good about the cost control that we have in the operations right now. Looking compared to last year, well then the volumes are up and that's not so strange. We have Kirillati in the system and we have a Gamperberg ramp up now in the system that we did not have a year ago.
Prices and terms are clearly very favorable for us and it's once again it's the currencies that are explaining or over explaining the whole effect. Costs are higher, but that's not so strange as linked to the ramp up of Kirlahi. We still here feel a good control over our cost. Depreciations are up also not so strange. We have the Garpenberg effect.
There's some depreciation connected to Kyrillahti. And also as we said previous quarters, we are in Aitik now moving over to the Pushback 6, which is a more expensive Pushback in terms of depreciation than the previous S2 that was the main part of production last year. And we're also depreciation than the previous S2 that was the main part of production last year. Cash flow. This is probably one day where you have some questions and a little bit more than €1,000,000,000 And why does this happen?
Well, there are main effects. One is the improvement in prices and terms. That alone roughly gives a tie up of about 2 $50,000,000 in the working capital as such. So about a quarter of the effect is that price and term effect. Then we have the effect of having very low year end tie up of working capital where we had a very good production quarter.
And with a good production quarter very low inventories especially of concentrates going out of the year. That effect going back to a normal level is in the order of magnitude of €500,000,000 and then the rest €250,000,000 is that we're actually a bit above normal levels in the end of Q1. Cash flows from investments, I'll come back talking about investment for the whole year in a little while. Capital structure, there is nothing remarkable changing here. We have not done any major refinancing or anything within the period.
As a consequence, the loan duration is slightly lower. As it happens when you don't improvement in equity we've had. CapEx projection. We have come up with a new guidance for 2015, correction of the previous one and a guidance for 2016, but we had not guided before. For 20 15, we are lowering the guidance from 4.5 to slightly more than 4.
This is mainly that we have gone through our investment project. We have pushed investments out in time and we feel that we can do that without jeopardizing the production in the going forward and therefore that's the appropriate thing to do. We're also coming up with the guidance for 2016, which comes up at slightly below €4,000,000,000 for 2016. And we'll probably come back into questions about what the effects are in there. On the process inventory evaluation and the update here, as you know, there has always been an internal and external part of the inventory in the sense of how it's been evaluated.
The external has been evaluated at market terms and the internal has been evaluated at cost, cost typically being lower than the external valuation. Now with the new mine in Garpenberg and with the Kyuralactive mine in the system, we have adjusted our valuation model and we have lowered slightly the external numbers and we've increased the internal numbers. This means that you see the new external plus and the internal numbers here. This means that you have slightly different numbers to work on when you're doing your modeling going forward. But you also get a one time effect from the fact that the internal inventory is valued much lower than the external changing.
With that, Lennart, I'll give it back to you to summarize the quarter.
Thank you. Well, first of the project update. I would say that most of or the projects are continuing as planned. Garpenberg, the ramp up continues. The silver recovery in Coca Cola has been hit by the in well, the changes in the production in the main zinc flow and the material feed into the new silver production has not been as good as planned.
We think we have our arms around it, but there is a slight degree of uncertainty for that one. I think 45,000,000 the ramp up is continuing and have good news because we can push a little bit the CapEx after the repairs or the stabilizing of the crusher systems that we have done. So we think that we can push the new crushers a little bit forward. The permit appeal is an ongoing process. It's slightly or while it's basically normal, but we continue the appeal process.
In order, we have decided to continue with a P200. We had don't mix it with P100 that we decided on a couple of years back. That was cost down to 100 cost down €100,000,000 The P200 project in Oda is to increase the production to 200 1,000,000 200,000 tons per year of zinc from the 160,000,000 where we are. And finally, lower, we have the application for exploitation concession has been appealed or we have a hiccup at quite early stage of the Lava permit process. And this is somewhat a concern to us, but quite normal.
If we summarize the first quarter, well, we think that short term, we had very strong smelter development on smelter terms, but we are essentially there because of a position that we have built up over many years. The combination of smelters and mines is a stabilizing factor. Today, it's the smelters, which is driving the results to a large extent. The Gatbenberg project is well timed and is generating very satisfactory results. The lower volumes compared to Q4 should not be a surprise to most.
We have announced it well in beforehand, the seasonality in Aitik and the Garpenberg is slightly lower and that's in line with the expectations. If we then look at what have we done and what have we communicated, which has and that will continue 2015 and 2016. Q1 and that will continue 2015 2016. We are going to continue to ramp up to 45,000,000 tons as part of the Aitik 45 project and the guiding for 2015 is 40,000,000 ton, slightly up from the previous year. The Gatenberg again is continuing with a full year effect next or this year, but also the quarter by quarter will come up from the level we are at.
And we will be at 2,500,000 ton pace by the end of the year. Tara, we are changing Tara quite a bit from mining in the higher larger stopes to the lower to the what we call SWECs. And in doing so, we have to reduce costs. We are cutting down on people. We are giving new responsibilities and organization to many.
And that's impacting both our internal people and some of our suppliers. Coca Cola, I mentioned already, Grundt's share action plan is going as planned, but maybe a little bit of a hiccup in the Q1. I don't think it's any problem with that one. Then we have by the end of or in the middle of 2015, a quite significant change, which is a new strategy for nickel, where we continue process or production wise in the same way as before producing nickel and copper in Harjavalta. But from the first or from the 1st July, we're going to do it in our own books instead of having a tolling agreement with our partner, which has been canceled.
Very low level and we are coming up to a slightly high level. So if you think that we are going to get the negative cash flow from working capital is going all the way back, It's not true, but we will have an improvement there. The nickel business is on the other hand a working capital build up when we put it on our books in the second half of the year. The maintenance shutdowns have been increased slightly from previous guidance. It's not that we have increased them, but it's And with that, I hand over to you Sophie and we take the questions.
Thank you, Leonard and Michael. Let's open up for questions via the telephone. May I ask you to limit yourself to one question at a time? Operator, please go ahead.
Our first question goes from Mr. Liam Fitzpatrick from Credit Suisse. Please go ahead.
Good morning, everyone. If it's just one question, I'll start with the smelters. It was our expectation that you would see the benefit of the higher TCs more in Q2, but the release suggests that you saw a lot of the benefits through Q1. So can you give some slightly more specific guidance on what percentage of the smelter sales in Q1 reflected the new rates? And what sort of step up we could expect in Q2?
Thank you.
Thanks. Timing on
the Q2, sir.
Yes. Because of the low inventory they've had in the year, this was quicker than it normally is. We usually say that's about 2 months until we get the effect. But this year, we probably got the effect already after 1 month. So let's say, let's for the simplicity of things that we say that we had a 2 3rd impact already in Q1 and then we'll get the full impact in Q2.
Okay. Thank you.
Our next question is from Mr. Alan Gabriel from Morgan Stanley. Please go ahead.
Yes. Good morning, everyone. Just my question is for Mikael on the working capital. Going back to your comment, I just wanted to clarify how much of the working capital buildup is expected reverse throughout the year? And how much of the working capital would be built up again because of the nickel inventories?
Thank you.
If you start with the latter end, we've said and we guided before that the nickel business is probably likely to be as the rest of our business, which means that you typically need to hold about 10% of your annual sales in working capital. Depends a little bit on where the nickel price is. But somewhere in the order of magnitude of SEK 300,000,000 is roughly a number, but it will go up and down. What will revert? Well, you can say that let's just assume that €500,000,000 of that €1,000,000,000 that we saw was a covering up for a very low level in the end of the year, €250,000,000 is prices and terms.
So if you have no changes in price and terms, you should basically see $250,000,000 reverting, which to some extent meets the nickel number.
Our next question is from Mr. Gissel Sundstrom from Danske Bank. Please go ahead.
Yes. Good morning, everyone. I have a question on Aitik. You maintained your guidance of 40,000,000 tons production for the full year. That would indicate high production levels for the remaining three quarters.
How confident are you that you can actually sustain that type of production going forward throughout the year? We don't tell our budgets of course, but it's to a large extent planned because of the normal seasonality. So we don't see any major change from the plans. All right.
Thank you. Thank you.
Next question comes from Mr. Julian Bier from SEB. Please go ahead.
Thank you very much, Sophie. Good morning, gentlemen. For the I tick again, the concentrate recovery, I think, has been running generally below 90% recently and quite a bit below that for the last three quarters. What's your long term recovery expectation for the process at Itik? And what do do you need to get back there?
Good question. Low grades normally gives low recoveries, but there is another factor sometimes. We have parts of the mine where we unexpectedly have lower recoveries because of reasons we don't really understand, but it happens. Now we have been in those areas for a longer period of time. And this is going so it's not a process issue.
It's not a grade issue. It's just that the mountain, the rock is or the ore is slightly different. This will be normalized. And it's the natural variation that we see in the mining industry.
Okay. I know it's a tricky one, but do you mind guys say that you're going to continue going through that low recovery area during 2015, Steve?
No, I don't think we will. I think we will I hope we will not and we don't think we will.
Okay. Thank you very much.
Our next question goes from Mr. Amos Fletcher from Barclays. Please go ahead.
Yeah. Good morning, gentlemen. Just one question. Would you think about hedging any of your FX exposure at these levels
on a discretionary basis? Thanks. Always tempting to look at that. But we have taken a very, very broad based decision, which I think is very important to understand. We have decided we are not smarter than the market to understand where metal prices or currencies are going.
We take the instrument or the tool of hedging in very specific cases when we ourselves take decisions to stretch our balance sheet or financial position, then we can take hedging in order to lock in downside scenarios. But we are not going to take sometimes tempting situation as probably is the case now.
Okay. Thank you.
Our next question comes from Mr. Christian Kopfer from Nordea. Please go ahead.
Okay. Thanks. Good morning. Firstly, on volumes, you reported a quite big amount of negative volume effect, I must say, versus the Q4, almost €500,000,000 negative. So is it fair to say that you expect most of that negative volume effect to revert already in the Q2?
First of all, it's what we before identified as internal profit elimination, which you have to bear in mind. We are changing that slightly as Mikael said. But as an as you can comment more on the volume effect.
No, I think we should see it. I will also comment on one more thing, which is maybe stating the obvious, but Q1 is a 90 day quarter, Q4 is a 92 day quarter. Those 2 days make a difference. Now we have a 91 day and now we have 292 days coming. So we should see clearly see that reverting.
Okay. Fine.
And the decline in IITIC is seasonal very well or as Aitik is seasonal very well or as guided for and Garpenberg is on a lower level compared to Q4. So be careful with the Q4. Everything went exceptionally well. We have guided for lower volumes and then we have negative news slight in Coca Cola and Runds share. That's basically the picture.
Okay. Finally for me then on cost here. I mean remembering from other years, you typically record some higher or you hired some contractors, more contractors in the Q4 or sorry in the Q1 than in the other quarters. Can you maybe comment if you had higher one off costs or so related to the winter in the Q1?
The winter conditions in Q1 were essentially a result of a lot of snow. It's we have to clear the roads. We cannot take risks on driving the trucks in the steep ramps. And we have some icing situations in the ore storage and conveyor belts. But basically, it's according to normal.
And on the suppliers, not a big difference. So no, that's quite normal, I would say.
Okay. Thank you.
Our next question comes from Mr. Rob Clifford from Deutsche Bank. Please go ahead.
Good morning, gents. Lennox, you mentioned that you're getting some very promising results from Boledin area. What's driving the improvement that you're seeing there?
The gold mine is developing very well. We started a few years back and we basically we have good news there as we go. And the other one is the very rich but small Rheinstrand mine where we also have had a number of promising exploration results and we have been able to take more from these valuable ore mines and less from the rather thin open pits in the area and also a little less from Cristina Veyer. So it's a positive mix change, which is not only a short term mix change, but it's really a quite good story there.
In those underground mines, you were finding higher grades higher up actually if I remember rightly. Is that the case you can get your final or higher than what you're mining?
It's slightly embarrassing to admit that it is the case because you should look carefully where it's cheap to mine. But we have been lucky. So we have found part of the rich ore body higher up and on the side than where we have been before. So very favorable.
Great. Thank you.
Our next question comes from Mr. Johannes Grusilius from Handelsbanken. Please go ahead.
Yes. Hello, everyone. This is Johannes Grusilius. Could you give some more color on your new CapEx guidance, please? First, what actually are you pushing forward here in 2015?
And also, I know there has been a bit talks about early talks about environmental investments for Haria Walta. Is that something that you are able to push as well? Or can you give some color on that
please? Regarding what exactly we have there's nothing one single thing that we pushed. We pushed a little bit everywhere where we feel that we can do it with staying within the environmental permits that we have and within production. Part of it you know which is I think 45 that has been pushed out, but there's also other lots of other smaller things have been pushed out. So that's a general push out.
A flavor on what's in 2016. Well, of course, there's always the maintenance CapEx in the base, 2 point 5. You know very well about the Oda P200. It's been well communicated. You know about the environmental investments in Rundsher, relatively well communicated.
When you do that math, you're coming up to maybe 3. And what's the rest then up to a little short of 4. While there's some that's been pushed out, there is something of ITIG45 Phase 2 that's in there that we haven't communicated yet, but of course is in our plans even though we haven't set full arms around it. And there is something around the environmental permit in Harajahalta that we haven't really communicated well out, but we have said that there will be investments connected Okay
Okay. That's very helpful. Thank you.
Our next question comes from Mr. Julian Beyer from SEB. Please go ahead.
Yes. Thank you. This is
a follow-up. Can you hear
me? I'm sorry. Can you hear me?
Yes, we can.
Thank you, Leonard. This is a longer term question. You and industry consultants have been highlighting the potential tightness in zinc concentrate market over the next few years emerging from closure of existing large mines, which is obviously something to think about for people operating zinc smelter businesses. Now in the past, you've been supplying a good deal of your own concentrate internally or at least balancing it through tolling arrangements. But we do know that the large Tara mine will be exhausted sometime in the next 5 years by the look of it.
How do you think about that potential risk in your business? Do you feel that you should be planning to build up or at least secure new production which can replace that Tara mine when it depletes? And if so, what sort of investment level do you think will be required to
replace the Tara volumes? Well, first of all, I think it is important to say that both zinc concentrates and copper concentrates are liquid markets. However, the liquid market is going to be tight. So it's going to be a lot of material out there and it's going to be bidding. And therefore, you can be concerned about who will be the winners of buying the concentrates.
So from one end, you can be concerned over time and we have to plan for that and we have to buy and find new supplies is which is quite intriguing, interesting and which is in our eyes reducing the risk somewhat. And that is there has been very few investments in mine or in zinc smelters too. The capacity utilization is rapidly going to an historic high in the zinc smelting industry. So even though there will be a shortage of concentrates, there will not be a lot of smelters wanting to buy because they aren't there. And therefore, I think this situation that one probably could have that smelting capacity is always available and mines is going to be scarce.
And therefore, it's going to be the wind those paying the most will always get the concentrates, but it's going to be expensive and bad terms. We're not so convinced about that any longer. It's going to be in our opinion a scenario where prices can be high, but the thesis may continue on a reasonable level.
Okay. But I guess in the mining business, one doesn't have the luxury of last minute decisions, particularly if one is exploiting own discoveries. And I guess if you wait until it is a tight market, you pay an awful lot for zinc production if you buy it in the market. So I guess you have to make a you've got a long term strategy as to what to do about this. What is the long term strategy?
The long term strategy is to fill up the lost volume from Tara. We have external concentrates. That's the base case scenario. And we're working on that of course. And then if we could buy mines or expand Gartnerberg for example or Tara extend the life of the Tara mine that would be great news.
Of course, we're working hard on that too. So we are working on parallel tracks here.
Thanks very much.
Our next question comes with a Jatinder Goel from Citigroup. Please go ahead.
Hi, good morning. Just a quick one. Leonard, you mentioned in your previous quarters call that you have been knocking several doors. Has there been any progress on that? Is anybody willing to have a discussion?
And is there any asset of your interest which you think you can make some decent progress? And is there a time line by which you think there can be something more visible in the market? Thank you.
Well, 1st of all, of course, we are not commenting on any specifics, so we don't comment that. But I can say on a general note that we are following our long list where we prioritize assets in the market, which we would like to buy if an opportunity and at the right price would appear, which is easy to do, but not so easy to make happen. We're not going to buy anything because we just want to buy. We're going to wait for the good timing. We're shortlisting a few and we're quite a lot following up and knocking doors and expressing our interest.
Else and this is quite a lot the same as normal. More projects and more assets are for sale or probably open there, but those coming out of the market are not necessarily the ones we would like to buy.
Sure. And if I could just quickly follow-up, which commodity would you prefer if you could choose just 1 in copper, zinc and nickel given you need zinc to replace in longer term based on the previous question and you need more in house nickel concentrates to produce at Harjavalt and obviously copper could be more interesting generally on a structural basis?
We like zinc. And we think in sort of near term zinc is looking probably as the most favorable commodity of the ones we're working on. If we take early stage projects also the copper market is looking interesting in a couple of years' time. So I would say the priority is copper and zinc mines.
Thank you.
There are no further questions from the telephone.
Okay. Thank you very much. And we appreciate you here. We are going to meet next time in the Q2. Thank you.
Thank you, everybody.