Good morning, a warm welcome to Boliden's presentation of the Q4 and full year results for 2014. My name is Sophie Arnius, and I am Head of Investor Relations here at Boliden. Our CEO and President, Lennart Evrell, will run through the presentation together with our CFO, Mikael Staffas. Following their presentation, there will be an opportunity to ask questions. Please, Lennart, go ahead.
Good morning, everyone. Exits over there where you came in, but also here in the front, taking us to the main road. It is very encouraging, and we are very pleased with the result. The metals and mining world is very problematic in the world, and the news flow of big problems all over the place is very obvious. One of the more dramatic times of our industry. Boliden has for many years, or for several years, many years, been sort of putting together a profile or a position with smelters and mines, with precious metals, no streaming or other things that some people do, and base metals. We have been lucky enough to be quite a lot in zinc. We have been talking about the good outlook for zinc for several years, and we have been talking about the risk on the copper side.
I think that it is not a coincidence that our position is not a coincidence. It is what we have been delivering or developing over a long period of time. In certain periods, of course, that position is favorable, and certainly it is now. One of the key elements is, of course, the Swedish krona or the dollar, well, the currency's development. Bear in mind that most comparable companies have similar favorable development of their currencies. All the nations heavily dependent on commodities have extremely weak currencies too. We have a good ride there, but it is not too exceptional compared to our peers. The fourth quarter, we had sales of SEK 9.4 billion or SEK 9.6 billion compared to SEK 8.6 billion a year earlier.
The earnings before interest and tax and excluding the revaluation of the process inventory is over SEK 1 billion, SEK 1.134 billion, which is double and more than double from what we had a year ago. The free cash flow was positive, SEK 366 million, and we actually paid the Kylylahti acquisition of about SEK 100 million in the quarter. We paid it from own cash flow in the same quarter. Strong production, that is apart from, well, maybe the main topics here, and not least for the smelters. I am coming back to that. We have very good development. But also the mines. Aitik had good development, and of course, we see the impact of Garpenberg. If we look at the full year, we were approaching the high levels of sales, SEK 36 billion-SEK 37 billion. Earnings were SEK 2.6 billion. We had good production for several reasons.
The Garpenberg ramp-up happened basically in the second half. We started a little in the second quarter, earlier than planned, but came with full force in the second half. Kylylahti, of course, was acquired and consolidated from 1st of October. Odda, which had the reactor failures, which we have been struggling with for quite a long time, is back in full production and also combined with weak Norwegian currencies and the action plans, we are enjoying a very nice development there. Cost is up, but mainly due to volume effects and the acquisition and some sort of maintenance and stuff. If we look at the underlying inflation rates, the unit costs, we have very low inflation in the system today. The action plan in Rönnskär is delivering as planned.
We said a year ago that the cost will come sooner, the process improvement will take longer time and will take several years before we're back completely on track. I think we were somewhat vague in the guiding because it's difficult to be too precise, but I think we are right on what we expect from that program. The dollar is true both for the year, and it came in the second half, not in the first, and so on. Smelter terms have been tremendous in the development. The dividend is SEK 225, which is one third of net profit. Looking at the world, I would say that in order to understand the quite dramatic dollar or metal price changes in US dollars are driven not by dramatic demand development, but rather quite firm or big changes on the supply side.
That's true for oil, it's true for iron ore, it's true for copper, and it's true for zinc, but in much different directions. The underlying global demand is continuing, even though at a lower rate or growth rate, but it's relatively modest changes in the global demand. If we look at the metals markets in particular, I would say that the demand has been basically okay. On zinc, we have for years been talking about the scarcity of mine supply, which will have a positive impact on the zinc pricing. That's happening. Of course, some years ago, we had hoped for $3,000 for a ton of zinc. Now it's a little more than two, but looking at the general commodities which are turning down, of course, zinc has been one of the better.
Copper has been plummeting or having had the problem with a lot of new mines coming in the system, and the supply has been increasing, but not as much as anticipated before. The exchange rates are obvious. This is a very busy chart. I will not go through it. If we look at it, I would say that the tendencies of the supply of zinc and copper are there, but probably not as dramatic as we said or thought, say, one or two years ago. The picture is very much the same. I think Boliden was one of the first in large mining conferences to talk about the risk of an oversupply in copper at the time when everybody were just enthusiastic about the copper outlook. This is a metal price, a combined chart where we have the weight or the combine.
We add the different metals with their proper weights. We measure it in Swedish krona. As you can see, we had the negative development in the beginning of on the first half of 2013, the impact of falling prices. That continued with low levels and a strong Swedish krona through the middle of last year. Then we saw basically the currency developments out or balancing the negative price development. All in all, we have had a rather stable price development if we combine the metal price dive and the improvement in currencies. Of course, looking at the euro to dollar and Swedish krona to dollar, they're looking like this. Swedish krona got extreme in the movement after the middle of last year, but also the euro has had a similar development, and certainly the Norwegian krona as well.
Good support from currencies balancing a slight negative development in zinc, but looking at the longer term, very stable, even though, of course, Q3 and Q4, we saw the decline. Much more dramatic it was in copper, in line with the macro descriptions or explanations we have followed for many years. Gold and silver should go opposite direction. Did that happen? Not so much this time. I think with zero inflation, someone could be surprised that the gold is not stronger than it is. In any case, we have seen that at least a tendency here towards the end of stronger prices for gold and silver. The lead has had a very similar development as zinc, even though slightly more negative than we had expected. Let's go through the mines. This is in the fall, the concentrator of Garpenberg.
Looking at the trend line, the light blue curve, it's not the background for the strong Q4. We are seeing the very dramatic negative development flattening out or leveling out. We have been now for quite a while on a similar rolling 12 curve. The EBIT was SEK 460 compared to SEK 420 a year earlier and SEK 355, so about the same level as Q3. The CapEx were up SEK 1,458, but that includes the Kylylahti acquisition. Excluding that, of course, we see the CapEx coming down. High production, part of it is acquired in the Kylylahti. The Garpenberg ramp up is of course a big thing here because that ramp up is also adding bottom line numbers. Higher cost and depreciation basically has natural reasons, nothing much to talk about.
Depreciation, of course, is we are year-on-year now depreciating the SEK 4 billion investment in Garpenberg, which were not there a year ago. Lower metal prices and favorable currencies. On the full year, you basically have a similar effect because what happened was mid-year. The positive impact in Q4 was similar to that of Q3, stronger, both in our internal impact from action programs and startup of Garpenberg and the terms in the market. If we go through the different mines here, first of all, we had good production in Aitik. We had an absolutely fabulous production in Aitik last year. Year-on-year, it's not looking that impressive. Of course it was a difficult comparison quarter. If we look at the sequential, it's looking okay or looking better. Boliden area is probably beside Garpenberg, the two good spots.
The gold mine, Kankberg, is doing fine. The Renström mine, where we have the highest ore value in the group, is producing or was producing in Q4 very well, and we got the addition from Kylylahti. On the zinc side, of course, the Garpenberg is adding to it, but we have a negative impact from Tara, where we are doing two things right now. Number 1, we are depleting the higher parts of the Tara mine, and the focus of production is going to SWEX, Southwest Extension. Much more of the total tonnage from Tara are from the deeper parts, which is longer transport or longer distances, and it's also an ore body which is slightly more up in smaller sections. We don't have, in average, as big stops as we do in the upper parts. To match that, we have a cost reduction program.
We go from 700 people to below 600. We're well on plan. That has been explained before in previous meetings, we are on plan. Of course, when we do this big change in the mine and we reduce headcounts, a lot of our colleagues are losing their jobs. A lot of other people have new positions, in general, a lot of change in the Tara mine. That gives us a changeover impact. We see it in Q4, we saw it in Q3. We will see it for a number of quarters to come. We think we are doing the necessary things. As we'll see later, we have prolonged the life of mine a year or two, so it's good news. On a yearly basis, every year on 12 months, we look at the profit unit by unit.
What we see here is Aitik, a decline from SEK 800 million EBIT to SEK 550 million. That is basically an impact of the terms. We also have what was it? It's SEK 100 million in Aitik, the decline. Depreciations, exactly. We are in a pushback where depreciations are more expensive. We have basically terms, the metal price, which is taking us negative. Boliden is good news, SEK 19 to SEK 188. It's small numbers, a very nice improvement. Garpenberg is, of course, an impact of the expansion. Tara looks negative, but it's because of the one-off pension item we had in the previous Q4. It was an exceptional positive, which we were clearly sort of communicating then. If we look at the total here, we see a slight decline, which is less dramatic if you take away the one-off of last year.
If you look yearly, say that we have an in-between year. We don't have any exceptional improvements. We have basically replaced the mine or the tonnage. We have mined 2014 with new reserves, the reserve level is fairly constant in general. Let's look at the details here. Mineral reserves are slightly up in Garpenberg and Tara and at lower grades. Aitik in line with the update we did when we announced the Aitik 45 plan. That was an update we did in May, nothing much has happened since. The mineral resources had a bigger change, Garpenberg could now put in the resources very substantial ore volumes, but at low grades. The reason is, of course, that we have known them in the past, roughly. Now we drill them up, and they have a potential to become economical to mine.
I think the good news is here that we have prolonged the Garpenberg long life of mine to probably very long life of mine, if in the end of the day, after examining deeper or further, it is economical. It looks positive. Exploration in the year was slightly less, both in terms of money spent and real meters. On the positive note, as I already mentioned, we have extended the life of the Tara mine one year, and that is from 2019 to 2020. The graph is looking like this. In Aitik, we have increased the reserves very much, but we have taken basically all of that, redefined it from resources, and that happened in May when we explained the Aitik 45 project. Boliden, basically the light blue is up a little bit. The dark blue is a little down.
I would say that we have a good development, and we have good ore value. Almost 10 years reserve life. The reserve is the dark blue. Garpenberg, a slight increase in the reserves and a very big increase in the resources. As you can see here, it's doubled and more than that. Kylylahti, we have spent a lot of efforts now in exploration, but no exploration results. It's basically just we are mining out the year, and the life of mine is standing still, you can say right now, but we are right now in a quite hectic ramping up of exploration here. Tara increased reserve despite the production in the year, so we could extend the life of mine there. Now we go to the smelters, and we have a management meeting for the smelters today. Kerstin's whole crew here.
If you like the smelters, you can turn the other way around, and our heroes are up here. We have had a very strong development. As you can see here, the rolling 12 or rolling four quarters graph is tremendous here. Earnings SEK 681 compared to SEK 149 a year ago, excluding the process inventory revaluations. The CapEx was SEK 268, flat to last year. Strong production, and basically that's true for all of the five smelters we have. Good Q4 production. I don't talk to you any longer, guys. Well done. Very pleased with that. The terms, of course, have had a tremendous impact and probably been underestimated by some of you that the impact has been really strong in TC premiums, everything, and the free metals in zinc is more important than free metals in copper, where we continue some improvements.
Of course, the currencies are playing in with full strength here. In pro terms, Kokkola Silver ramp-up is the weak point here. We have not been successful. Basically, the plant we built is doing on the specification what it should be doing. We built it and we did it basically on CapEx, but we underestimated the impact of some variations in the incoming material. It has a much, much more dramatic impact on recoveries, at least so far. Therefore, recoveries is far from the levels we expect. We have taken a step back. We are looking at it with all expertise we could bring together, and we're looking at it because we have to rethink some of the concept there in order to stabilize the incoming material. Basically, the problem is not in the project we built.
It is a misunderstanding or misjudgment of the quality of the incoming material. On the full year, beautiful numbers too. More than double up, SEK 1.5 billion CapEx down, record production in Odda and Harjavalta. Odda is probably worth a special note here. We delivered some very, very strong Return on Capital Employed, Odda was the high-cost smelter in Norway, where we were not sure of the future at all. Then we decided to do the P100 program, we had some bad luck with one reactor or a part of our leaching reactor. Now it's back in production and we enjoy the currencies and the terms, suddenly we have invested so well. We have done exactly and had luck with timing there. Well done. Harjavalta is also in record production. We're going to look at a moment.
It is actually a little down in profit, for a reason. The action plan in Rönnskär, SEK 150 million on plan. We said costs should go down. We have SEK 100 million in cost improvements. We are seeing the process improvements coming now, we had SEK 50 in the fourth quarter. If we look at the full year, it's mirroring quite a lot what happened in the fourth quarter because it's also impacting Q3 in a similar fashion. Maintenance shutdown on the full year was slightly lower than the previous year. If we look at the graphs here, I don't have any comments else than it went very well in Q4 in all of them, all of our smelters. Good production is basically a general statement everywhere. If we look at the unit profits, Bergsöe is a small unit.
We did an improvement, it's good because the terms have not been all that easy. Odda, a tremendous turnaround for the reasons I mentioned. Kokkola as well, very well done and a good stable production, the snag is the silver plant there. Harjavalta is looking like a negative, there we were very explicit last year that we are now feeding in some of the residues with very high content of precious metal. The decline is not bad. It's only that we have a very tough comparison year. We have Rönnskär, of course, it's a tremendous development we have here, adding it all together to the big improvement. With that, Mikael, take us through the numbers.
Thank you, Lennart. It's good seeing you all here today. Let me see if I can get the right bottom here. All the numbers that we have on this slide will be explained in more detail in the next few coming slides, I just would like to highlight again the numbers that you've seen before, the improvement that we have in the earnings, excluding the profit revaluation, standing at SEK 1,134. I'd also like to point out the investments that are coming down slightly lower than we had guided for. They are including the Kylylahti acquisition at SEK 1.7 billion. I'll come back a little bit to talk about that, what that consequence has for the year going forward. Also point out that the positive free cash flow, SEK 300 million, it's of course including also the payment for the acquisition in Kylylahti .
If we start looking at the guiding for or the explanation for the profit over the quarter. You can see here when we compare to the previous quarter, that we have a very good improvement in volume, this is coming from many sources. Of course, the Kirunavagi acquisition comes into this. The Garpenberg improvement, both in the silver grades that we have in Garpenberg, but also the zinc recovery, as we talked about last quarter, that was not really up to par, has now been improving as well. The Boliden area has had a very nice run in this quarter with an improved ore mix coming from the different mines there. In general, a very high and stable production in all the smelters has helped the volumes coming across. Looking sequentially, there is actually not that much improvement in prices and terms.
It's relatively flat, coming from a very much stronger currency situation and a weaker metal situation that together even out. On the cost side, this looks maybe like a big bad, but it's not really that bad when you start looking into it. First of all, we have Kirunavagi in here as well, that was not in the previous quarter. We have a higher production in general that merits some of this cost here. We have a one-off in Premier Gold that's coming here, which is our old gold mine in Canada, where we have a responsibility for the after-treatment that comes in as a cost here. Also, as you know, every fourth quarter, we explain that we have a seasonal effect that is actually a third quarter seasonal effect. When all the white collar people go home and take vacation, we get a lower cost.
In the fourth quarter, they don't take vacation, we get the higher cost coming back again. We're also having a help from the internal profit, in the actual individual quarter is about SEK 60 million, but when you compare that to the previous quarter, when we had a big negative, in the comparison, it becomes SEK 158 positive, helping us up. If you compare to a year earlier, we once again have a very nice volume development here. Once again, Kirunavagi comes in, we have the ramp up of Garpenberg, which was, of course, not in place a year ago. We have, once again, the higher and stable smelter production coming and helping us. Here, year-over-year, we have a very strong effect on prices and terms. Currencies are helping us mainly in this comparison. Costs are also year-over-year up.
Part of this is Kirunavagi, which was not in there last year. Part of this is higher mine production, the Garpenberg ramp up. Part of this is the Rönnskär action plan has given quite a help on the cost side. Also Premier Gold coming in here. Looking at this year-over-year, as Lennart said before, we don't see that we have much of inflation in the system. We claim that we have an deflation roughly around zero. We don't have a big problem with input factor cost in this. Depreciation is up, that is up because of two main reasons. One is the obvious one in Garpenberg, where that was not in there a year ago, now it's coming in for full. Also the pushback in Aitik, which I think is worth us mentioning.
With IFRIC 20 accounting, you know that depreciation are counted individually for each pushback. We are now going more and more into pushback number 6, pushback number 6 is an expensive pushback in terms of depreciation compared to the previous pushback S2, that was the main mining area for the last two years. Cash flow, we talked about this already before, that we have a positive cash flow despite the acquisition of Kylylahti. We have, once again, a help of the cash flow from the working capital. This has been a theme throughout the year. We've been helped here once again by Rönnskär, that's been improving the production stability and getting some of the intermediary inventories out. In general, we've had a good control over our working capital. Is this sustainable long term?
Well, of course, it's not sustainable to squeeze out a couple of hundred million or SEK 100 million every quarter out of working capital. That's not going to continue to come as a positive every quarter going forward. On the capital structure, this is a slide that I usually go very quickly through because there's usually not so much to say, this quarter we might stop a little bit and pause at some of the numbers, or at least one number that you might want to look at, that's the net debt number. You can see that the net debt is up slightly on the last quarter. How does that come despite the fact that we have positive cash flow? Well, we have two items that are working against us in this.
We have increased pension liabilities, which I think is nothing special for those of you who follow other industries. It's happening with everybody with lower discount rates. Therefore, with the lower discount rates, our pension liabilities, especially in Ireland, are coming up. Also we have roughly half of our borrowing in EUR terms, with the restatement of the currency changes, that also increases the debt in SEK terms. Those two effects play in here, therefore, we have a slight increase in net debt in this quarter. Just looking very quickly on the full year numbers here. I think the big number that will jump out of this slide right away is the free cash flow, where we're coming from basically SEK a billion and a half negative in 2013 to SEK a billion and a half positive in 2014.
This is due to both a better profit level, some of you will say, "Well, that's not so much. Yes, your EBIT is up a little bit or your EBIT ex-PIR is up a little bit, that's not making a big difference." Well, there's lower investments that's coming into play in this as well. We have a big difference in terms of the working capital of where we were in 2013. We were actually building up working capital with some of the production instabilities that we had in building up inventories of semi-finished products and intermediaries. That has now turned to a positive in this year instead. Looking at the inflation for a little bit, where it's come from for the whole year, we do have a positive volume effect for the whole year. Higher mine production, Garpenberg is helping in there as well.
Looking at the whole year, we have a very good development of prices and terms. The US dollar is, of course, a very large part of this. We have higher costs, but that's very much linked to higher mine production that can be put in. We have quite a lot of higher depreciation. Once again, it's the Garpenberg start that comes into depreciation, and it's the changes of pushback in Aitik that is coming into play here as well. You see that there were some extraordinary items that Lennart talked about before that we had in 2013, which are not helping us in 2014 in the same way. Cash flow. Once again, just point out that we did tie around half a billion in 2013 into our working capital. This is now coming back with roughly that half billion coming out in 2014.
The difference there is a billion just in those two items in cash flow between the two years. We have included in the deck and in the presentation a slide. I'm not going to go into it in detail, but it's in here for your appreciation. This is the sensitivities, the ones that we presented a quarter back, but it's also split between the two business units. We have a sense that when doing the analysis, there's been slightly underestimating the effects that come into the smelter side of changes in prices and terms, and slightly overestimating the changes that comes into the mines. This is as a background for help for analysis going forward, also roughly how the changes in price and terms split between the two business areas. With that, Lennart, I leave it up to you to come up and help us summarize.
Most has been said already on the projects here. Garpenberg is delivering fine. Basically, we did 2.2 million tonnes. We're going to be at a pace of 2.5. I will mention a little on that on the next slides. The silver recovery in Kokkola is a weak point. We have problems. We're going to sort it, but it's going to take a while. Aitik 45, the ramping up is on plan, but we have here been modifying the old crushers. We are going to have a wait-and-see situation because we are stabilizing the production in them quite nice. We have good impact from the improvements, and therefore, we don't spend on the new ones right away. We hold back a little bit.
They are going to come back, these investments, but the good news is we are going to push it or part of it, pushing it out from 2015. We have had an appeal of the permit, which is a normal course of business. I would say it's the normal procedures. Odda, we decided to increase, and of course, we were already earlier quite enthusiastic about the impact of the P100, so of course, we like to continue. Now we take the cell house, which has been in care and maintenance or not in production, has been idle for a couple of years, and we can now put it back in production and respace and going in with all the learnings we have from the P100 projects. We're seeing Odda developing to a very nice smelter.
The summary of 2014 of what we have said, Mikael and I know. Well, we had a weak first half following a decline, a longer-term decline. We saw an improvement in the second half. We saw it in Q3, and we certainly saw it in the quarter we announced today. Production records and close to production records also in other units other than these two, obviously, Garpenberg too, and so on. The ramp up in Garpenberg, mill production 2.2 compared to 1.5, and mine production 1.9 versus 1.6. Let me explain, I know that we have explained this many times before. A concentrator plant, when you start it up, it's starting really as a step change. It has a higher capacity. The ramping up of a mine we have been doing for at least two years.
In the beginning, that led to an overcapacity in the mine, we put a pile of ore on the ground. When we did all the trial runs and the starting up of the concentrators, we used part from the mine, but we also used the pile, and the pile is empty now. It means that we are now balancing the mine and the smelter. I know that in the beginning at the Capital Market Day, we said, "Well, if you are going to be this high in 2014, why only 2.5 at the end of 2015? The math doesn't match." We explained this, so it's according to plan, it's according to what we have said before. Rönnskär action plans are delivering, and we are very pleased with that. Where are you, Åke? Well done. Can work on a few things still, right?
We decided to expand Aitik to 45 million tonnes. The ramping up is going as planned in the year. Decision to expand Odda to 200, I mentioned before, we acquired Kylylahti, the position is favorable to the market we saw in Q4, and we hope that it continues. Going forward, without giving any forecast, but more saying, pointing at the things which are important for the future outlook and your forecasting. Well, copper grades in Aitik will improve from the previous levels, as we have said before, and we are ramping up also the production volumes. The Garpenberg stockpile is done, and we plan to be at a 2.5 million ton per year pace at the end of the year. The Tara mine is deeper, or the focus of mining is more to the depth than before. We implement a new organization.
Kylylahti we had for one quarter in 2014, and obviously it's going to be for a full year impact 2015. The Rönnskär action plan is under implementation. Most of the cost reductions came early and have been done. More of the process improvements will follow. That's the basic look of it. In Harjavalta, we have the nickel business on our own books as a consequence of the strategy change we explained in the Capital Market Day. All in all, you can say I get questions, are there one-offs in Q4? No. Well, yeah, absolutely. There are some one-offs plus and some one-offs minus, and I would say it's probably a little bit on the positive side, but nothing much. More important is we had a wonderful production stability in Q4 and going into the new quarter.
We have the risks of winter conditions in Aitik, which we always say, Q1 is a bit like Q4, more delicate. We are in the ramping up of Garpenberg, and all of that is going to plan, and we're in the middle of February, so we don't have any reason to remind you. Nothing has happened or nothing bad is there, but it's a couple of winter months still there. Except from that, I think that we're very happy. We're pleased. We're proud. We like more than most our colleagues on the back row here. Let us take that as the finish of our presentation. Now to the questions.
We'll start with questions from the room here in Stockholm.
Ola Södermark, Swedbank. Yes, it's hard to not be impressed about the smelters' performance. How should we view the performance level? The trend has been quite good after one and a half year poor performance. The trend last couple of quarters has been quite good. Looking into 2015 with a stronger dollar and treatment charges for copper is going up, and is this the level we can expect going forward?
Well, the benchmark levels are public, and it's looking good. I think the somewhat critical one there is probably the zinc TCs , but they have been established. For 2015, they look good. That is probably the one where at least myself, I'm very happy with the levels. Don't write that in. They are good. Other than that, I think that forecasting the market terms is nothing we do. We can just point at the fundamentals and basically the decline in copper, that's understandable. The stability of zinc is understandable. Gold, why isn't it going stronger? That's probably one question. Thesis of copper is high. Of course it is. Zinc thesis are good. The currency situation is nothing I'm going to even touch because it's dramatic now, and what happens next, I don't know, or we don't know. No one knows.
You said that the zinc thesis has been established. At which level?
Well, we have the experts. Where do we have-
The first indications, there's no benchmark set yet.
Yeah.
It looks like an increase from the TCs.
Both copper TCs and zinc TCs are moving in the right direction, and FX as well, the strong dollar. It's no reason to believe that the smelters are going to be weaker then.
It looks like if everything as it is right now, it's going to be a very strong development or strong level of the smelters. Absolutely.
Okay. Thank you.
Thank you. Good morning, Christian Kopfer, Nordea Markets. If I just follow up on Ola's question on the TC, RC. Are we expected to see the effect of these gradually during the first half, or do you expect the effect to come already in Q1?
I think we have them. Most of them have been coming. Most of the TCs is a variable. Now we are changing, or it looks like the base levels will change and so on. The impact with the present price, it's probably a slight improvement. You see it already in most of it in Q4, I would say.
The higher TCs on the copper side was already recorded?
That was zinc. Copper will come.
Copper will come gradually during the first half or what?
In the first half. Yeah, basically.
Just a general point from an accounting point of view, it typically takes maybe two or sometimes three months until we see changes in the TCs coming through because it has to go through the inventory and the process first.
Then all the effects and all of that. Final pricing and so on. Yeah.
On Tara, the mill door
Could I do a remark there? A very important thing there is the breakdown of our sensitivity. The left column that Mikael showed was what we published. Because of these questions, we published a separation and a breakup of business area mines and smelters in order to facilitate the understanding here.
Perfect. On Tara, we have seen a falling mill door two consecutive quarters. Did I understand you right there, Lennart, when you said that we should expect the mill door to be retained or to be maintained on the Q4 low levels also for the next couple of quarters?
I wouldn't say so. We are behind plan, so we hope to be higher. I think the main focus now is the cost reduction program. Volume is not the main focus right now. It is to get the organization right, the cost reductions right, establish high volume production in some of the area. We are there since many years, since SWEX, but we have to move equipment and mining focus into these areas. That is something that has been going on for maybe six months, and continues for probably another six months. Then the long term, it has been going on forever, but it's more dramatic now in this period than we have seen before because we are depleting the higher parts of the mine.
Understood. You have been quite specific on the copper grade in Aitik for 2015, what we should expect. On the gold grades, gold grades have been quite low compared to the reserve grade.
Yeah.
Is it reasonable to expect that the gold grade should come back to the reserve grade when the copper grade comes up as well?
You know how much copper we have a big mountain, and you know how much gold we talk about there. First of all, we know what it is in the volume, but when it's coming, it's a slightly bigger variation. Most of the times, the two grades are coming together, not always. Sometimes we are in more gold-rich areas. Most of the time they are sort of correlated.
Still, you have mined quite substantially below the average of the mine in the gold.
Okay. Just one quick question on the oil price. Have you seen some effects from the lower oil price yet in your numbers?
We see lower oil price and higher tax. Somehow someone is always taking away the goodies on that side. What would you say?
No. Well, we are seeing in that sense it's coming through relatively quickly. However, this is an area where the adverse effect of the currency is hitting almost as quickly. If in SEK terms, the reduction is not that big. On top of that, as Lennart said, we do have new taxes as of January 1. It is something that comes very quickly through. We do not have any hedges sitting in that area.
Finally from me then, on the cost side, is it fair to say that the sort of one-off cost that you had in the fourth quarter there, which should add back, was this Premier Gold of approximately SEK 40 million for Q1 then versus Q4?
Yeah, that is a one-off cost that it should not happen again. Apart from that, as Lennart said, there are some plus and minuses as always when you come to a year-end, and we are roughly at zero altogether, so maybe there's nothing much to correct.
Thank you very much. Good quarter.
Julian Beer from SEB. Just going back to the smelter TCs issues. Do you have the same format in terms of your contract structures where many of your term contracts are being updated on a two-year basis?
We're talking which.
On the copper side
concentrate contracts? Similar.
The increase that we should see should reflect a sort of weighted average of the increases over the last two years?
Well, most of them are linked to, or all of them are linked to the benchmark prices and copper prices, but with different kind of final pricing sort of delay. It's not too averaging out over that long period. It's shorter impacts.
I would say we have largely one-year blocks in our TC contract, but we do have some with two years and even three-year blocks. I don't have the exact number, but I would guess that over 70% is on one year, most of it has already come in terms of last year's changes.
Okay. You can confirm that the benchmarks we saw established in Asia of around 107 have been reflected in your agreements for 2015?
We don't go into the individual contracts or no.
Okay. Could you just provide a bit more detail on the improvement in free metal yields that you talked about for smelters in Q4? How much did that boost profit versus Q3, is it sustainable?
In Rönnskär, where we have most of the impact, I think you're looking for, or if we talk Rönnskär, we had SEK 100 million in cost improvements, SEK 50 in process improvements, and that is coming out as free metal impact, basically.
Okay. The improvement was actually what you showed us to be cost improvement?
I showed SEK 150 million, of which SEK 100 cost, SEK 50 process improvements, which are essentially free metals.
Very good. Just to be quite clear, you didn't see any additional cost savings Q4 versus Q3? It's the same rate?
Yeah. Basically, we absolutely I don't know if it was something, but basically similar level, yeah.
Fantastic. Lastly from me, looking at Tara, after the savings from the downsizing you're going through, if you look at cash costs plus sustaining CapEx, what sort of zinc price will you need for free cash flow neutrality?
I think that in the broad sense, the improvements we're doing is balancing the deteriorations of the geometry and grades and distances. Basically we are struggling. We hope to improve the cash cost position, but it's a tough one. We will continue to be a high-cost mine. Look at the mining industry. This is what everybody is struggling with. It's a typical case. I think we are reasonably happy with the improvements we are doing, not with the production. Again, we are looking at organization cost and all of that. While we do it's difficult to have the best, the highest productivity.
Okay. What sort of zinc price do you need for free cash flow neutrality after the
You have the cash cost charts impact. I don't have it by heart. Basically, the cash cost curves are lower because all the mines or most of the mines have lower improvements in currencies, and then there is a mixed bag. You have them there. I don't have the number which is updated with currencies.
The number that's been published today is 75 as the cash cost, and if you turn that into dollars per ton, you're at $16.50. Of course, a mine coming towards the end of the life of mine, there is not so much CapEx going in. It's not zero.
Thank you.
Hi, it's Johannes Grunselius with SEB Bank. Here I have a question on the smelters and the industry. Could you indicate to us where are you in terms of capacity utilization on copper smelters and zinc smelters? Also, if you can give some color on where you think the European industry is at the moment.
Capacity utilization is often you have a nameplate capacity, you have sort of maintenance shutdowns and interruptions you didn't like. I would say that in Q4, we had a very high capacity utilization in general. To us, for practical reasons, maxing out. We do the bottlenecking programs here, which you see. We have additional possibilities in Rönnskär with process stability. Well, that will have an impact, yes. We are investing for higher volume in Odda, but that is well explained. Maybe should I modify my answer? There is more to do in Rönnskär, but in general, very high levels.
If we look at the competitive landscape, where are competitors, you think?
Well, when we are publishing this result, we're reading all the metals and mining magazines, it's just a slaughter going on out there. Of course, again, we have a good profile. We are in low-risk countries. We have the mix of smelters and mines. All in all, we are in a good place, we have decided to be here. Right now, we are very lucky with the position we have created. Five years ago, we couldn't say that this would happen now. Over time, I think we have a balanced portfolio, which has a tendency that when one is good, another one is less good, that we should have a better stability. We have also said that we should basically have a premium because we are in a little country with a very volatile little currency called Swedish krona.
Of course, that was something I regretted in the first half of last year, now it's two again. I don't know. Sometimes we shall do some science of how the Swedish krona is going or correlate to the general economy. This time it helps.
Sure. I agree. I was more thinking about the smelting industry, specifically in Europe, because I know in the CMD, you were providing a color on this, that the capacity utilization is on its way up. Can you give a little bit of an update what you see there and also the outlook for 2015?
We are in a corner of Europe. From our own minds, it's good, but we import things in the Baltic Sea, and we have to ship more metals down to the southern parts of Europe and not as much around where we are. That's to the negative. Against that, of course, stands that we have good environmental performance. We have done a lot of things that other people have to do now. We have already done them to an extent, or more than most. We have electricity here, which a lot of energy company, they want to build or increase the capacity of the cables down to Europe. I regret that because it's probably going to have a negative impact long term. In the short run, we have a favorable energy mix. We have done improvements in Odda.
We are in the forefront of new sort of exciting and innovative developments in recycling. We think that the old world, when you buy a new phone, you can turn in another one. Recycling is important in our part of the world, even though the global demand cannot be satisfied, of course, with anything else than a combination of recycling and primary. I think all in all we have positioned our smelters well. We have our issues, but overall, it's looking quite good.
Okay. Let's see if we have any questions from our audience via the telephone conference.
Ladies and gentlemen, if you have a question, please press zero one on your telephone keypad. That's zero one if you want to ask a question. We have a question here from Mr. Gustaf Sundström from Danske Bank. Please go ahead, sir.
Thank you. Good morning, and thank you for taking my questions. Congrats on a very good result. My first question is on the pushed investment in Aitik of SEK 400 million, which is pushed one year or two into the future. Will this be replaced by any other investments, or is this actually a downgrade of the CapEx budget for 2015?
Thank you for the question, Gustav. I should have pointed that out in my presentation. As you saw, we did have a lower CapEx than we had guided for in Q4, and that's both a good and a bad. The good, of course, is the good cash flow that it brings. The bad is that we are behind in some of our investments, and therefore, the postponement that we are announcing regarding Aitik 45 is roughly matching. There's roughly about SEK 200 million that was in the CapEx budget for 2015 that will be moved to 2016, and that's filling up with the overruns. The CapEx guidance for 2015 is still standing at around SEK four and a half.
Okay, great. Thanks. My second question is on gearing. You have a 35% gearing now. What looks to be, if everything stays the way it is, a pretty good year cash flow wise. At the same time, the rates are falling to zero and below. What would you do in a scenario where gearing keeps dropping down to, say, 20% and below? What are your priorities there? Is it CapEx, M&A, or extra dividends?
I think that, first of all, we have been more than most, been very vocal, clear about our dividend policy. We think that gearing down to 20% is good. Lower than that, we will consider doing something because we don't need to be in a net cash position. We're not there. First of all, we will pay back debt. If we are in that situation, and even if we are partly independent on that, we are looking at business opportunities in the market now. We continue to have our listing of things we would like to buy. You think we have probably failed because we have been talking about this many times, and we haven't bought much. Of course, we have been prudent. We don't want to buy anything that we don't think will produce a good value enhancement.
Also today, a lot of things are for sale, but most of it is for quite low-quality assets. We continue to look at mine acquisitions primarily, and we look at copper and zinc. We hope that the Kylylahti acquisition could be followed by something, but that's about what we have. In the pipeline of projects, we have the continuation of Laver. Of course, we are looking at other projects which we sort of work on plans where we can do other sort of good investments.
Okay, great. A final question from me. I saw your reserve update, which you mentioned on Capital Markets Day, lowering your US dollar assumption to $650. Given the recent interest rate now this morning, the dollar is actually at $850. This would indicate at spot market that you foresee a copper price falling another 10% in your planning. Is this reasonable, and where would you be if you actually increased your FX assumption to spot? Would that dramatically increase your resource base or survey?
Yeah, absolutely, or dramatic, I don't know, because you cannot make a chart and say, at this price it is much, and at that price it's another one, because you have a huge database to run. We have been running it at this, but also if you look at the combination of current FX and metal prices, it's not that different. In general, of course, if you increase the price, you will increase the resources, and you will decrease the grade. That would have or it would have that kind of impact.
Okay, that's all from me. Congrats, Lennart . Thank you.
Thank you.
We have the next question from Mr. Alain Gabriel from Morgan Stanley. Please go ahead, sir.
Yes, good morning. My question is on the Aitik 45, so on the deferral. How does the deferral play into the overall budget for Aitik 45, and when should we expect the next threshold in terms of the approvals of the other parts of the expansion? Because now I understand you approved only SEK 600 million. The second part of the question is on the environmental appeal. What are the next thresholds to look for?
If you take the appeal, I take the investment, Mika. On the investment, we have the first part, which is electricity supply, water management, and a crusher. The water side and the electricity supply is right bang on plan. We're doing that. We have spent part of that money, and more or some of it will follow in this year. That part of the step 1 is done. We hold back the crusher investment, we delay that. What we're saying maybe a year is what, we have a wait and see, we are going to have the sort of production data, then we will see what we do. We are delaying it now, that's clear. Stage 2 is the in-pit crusher, that is more of an absolute necessity. It will follow. It's coming later.
We don't have an update of the time plan. As you know, it's a crusher, it's a conveyor belt. The conveyor is more money probably than the crusher itself to bring the ore from down there and up to the surface. That will happen absolutely because we are going to mine the ore where it's actually standing right now. It has to move, it has to be a new one. That is not changing. The guidance on that is the same as before, no change.
Environmental appeal. We, of course, don't really know ourselves exactly where this is going to go. That's a part of being in a legal situation. Generally, if you got the background right, it was appealed, and those who appealed also wanted to stop the permit during the appeal process. We got an approval to work with the permit during the appeal process, which was a victory in that very first stage. Then after that, we are now in the appeal process, it typically takes a year to go through these appeal processes until we get the final verdict. We are pretty confident that it will be very similar to the one that we got in the first round, of course, you can never be sure.
Okay. Thank you very much. We have the next question from Mr. Liam Fitzpatrick from Credit Suisse. Please go ahead, sir.
Good morning, everyone. A couple have been answered, but I've got two or three questions. Firstly, on the smelters, Q4 was clearly very good. Are you still expecting another SEK 100 million-SEK 150 million to come through from Rönnskär through the course of 2015 and 2016, or was more of that recovery plan delivered in the Q4 numbers? Secondly, on the mines, can you share any cost reduction targets you have for 2015, 2016 versus your 2014 costs? Final one, number 3, just your comments on M&A. The market reaction to you doing something similar to what you did in 2014 would be very different if you were to do something bigger and outside of Europe. Do you think you're going to stick to the knitting and keep with smaller-sized deals within your local region?
On the smelters outlook, I think, first of all, we had an excellent period in Q4. Looking at historic process stabilities and production outputs, it was a very good quarter, and maybe an average quarter is not going to look quite as good. However, we have further improvements in the pipeline for Rönnskär. Absolutely, I think you understand the situation perfectly right in the way you put the question. On M&A, you can take the cost reduction. If I take the M&A side, I think that the sweet spot for acquisitions is copper and zinc with byproducts. It's not two big mines. Of course, Kylylahti was a very small mine. That's not the ideal mine size, but it was more of an exploration potential project where we lucky enough have a home office, a mine producing with expansion possibility and expansion possibilities, perhaps.
We have an infrastructure in place for our ongoing exploration efforts. Kylylahti was as much an exploration project as a mine acquisition. Mine acquisition should be probably, say 50,000 tons of contained copper would be a good size, 100,000 tons of copper. That's too much money, and it's too much of a Boliden value in one thing. We like to have several assets, spreading out risks, spreading out investment cycles and so on. Double that up the tonnage up for zinc as an idea. Of course, we're looking at. We have our favorites, and of course, they are not for sale, but we are knocking doors, and sooner or later, perhaps we have an opportunity.
I can just comment quickly on the cost in the mine. The answer is that we don't give guidance on the cost in the mine apart from the guidance that's already in place, which is linked to Garpenberg and the 25% cost per ton production that we guided for already back in 2011 with the base year 2010. That guidance is still in effect, and we're working to get that into place as we're ramping up the mine to full production. Apart from that, we do not really have any cost guidance.
Could I just follow up briefly? Just on the M&A side, I appreciate you can't say too much, but are the doors you're generally knocking on to do with assets based within Europe, or are you looking beyond and looking at global assets? Just a second one on working capital. Again, it's remained low in Q4. Are there further improvements that we should expect through the course of 2015?
I'm trying to figure out a way to answer which doors we're knocking.
While you think about it, I can answer the working capital while you're thinking around that, because I think I said in my presentation already that it is, of course, not sustainable to keep on squeezing out working capital the way that we have done. Your question might be, is it sustainable to keep it at the level where we are right now? It's difficult to guide on that, hopefully, we can keep it where we are right now. Also you have to bear in mind that as we're moving into the nickel business, we will tie more working capital, as we explained pretty much clear on the Capital Markets Day.
On the doors we knock. I think we are following different routes here. As a big net smelters, we have relations with a lot of mining companies around the world, some of them are impressed with the productivity of our mines. Of course, we invite people here to see what we are doing and see if we can do something. It's not something which is very easy to follow up on. That is basically, some of that is pretty far away. Other doors are closer, but I think the valuation model we have is further away is not as good as close by. It's a negative the further away it is, and we have kind of a cut-off. We have skipped Australia and the most remote places.
Else on that, we are looking at, well, we have maybe 10, 12, 15 parameters which we are grading, then we're adding up to a little total attraction number for us, given synergies and whatever. We have a list with the best and the worst or the best list. From that, we have a shortlist where we have discussions, and that's the way we work. We don't have a strategy of acquisition to say that we have a target of buying something, because that's normally a lot of people have done that, and they have problems right now. We entertain discussions, and when the timing is right, we are ready to go.
Thank you.
Thank you, Lennart and Mikael. That has to be our final question. We thank you for being here today, and see you on May 5th when we have the Q1 results out. Thank you.
Thank you.