Good morning and a warm welcome to Bulidens presentation of the Q4 and Full Year Results for 2014. My name is Sophie Arnios, and I'm Head of Investor Relations here at Gooliden. Our CEO and President, Werner Vren will run through the presentation together with our CFO, Mikael Staffas. Following their presentation, there will be an opportunity to ask questions. So please, Denard, go ahead.
So good morning, everyone. Exits over there where you came in, but also here in the front, taking us to the main road. It's very encouraging, and we're 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. 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's not a coincidence that we are now in a place. It's our position is not a coincidence. It is what we have been delivering or developing over a long period of time.
And in certain periods, of course, that position is favorable, and certainly, it is now. And one of the key elements is, of course, the Swedish krona or the dollar well, the currency development. But 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. So it is we have a good ride there, but it's not too exceptional compared to our peers.
The Q4, we had sales of SEK 9,400,000,000 or SEK 9,600,000,000 compared to SEK 8,600,000,000 a year earlier, the earnings before interest and tax and excluding the revaluation of the process inventory is over SEK 1,134,000,000, which is double and more than double from what we had a year ago. The free cash flow was positive SEK 3 66,000,000 and we actually paid the Kirli Lahti acquisition
of about
SEK 100,000,000 in the quarter. So we paid it from our own cash flow in the same quarter. Strong production, and that is apart from well, maybe the main topics here and not least for the smelters, I'm 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 36,000,000,000 37,000,000,000 Earnings were SEK 2,600,000,000. 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.
Kirli Lahti, of course, was acquired and consolidated from 1st October. Oda, 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 Rungere is delivering as planned. We said a year ago that the cost will come sooner. The process improvement will come will take longer time and will take several years before we're back completely on track. And 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 EUR 2.25, which is onethree of net profit. Looking at the world, I would say that most if in order to understand the quite dramatic dollar or metal price changes in U. S.
Dollars are driven not by dramatic demand development, but rather quite firm or big changes on the supply side. So 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 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. But on zinc, we have been 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 $2,000,000 But looking at the general commodities, which are turning down, of course, zinc has been the one or 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. And the exchange rates are obvious.
This is a very busy chart. I will not go through it. But 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, 1 or 2 years ago. But 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 a time when everybody were just enthusiastic about the copper outlook.
This is a metal price combined chart where we have the weight or the combined, we had the different metals with their proper weights and we measure it in Swedish krona. And as you can see, we had the negative development in the beginning of or in the first half of twenty thirteen, the impact of falling prices. And that continued into with low levels and a strong Swedish krona through the middle of last year. And then we saw the basically the currency developments out or balancing the negative price development. So all in all, we have had a rather stable price development if we combine the metal price dive and the improvement in currencies.
And of course, looking at the euro to dollar and Swedish krona to dollar, they are looking like this. Swedish krona got extremely in the movement after the middle of last year. But also the euro has had a similar development and certainly the Norwegian kroner as well. So 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 0 inflation, someone could be surprised that the gold is not stronger than it is. But 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. And this is, well, 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, but we are seeing the very dramatic negative development flattening out or leveling out. And we have been now for quite a while on a similar rolling twelve curve.
The earnings before interest and tax was €460,000,000 compared to €420,000,000 a year earlier and €355,000,000, so about the same level as Q3. CapEx were up $14.58 but that includes the Kielylahti acquisition. And excluding that, of course, we see the CapEx coming down. High production, part of it is acquired in the Kylylahti, but the Gatenberg 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 4,000,000,000 investment in Garpenberg, which were not there a year ago. Lower metal prices and favorable currencies. And on the full year, you basically have a similar effect because what happened was midyear. The positive impact in Q4 was similar to that of Q3, but stronger both in our internal impact from action programs and start up of Gripenberg and the terms in the market. If we go through the different mines here, first of all, we had good production in Aitik.
But we had an absolutely fabulous production in Aitik last year. So year on year, it's not looking that impressive. But of course, it was a difficult comparison quarter. If we look at sequential, it's looking okay or looking better. Boliden area is probably beside Garpenberg, the 2 good spots.
The gold mine, Kankberg, is doing fine. The Reenstrom 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 Kirli Lahti. On the zinc side, of course, the Garpenberg is adding to it, but we have a negative impact from Tara, where we are doing 2 things right now. Number 1, we are depleting the higher parts of the Tara mine.
And the focus of production is going to Svecs, Southwest Extension. So 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. So 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. And we are on plan. But 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. And in general, a lot of change in the Tara mine. And that gives us sort of a changeover impact. And we see it in Q4. We saw it in Q3.
We will see it for a number of quarters to come. But we think we are doing the necessary things. And as we'll see later, we have prolonged the life of mine a year or 2. So it's good news. On a yearly basis, every year, we on 12 months, we look at the profit unit by unit.
And what we see here is Aitik declined from SEK 800,000,000 EBIT to SEK 550,000,000. That is basically an impact of the terms. We also have a grade what was it? It's EUR 100,000,000 of Innatec, the decline. Depreciation.
Depreciation, exactly. We are in a pushback where depreciations are more expensive. And then we have basically terms, the metal price, which is taking us negative. And Boledan is good news, EUR 19,000,000 to EUR 188,000,000. It's small numbers, but a very nice improvement.
Garpenberg is, of course, an impact of the expansion. And Tara looks negative, but it's because of the one off pension item we had in the previous Q4. So it was an exceptional positive, which we were clearly sort of communicating then. So if we look at the total here, we see a slight decline, which is less dramatic if you take off take away the one off of last year. If we look here, let's 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. So the reserve level is fairly constant in general. But 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, so that was an update we did in May and nothing much has happened since. The mineral resources had a bigger change. And Garpenberg could now put in the resources very substantial ore volumes, but at low grades. And the reason is, of course, that we have known them in the past roughly. Now we drill them up and they are they have a potential to become economical to mine.
I think the good news is here that we have prolonged the Gerpenberg long life of mine to probably very long life of mine, if in the end of the day we after examining deeper or further, it is economical. But it looks positive. Exploration in the year was slightly less both in terms of money spent and drill meters. And on the positive note, as I already mentioned, we have extended the life of the Tara Mine 1 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. But 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. Clearly, Lakhte, we have done no or rather, we have spent a lot of efforts now in exploration, but no exploration results. So 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. And now we go to the smelters. And we have invited we have a management meeting for the smelters today, so Kerstin's whole crew here. So 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.
And as you can see here, the rolling 12 or rolling 4 quarters graph is tremendous here. Earnings, SEK 681,000,000 compared to SEK 149,000,000 a year ago, excluding the process inventory revaluations. The CapEx was SEK 268,000,000 flat to last year, strong production. And basically, that's true for every all of the 5 smelters we have. Good Q4 production.
And now 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 with some improvements.
And of course, the currencies are playing in with full strength here. Improved terms, Coca Cola silver ramp up is the weak point here. We are not we have not been successful. Basically, the plant we built is doing on the specification what it should be doing. So 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.
So 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 1,500,000,000 CapEx down, record production in Oda and Harjavalta. Oda is probably worth a special note here. We delivered some very, very strong return on capital employed.
And Oda was the high cost smelter in Norway, where we were not sure of the future at all. And then we decided to do the P100 program. And then we had some bad luck with 1 reactor or a part of or a leaching reactor. Now it's back in production, and we enjoy the currencies and the terms. And suddenly, we are 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 in a moment. It is actually a little down in profit but for a reason. The action plan in Johan share, SEK 150,000,000 on plan.
We said cost should go down. We have SEK 100,000,000 in cost improvements. We are seeing the process improvements coming now, and we had SEK 50,000,000 in the Q4. If we look at the full year, it's mirroring quite a lot what happened in the Q4 because we it's also impacting Q3 in a similar fashion. Earnings, 1.
Yes, exactly, I was there, yes. 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, Els, and it went very well in Q4 in all of them, all of our smelters. So good production is basically a general statement everywhere. And if we look at unit profits, is a small unit.
We did an improvement, and it's good because the terms have not been all that easy. Oda, a tremendous turnaround for the reasons I mentioned. Kokkola as well, very well done and good stable production. And the snag is the silver plant there. Harjavalta is looking like a negative, but there we were very explicit last year that we are now feeding in some of the residues with very high content of precious metals.
So we were on a quite exceptional high level of profits. So the decline is not bad. It's only that we have a very tough comparison here. And then we have Rundeshedra, of course, it's a tremendous development we have here, adding it all together to the big improvement. And with that, Mikael, take us through the numbers.
Thank you, Lennart. It's good seeing you all here today. And 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, but 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 11.34 percent. I'd also like to point out the investments.
They are coming down slightly lower than we had guided for. They are including the Kirillakti acquisition at EUR 1,700,000,000 I'll come back a little bit to talk about that what that consequence has for the year going forward. And also point out that the key free cash flow a positive free cash flow of €300,000,000 but it's of course including also the payment for the acquisition in Kynadafi. Now 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 and this is coming from many sources. Of course, the Kirillakte 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 Bulin area has had a very nice run-in this quarter with an improved ore mix coming from the different mines there. And then 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 Killak in here as well. That was not in the previous quarter. We have a higher production in general that merits some of these costs 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 aftertreatment that comes in as a cost here.
And then also as you know every Q4 we explained that we have a seasonal effect. There's actually a 3rd quarter seasonal effect. When all the white collar people go home and take vacation, we get a lower cost. And then in the Q4, they don't take vacation and we get the higher cost coming back again. Then we're also having help from the internal profit and in the actual individual quarter is about €60,000,000 But when you compare that to the previous quarter when we had a big negative in the we once again have a very nice volume development.
Once again, Kirillati, we once again have a very nice volume development. Once again Kirillakti comes in and we have the ramp up of Garpenberg, which was of course not in place a year ago. And we have once again the higher and stable smelter production coming and helping us. Here year on year, we have a very strong effect on prices and terms. Currencies are helping us mainly in this comparison.
Costs are also year on year up. Now part of this is Culakti, which was not in there last year. Part of this is higher mine production, the Garfin Bay ramp up. Part of this is the Rundshall action plan, it's given quite a help on the cost side and also Premier Gold coming in here. Looking at this year on year as Lennox said before, we don't see that we have much of inflation in the system.
We claim that we have a deflation roughly around 0. So we don't have a big problem with input factor cost in this. Depreciation is up and that is up because of 2 main reasons. One is the obvious one in Garpenberg where that was not in there a year ago and now it's coming in for full. But also the pushback in Aitik, which I think is worth just mentioning with A320 accounting, you know that depreciation are accounted individually for each pushback.
And we are now going more and more into pushback number 6 and 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 2 years. Cash flow, we talked about this already before that we have a positive cash flow despite the acquisition of Kyulallati. 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 Rungered has been improving the production stability and getting some of the intermediary inventories out.
But 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 100,000,000 or 100,000,000 every quarter out of working capital. So 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.
But this quarter, we might stop a little bit and pause at some of the numbers that or at least one number that you might want to look at and that's the net debt number. You can see that the net debt is up slightly on the last quarter. And how does that come despite the fact that we have positive cash flow? Well, we have 2 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 under industries.
It's happening with everybody with lower discount rates. And therefore, with the lower discount rates, our pension liabilities, especially in Ireland are coming up. And then also we have roughly half of our borrowing in euro terms and with the restatement of with the currency changes that also increases the debt in Swedish krona terms. So those two effects play in here and therefore we have a slight increase in net debt in this quarter. Just looking very quickly on the full year numbers here.
I mean, I think the big number that you will jump out of this slide right away is the free cash flow where we're coming from basically $1,500,000,000 negative in $13,000,000,000 to $1,500,000,000 positive in 2014. This is due to both a better profit level, but some of you will say, well, that's not that so much. Yes, your EBIT is up a little bit or your EBITDA experience up a little bit, but that's not making a big difference. Well, there's lower investments that's coming into play in this as well. And we have a big difference in terms of the working capital where we were in 2013, we were actually building up working capital with some of the production instabilities that we had and building up inventories of semi finished products and intermediaries.
And 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 price in terms. The U.
S. Dollar is of course a very large part of this. We have higher cost, 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 pushback changes of pushback in Aitik that is coming into play here as well.
And then you see that there were some extraordinary items that Lennar 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 $500,000,000 in 20.13 into our working capital. This is now coming back with roughly that €500,000,000 coming out in 2014. Of course, the difference there is €1,000,000,000 just in those two items in cash flow over the 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 2 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 change that comes into the mines. So this is as a background for health 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.
Well, most has been said already on the projects here. We are Garpenberg is delivering fine. And we are basically, we did 2,200,000 tonnes. We're going to be at a pace of 2,500,000 tonnes. 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. ITIG 45, the ramping up is on plan, but we have here been modifying the old crushers. And they are 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 out of or part of it pushing it out from 20 15.
We have had an appeal of the permit, which is the normal course of business. So I would say it's the normal procedures. All done. 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. And 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 re space and going in with all the learnings we have from the P100 projects. And we're seeing Oda developing to a very nice smelter. The summary of 2014 of what we have said, Mikael and I now.
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 than these 2, obviously, Garpenberg 2 and so on. The ramp up in Garpenberg, milled production 2.2 compared to 1.5 and mine production 1.9 versus 1.6.
Billion. Let me explain, and 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 the mine, we have been doing for at least 2 years.
In the beginning, that led to an overcapacity in the mine, and 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 in balancing the mine and the smelter. And I know that in the beginning at the Capital Market Day, we said, well, if you were going to be this high in 2014, why only 2.5 at the end of 2015? The math doesn't match.
But we explained this, so it's according to plan, and it's according to what we have said before. Ground share action plans are delivering, and we are very pleased with that. Where are you, Oker? Well done. Can work on a few things still, right?
And we decided to expand Aitik to 45,000,000 tonnes. The ramping up is going as planned in the year. Decision to expand Oda to 200,000,000, I mentioned before, and we acquired Kirillakti. And the position is favorable to the market we saw in Q4, and we hope that it continues. And going forward, what 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, the stockpile is done, and we are going to have or we plan to be at a 2,500,000 tonne per year pace at the end of the year. The Tara mine is deeper or we the focus on mining is more to the depth than before. And we implement a new organization. Clearly, Lahti, we had for 1 quarter in 2014, and obviously, it's going to be for a full year impact 2015.
The run share 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. And in Harjavalta, we have a nickel business on our own books as a consequence of the strategy change we explained in the Capital Market Day.
So all in all, you can say I get questions, are there one offs in Q4? No. Well, yes, 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.
Of course, 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 it's going 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. And except from that, I think that we are very happy.
We are pleased. We are proud. We like more than most our colleagues on the back row here. So let us take that as the finish of our presentation. Now to the questions.
And we'll start with questions from the room here in Stockholm.
Ulla Sodermaierks Swedbank. Yes, it's hard to not be impressed about the smelter's performance. And how should we view the performance level? I mean the trend has been quite good after 1.5 year port performance. So the trend last couple of quarters has been quite good.
And looking into 2015 with a stronger dollar and treatment charges for copper is going up. And is this a 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 disease, but they have been established. So for 2015, they look good. But that is probably the one where, at least myself, I'm very happy with the levels. Don't write that in there.
But they are good. And but else on 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. This is of copper, it's 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? Yes.
And so both copper teasers and zinc teasers are moving in the right direction and FX as well, the strong dollar. So it's no reason to believe that the smelters are going to be weaker then.
It looks like if everything is 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. Christian Kopfmann on DiEM Markets. Firstly, if just follow-up on Ola's question on the TCRCs. 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?
No, I think we have them. Most of them are have been coming. Most of the thesis is variable. Now we are changing or it looks like the base levels will change and so on. But the effective the impact with the present price, it's probably a slight improvement.
So you see it already in most of it in Q4, I would say.
So the higher TCs on the copper side was already recorded there?
That is that was saying copper will come. And copper will come gradually during the first half or what? In the first half when yes, basically.
But just a general kind of point from an accounting point of view, typically takes maybe 2 or something like 3 months until we see changes in the thesis coming through because it has to go through the inventory and the process first.
And the normal effects on all of that, pricing and so on.
Yes. On Tara, the mill door. Could
I do a remark there? As a very important thing there is the breakdown of our sensitivity. The left column that Mikael showed was what we published. But 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 falling mill door 2 consecutive quarters. So did I understand you right, Lennart, when you said that we should expect the milled ore 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 plans. So as we hope to be higher. But I think the main focus now is 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 I mean, we are there since many years in ZwEX, But we have to move equipment and mining focus into these areas. And that is something that has been going on for maybe 6 months and continues for probably another 6 months. And 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.
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 you have a big mountain and you know how much gold we talk about there. So it's first of all, it's we know what it is in the volume. But when it's coming, it's a slightly bigger variation. Most of the times, the 2 grades are coming together, but not always. Sometimes we are in more gold rich areas and but most of the time they are sort of correlated.
But still, I mean you have mined quite substantially below the average of the mine in the gold. So okay. Just one quick question on the oil price. Have you seen some effects from the lower oil price yet in
your numbers? Yes. We see lower oil price and higher tax. So somehow someone is always taking away the goodies on that side. Or what would you say?
Now what we are seeing in that sense is coming through relatively quickly. However, this is an area where the adverse effect of the currency is hitting almost as quickly. So if in Swedish krona terms, the reduction is not that big. And then on top of that as well as we do have new taxes as of January 1. But it is something that comes very quickly through.
We do not have any hedges sitting in that area.
Finally for me then. On the cost side, is it fair to say that the sort of one off cost that you had in the Q4 that we should add back was this Premier Gold of approximately SEK 40,000,000 for Q1 versus Q4.
Yes. That is a one off cost that should not happen again. Apart from that as Lennox said, there are some pluses and minuses as always when you come to a year end and we are roughly at 0 altogether. So maybe there's nothing much to correct.
Thank you very much. Good quarter.
Julian Veer 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 2 year basis? We talked in which The copper side. Concentrate contracts, similar.
So the increase that we should see should reflect a sort of weighted average of the increases over the last 2 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. So it's not too averaging out over that long period. It's shorter impacts.
But I would say we have largely 1 year blocks in our TC contract, but we do have some with 2 years and even 3 year blocks. I don't have the exact number, but I would say I would guess that over 70% is on 1 year. So most of it has already come in terms of last year's changes.
Okay. And you can confirm that the benchmarks we saw established in Asia of around 107,000,000 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? And is it sustainable?
In run share where we have most of the impact, I think you're looking for or if we talk run share, We had SEK 100,000,000 in cost improvements, SEK 50,000,000 in process improvements. And that is coming out as free metal impact basically.
Okay. So the improvement was actually there what you showed us to be cost improvement?
I showed CHF 150,000,000
of which CHF 100 costs CHF 50 process improvements, which are essentially free metals. Very good. And then just to be quite clear, you didn't see any additional cost savings Q4 versus Q3 at the same rate?
Yes. I mean, basically, we absolutely I don't know if it was something, but basically similar level, yes.
Fantastic. And then lastly for 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. So basically, we are struggling. We hope to improve the cash cost position, but it's a tough one. So we remain we will continue to be a high cost mine. And it's I mean, look at the mining industry.
This is what everyone is struggling with. So it's a typical case. But I think we are reasonably happy with the improvements we are doing, not with the production. And again, we are looking at organization cost and all of that. And while we do it, it's difficult to have the best the highest productivity.
Okay. So what sort of zinc price do you need for free cash flow neutrality after the year?
You have the cash cost charge impact. So 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, but you have them there. So I don't have the number, which is updated with currencies.
I can just say the number that's been published today is €75,000,000 as the cash cost. And if you turn that into dollars per ton, you're at €16.50 And of course, a mine comment towards the end of the life of mine, there's not so much CapEx going in, but it's not 0.
Thank you.
All right. It's Johannes Grunsel, Handelsbanken 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? And also if you can give some color on where do you think the European industry is at the moment?
Capacity utilization is often you have a nameplate capacity, and then 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 in for practical reasons maxing out. And then we do the debottlenecking programs here, which you see. I mean, we have additional possibilities in Ronnshare with process stability. Well, that will have an impact, yes.
And we are then investing for higher volume in Odam, but that is well explained. So maybe shall I modify my answer? There is more to do in Johan Sverdrup in general very high levels.
And then if we look at the competitive landscape, where are our competitors you think?
Well, when we are publishing this result and we are reading all the mining and metals and mining magazines, and it's just slaughter going on out there. Of course, we 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, and we have decided to be here.
And right now, we are very lucky with the position we have created. We had no 5 years ago, we couldn't say that this would happen now. But over time, I think we have a balanced portfolio, which has a tendency that when one is good, another one is less good and 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. And of course, that was something I regretted in the first half of last year, but now it's 2 again.
So I don't know. Sometimes, we shall do some science of how the Swedish kroner is going in or correlate to the general economy. But this time, it helps.
I agree. I was more thinking about the smelting industry, specifically in Europe, because I know in the CMD, we're providing a color on this that the capacity utilization is on its way up. So 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, not exactly where well, from our own mines, 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 in around where we are. So that's to the negative. But 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 or 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. But in the short run, we have a favorable energy mix. We have done improvements in Oda. 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. So 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. No, I think all in all, we have positioned our smelters well. We have our issues, but overall, it's looking quite good.
Okay. So let's see if we have any questions from our audience via the telephone conference.
We have a question here from Mr. Gustaf Sandstrom 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 investment pushed investment in Aitik of EUR 400,000,000, which is pushed 1 year or 2 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 Gustaf. 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 IIT 45 is roughly matching is roughly about €200,000,000 that was in the CapEx budget for 2015 that would be moved to 2016 and that's filling up with the overruns. So the CapEx guidance for 2015 is still standing at around 4.5.
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 0 and below. What would you do in a scenario where gearing keeps dropping down to, say, 20% and below? And what are your priorities there? Is it CapEx, M and 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. But we're not there. So first of all, we will pay back debt.
But if we are in that situation and even if we partly independent on that, we are looking at business opportunities in the market now. And we continue to have our listing of things we would like to buy. And you think we have probably failed because we have been talking about this many times and we haven't bought much. But then, of course, we have been prudent. We don't want to buy anything that we don't think will pay produce a good value enhancement.
And also today, a lot of things are for sale, but most of it is for quite low quality assets. But we continue to look at mine acquisitions primarily, and we look at copper and zinc. So we hope that it the Kyulakhti acquisition could be followed by continuation of lava. We have of course, we are looking at other projects. We have the continuation of Lava.
We have 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. And a final question for me. I saw your reserve update, which you mentioned at Capital Markets Day lowering your U. S. Dollar assumption to $6.50 And given the recent interest rate now this morning, the dollar is actually at $8.50 And this would indicate a 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?
Yes, absolutely or dramatic, I don't know, because you cannot make a chart on saying at this price it is much and at that price it's another one, because you have a huge database to run. And 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. But in general, of course, if you increase the price, you will increase the resources and you will decrease the grade. And so that could that would have the or it would have that kind of impact.
Okay. That's all for me. Congrats on that. 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 ITIC 45.
So on the deferral, how does the deferral play into the overall budget for ITIC 5? 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 EUR 600,000,000. And 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, Nikkad. 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.
So that part of the step 1 is done. We hold back the crusher investment and we delay that. And what we are saying maybe a year is what but we have a wait and see and we are going to have the sort of production data and then we will see what we do. But we are delaying it now that's clear. Stage 2 is the in pit crusher and that is more of an absolute necessity.
It will follow. It's coming later. We don't have an update of the time plan. And as you know, it's a crusher and it's a conveyor belt. And 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. So it has to move and it has to be a new one. But that is not changing. So the guidance on that is the same as before, no change.
Okay. Thank you.
On the environmental appeal, just I mean we of course don't really know ourselves exactly where this is going to go. That's a part of being in legal situation. Generally just so if you got the background right, it was appealed and those who appealed also wanted to stop the permit during the appeal appeal process. We got an approval to work with the permit during the appeal process, which was a victory in that very first stage. And then after that, we are now in the appeal process and it typically takes a year to go through these appeal processes until we get the final verdict.
We are pretty confident that they will be very similar to the one that we got in the first round, but of course you can never be sure.
Okay. Thank you very clear. We have the next question from Mr. Lain Patrick from Credit Suisse. Please go ahead sir.
Good morning everyone. A couple have been answered, but I've got 2 or 3 questions. Firstly, on the smelters, Q4 was clearly very good. Are you still expecting another €100,000,000 to €150,000,000 to come through from Ronnskyard through the course of 2015 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? And final one, number 3, just your comments on M and 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. So 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 sort of process stabilities and production outputs, it was a very, very good quarter. And maybe an average quarter is not going to look quite as good. However, we have improvements further improvements in the pipeline for Randstad. So absolutely, I think you understand the situation perfectly right in the way you put the question.
On M and A, and you can take the M and A side, I think that we are the sweet spot for acquisitions is copper and zinc will buy products. It's not 2 big mines. Of course, Kuehle Lhakti was a very small mine. That's not the ideal mine side or size, But it was more of an exploration potential project where we lucky enough have a home office, a mine producing with extension possibility and expansion possibilities perhaps. And we have sort of an infrastructure in place for our ongoing exploration efforts.
So clearly, Lakti was as much an exploration project as a mine acquisition. Mine acquisition should be probably, say, 50,000 tonnes of contained copper would be a good size. 100,000 tonnes of copper, that's too much money, and it's too much of a bullion value in one thing. We like to have several assets spreading out risks, spreading out sort of investment cycles and so on, double that up, the tonnage up for zinc as an idea. But of course, we are 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 tonne production that we guided for already back in 2011 with the base year 2010. And 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 and 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? And then 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?
Well, I'm struggling. I'm trying to figure out a way to answer the which doors we're knocking.
While you think about that, 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. Then 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, but it's hopefully, we can keep it where we are right now. But then 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 Market Day.
And the doors we knock. I think we are following different rules here. As a big net smelters, we have relations with a lot of mining companies around the world and some of them are impressed with the productivity of our mines. And of course, we sort of invite people here to see what we are doing and see if we can do something. If not, something which is very easy to follow-up on.
And 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. So it's a negative the further away it is. And we have kind of a cutoff.
We have skipped Australia and the most remote places. Else on that, we are looking at well, we have sort of maybe 10, 12, 15 parameters, which we are grading and then we're adding up to a little total attraction number for us given synergies and whatever. And we have a list with the best and the worst and or the best list. And from that, we have a short list where we have discussions. And that's the way we work.
And we don't have a strategic 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. So we entertain discussions and when we when the timing is right, we are ready to go.
Thank you.
Thank you, Leonard and Mikael. That has to be our final question. So we thank you for your for being here today and see you on May 5 when we have the Q1 results out. Thank you.
Thank you. Thank you.