Good afternoon and a warm welcome to Boliden's Investor Day in Stockholm. It's great to see so many of you here, and also a warm welcome to those participating via the web today. This is the first day of two. Tomorrow we are heading to the most modern mine in the world, Garpenberg. My name is Sophie Arnius, I'm head of investor relations and have also the pleasure to be your moderator for this afternoon. As you can see, we have a full program ahead of us with participation from our executive management team. There will be Q&A sessions throughout the afternoon, you will also have the opportunity to speak to our management during the breaks. As this event is being webcast live, we will also be accepting questions from our audience over the web. The presentations are now available at Boliden's webpage.
There are no fire drills planned for today, if you hear the alarm, the exits are located behind you and also in that direction. To get the program underway, it's a great pleasure to introduce Boliden CEO and President Lennart Evrell.
Thank you. Again, welcome very much to the Capital Market Day of this year. It's very nice to have you here, we have a few quite exciting news we are going to talk about. For those of you not knowing us from before, we are in metals and mining. That's no news for anyone. We are based here in Scandinavia or Northern Europe, where political risks are low, where when we do things, again, we have done it before and we get relative to some other parts of the world, we get little surprises, at least from the outside world. We have smelters and mines, today we have five smelters and five mines following the acquisition of Kylylahti in Finland.
We produce the base metals copper and zinc, unlike some other companies, we have been very clear that we want to retain and keep the values from the precious metals. When the base metals go down, often the precious go up and the other way around. If you look at long-term studies, it looks like that. It stabilizes our earnings. We have high environmental standards. Henrik Östberg will follow my presentation here and go a bit deeper in our environmental efforts and ambitions. I think that you can choose to be a follower and just do what you have to do, or you can be a leader. When we are a leader, we also can take out more metals, more value metals, and take advantage of complex materials with better depositing. We are some 4,800 people, sales of SEK 34 billion, and earnings of SEK 2.3 last year.
We often show this picture as sort of symbolizing what we are trying to accomplish here. We think it is important you start with the simple things, which is normally the most difficult of them all, to have everybody to work together and cut out waste in the system, reduce cost, increase the availability of machinery, and really produce at the nameplate capacity of our huge investments. It is the most important of any sort of capital-heavy industry. It is the fundamentals of high productivity and continuation or continuous production process stabilities. Once we are good there, we can do debottlenecking. We do CapEx-driven growth, the large projects, and we do acquisitions like Kylylahti. Today, we are going to talk about a few new things, and let me comment on them along with these slides. We first of all have the productivity improvements and process stability in Rönnskär.
As an example, where we failed to deliver the right productivity, we have to take quite a big and significant firm step backwards, make sure that we take less complicated materials, that we understand what went wrong, and develop. This is a lengthy project or process, and we are into it, and Kerstin will talk more about it. Debottlenecking. We did some or a few years ago, we started the project in Odda. In Q3, we mentioned the little Odda remark that we have good earnings and good progress there. The P100 project was a debottlenecking and cost reduction project. The thing is, we reduced the distance between the cathodes in the tank house, and that enabled us to liberate one old or the less productive tank house, and that has been standing idle since then.
Kerstin will talk about more on we start to be tempted to look at it now when the utilization of zinc smelters across the world has been going up to very high levels. We took a decision now to expand and debottleneck Odda in a further step now, what we call P200. Aitik 45 is, of course, also a debottleneck. We built a beautiful plant. You saw it. What a beautiful mine. I mean, for us in the mining, we think this is the most beautiful scenery you can think of, and I hope some of you also agree that nature is beautiful, and sometimes it's even more beautiful if it is a pretty mine there in the middle. Aitik 45. Don't laugh at that. That's serious. Aitik 45 is a debottlenecking process.
The concentrator was able to take a higher production volume. Then we have to take out some bottlenecks in the crushers. We just got the permit, and we can go up in production. Typical debottlenecking. We have another organic growth project that Kerstin will talk about today. It's our ambitions in nickel. We have been smelting nickel since years and years and years, but we have done it on behalf of our joint venture partner. We have, for many years, been discussing, is this really the right setup for us? Certainly it's not the way we buy copper and zinc concentrates and sell the material from the smelters. An anomaly in our strategy that we still smelt nickel will be changed now, and we will buy concentrates and sell the nickel material to the market. On acquisitions, we are continuing to work now. We bought Kylylahti.
It's the first quarter we have Kylylahti in. We bought it because it's a fine mine, but we bought it primarily because we think the EM34 and other exploration equipment and our experts can do a good job in the geology, which resembles very much what we do in the Skellefteå field. If we look at the metal mix, in sales, we are a copper company. In earnings, we are even more a zinc company. If you look at the EBIT impact, the sensitivity chart, which we show on every quarterly result or quarterly reports, what happens if the different parameters here are going up or down 10%. As we can see, a 10% increase in copper price adds SEK 450 to the earnings line. A 10% on the zinc, where we're much more integrated, is making SEK 600.
It's also good to understand time to time and really look at this chart because we are a precious metal company as well. If you take the combined effect of gold and silver, it's almost as much a sensitivity as we have in copper. We are fairly balanced between precious, zinc, and copper. When we met last year, it was quite exactly a year ago. Since then, we have done a couple of things, and you can see some of the headlines we have had since then. Well, we had a production record, 10 million tons in a quarter, and that was a quarter we have always said. Q4 and Q1 is for sort of climate reasons, a little bit lower.
We cannot drive our equipment full speed because steel becomes brittle and we have to take it easy because otherwise we destroy equipment and we get unplanned stops. We drive a little bit or produce a little bit lighter in the Q4, and still we produce 10 million. 40 million pace. We really started to say, "We have to get the permits, we have to debottleneck the system. We have the capacity." We did the first concentrate out of Garpenberg in Q1. It was some test production at an early point, but things started up well, and in the second quarter we had a lot of production coming out there. We decided to take the debottlenecking steps in Aitik with Aitik 45, and we are well on our way. Jan will talk about that later.
We have a refinancing round, or we did in the spring, and we continued in the fall, a lot of Garpenberg news again in Q3, and we're up to almost full speed in the mills, and we're still taking some of the ore from the stockpiles we have built up. Jan will talk more about our now big challenge to get the mine up to full speed. It looks like, again, we have a concentrator which works very well. We signed a contract with the unions on personnel reductions in Tara. We were not long ago 700 people. We are right now, as we speak, cutting the 600 level, or we're still probably a little over, but we're soon down to 600, and we're going a little bit below that level. We had a good thing when we got the number 1 annual report in the world.
That came as a complete surprise. We saw it a couple of or last year, we were number five or what was it? We said, "Well, can this be really true?" Well, we worked hard and we really do our very best to explain the business model, the PMs, and the free metals, and the process inventory, and a lot of things that you as analysts are having sometimes a problem to get the details on. Just think about the general public. It is fairly complicated. We have really put some ambitions in explaining the world of metals and mining and in the explanation why we got the number one award. It was very much based on that. We bought Kylylahti, and in Q4, that's happening now, and we have the capital market day here, and we are continuing on Aitik 45.
This is Earth from space. Now the interesting thing is there is light in many more places than there used to be. Not many years back, the same picture would have been all dark except for USA, Europe, and Japan. What is happening in the world? If you look at, I always, well, I forget the name of it, but there is a graph showing how equal the resources of the world is distributed between countries. It was really sort of 80% of the world's population got nothing. Then us and a few more, we shared the 20%. It was a curve, which was really showing an extreme inequality amongst the nations. If you are to look at that now in the update, what is happening now is that many more countries are starting to take a share. What happens then is, of course, it's industrialization.
It's the rural population is moving to town, the industrialization, the urbanization, and it's driven a lot by industries being built, transportation, railroads, roads, airplanes, airports, and power systems, and power lines and whatever else. If Boliden was not producing, if we decided, for example, one day to close everything we would do, what would happen? Well, I know for certain one thing will happen. The supply of base metals will go down. The price, you know how sensitive it is even to small variations in supply and demand. The prices would go up. I don't think that would hurt very much if we are building the ring road around Stockholm or hospitals or something here. It would badly hurt the poor people who are now on the way to improve.
I think the fact that we are in metal and mining, we show this, that GDP per capita, the wealth on the X-axis, how much base metals, in this case, copper is consumed per person. Of course, this is very clear. When you're very poor, you're not part of the market or the demand because you're so poor. When you start the industrialization, the demand of copper is going up, then when we come to the level where we are, well, we don't use much more. Our power lines are already there, and it's time to invest in recycling instead. We can produce a new cellphone if we turn in the old one at the same time. The guy in Africa, he doesn't have a previous cellphone. He needs the mines.
The guy here is needing recycling. We are the world's leader in electronics recycling. Looking at copper and zinc, of course, the big thing now is what happens with the two main metals. If we look at the Wood Mackenzie statistics, we look at from 2013, so a little bit back in time to five years ahead, 2018. We see that there is demand and a similar demand for both metals. It is according to them, about 5% annual growth of demand. The supply is very different. Zinc will grow in this period, but with a very low number compared with demand. Basically, every metals analyst, and many of you here, I probably share the view that zinc is a scarce supply, and it is a fundament for higher prices. Copper is better supplied, and in the near term, probably oversupplied.
I don't think it is anywhere near what we see in iron ore or with the big mines in Brazil and Australia coming on stream or the oil with the shale gas and shale oil in the U.S. We have seen those commodities falling dramatically. Of course, we from Boliden, we are nervous about copper because it seems like many projects are coming, and they are starting now. We are also more and more of the opinion that it is going to be probably a period of a bit of oversupply. There is a risk there. After that, it looks like very few copper projects are being built now. A lot of CEOs were sacked because of the big expansion plans, which were delayed and costed much more than anticipated.
I think that we are a little bit exposed to a risk short term, but I think copper looks like there are scenarios for a very healthy and very good period within soon, also in copper. These curves are the ones you are looking at. If we look at mine depletions, the big difference in zinc compared to in previous sort of waves of supply and demand, it is that now we see some serious big mines, Century next year and several other going to deplete, and the replacement or new projects are scarce and few. There is, of course, one, that is Garpenberg. We think that we really made it with the timing. I think it is nothing else than a super timing we have there, or at least that is what we hope. We are taking SEK 400 million, NOK 350 to expand Odda.
Is that so clever now when the drive of a higher price is lower mine production? This is interesting. Capacity utilization is higher than probably ever, or at least for a long time in the zinc smelting industry. A little bit, at least for many, behind or under the radar of the mines depleting and the scarcity of mine supply. We probably haven't studied quite as much that also smelters are closing for environmental reason because they are aging, they are not maintained. Zinc smelting has also been going down in production, or at least not kept speed with the increasing demand. When we saw this, we have been looking at the P200 for quite some time. The calculated returns are good, but we have been nervous about this.
We are believing that we can supply the material, and we think the TC and terms for zinc smelting will probably be good going forward. Copper mines, here we have not exactly a dramatic oversupply. You see a little bit of the lower sort of part, dark blue, coming over the demand line in yellow. But it's for a short time, and then it's tailing off. Sure, there are projects possible, but they are not in production, and they are not been decided. They have, like in zinc, and in zinc even more so, very high project incentive prices. Smelter terms are a reflection of the capacity utilization and what we see here, that copper TCs are going up. That's good for Boliden because we're more than anything a copper smelter.
We are buying so much more, or five times, or four times more tonnage wise or copper ton wise to smelter than a miner. A positive development on copper TC is very good. The less obvious change, because of the reason I mentioned, is that TCs are also going up. The prices have followed, we see here, we forget the dark blue, looking at copper and zinc. Copper has been on a negative slope, not dramatic, but a little, following that macro picture. The zinc is up following the macro picture for zinc I explained. Of course, we have to admit that we have a bit of good luck with the Swedish krona. We think it is sad if the political or minority or governments and the political issues in Sweden are complicated.
At least on a capital market day, we can say, well, it has certain advantages for us. I will go through a couple of the details here on following the same charts as before. First of all, the process stability and cost reductions and take out slack or waste from the system. We are having our version of Toyota Production System. We have a softer side of it, who we are, which is our Toyota House or the Boliden House. We have a spider web, which it's not supposed to be readable here, it's what we work with. You can regard it as a checklist with 28 different areas. We tell our 10 units, or break it down by department or in different areas. Have a look at the checklist. See where you have the biggest potential. What is easiest and fastest?
Please work on it and make sure that we can follow up in the different areas of this system. We have a group wide sort of philosophy of running the continuous improvements or the day-to-day management. We are not running group wide. This year we reduce inventories, next year we do something else. It's not the way to do it, in our opinion. We shall do it unit by unit and to what the situation look like in the different parts of the company. The big headlines are never on the day-to-day management, accumulated, a lot of initiatives can add up to very big numbers. We just took a few different examples here. Excavators in Aitik. We have been working with NVB, New Boliden Way. We have been working with maintenance scheduling, and our availability has been going up from 73% to 84%.
A part of Rönnskär, 87%-93%, which means fewer stops, more production, of course. We have time for exploration. Exploration is very long-term. Of course, some other parts of the company are meeting scheduling very frequent. In exploration and in R&D and in many other areas, you have to get the drive and the dynamics from within the groups. Those are perfect examples where we can build the dynamics and drive in the organizations. 97 to 50 days work for time or lead time is a great achievement there. Debottlenecking, I already spoke about. We have many. The Odda P100 paved the way for P200, which we decided on actually last Friday. It's only days old, that decision. We held the press release until today, obviously. We have many. Debottlenecking is making up for many small investments.
You are going to see now a tendency of we earn more in the smelters. The smelters, we have got new environmental permits. We have really squeezed the investments out of the smelters in for several years. Now we're going to do some smaller adjustments for better availability and uptime. We have many smaller things that we can do to boost production and environmental performance at a time now when we're seeing that smelters will probably have a quite good time ahead. On the big project, if that is the debottlenecking, the previous one, the big projects, I think that this is one of the areas where we are very strong. They are always in the focus of your analyst reports and in the press and media and everything. Here we, of course, get much more of light on what we're doing.
We are proud. We have been doing all of this on time. We didn't do the Aitik 36 on the CapEx budget. We had a 20% increase compared to the initial plan. This was the first big investment we ever did or ever. It's largest ever. It was the first big for a long time. We have been learning from Aitik. All the big projects since have been taking into account the learnings there. We standardize procedures. That's also true for the big projects. We have what we call Boliden project manual. The manual is not a booklet or a file or a number of files. It's a complete, well, it's our sort of system for running large projects.
Each of the projects we have finalized, we go back and we adapt and put in the learnings and experiences in the Boliden project manual in order to make sure that next time we can learn from experiences from before. We have also been successful in maintaining the same group of people, or at least key individuals, in all the projects in the previous slides, have sort of been going from one to the other. We have in-house technology. The project management has been sort of developed in parallel with these projects. Finally, on the arrow here selective M&A we did the Kylylahti. Again, it's a small one. We're excited about the geological possibility there, possibilities. We continue to look. We are looking at mines, primarily producing mines and projects. We are looking, again, at copper and zinc primarily.
We are absolute clear that buying something for an NPV, an established NPV in the market and just buying it's an exchange of a one-time pay to a return with maybe 10% return on capital. It's not meaningful value creation. Value creation you do if you buy something and then you add technology or exploration or whatever, project management as we have. That's why we sort of justified the Kylylahti. It was primarily on our hope for good exploration results, but also on productivity improvements in the mine itself. So the examples I've given are several. Kokkola would be the obvious choice if I'm just saying who are very good in the group in driving continuous improvements. Kokkola has been doing great over so many years. Debottlenecking I already mentioned twice, the other two projects.
The big CapEx project is, of course, the one we are starting right now. Some of you were at the inauguration or have been there at the time of the build of the new mine, it's up running, and it's going to be a pleasure to have you and as many as possible joining us tomorrow. The acquisitions, well, the example is Kylylahti. With that, I think that my time is over, and it gave a bit of an overview. I think the thing we think, what we are proud of now, we have positioned Boliden in a good way. Mining and metals is not an easy place to be now, but we have, with some luck and some good foresight, been positioning ourselves in smelting and mining and in copper and in zinc.
I think all in all, we are very happy with the position or positioning of Boliden of now. Thank you very much.
Thank you, Lennart. Our next speaker is Henrik Östberg, responsible for corporate responsibility. Thank you.
Thank you. Good afternoon. On July 25th this year, a hot leaching tank in Kokkola, our Finnish zinc smelter, broke. The entire bottom collapsed, as you can see on the slide, and 370 cubic meters of hot acid was released in the industrial area. This was a very serious accident. But there was no one hurt, and there was actually no environmental damage. It cost us approximately SEK 50 million. Looking at what could have happened, this was indeed a very serious accident. This is really what corporate responsibility is partly about. It is about preventing that these things happen. If they still happen, it is about making sure that we operate the disaster as well as we possibly can, and preventing that it does not happen again, of course.
Corporate responsibility is really about safety performance, environmental performance, as well as ethical conduct. For the next 15 minutes, I will give you insights into our operational stability, how safety links to production stability. You will get insights into why we work a lot with minimizing environmental risk, discharges, and emissions. You will get insights into why we try to develop a value-driven business, including both our employees and business partners. Let us start with safety. We have had a very nice development. 44% during the last 10 years has our accident rate improved, and if you look at the blue line there, it is our own employees. The darker blue line is including also the contractors, which we started to measure in 2011. It turns up as a rolling 12, 2012.
Accident rate or lost time injury rate is measured by looking at number of work accidents per million hours worked. That is a well-established KPI across all industries in the entire world, so it can easily be benchmarked. We are at 7 approximately now, including our contractors. Looking at it in a Nordic perspective, it is actually among the top 10. If we want to join the world-class level, we have to go down to 1 or even below 1, so we have some way to go there. If you are an average employee at Boliden, and we are about 4,800 people, and we have an accident rate of 7, you will have to work for approximately 80 years before you have your first work accident with absence. Then it is typically a sprained ankle. But we have set targets.
We want to be at 6 by end of 2014, and then a 30% annual improvement so we can reach 0 by 2018. Why do we then try to pursue sprained ankles? First of all and foremost, we do not want to hurt our people. We do not think that is a good thing. Secondly, we know that there is a clear link between the sprained ankles and the really bad accidents, the fatalities. Third, we know there is a connection between the accident rate and production stability. This is an illustrative graph, but this is typically what it looks like. You have the red line, the accident rate, and the gray area there, deviations from the production plan. I am sure if you read the Swedish newspapers these last few weeks, you will have read about terrible work accidents in different places.
Apart from the human tragedy, which is always priority one of course, we know that it's also terrible things happening to the companies and the projects involved. Actually one production site was shut down last week, as you may have read of. Clear connection with production stability. If we look at safety standards, we know that first of all if you have good safety standards, they will minimize work accidents. Also, you will have more open-minded people for alternative work, light duty, and you will also have more commitment, engagement among people that will ultimately decrease some short-term sick leave rate. For Boliden, for example, each percentage point of short-term sick leave will cost us about SEK 20 million annually, and then I'm not including productivity losses or any costs for putting in replacements. There is quite a lot of money in this as well.
That was safety and operational stability. Let's look into the environment. At Rönnskär, we've had a 99.9% improvement when it comes to metal discharges to water from 1970 and 45 years ahead up until today. Now, of course, as you can see, the first 20 years was dramatic, and mainly due to many technical achievements, of course. At the same time, we went from 3,300 tons down to about 25 tons in 1990, and then the improvement rate hasn't been that dramatic, but still we've had a 60% metal production volume increase since 1990. If we look at the way it looks on a group level, in 2009, we set out a target to reduce our metal discharges to water by 25%. We more than doubled that. Metals to air, also 25%. We almost doubled that. Sulfur dioxide, we almost tripled that.
The only area where we didn't really reach our target was carbon dioxide. We said No more increase than 3%. It became four. Again, this is very much related to production volume. The other figures also include, for instance, the doubling of the production volume in Aitik during this time. Whereas carbon dioxide is very closely connected to energy consumption, which has a lot to do with production volume. It's more difficult there. Let's look at an example how we can work with carbon dioxide. This is a marginal abatement cost curve. You have the horizontal line as the zero line, and below that you have negative costs. There you actually save money. Along the horizontal line, the X-axis, you see the potential carbon dioxide savings or reductions.
For example, if we take a look at what would happen if we electrified our trucks. This is an analytical tool, this is really what we use to guide us in our decisions when it comes to environmental investments, unless we are forced to do them. As you can see, we will actually save money. We will lower our marginal cost if we electrify our trucks. At the same time, we will reduce our carbon dioxide emissions. Same thing with heat recovery in underground mines. Whereas, for instance, if we would start buying electricity from renewable sources, that would be a small cost increase and a fairly significant carbon dioxide saving. This helps us really when we look at what environmental investments can we do that also increases our productivity. That was the environment. Let's go over to value-driven business.
There's been a lot of focus on anti-corruption these last few years, and the most visible example is probably the U.K. Bribery Act. We set a target that we need to train all our managers in anti-corruption. We reached 80% this far. Zero tolerance, of course, because we know there is a clear cost linked to corruptive behavior. It starts with fines, legal costs will increase, supplier contracts will become more expensive, banks will downgrade us, and at the end of that line, we have the image and reputation damage that potentially has the power to ruin a company if you start walking that path. We do not accept any corruptive behavior whatsoever. This also actually includes our business partners. We have a setup that was initiated in 2010 that we call Evaluating Business Partners. It's based on questionnaires, dialogue, audit. Questionnaire, dialogue, audit.
It's a cyclical type of approach so that we work more with the questionnaires one year and initiating dialogues the other year. As you see, in 2014, we sent out more questionnaires. Next year, we will focus on taking action according to the results that we have and the responses that we have from those questionnaires. Let me give you an example of one company that we have worked with in our Evaluating Business Partners setup. This is the largest mining company in Morocco called Managem, 7,000 employees, SEK 3.5 billion turnover. While sending the questionnaire to them, we experienced some significant quality issues with what they supplied to Odda, which was fluoride. That really messed up our process completely. As I said, the response in the questionnaire was really unsatisfactory. We have done two audits. We did the first audit already in 2010.
The acute quality problems, they disappeared fairly quickly. We did a follow-up in 2012 and have continued the dialogue. Actually, in the beginning of this year, they were ISO 14001, OHSAS 18001 certified. They have committed to national CSR goals in Morocco. They are committed to their own CSR goals. They are carrying out internal trainings. They have indeed become a much better and more reliable company to work with. Now, at the end of the day, everything that I've been talking about is really about people. This graph only shows the educational level in our white collar staff, but education and training is equally important, regardless of where you are in the organization and what hierarchical level or what function you have. We need to make sure that people have a relevant training, be it functional, technical, or behavioral, wherever they are in the organization.
We have a lot of focus on that. Without making sure that we have the right people on board with the right skills and capabilities and behavior, nothing of what I've talked about before is, or nothing, I shouldn't say that, but it's less likely to happen anyway. To sum up, production stability and safety performance are interdependent. They influence one another completely. We have to pursue the small injuries to make sure that we take, at the same time, steps away from the major disasters because they are linked. We cannot harm our people, and we don't want to have the consequences that that may lead to. The same logic will apply to minimizing environmental risks. We have to take the small steps, make the small progresses all the time to make sure that we come farther away from the major disasters.
We know that environmental investments or money spent on environmental improvements can also improve our productivity. Finally, we need to have a set of common values that is shared by employees as well as business partners, because that will help us to achieve everything that I've talked about in the environmental area and the safety area. It will help us create a sound and healthy and more productive company. Thank you.
Before we open up for questions to Henrik and Lennart, may I just remind you to wait for the microphones. We have two here at the venue. To also state your name and institution. For our audience participating via the web, please post your questions. We are having a microphone on the way.
Thanks. Good afternoon. It's Steph Botha from Bank of America Merrill Lynch. I have one question on your new nickel strategy. Given that most market participants are forecasting that the nickel market will move gradually into a deficit over the course of the next couple of years, could you give us some color on where you anticipate that you will source the nickel concentrate from? Whether it's likely that you will look to exploit the nickel resource at Kylylahti?
On Kylylahti, we have nickel in the ground there, that is sort of just an area we are looking at, that may come in later. I think the first question is, of course, is this a clever thing to do now, why do we do it? What's the market outlook? We are one of few nickel smelters, which obviously for a lot of players in this market, the nickel market is not so liquid. There's fewer parties and fewer companies, both on nickel matte or the material refining and the mines. We have been approached for years. Is it a clever way to do it exclusive within the joint venture format we have had? We have been of the opinion that we are going to separate sooner or later.
The timing has been right, we think that we have the necessary feed for the nickel going forward. We have thought a lot about this. As a matter of fact, we have thought about this forever, or at least since we bought one half of Harjavalta, because Outokumpu sold one half to the Russians and one half to us. It's a very unusual kind of setup we have had. It's an anomaly to our strategy, but also what you can see elsewhere. I think, number one, yes, I think we have the feed necessary. Kerstin will talk more about this later on. We think the timing is relatively, or not relatively, I think it is a good timing.
Okay. Thank you.
Is it working? Yes. Hi. Luc Bez from Exane BNP Paribas. One quick question, maybe on the strategy to move to increase the refined production at Odda, given what you're pointing to the zinc market and the prospects for concentrate shortfall. If you could elaborate a bit more as to why you see TC as holding up pretty well. Thank you.
The reason why, I think the question involves two parts. Why do we do it, and what's the risk on the TC? Kerstin knows that the investment has been looking very attractive. It's a debottlenecking. It's good return for the money. It's beautiful, we have a management who did it once before. I think the concept is good. We can move Odda to a more productive position. Everything was really there. If I hadn't been, or not I, we have all been concerned about the TC development that has held this back for quite a while. If the price is going up because there is no zinc in the market or concentrate in the market, is that a clever timing to expand a business consuming the zinc concentrates? The graph I showed on capacity utilization is actually very convincing to me.
We have had some of the best people in the world, we think, been really digging into the fundamentals. We see that there is a lack of capacity even after or considering the closing mines.
It's low production output from the mines, but that's true also for the smelters. Therefore, we think that in a market with high prices, that high combined gross profit will be shared in a reasonable way. We think it is a good deal, and we are in connection with doing it. We add from 170,000-200,000 tons. In doing so, we also reduce the cost. We absorb the overhead cost and other. No, we have decided that this is what we believe in. Of course, there is always risk in it, but I think it is good. We have really done the homework, I can guarantee it.
If I may add a follow-up. How much cost savings would you target for this expansion?
Kerstin, you can prepare the answer on that one through your presentation. What we are seeing, if you look at the cost target. I apologize for turning the back. This is the cash cost curve for the zinc smelters, and Odda was at the extreme right. We did the P100, and we took, if this is the curve, well, we took a step like this, left. Now we take another step left on it, and then you can draw the curve. That was a very precise guiding.
We have
I apologize for that. We are going further than I intended.
Hi, it's Gustav Hanser from DNB Bank. You had a press release out today stating a new CapEx figure for next year, SEK 4.5 billion. Boliden has, throughout the last couple of years, had a very expensive or expanding strategy where you've expanded a few mines and smelters. I'm just curious, going forward, will next year be a peak CapEx year, or do you foresee Boliden to continue to grow via investments or new projects beyond 2015 as well?
We have guided on SEK 4 billion level. Now we add an Odda project with SEK 400 million. That's taking us to SEK 4 billion-SEK 4.4 billion. Then we add Kylylahti. There we're going to speed the improvement plan. Of course, those are making up the difference between the two guiding values. There is also a fact that we are probably seeing Boliden, or we are at least until now, we have seen Boliden going from several years with a total focus on the mines. We're going to refocus that a little bit. It's nothing dramatic. We are going to see more investments, debottlenecking in the smelters, and environmental investments in the smelters. When we are starting to enjoy the better TCs, we are going to maintain, we are going to make sure that we can produce at very high availability numbers.
We do not want to have unplanned stops now because we think that we can earn a lot of money. That drives a bit of investment. We have got new permits. They're also adding a bit. We have quite a bit of investments also going forward. I think that most of them, like the Odda here, they are there for a very good reason. We're very proud to come out with a higher guiding on CapEx when it is the Kylylahti and the Odda. That's good news. Again, we have said that everything else the same, we're going to go down in CapEx. If we find good investment opportunities, we are not going to skip them.
We are going to continue with a strong cash flow. We're going to look at good return projects. That's what we're doing.
Maybe a quick follow-up. I couldn't help myself but peek through forward a bit in your slide package. Previously you've held forward both Laver and Rockliden as potential-
Yep
expansion going forward. I can't find Rockliden anymore. Is this due to the fact that you're less certain that you will solve the metallurgical problems in Rockliden, or are you more positive on Laver?
I think you should look at it like this. You have to focus on a capital market day. We cannot talk about everything. I don't think it is a lower focus. You can probably draw the conclusion that we're not going to come with a Rockliden around the corner. No, there is not a deeper meaning behind that.
Thanks.
Do we have any more questions? Otherwise, I have one from the web to Henrik. Where are your key priorities for the next three to five years to create that additional value that you were talking about?
Well, a couple of things. First of all, we need to make sure that our safety performance is further improved. We are going to reach the zero level by 2018 to make sure also that has a positive impact on production stability. We're also working quite a lot on environmental impact. Some of the slides I showed you showed tons. Well, discharging or emitting kilos or tons doesn't necessarily say so much about what impact it has on the environment. As we don't want to harm our people, we don't want to harm nature. That's going to be a lot of focus on that.
Okay. Thank you. We have one more question.
Hi, it's Daniel Major from UBS. Quick follow-up on your M&A strategy. You obviously laid out the four parameters quite clearly. Can I firstly ask, is there a regional focus? You previously, obviously, have been very much Nordic focused. Would you look outside of the direct region in your M&A strategy? Could you provide us with any more color on the mid-sized assets, a kind of range in terms of acquisition value you might be looking for going forward?
On size, I think copper production like 80,000 tons. I don't think we would wish to have something much bigger than that in the group. It would become too dominant asset in my opinion. If we were talking maybe double that size. I think if it is a regional focus, no, not necessarily. What we have is a long list. We follow all the things we see coming up for sale, but we are also looking at all the assets that we are interested of because they seem to have similar situations as we recognize in our own operations. We put together both which we think maybe will come up for sale and things we wish we just believe in. Then we have a grading. We have probably as an Excel, it's not very complicated. Many projects and many mines.
Then we have grading, in a lot of columns, we talk about the normal stuff, but we also have, for example, the attraction of very big mines is lower, and a very small one is lower, and we have a sweet spot somewhere, maybe 50,000 or 40,000 tons of copper or something like that would be very nice. Is it regional then? Yeah. Well, it's more everything else the same. We rather do it nearby and in safe jurisdictions. I think that if the things are, if we could do, if you saw upstairs here the gold leaching, the tellurides, gold tellurides, for example. If someone had exactly the same thing, we would go wherever that situation would come up, and we would probably farm in or buy in, somewhere.
Wherever it is, of course, not true because the further away and the more risky, the lower the grading will be, then it's disqualified. We can go further away if the attraction in other parameters are compensating.
Would you have a monetary limit to how much you'd spend on M&A?
Absolutely not. We don't know that, and we don't work it out that way. I think if you are a listed company, we have access to a capital market. I think that if the deal is good, if we can find something and we have the management resources, which is more tense, more limiting often if you really drive the synergy acquisition, then you have to have the management capable of doing it. If everything is right and the money is missing, we can raise capital in that case. I don't think that we would look at it as now we have a bucket of money and we're going to spend it, because then you're most probably going to spend it wrong.
Thank you.
We have one more question. That has to be our final question. Over here, Stefan.
Hi. It's Ai Ling Ong from Bloomberg. I was wondering whether you can comment on where do you actually see the copper and zinc prices in the near term. Also, what price assumptions are you using for your project expansions and your long-term strategy? Thank you.
I can answer on the long-term price, I wish I could answer the first question, which I can't. With the outlook, I think there is a risk of a negative development for copper, I think there is a good possibility for a positive development on zinc. More than that, I think it would be wrong to give some forecasting or estimations. We are playing more with scenarios, we are saying that we don't know where the prices are going, we want to understand how is our company and our balance sheet and our setup, given investments and grade variations and whatever else, how are different scenarios playing into our case in order to make sure that we're not derailing the company.
We're not exposing our balance sheet too much because we know that low price scenarios can basically come at any time, a war somewhere or something. That's how we think it. The long-term price levels, they are Mikael, what are they now? You can stand up and tell.
Can you hear me? The long-term assumptions are all published in our annual report. We have six for copper, we have two, three for zinc. Actually, my presentation, I will dwell a little bit more upon that.
More important, we have a very low dollar or a dollar Swedish krona exchange, which is $6.60. What is it? Yeah, compared to today's, well, it fell a little bit today, but $7.30 or whatever. There we have a long distance between the long-term assumptions that we use.
Thank you. We will continue on with the next presentation, and it's a great pleasure to introduce our next speaker, Jan Moström, President of Business Area Boliden Mines.
Delivering operational excellence. I will spend some time to explain to you why Boliden makes a difference when we talk about operational excellence and profitable growth. Operational excellence, of course, our base for that is how we work with our environmental impact, our footprint. It's three areas where we definitely make a difference, where we are on edge on how we operate our mines. If we look into water treatment, I hope that you tomorrow will take the opportunity to see the installations we have in Garpenberg. We have state-of-the-art regarding both how we treat water with respect to metal, but also with nitrogen. Reclamation. After our operations, it's important for us that we can leave our sites back to the nature and ensure that we will not have any impact from our operations.
I will come back a little to that as we have now a new permit in Aitik, where we have strict targets for how we will reclaim that operation or that site. TMF operational excellence. TMF, what's that? Tailings management facilities. If you go back 15, 20 years ago, how did we really treat the problem with tailings? We constructed a pond, we put down the tailings, we added some lime, we clarified it, and then we discharged the water out in the recipient. Today, the TMF is quite a complex operation, both how to construct the dams, how to operate the stabilization of tailings into the pond, how we work with the reclamation of the TMF.
If you take one step backwards, what we actually have to have a huge impact on when we talk about the environmental and our impact on that is quite a simple chemical reaction. When you are in the base metal industry, base metal mining, it's generally different source of sulfides. You generally have a mineral called pyrite that is an iron sulfide mixture. If you have sulfides, if you have water, if you have oxygen, then you have the perfect combination for create sulfuric acid. The problem with that is that that will, so to say, solve the metals that are in the ore and pollute the environment. Actually our operational excellence when we talk about environmental impact already starts how we operate our mines.
How do we decrease how we use both the waste rock and the ore, and how we treat it, and how we deliver it into our concentrators. If you then take the next step and try to see status of our operations today. If we look on these slides, we can see that on the left side, we have Garpenberg. Second highest in productivity regarding all the world's underground zinc mines, with one exception, and that is Citronen. That actually is a project in Greenland. It has not been authorized, not even started to be developed as a mine, we probably will see that in the future, what will happen with that. I will not go so deep into Garpenberg as I hope as many as possible can join us to Garpenberg tomorrow, we'll go more deeper into what we have been doing in Garpenberg.
If you look into Aitik, present Aitik is the world's highest productivity open-pit mine in the world. Of course, productivity is not the only thing that we are pursuing when we are looking into operational excellence. These slides, what does that show? If we look on the highest item, actually, the head grade in Aitik is in the 99th percentile. That means that 99% of all the world's copper mines has higher grade than Aitik. That is offset by the cost in mine, mill, general, and overall, where we are on the first or the second percentile. That means that we are the best mine in the world regarding these items. You can also see when you come into labor cost.
Wage rate in Sweden, we are on the 87th percentile, offset by the high productivity in Aitik, total labor cost for Aitik operations is on the 12th percentile. You add all these numbers together, high productivity, low grade, we are on the cash cost curve, roughly in the mid, on the 42nd percentile. Regarding this, looking into productivity and Boliden operations, I would say we are on the top regarding productivity. How to continue to pursue that? What we have developed throughout the last years is in two important areas, how to continue to pursue productivity or operational excellence. One thing is world-class design, I must admit, this is a bit challenging to describe what is world-class design. What is a good design? What's a bad design? What's a design that drives productivity? What's a design that puts productivity on hold?
I could try to say that it's about simplicity, how to make simple solutions that drive productivity both in mine and in concentrator. Focus on mines, because generally, mines are the most complicated designs to be done. It's a little bit challenged because I will not dwell so much on the design, but what's important with mine designs is if it's open or closed. Because a deposit almost all the time changes geometry, it changes geology, it changes shape, and I will pass that to our CFO later in the presentation to try to explain why it's important to have an open design. We spend a lot of effort on creating those designs. The next step is after the design we have developed, as we have seen both in Aitik and in Garpenberg, both in mine and mill, is to define what's the key.
We talk a lot about key main head, but what's really the key drivers in the mine and in the mill? If you look into the mine, and that is regardless if you talk about the underground mines or the open pits, is how to decrease the lead time between each operation. How to get these serious intermediate actions to be as fluent as possible. That is our main focus in the mines. Not saying that we have a lot of other focus, but that is the main focus, how to pursue that. If we look into the concentrators, it's a little bit different. Generally, in the concentrator, what we focus about is the utilization. How many hours of the 365 times 24 hours per year can we operate? That in combination with our metallurgical performance.
Really impacting our operations is how can we increase the revenues of payable metals and also decrease the impact on penalty elements. I will try to give you some examples how we are working with these, both in mine and in mill. Before I go to that, of course, what's really important to get that best way of working with both how we optimize our mine production and also how we optimize our concentrators is a simple thing like this. I guess all of you have this smartphone. What we actually use now, we take a huge step into process control. What's important for us, and that is definitely something I hope that you will see tomorrow in Garpenberg, is integrated control system.
It's the foundation for us how to, in real time, operate both the mine and the mill and create the best way of doing so. We have mobile control rooms. You will probably see the main control room tomorrow, but what's important is when we have reasons, or whatever reasons we have to go out in the concentrator, we can take the control room with us and do the adjustments necessary in real time. Actually, we are working with that now in some of our mines, or at least one mine in the Boliden area. If we go into the mine, and I will not speak so much about the integration with the maintenance system, is one of the most important areas which we have been focused for a couple of years now, and that is WLAN system.
It's perhaps something that seems quite simple for the most of us. We talk actually about wireless. If we live in a world that it's almost natural that we at all times can get connected in some way or another, we tend to forget that we operate mines. If you take a medium-size mine as Kristineberg mine, it's the size roughly of Kungsholmen here in Stockholm. It's four, five kilometers wide and one kilometer wide, but then it's on 1,000 meters depth. That means it's very hard to get online control of everything that happens in a mine. Because in the mine, in opposite to our concentrators, it's just a series of mobile equipment that operates very slowly. It's all about how to develop algorithms that make that as efficient as possible.
Perhaps some of you are playing chess and know how to calculate what's the best thing, how to move the different types in chess. Mining is almost the same. What we've been doing in Kristineberg, and here I have Maestro, who will actually show us in real time. Perhaps some of you saw it on the exhibition. This perhaps not look that nice. A number of you are probably in the age that you are playing games and video games and things like that. Of course, the graphics is not like that. That is not what we pursue. What we pursue is something unique. What you see here is the Kristineberg mine in real time, showing all the movements of our mobile equipment.
How do we control the drill jumbos, the chargers, the loaders, the rock bolters, et cetera, and start to optimize them to decrease the lead time, so all the time is operating on the most important thing in the mine, the face. When we have this opportunity, now we really can start to do these types of optimization, which we have been develop for a number of years, mining operation controls rooms, where we have done these types of optimization. Now we have a very powerful tool to take the next step. With these two as a fundament for how to continue, I will give you some examples, one from mine and one from the mill. What are we working with in delivering operational excellence? Complex ore, that is something that we will get throughout the world. What we see are the deposits that are known today.
We see the increase of impurities. It's antimony, it's a lot of different metals. We also have challenging minerals, which means that it's hard to recover the valuable metal. I will just briefly go through a case study of Kankberg, the gold tellurium deposit in the Boliden area. We started 2008 with the first study of Kankberg. How can we deliver a profitable mine from a deposit that contains gold, which are very hard to get recoveries on, and tellurium? 2011 did we commission that project, where we have expanded the Kankberg mine, and we also constructed a hot leaching plant and a tellurium plant. Perhaps more important, what we was doing these years was that we established and constructed our in-house ability to work with hydrometallurgical issues. We created labs, we created a pilot plant, and perhaps more important is that we engaged professionals throughout the world.
I recommend you that take the opportunity up at the exhibition and visit Paul Kruger, that is an important player in hydrometallurgical performance. If we then go to the mine, Tara mine, a lot of you knows that it's quite a challenging mine. It's a big operation, 2.5 million tons annually. It has very small by-products. It's lead. It is a high-cost mine. It has been in focus for us for years. What we've been doing in Garpenberg is to change the way of how to manage the mine, how to really address the main problem, how to get a large operation like Tara focused on decreasing lead time between operations. We changed some in the organization, the structure. We invested in a MOC one and a half year ago, we started with that as base, decreased the manning.
As our CEO said, we started last year with roughly 700 employees. We are very close now to 700 employees, we will continue below that. It will be really important if and how we can continue to develop the tools you saw just a minute ago, how to really get that in operation. Important also in a mine, because what really are the key drivers for manning is, of course, our mobile equipment. In the mine, in comparison with almost all other operations, you have to have one person in each mobile equipment. We also decrease our mobile fleet, that has impact both on our capital need and also on our operation cost. With operational excellence as a foundation, I will go over to growth.
Just mention briefly what I think is the most important thing if you have a growth strategy, regardless if you talk about organic or M&A, that is in-house professionals. I think that is something that we have established quite well in Boliden. How we use our common functions in Boliden with our operational professionals, that we can put together teams, task force, to both conduct the studies necessary and also to conduct the expansions. If we look into growth, of course, our main focus today is Garpenberg. What you can see here on the slide is that mine production each quarter and how they are addressing the up-ramping of milling. What you can see in the graphs is that mine production has been added with ore from stock.
When we took the decision, the authorization of expanding Garpenberg, at that time, the concentrator was a bottleneck. We immediately started to increase our mine production, ore production, as much as possible, and to put ore in stock so that we could start the commissioning of the new concentrator with ore from stock. The other thing that was really important to achieve the production volume from the mine to correspond to the concentrator was to start the development. That is really what takes time in a mine, and especially in an underground mine, how to create enough stopes within the mine so that you can comply with the needs from the concentrator. If we look into the mine, we see that Q1, Q2, we were roughly following the plan. In Q3, we had some slight problems regarding mine production.
Not the mine production in itself, but actually we had some problems when we were commissioning one of the crusher, or actually not the crusher, one of the ore passes and chutes, which we solved after a couple of weeks. At this moment, we are following the plan both regarding the mine and the mill. If we go to the next project that is in focus now in mines, that is Aitik 45. Of course, you have seen the logic for this expansion, or it's a combination of an expansion and the bottlenecking. What's important in our expansion now, of course, is how to comply with the environmental permit we received a couple of months ago. Important for us in that is two areas, I would say. One thing is the desulphurization of the tailings.
Important for us to manage the tailing pond in Aitik is to be successful in take out all the sulfur or enough sulfur from the tailings, we can continue with the plan as we see today how to reclaim the pond the day we will mine out mine. Another area important for Aitik is how to work with reclamation. As one consequence of the new A45 mine plan is that we will produce substantial higher volume of ore, and of course, subsequently more waste rock. Which means that we will increase the waste rock dumps in Aitik. It will have an impact on our provisions for reclamation costs, which obviously, I will come back to later. It also has an impact on our direct operations. This is a quite complicated slide, and I will try to explain this. This is generally how we operate a mine.
The different colors here is different parts of the mine. Each of these arrows describes one of the pushbacks. Depending how you optimize the mine, you mine the different parts of the mine in these different sequences. What you optimize on is, of course, the volumes, the grades, the ratio between waste rock and ore. Also in Aitik's case, was perhaps not that easy to see here, is the marginal ore dump, roughly between 20 and 25 million tons of marginal ore. It consists in the range of 0.1 to 0.15 copper. What we are doing now in the A45 project is that we conducted metallurgical tests last year. This year, we have actually operated through the concentrator. We have had very good metallurgical performance. What we will add from this marginal ore into the concentrator is volume.
We will put through from this T5, the total volume, 25 million tons for a number of years coming forward. That will add to the volume from the mine. If you put that into consideration, that will be the impact by doing that. I guess it's understandable also to see by doing this, we take away the reclamation cost for the T5 marginal ore stock. It means that instead of having a cost for that, we will put it through the concentrator, we will take the revenues for it, and we will reclaim it into the tailing facility in Aitik. We have now a target saying that we will reach 45 million tons 2017. Our guidance today is next year we will reach 40 million tons, including impact from the T5.
Life of mine grade will be unchanged, 0.22, but we will have an impact of the T5 for the two years to come, which means that we will be slightly below our average grades 2015 and 2016. That will be compensated or offset 2017 going forward over the average grade. We then continue with Aitik. Important for Aitik is the way we work with the infrastructure, how to achieve the 45 million tons sustainable in the mine. Really important, of course, is our ore handling system. What we've been talking a lot about since commissioning of Aitik 36 was the present crusher installations. We've done substantial refurbishment on those crusher installations this year. Actually, we are on our way of finalizing the in-pit crusher. The crusher on surface was done early October.
That will be essential for us to achieve the 45 million tons, and we will get sustainable and stable production. That do not stop that we are going to install a new crusher on surface, a total new crusher installations. It will not have the same design as the present. It will be a type of in-house crusher installation that will ensure that we, from the major parts of the open pit, will have a very stable production, but also it will decrease our operational cost. Even if we have refurbished the present crusher installations, our experience is that they are very expensive to operate. Of course, with the new installation, we expect the operational cost to decrease. Garpenberg and Aitik is our main focus, of course, we continue with other growth options.
Kylylahti, I will come back more about Kylylahti, what we see our possibilities or potentials in that. Just mention Laver. We send in our application for a mine concession late Q3. We are going to continue to fine-tune the design, which we have done both for the infrastructure, the tailing facilities, how we will operate the mine, how we will operate the in-freight systems and the concentrator. I must underline that Laver, of course, will be a huge challenge regarding the environmental footprint we can leave in this area, as this is a part of Sweden with very high nature values. We continue with Kylylahti, or I could perhaps say that now with the acquisition, we have a unique exploration opportunity. We will get sustainable and stable production.
That do not stop that we are going to install a new crusher on surface, a total new crusher installations. It will not have the same design as the present. It will be a type of in-house crusher installation that will ensure that we, from the major parts of the open pit, will have a very stable production, but also it will decrease our operational cost. Even if we have refurbished the present crusher installations, our experience is that they are very expensive to operate. Of course, with the new installation, we expect the operational cost to decrease. Garpenberg and Aitik is our main focus, of course, we continue with other growth options. Kylylahti, I will come back more about Kylylahti, what we see our possibilities or potentials in that. Just mention Laver. We send in our application for a mine concession late Q3.
We are going to continue to fine-tune the design, which we have done both for the infrastructure, the tailing facilities, how we will operate the mine, how we will operate the in-freight systems and the concentrator. I must underline that Laver, of course, will be a huge challenge regarding the environmental footprint we can leave in this area, as this is a part of Sweden with very high nature values. If we continue with Kylylahti, or I could perhaps say that now with the acquisition, we have a unique exploration opportunity. We have a presence in Sweden that are very strong. We have been working in both Norrbotten, in Skellefteå field, and in Bergslagen. Now we have both Kylylahti mine and the old Outokumpu field. One potential we see in Kylylahti, this is the mine. This is what you can say is the present mine.
What we will continue as we, from day one after the acquisition, we started to integrate Kylylahti and all its operations in our own operation, is to start up to seek out how will the depth, deep part of Kylylahti look like. We have some good initial data showing that it's a potential, but that is something that we will continue to work with next year, or actually starting this year. Important also is the whole Outokumpu district in Finland. It's a lot of copper and nickel deposits. Going with the acquisition is a lot of exploration data. What we have been doing for some time is going through all this geological or exploration data and try to sort it out and prioritize them and start to put up a portfolio of exploration projects to start to drill off. And with that, I will try to summarize what I'm saying.
Important for us pursue operational excellence is that, yes, we are on the forefront regarding productivity. Our major challenge is how to pursue the possibilities if we go into our operations, regardless if it's in the mines or in the mills, our overall operational efficiency. We will continue to work with designs, we will continue to work with the possibilities the new technology give us. Working with the cores, as I would say, always, or at least for a considerable time, has been the core for us to pursue that. How to work with productivity in mines, utilization of the concentrators, and metallurgical performance. And with that as a base, drives growth. Thank you.
So let's open up for questions for Janne. Should we start with Sasha over here? We have a microphone on the way to you. There you go.
Thank you. Thank you, Sophie. Could we please go back to slide 59 for a second? Just to help us orient a little bit, where are you currently in the mine plan? Which zones are you mining, and what's in the future?
Actually, for the past years, we have been in the southern parts of the mine mainly. These are one reasons why we have been below the average grade. The highest grades in Aitik is in the northern parts, in this part. Actually what we are optimizing is the speed or going down to reach these areas of higher grades, and to get the best combination of somewhat more low grade, high grade material.
Thank you for explaining that. The current pushback will give you the benefit of access to the higher grades. How long will you enjoy the benefits before you have to spend again on the next pre-strip, and what would be the capital investment for the next stripping phase?
I think I let this be the guidance for the time being. Going back to capital, I give that to our CFO as he will answer that later on.
nothing beyond 2019?
Sorry.
Okay. Thank you. That's it for me.
We have one question, I see from the line. Thank you.
Hi, this is Alain Gabriel from Morgan Stanley. If we can stay with the Aitik as well. Now that the grades will be lower than expected in 2015, 2016, what would be the cost impact approximately? Is there any quantification you can give us given that the mine is extremely sensitive to grades?
Sorry, I didn't catch-
The unit cost impact of the grade profile going into 2015 and 2016. How do you expect it to evolve versus 2014?
The unit cost will have no impact on the grades, which we have not calculated in the expansion. What we have calculated is the unit cost decrease, and that is in the calculation, so to say.
Okay. All right. If we can go to Garpenberg as well, now that you've been running ahead of schedule, basically in terms of the mill door. Is there any guidance you can give us for the budget for 2015? Should we expect 2.5 million tons?
Yes. I think we have communicated that we will be on 2.5 million tons annually pace on the later parts of 2015.
Okay. All right. Thank you.
That is what we expect to do.
Hi. Johannes Kensill with ABG here. Question on Aitik 45. Could you give some color on the total investment? You mentioned the SEK 600 million, if I remember it correctly. There is environmental costs into it as well and some other costs, I assume. Can you tell us a bit about that?
My short answer is no. Perhaps as you say, Aitik 45 is somewhat complicated as it's substantial investments in environmental performance. I think I leave that with our CFO so he can guide you for the nearest year and don't give you at this time any total cost for Aitik 45.
Second question is also on Aitik, now when you are targeting Aitik 45, how should one look at the CapEx over time of that asset? Could you give us some rough numbers there, please?
How do you mean, what has been or that will come?
The sort of the normalized CapEx level for the annually over the next couple of decades.
A lot of different formulas asking the same question. I think I leave it to the CFO. You can give it another try.
I'll try over dinner then.
Yeah, do that.
After the break. I think a question from Christian. The microphone is on the other side of you, sir.
Thanks. Christian Kopfer from Nordea Markets. Just a question on the grade. You are talking about Aitik enjoying higher than average grades for 2017-2019.
What kind of levels are we talking about? Is 0.25% or?
As it stands on the slide, it's above average grades. I don't elaborate on that, it's over.
Okay. With the higher than average grade, will you expect the recoveries also to improve or?
I would say I probably hope for that, our metal recoveries in Aitik are extremely well, even with the low grade which we have been operating now. Of course, I hope it will improve, we are on world-class with our recoveries.
On Kylylahti, have you set any cost savings for that mine?
Let me put it like this. Kylylahti now is working or are guided to operate according to expectations set out when we did the due diligence and the acquisition. What will be focused for Kylylahti is to develop some sort of development plan throughout 2015, we decide will it continue to operate as is or do we see something else. It's premature to start to talk about different directions or alternatives for Kylylahti.
Thanks.
Yes.
Could I also comment on the questions here? I think that the present plan for Aitik, on Sasha's question, I think is beyond 2020 somewhere, we have the next pushback coming. Maybe 2022, 2023, 2024 look like low years right now. When it comes to how we cycle in the pushbacks here, as you see Aitik was little hole here, we do a pushback here, we mine, once down there, we start in the beginning again, we have south and north. It becomes many more positions now, the variations possible are quite many. I would say that we know exactly where today's plan is, that is a lower point somewhere 2020, 2022 or something, 2023. I think that we are going to work hard with exploration and with different evaluations.
What we're saying is, yeah, we know exactly what it looks like now, but we're pretty certain that we will probably turn it and tilt it many times before then. That is at least giving you some kind of idea what you model.
I think we have a question from Julian.
Yes. Lennart, as you're the man who's able to give the CapEx answers.
I shouldn't have answered. I realize that. I thought that was the last one.
Could you just describe to us what the budget sanction amount was for the Aitik 45, including the environmental costs?
What the budget?
Well, I assume that the board has signed off on a budget for the expansion of Aitik including the new environmental requirements.
Yeah, absolutely. The question was did we understand what we had all the environmental implications there.
Yeah
of course. We justified it including a new dam somewhere beyond 2025, and the mine plan including the numbers or the indications I said.
We are working on a possibility to do variations of it. The base case is what we decided on. We are looking at, okay, now can we spend some more time on exploration there? Can we take that before that and model it a bit more clever? I think the main thing is now we got the permit, we can go up in speed already on short notice. What is the ore we have available on short notice? Well, it's this beautiful, it's low grade, but it's a big stockpile. That have the impact on the near term adjustment. We don't have high-grade ore available on short notice to run 40 million tons.
We said, "Okay, let's go out on Capital Market Day, say that we have got the permit, we're going to try to push up to 40, and we take what we have now, and that is this T5 stockpile." We are in a very interesting sort of testing of different models. The decision was on the default plan. We know what we're running, we're testing alternatives.
Thanks. Yeah. It's Julian Beer from SEB. With regard to the environmental approval for the Aitik 45, we had a brief discussion about this at the Q3 report, we were told that there's nothing significant in terms of additional cost for runoff water cleanup. Could you just give us a bit of an idea about what you're actually being asked to do here in the new environmental ruling?
I would say that the most important area for us to achieve is the desulphurization. That we will install the processes and facilities to take out the pyrite from the tailings. Also, what's important for us is that we will increase the dam heights of the clarification ponds so that we can ensure these very extreme low contents of metal. That actually is one part that we will go back to the environmental court and ask for provision throughout the 2 years of construction that we probably will not manage the conditions. Going forward, I don't see any obstacles to us to meet all expectations.
Great. Did any of the other bodies appeal against the expansion decision or did that just go through unappealed?
No, it has been appealed by both Naturvårdsverket and I think it's Havs- och Vattenmyndigheten.
Great. On Garpenberg the question is regarding here again cost per ton. Where are you in 2014 compared to the 2011 figure, and can you give us a roadmap of how we get down to the 75% of 2011 level once you're up on 2.5 million?
I would say we are following the plan extremely well. Of course, we have an impact on inflation, mainly on the workforce cost and energy. We are following the plan very well. Of course, that is something that we will continue until we are up on full production. That will be somewhere late next year.
Okay. Do you see that 25% cut as a target still?
Of course. I expect to achieve it also.
Great. Then finally from me on Aitik. When you say that you've got a world-class recovery level, what does that mean? I think recovery's been a little bit up and down in 2014, quarter by quarter. Is 19% world-class, for instance?
That depends on what you have put into the mill, of course. What you have seen throughout 2014 is some periods where you have really low grades. When you have going down in grades, generally you have a constant level of copper in the tailings, and that means that the recoveries goes down. In comparison with the levels we operate, I would say it's world-class. I don't see anyone that are close to that.
If we can see that at 19 basis points your recoveries were a bit on the low side, could we look at 21 and pretty much just take a straight line between that and where you were at 22?
Roughly. Whatever roughly means.
Thank you very much.
Julian, if you could pass the microphone to Connor, that would be great. Thank you.
Hi, Connor Alley, Credit Suisse. Just a quick question on Aitik. The 45 million tons in 2017, is that a full year production target or is that an exit run rate? Also what throughput do you expect in 2016?
It's a full year run rate on 45.
2016?
2016?
Yeah.
If we-
Straight line it?
Take a straight line from 40, 2015, and 45, 2017, I guess you have it roughly.
Okay.
We have time for one more question. No? Anyone else? Yes. Steph here.
Hi, it's Steph Botha at Bank of America. Just a follow-up question on the business improvement process at Tara. Over and above the 5% saving that you'll get from the headcount reduction, can you give us some idea of the quantum in terms of the cost per ton reduction that we should see over the course of the next couple of years? From the productivity improvements that you talked about.
I would say it's quite linear as we have a fixed production target, and if we decrease the cost base according to this, it would be linear to that.
Okay. Thanks.
Okay.
We will now take a break, and we will continue on here at 3:45 P.M. sharp. Please enjoy our exhibition area.
Gold fever hit here in the Västerbotten forests for the first time in the early years of the 20th century. A shortage of metal during the First World War led to increased interest in the area from an ore prospecting perspective. Known in Swedish as emission companies was launched. These were speculative holding companies formed by the banks. The Boliden we know today has its origins in one such company called Centralgruppen Emissionsbolag. Centralgruppen Emissionsbolag was started to bring order to the search for ore bodies. However, prolonged field exploration proved fruitless. Finally, they gave up and the entire project was canceled. The news had not reached some of their geologists who were working in the village of Bjurheden in Västerbotten. Unaware of development, they kept on looking.
One cold morning on the 10th of December 1924, the geologists found themselves on a bog on the outskirts of Bjurheden. A persistent grinding sound was heard from a drill. Silence fell as the final drill core was retrieved, and they saw that they had found ore containing huge quantities of gold. It would soon become apparent that they had found an ore body containing Europe's richest ore. Even today, Boliden still owns that first drill core that laid the foundation for the entire company. There's a lot of gold in this. This drill sample also paved the way for a new community. Sweden's Klondike grew and the gold rush became a reality. In 1929, construction on the mining community commenced. The town was laid out in a fan shape that was considered modern for the time. Homes and accommodations such as a works hotel were constructed.
The post office and telegraph arrived, a community center was built, and the railway reached Boliden. By 1936, the community was home to around 2,300 inhabitants. Construction of Boliden's mining community also meant that people had access to a doctor's surgery. The mining town was a welfare community and was considered among the most modern in all of Sweden. Mining communities grew up in many places around the mines, and sometimes, as here in Laver, which operated between 1937 and 1946, they completely disappeared once the mine was exhausted. Since then, technical development has advanced, and Boliden is now examining the scope for mining ore in the Laver area once more. While the world was experiencing the Great Depression in the 1930s, Boliden's Skellefteå operations flourished. This led to economic development in the region and local population growth. First mine in Boliden was exhausted.
It is exploration, the search for new deposits, that lay the foundations for all mining operations. Without new ore bodies, the business dies out in the long term. Therefore, exploration in the field in areas of interest is an ongoing process. The work is divided into field exploration, which involves exploring new areas, and mine site exploration, which is conducted close to existing mines. Boliden's strategy in recent years has been to prioritize mine site exploration. New finds near existing mines save both time and resources as the infrastructure is already in place. Mine site exploration is taking place at all the mines in Sweden and Ireland.
When we search for ore, we want to know the character of the ore as well as we can. Geology is an important part. We must be able to characterize it as well as possible to say that this is an interesting area to explore.
A few billion years ago, the Skellefteå field lay at a depth of 3,000 meters. The area experienced vulcanization, which is how the ore we mine today was formed.
When our ore was formed here in the Skellefteå field about 2 billion years ago, the area looked completely different. This means that our geologists have to learn what the background looks like here and now and ignore the original processes. They still have to understand all of that to better prognosticate the area where they are looking for ore. We started looking for ore using block searching. At one time, the ice sheet covered Sweden, the Nordens, and northern Europe, and it functioned like a large road grater. [Foreign language] [Foreign language] [Foreign language]
[Foreign language] Vi letade helt enkelt block. Vi visste vi i vilken riktning den här väghyveln eller inlandsisen hade gått. Vi gick i motsatt riktning och letade och hittade fler block. Till slut var vi mycket nära det vi kallar Mordeklyftet. Där satte vi in de metoderna. Vi gjorde noggrannare geologi, geofysik, geokemi och till slut avslutade vi det hela med en borrig. Ungefär så upptäcktes Bolidenmalmen en gång i tiden. Geologen arbetar ute i terrängen med att titta på det berg som går i dagen, karaktärisera det och bygger upp en karta utifrån det han iakttar i berget.
All collected information is processed and interpreted by the geodata department using various computer programs to produce a multidimensional model. The need to work with geology in several dimensions is increasing all the time. In a well-explored area, the chances of finding new mineral deposits close to the surface are likely to be slim. That's why it is increasingly important to understand the nature of the deep bedrock.
[Foreign language] Varje 5 till 10 år kommer vi fram med nya tekniker för att anpassa dem till de nya utmaningar som vi har när vi söker nya fyndigheter. Det gör att vi har skapat en infrastruktur som gör att det är möjligt att utveckla metoden. Vi har ett instrumentlabb där det sitter ingenjörer som har lärt sig hur teknik kan användas ute i prospekteringen.
Boliden's exploration efforts have been successful. Over the past 10 years, mineral resources have increased dramatically. It's a long process. From up to 1,000 interesting exploration areas, only a few lead to identified deposits. Then it often takes between 5 and 10 years before mining can start. You have to plan ahead. Boliden currently has four mining areas in Sweden and Ireland. Processing of the deposits here in Garpenberg started in the 13th century, which makes Garpenberg the oldest mining area in Sweden still in operation. Ore containing zinc, silver and lead are mined here, along with small quantities of copper and gold. Successful exploration has led to Boliden finding new large ore bodies here. The emphasis is on expanding capacity. An investment of SEK 3.9 billion will see production increase to 2.5 million tons of ore per year.
The investment includes new shafts, a new industrial area, a facility for crushing ore underground, not forgetting an ultra-modern concentrator that will also be able to meet future needs. The Boliden area is located in the mineral-rich Skellefteå field, where nearly 30 mines have been opened since production began in the 1920s. All the mines here produce complex ore, which contains zinc, copper, lead, gold and silver. Successful exploration has gradually extended the life of the Boliden area. In 2012, Boliden opened the new Kankberg gold mine thanks to a combination of exploration, technical development, and changed market conditions. Zinc and copper were previously mined at Kankberg. Gold was discovered there back in 1995, but it was combined with a rare ore from which it was not initially possible to extract gold.
It took 17 years to reach a point where it was technically possible to start production, and in the meantime, the price of gold had increased tenfold. Today, the Kankberg mine is in full operation after an investment of SEK 475 million. Tara in Ireland is Europe's largest zinc mine and the ninth largest in the world. Here, zinc and lead concentrates are mined and enriched for shipping on to Boliden Smelters for further processing into pure metal. Aitik in Gällivare, Boliden's giant open pit copper mine, is Sweden's largest mine. Every day around the clock, a large quantity of ore is mined and transported here. This open pit mine focuses on large-scale mining, and productivity is high, thanks to large volumes and a high degree of automation.
It is home to some of the world's largest and most efficient machines, including eight-meter-high trucks that can be loaded with over 300 tons of ore at a time. The deposit consists of chalcopyrite containing low levels of copper and gold and silver. The mineralization was first discovered in the 1930s, but the equipment and technology needed to make mining profitable were not available until the 1960s. New facilities were inaugurated in 2010 that double Aitik's ore production to 36 million tons per year. The expansion project began in 2008 and the investment, which amounted to SEK 6 billion, is one of the largest industrial investments in Sweden in recent years. The expansion has also created the conditions for mining additional ore. In parallel with the expansion project, Boliden is examining the possibility of further increasing production volume to 45 million tons of ore per year.
Mekaniseringen av gruvor har varit enormt sedan 60-talet. Från att ha jobbat med handhållna tryckluftsdrivna, delvis rälsburna maskiner har man i dag helt mekaniserad utrustning, dieseldrivna på gummihjul som gör att man kan förflytta sig var som helst i gruvan. Den stora utvecklingen skedde på 80- och 90-talet, vilket gjorde att man kan bryta dubbelt så mycket malm i dag med hälften så många anställda. Även om teknikutvecklingen i dagens gruvor har varit enorm så är framtidsvisionen att kunna göra gruvan lite mer transparent. Vi ska kunna följa vad som sker i gruvan online. I dagsläget åker gruvarbetarna när skiftet börjar och när skiftet är slut. När gubbarna kommer upp så får vi veta vad som har hänt, vilket arbete som är utfört. Teknikutvecklingen har lett till att vi har ett stort behov av välutbildade medarbetare, alltså gruvingenjörer, processingenjörer, miljöingenjörer men även välutbildade bergarbetare.
[Foreign language] Nu när vi går in i den här nya typen av gruvnäring så har vi ett stort behov av dessa välutbildade yrkesgrupper.
All the crushed and ground ore is transported to the concentrator. Here in Aitik, recent investment has led to construction of a new huge concentrator that can process the increasing ore volumes from the mine. During the concentration process, the various minerals in the rock are separated from one another. The Aitik mine uses a method known as flotation, which means that the sulfide ore that contains copper is ground into a fine powder and suspended in water. Air is passed through the mixture so that the ore particles stick to the bubbles and rise to the surface. They are skimmed off and the water is squeezed out, leaving a fine grained concentrate. The concentrate now represents approximately 0.5% of the total amount of rock mined. Since its start, Boliden has moved from hacking at the ore with pickaxes to high tech.
The work in modern mines, concentrators and smelters tends to employ sophisticated technical methods and tools these days. For instance, in the Aitik mine's concentrator, it is possible to control the hardware using a smartphone or tablet. Personnel can connect directly to the concentrator's control system via the mine's wireless network to control processes at the plant, revise drawings and wiring diagrams and troubleshoot and report faults. Here at Boliden, they have developed a new leaching method to enrich gold.
[Foreign language] Lakning innebär att man kemiskt löser upp metallerna i en laklösning och selektivt utvinner man metallerna ur laklösningen sedan. Det här lakverket här i Boliden behandlar ungefär 900 ton flottationskoncentrat årligen. Normalt sett utvinner man guld med flottationsteknik eller gravimetriskt. Men med den här malmtypen blir inte utvinningen av guld tillräckligt stor. Därför har vi byggt det här lakverket för cirka 100 miljoner, vilket gör att vi ökar utvinningen med cirka 40%.
[Foreign language] Boliden's arbete med hållbarhetsfrågor är av högsta prioritet. Det är också en förutsättning för att vi ska kunna bedriva vår verksamhet i det moderna samhället. En del i det arbetet är att vi har certifierat våra anläggningar enligt arbetsmiljö, yttre miljö och energi och då ställer vi internt högre krav än det vi hittar i lagstiftning och våra tillstånd. Det finns många hållbarhetsfrågor som Boliden omfattas av.
Ett av dem är att vara en god granne och ett företag som går att lita på. Vi bedriver ofta verksamhet på våra orter under en längre tid och därför behöver vi ha en bra och öppen dialog med våra grannar och de som vår verksamhet påverkar. En del i det arbetet är den skog som vi äger, 19,800 hektar, som är FSC-certifierad. Det innebär att vi ska ha ett hållbart skogsbruk. Vi ska avsätta mark för biologisk mångfald och för artrikedom.
[Foreign language] Ibland bränner vi för att skapa bättre artrikedom. Vi samarbetar också till exempel med skolor, intresseföreningar för att skapa skolskogar och vandringsleder till exempel, om önskemål om sådant finns. En annan viktig hållbarhetsfråga för oss är att vara bra på efterbehandling. Vi har funnits i 90 år, så vi har ett flertal nedlagda gruvor att ta hand om. Vi gör alltid vårt yttersta för att återställa naturen och vi försöker ligga i framkant när det gäller efterbehandlingstekniken. Att ha en bra och säker arbetsmiljö är också en av våra viktigaste frågor. Vi ska vara en attraktiv arbetsgivare för att kunna locka framtidens generationer och man ska känna sig säker inom våra verksamheter. De 90 år som Boliden har funnits så har det hänt jättemycket på arbetsmiljö och yttermiljöfrågor. Man kan bara tänka sig var vi är om 90 år till.
In order for the ore concentrate, as the end product of mining is called, to be high quality pure metal, it must be refined in a smelter. The refinement process differs depending on the metal being produced. The Rönnskär copper smelter outside Skellefteå is Boliden's largest production unit. Here, copper and lead concentrates from the mines are smelted and refined. The smelter is also the world leader in the recovery of copper and precious metals from electronic scrap. When ore concentrate from the mines is smelted, it forms a mat with a copper content of about 55%. This is tapped into a converter furnace where iron and other impurities are separated out. What remains is crude copper with a copper content of 97%-98%. This is then processed in an anode furnace to increase the purity from 98%-99%.
This crude copper is then cast to form anodes and placed in tanks with steel cathode plates. Here, the anodes are dissolved and the copper ions migrate over to the steel plates. The cathodes are then separated from the steel plates and washed. They are then ready for delivery. Rönnskär has been recycling electronic scrap on a large scale since 1980. The market has grown gradually, and the plant has increased its capacity for this type of material. Money has been invested in a Kaldo furnace, which has been specially designed to deal with e-scrap. The ore at Boliden's first mine contained 20 grams of gold per ton and was considered one of the richest in the world. Now compare that with e-scrap, and you'll find that computers and mobile phones, for instance, contain significantly larger levels of gold.
As far as Rönnskär is concerned, the mines of the future are in the cities. In addition to Rönnskär, Boliden has four other smelters. The Kokkola zinc smelter in Finland has a capacity of around 315,000 tons of zinc per year, making it the second largest zinc plant in Europe. The Odda zinc smelter in Norway mainly produces pure zinc and zinc alloys. Harjavalta in Finland smelts copper and nickel concentrate and refines copper. Its main products are copper cathodes, gold, and silver. The Bergsöe lead smelter is one of Europe's largest recyclers of used lead batteries. Its main products are pure lead and alloys. Bergsöe contributes in various ways to a profitable eco-cycle by extracting lead from around 4 million used car batteries every year. Boliden currently produces metals that are used everywhere in modern life.
The global population is increasing all the time, and as more and more people lift themselves out of poverty, the need for metals for homes, infrastructure, and electricity transmission will also increase. Boliden's metals are sold to industry, mainly in Europe. Payment is based on the.
It's a great pleasure to introduce our next speaker, Kerstin Konradsson, President of Boliden Smelters.
Today I will guide you through how we work to improve our performance in the smelters. Before I dig into details, I will make a short recap of the assets we have, because these are the ones we work on and try to leverage the value. Just a reminder, we have two zinc smelters. We have Odda in Norway and Kokkola in Finland. We have two copper smelters. They are in a way similar, but on the other hand, quite different. Rönnskär, northern part of Sweden, focus on primary but also secondary raw materials. You are all well aware of our expansion of the e-materials in Rönnskär.
We have Harjavalta, which not only smelt copper, but also smelt nickel, which we also have started to talk about today. In the southern part of Sweden, we have a secondary lead smelter, which recycles car batteries producing lead. We have identified three strategic areas within Boliden Smelters that will help us create value with CSR being a prerequisite. I will not go into that since Henrik have already told you quite a lot about it. To understand that this is a little bit like the arrow Lennart showed. We start with improve operational efficiency. That is sort of the first step. It is about having process stability, high yield, low unit cost. That's the basis. When we have that in place, we can start to work on flexibility.
If we are very good in treating complex raw materials, and if we are good at taking care of the waste residues, we become more flexible. What is the benefit of being more flexible? Well, the benefit is of course that we access much broader raw material on the market because we have the capability to treat them. The third one is, of course, to maximize the metal and by-product output. What I will do now is that I will go through them one by one and I will give you some examples. First of all, improve operational efficiency. We have now during the last years carried out quite extensive improvement programs in almost all smelters. I think the biggest one is the example Lennart already told about, the P100 program.
It was a three-year program with a target to reduce cost of NOK 100 million, and we reached the target, actually a little bit above end of 2013, according to plan. It was also a lot about improving the stability of the processes. When you look at this chart, you also see that other units have actually had the same kind of cost efficiency improvement as Odda, for instance, Bergsöe. It's a small unit, but they keep on doing this year by year. Also, as Lennart said, Kokkola is probably our most stable unit production-wise, but also cost-wise, delivering very stable results. Harjavalta, we have had problems. Some two, three, four years ago, we had big problems with stability. They were quite similar to the problems we experience today in Rönnskär. They have done a great improvement work. They have improved the process stability, and we have seen great results coming out of Harjavalta for some years now. Now they're back on more normal level.
The improvement program we now have is Rönnskär, which we started up about one year ago. You see that the ambition now for this program, which is a three-year program, is to improve the EBIT with SEK 275 million. I will go a little bit more into details so you understand how we intend to do that. First of all, this time of year last year, we identified cost savings potentials in the magnitude of SEK 125 million. Beginning of this year, we thought that, well, maybe we can reach SEK 50 million this year.
Actually we have, and I'm very happy to say, we have been able to deliver far above our expectations, and we now give the forecast for this year for SEK 100 million. It's mainly done on contractors this year. We have just finished negotiations with the union, so we will have permanent manning reductions that will start to take place beginning from now, I would say, but they will partly be offset by the contractors. You shouldn't expect very much more savings next year. Slightly more, but you see the target is SEK 125 million. We also work with other areas, especially spare parts and consumables. Moving into process balance. Cost is the quickest way to improve the result of a unit, and that is why we have spent so much focus on it.
The process balance is of course the one with sort of the highest potential, but it also takes longer time before we start to see the results. Here we have identified a target of improving the EBIT with SEK 150 million, and the forecast for this year is SEK 50 million. There are three main areas I would say that we focus on. The first one is to manage the impurities. How can we do that? Well, of course, when we choose raw materials, we select them based on the content. Actually today we have quite a favorable market because there is quite a lot of copper concentrates available on the markets, so we can actually choose. Just a few years ago, we didn't have the sort of possibility to choose because there was a shortage, but now we can choose.
We also put some penalties in some of the contracts. That's one way. You know that we have stockpiled intermediates at Rönnskär due to the process problems we have had. Our target now is to try to feed them back to the process and extract all the valuable metals that are in there. How we do it? Well, we do it in different ways. One way is that we have daily process control, which means that we, on a daily basis, look at all the impurities we put into the process. We maximize it. We can't exceed it, because if we do, we will start to have the process balance problems again, or we risk the quality of the final product, and we can't do that.
Try to optimize the impurity capacity, but not to forget to also optimize the valuable capacity, because there are valuables in these materials that we also need to extract. There are more technical things that we could do. For instance, when we built a new e-Kaldo, we discovered that we started to have quite big volumes of sludge. We thought we could feed them back to the process. The problem with the sludge is that it contains high moisture, and if we put it back to the furnace, there are risks of explosion, and we can't take that risks. What we have done now is that we have installed a dryer so we can dry the sludge, and then we can safely feed it back to the process, and we can extract the metals.
That are typical actions that we are doing now in Rönnskär to get the value back from the intermediates. If we look at the second strategic area, increased flexibility, it's about optimizing the raw materials. Once again, I will come back to this repeatedly, impurities, valuables, and our capacity and capability. Basically, when you are a smelter, you can choose two different routes. You can choose to treat clean concentrates. Well, everyone can treat clean concentrates, and the only way you can compete is by having lowest cost. That is quite difficult for us in the Nordic regions. The other way you can go is to treat complex concentrates, probably in a combination with clean. You mix clean and complex concentrates.
You must also understand what you do, and you must understand the trade-off between the complex materials and the costs they might incur. How do we do this? Well, we evaluate each concentrate, and this is now a zinc case. It's 10 different concentrates. We look at them, and you see on the positive side, we have the different gross profit components. It's the treatment charge, it's the free metals. Actually, it's different free metals. It could be penalties, but penalties is normally quite little. On the negative side, you have not all the costs related, but the ones that are specific to that raw material. Normally, it's consumables. The red is consumable. You see it's quite stable for most of them. We also need to consider what is the waste treatment cost, because these materials contain impurities.
When you look at this, you see that, okay, concentrate number one and five, they look nice. Those are the ones I want to put in my feed. The problem is, it's not as simple as that. Once again, we have all these different, and it's numerous boundary conditions. We need to consider arsenic, mercury, cadmium. If it's zinc, we need to consider copper, et cetera. In order to do that, we need to have some sort of IT support. What we do is that we use linear optimization. Well, simple, I would say, but a standard mathematical model to optimize the profitability. The result that comes out of that is, well, I will give you an example. Could look like this.
You see that there is an average profitability of this feed, and you see that there are not only two concentrates, it's actually a blend of maybe 10, 15. You also see that when you look at it, that this here, the big bulk volumes, well, they are not the ones with the highest profitability, but you need them. You need them to dilute the impurities that you bring into the process, but they don't give you the highest revenue. If you look at the ones to the left, then you start normally to look at the more complex ones. You see that they actually contribute with a quite high gross profit. Of course, they are related with some issues.
For instance, the one to the left, I know is very high in arsenic and mercury, and the treatment cost or waste handling cost for that is quite high. We have limitations. Maybe we don't want to fill up the mercury limitation with just one concentrate. We need to consider all this again. If we, for instance, look at and also to say that the ones to the left normally are low in zinc, because then we get high TC. If they are low in zinc, of course, they contain a lot of other stuff that we don't want to have. If we, for instance, take this one, it's a concentrate with fairly normal zinc concentrates, but it contains free metals like silver.
This is the way we try to optimize the feed and make sure that we get the maximum gross profit out of the raw materials we put in. Still working on the second one, on the flexibility. The new environmental permit in Rönnskär. We received it this summer. We have communicated that the total investment will be about SEK 1 billion. It's a lot of money, we will have two important things. We will have the possibility to expand our copper production, we will also have the possibility to build a deep deposit storage under Rönnskär plant. The deep deposit storage as such is roughly estimated to cost SEK 600 million. It's very expensive.
or exploration data and try to sort it out and prioritize them and start to put up a portfolio of exploration projects. Productivity. Our major challenge is how to pursue the possibilities if we go into our operations, regardless if it's in the mines or in the mills, our overall operational efficiency. We will continue to work with designs. We will continue to work with the possibilities the new technology give us. Working with the cores, as I would say, always, or at least for a considerable time, has been the core for us to pursue that. How to work with productivity in mines, utilization of the concentrators, and metallurgical performance, and with that as a base, drives growth. Thank you.
Let's open up for questions for Janne. Should we start with Sasha over here? We have a microphone on the way to you. There you go.
Thank you. Thank you, Sophie. Could we please go back to slide 59 for a second? Just to help us orient a little bit, where are you currently in the mine plan? Which zones are you mining and what's in the future?
Actually, for the past years, we have been in the southern parts of the mine mainly. These are one reasons why we have been below the average grade. The highest grades in Aitik is in the northern part.
Mines near existing mines save both time and resources as the infrastructure is already in place. Mine site exploration is taking place at all the mines in Sweden and Ireland.
[Foreign language] När vi söker malm så vill vi veta vilken karaktär malmen ska ha, den vi söker, så bra som vi kan. Då har vi geologin som en viktig beståndsdel. Vi måste kunna karakterisera den så bra som möjligt för att säga att det här är ett intressant område att leta i.
A few billion years ago, the Skellefteå field lay at a depth of 3,000 meters. The area experienced vulcanization, which is how the ore we mine today was formed.
[Foreign language] När våra malmer bildades här i Skelleftefältet för cirka två miljarder sedan, då såg naturligtvis det här området helt annorlunda ut. Det där gör att våra geologer måste lära sig hur berggrunden ser ut här och nu, och bortse ifrån kanske många gånger de ursprungliga processerna. Ändå måste förstå hela det där för att bättre kunna prognostisera det här området där man letar malm. Vi började leta malm med hjälp av blockletning. Det är ju så att en gång så drog inlandsisen ut över Sverige och Norden och norra Europa, och den fungerade ungefär som en stor väghyvel. Det vill säga, den skrapade berget, precis som en väghyvel, och skrapade den över en mineralisering så bröt den loss mineraliseringen i form av block. De blocken är en indikator på att det finns malm i trakten och det var så vi startade malmletningen.[/Foreign language]
[Foreign language] Vi letade helt enkelt block, och visste vi i vilken riktning den här väghyveln eller inlandsisen hade gått. Vi gick i motsatt riktning och letade och hittade fler block och fler block och fler block. Till slut var vi mycket nära det vi kallar Mordeklyftet. Där satte vi in de metoderna. Vi gjorde noggrannare geologi, geofysik, geokemi och till slut avslutade vi det hela med en borrning. Ungefär så upptäcktes Bolidenmalmen en gång i tiden. Geologen arbetar ute i terrängen med att titta på det berg som går i dagen och karakterisera det och bygger upp en karta utifrån det han iakttar i berget.[/Foreign language]
All collected information is processed and interpreted by the Geo Data Department using various computer programs to produce a multidimensional model. The need to work with geology in several dimensions is increasing all the time. In a well-explored area, the chances of finding new mineral deposits close to the surface are likely to be slim. That's why it is increasingly important to understand the nature of the deep bedrock.
Varje fem till tio år kommer vi fram med nya tekniker för att anpassa dem till de nya utmaningar som vi har när vi söker nya fyndigheter. Det gör att vi har också skapat en infrastruktur som gör att det är möjligt att utveckla metoden. Vi har ett instrumentlabb där det sitter ingenjörer som har lärt sig hur teknik kan användas ute i prospekteringen.
Boliden's exploration efforts have been successful. Over the past 10 years, mineral resources have increased dramatically. It's a long process. From up to 1,000 interesting exploration areas, only a few lead to identified deposits. Then it often takes between five and 10 years before mining can start. You have to plan ahead. Boliden currently has four mining areas in Sweden and Ireland. Processing of the deposits here in Garpenberg started in the 13th century, which makes Garpenberg the oldest mining area in Sweden still in operation. Ore containing zinc, silver, and lead are mined here, along with small quantities of copper and gold. Successful exploration has led to Boliden finding new large ore bodies here. The emphasis is on expanding capacity. An investment of SEK 3.9 billion will see production increase to 2.5 million tons of ore per year.
The investment includes new shafts, a new industrial area, a facility for crushing ore underground, not forgetting an ultra-modern concentrator that will also be able to meet future needs. The Boliden area is located in the mineral-rich Skellefteå field, where nearly 30 mines have been opened since production began in the 1920s. All the mines here produce complex ore which contains zinc, copper, lead, gold, and silver. Successful exploration has gradually extended the life of the Boliden area. In 2012, Boliden opened the new Kankberg gold mine thanks to a combination of exploration, technical development, and changed market conditions. Zinc and copper were previously mined at Kankberg. Gold was discovered there back in 1995, but it was combined with a rare ore from which it was not initially possible to extract gold.
It took 17 years to reach a point where it was technically possible to start production. In the meantime, the price of gold had increased tenfold. Today, the Kankberg mine is in full operation after an investment of SEK 475 million. Tara in Ireland is Europe's largest zinc mine and the ninth largest in the world. Here, zinc and lead concentrates are mined and enriched for shipping onto Boliden zinc smelters for further processing into pure metal. Aitik in Gällivare, Boliden's giant open pit copper mine, is Sweden's largest mine. Every day around the clock, a large quantity of ore is mined and transported here. This open pit mine focuses on large-scale mining, and productivity is high, thanks to large volumes and a high degree of automation.
It is home to some of the world's largest and most efficient machines, including 8-meter-high trucks that can be loaded with over 300 tons of ore at a time. The deposit consists of chalcopyrite containing low levels of copper and gold and silver. The mineralization was first discovered in the 1930s, but the equipment and technology needed to make mining profitable were not available until the 1960s. New facilities were inaugurated in 2010 that double Aitik's ore production to 36 million tons per year. The expansion project began in 2008, and the investment, which amounted to SEK 6 billion, is one of the largest industrial investments in Sweden in recent years. The expansion has also created the conditions for mining additional ore. In parallel with the expansion project, Boliden is examining the possibility of further increasing production volume to 45 million tons of ore per year.
The mechanical development of mines has been huge since the 1960s. From using hand-held pressure-driven, partially rail-borne machines, we now have fully mechanized equipment, diesel-driven and on rubber tires, which means we can move anywhere in the mine. The big development happened in the 1980s and 1990s, which means we can extract twice as much ore today with half as many employees. Even though the technological development in today's mines has been enormous, the vision for the future is to make the mine a little more transparent. That is, I want to be able to follow what is happening in the mine online. In the dark period, the mine workers go down when the shift starts, and when the shift ends, when the lifts come up, we find out what has happened, what work has been done.
Technological development has led to a great need for well-educated employees, i.e., mining engineers, process engineers, environmental engineers, but also well-educated contract workers. Now that we are entering this new type of mining industry, we have a great need for these well-educated professional groups.
All the crushed and ground ore is transported to the concentrator. Here in Aitik, recent investment has led to construction of a new huge concentrator that can process the increasing ore volumes from the mine. During the concentration process, the various minerals in the rock are separated from one another. The Aitik mine uses a method known as flotation, which means that the sulfide ore that contains copper is ground into a fine powder and suspended in water. Air is passed through the mixture so that the ore particles stick to the bubbles and rise to the surface. They are skimmed off and the water is squeezed out, leaving a fine-grained concentrate. The concentrate now represents approximately 0.5% of the total amount of rock mined. Since its start, Boliden has moved from hacking at the ore with pickaxes to high tech.
The work in modern mines, concentrators, and smelters tends to employ sophisticated technical methods and tools these days. For instance, in the Aitik mine's concentrator, it is possible to control the hardware using a smartphone or tablet. Personnel can connect directly to the concentrator's control system via the mine's wireless network to control processes at the plant, revise drawings and wiring diagrams, and troubleshoot and report faults. Here at Boliden, they have developed a new leaching method to enrich gold.
[Foreign language] Lakning innebär att man kemiskt löser upp metallerna i en laklösning och selektivt utvinner metallerna ur laklösningen sedan. Det här lakverket här i Boliden behandlar ungefär 900 ton flotationskoncentrat årligen. Normalt sett utvinner man guld med flotationsteknik eller gravimetriskt. Men med den här malmtypen blir inte utvinningen av guld tillräckligt stor. Därför har vi byggt det här lakverket för cirka SEK 100 million, vilket gör att vi ökar utvinningen med cirka 40%.
[Foreign language] Bolidens arbete med hållbarhetsfrågor är av högsta prioritet. Det är också en förutsättning för att vi ska kunna bedriva vår verksamhet i det moderna samhället. En del i det arbetet är att vi har certifierat våra anläggningar enligt arbetsmiljö, yttre miljö och energi. Då ställer vi intern högre krav än det vi hittar i lagstiftning och våra tillstånd. Det finns många hållbarhetsfrågor som Boliden omfattas av. Ett av dem är att vara en god granne och ett företag som går att lita på. Vi bedriver ofta verksamhet på våra orter under en längre tid och därför behöver vi ha en bra och öppen dialog med våra grannar och de som vår verksamhet påverkar. En del i det arbetet är den skog som vi äger, 19,800 hectares, som är FSC-certified. Det innebär att vi ska ha ett hållbart skogsbruk. Vi ska avsätta mark för biologisk mångfald och för artrikedom.
[Foreign language] Där bränner vi för att skapa bättre artrikedom. Vi samarbetar också med skolor och intresseföreningar för att skapa skolskogar och vandringsleder, om önskemål om sådant finns. En annan viktig hållbarhetsfråga för oss är att vara bra på efterbehandling. Vi har funnits i 90 years, så vi har ett flertal nedlagda gruvor att ta hand om. Vi gör alltid vårt yttersta för att återställa naturen och vi försöker ligga i framkant när det gäller efterbehandlingstekniken. Att ha en bra och säker arbetsmiljö är också en av våra viktigaste frågor. Vi ska vara en attraktiv arbetsgivare för att kunna locka framtidens generationer och man ska känna sig säker inom våra verksamheter. De 90 years som Boliden har funnits har det hänt jättemycket på arbetsmiljö- och yttre miljöfrågan. Man kan bara tänka sig var vi är om 90 years till.
In order for the ore concentrate, as the end product of mining is called, to be high quality pure metal, it must be refined in a smelter. The refinement process differs depending on the metal being produced. The Rönnskär copper smelter outside Skellefteå is Boliden's largest production unit. Here, copper and lead concentrates from the mines are smelted and refined. The smelter is also the world leader in the recovery of copper and precious metals from electronic scrap. When ore concentrate from the mines is smelted, it forms a matte with a copper content of about 55%. This is tapped into a converter furnace where iron and other impurities are separated out. What remains is crude copper with a copper content of 97%-98%. This is then processed in an anode furnace to increase the purity from 98%-99%.
This crude copper is then cast to form anodes and placed in tanks with steel cathode plates. Here the anodes are dissolved and the copper ions migrate over to the steel plates. The cathodes are then separated from the steel plates and washed. They are then ready for delivery. Rönnskär has been recycling electronic scrap on a large scale since 1980. The market has grown gradually and the plant has increased its capacity for this type of material. Money has been invested in a Kaldo furnace, which has been specially designed to deal with e-scrap. The ore at Boliden's first mine contained 20 grams of gold per ton and was considered one of the richest in the world. Now compare that with e-scrap and you'll find that computers and mobile phones, for instance, contain significantly larger levels of gold.
As far as Rönnskär is concerned, the mines of the future are in the cities. In addition to Rönnskär, Boliden has four other smelters. The Kokkola zinc smelter in Finland has a capacity of around 315,000 tons of zinc per year, making it the second largest zinc plant in Europe. The Odda zinc smelter in Norway mainly produces pure zinc and zinc alloys. Harjavalta in Finland smelts copper and nickel concentrate and refines copper. Its main products are copper cathodes, gold and silver. The Bergsöe lead smelter is one of Europe's largest recyclers of used lead batteries. Its main products are pure lead and alloys. Bergsöe contributes in various ways to a profitable eco-cycle by extracting lead from around four million used car batteries every year. Boliden currently produces metals that are used everywhere in modern life.
As more and more people lift themselves out of poverty, the need for metals for homes, infrastructure, and electricity transmission will also increase. Boliden's metals are sold to industry, mainly in Europe. Payment is based on the.
It's a great pleasure to introduce our next speaker, Kerstin Konradsson, President of Boliden Smelters.
Thank you. Today, I will guide you through how we work to improve our performance in the smelters. Before I dig into details, I will make a short recap of the assets we have, because these are the ones we work on and try to leverage the value. Just a reminder, we have two zinc smelters. We have Odda in Norway and Kokkola in Finland. We have two copper smelters. They are in a way similar, but on the other hand, quite different. Rönnskär, northern part of Sweden, focus on primary but also secondary raw materials. You are all well aware of our expansion of the e-materials in Rönnskär. Then we have Harjavalta, which not only smelt copper, but also smelt nickel, which we also have started to talk about today.
In the southern part of Sweden, we have a secondary lead smelter, which recycles car batteries producing lead. We have identified three strategic areas within Boliden Smelters that will help us create value, with CR being a prerequisite. I will not go into that since Henrik have already told you quite a lot about it. Also try to understand that this is a little bit like the arrow Lennart showed. We start with improve operational efficiency. That is sort of the first step. It is about having process stability, high yield, low unit cost. That's the basis. When we have that in place, we can start to work on flexibility. If we are very good in treating complex raw materials, and if we are good at taking care of the waste residues, we become more flexible.
What is the benefit of being more flexible? Well, the benefit is, of course, that we access much broader raw material on the market because we have the capability to treat them. The third one is, of course, to maximize the metal and by-product output. What I will do now is that I will go through them one by one and I will give you some examples. First of all, improve operational efficiency. We have now, during the last years, carried out quite extensive improvement programs in almost all smelters. I think the biggest one is the example Lennart already told about, the P100 program. It was a three-year program with a target to reduce costs of NOK 100 million, we reached the target, actually a little bit above, end of 2013, according to plan.
It was also a lot about improving the stability of the processes. When you look at this chart, you also see that other units have actually had the same kind of cost efficiency improvement as Odda. For instance, Bergsöe. It's a small unit, but they keep on doing this year by year. As Lennart said, Kokkola is probably our most stable unit, production-wise, but also cost-wise, delivering very stable results. Harjavalta, we have had problems. Some two, three, four years ago, we had big problems with stability. They were quite similar to the problems we experience today in Rönnskär. They have done a great improvement work. They have improved the process stability, and we have seen great results coming out of Harjavalta for some years now. They're back on more normal level.
The improvement program we now have is Rönnskär, which we started up about one year ago. You see that the ambition now for this program, which is a three-year program, is to improve the EBIT with SEK 275 million. I will go a little bit more into details so you understand how we intend to do that. First of all, this time of year last year, we identified cost savings potentials in the magnitude of SEK 125 million. Beginning of this year, we thought that, well, maybe we can reach SEK 50 million this year. Actually, we have, and I'm very happy to say, we have been able to deliver far above our expectations, and we now give the forecast for this year for SEK 100 million. It's mainly done on contractors this year.
We have just finished negotiations for the union, we will have permanent manning reductions that will start to take place beginning from now, I would say, they will partly be offset by the contractors. You shouldn't expect very much more savings next year. Slightly more, you see the target is SEK 125. We also work with other areas, especially spare parts and consumables. Moving into process balance, which is, cost is the quickest way to improve the result of a unit, that is why we have spent so much focus on it. The process balance is, of course, the one with the highest potential. It also takes longer time before we start to see the results. Here we have identified a target of improving the EBIT with SEK 150 million, and the forecast for this year is SEK 50.
There are three main areas I would say that we focus on. The first one is to manage the impurities, how can we do that? Of course, when we choose raw materials, we select them based on the content. Actually today, we have quite a favorable market because there is quite a lot of copper concentrates available on the markets, we can actually choose. Just a few years ago, we didn't have the possibility to choose because there was a shortage, now we can choose. We also put some penalties in some of the contracts. That's one way. You know that we have stockpiled intermediates at Rönnskär due to the process problems we have had. Our target now is to try to feed them back to the process and extract all the valuable metals that are in there.
How we do it, well, we do it in different ways. One way is that we have daily process control, which means that we, on a daily basis, look at all the impurities we put into the process. We maximize it. We can't exceed it, because if we do, we will start to have the process balance problems again, or we risk the quality of the final product, and we can't do that. Try to optimize the impurity capacity, but not to forget to also optimize the valuable capacity, because there are valuables in these materials that we also need to extract. There are more technical things that we could do. For instance, when we built the new e-Kaldo, we discovered that we started to have quite big volumes of sludge. We thought we could feed them back to the process.
The problem with the sludge is that it contains high moisture, and if we put it back to the furnace, there are risks of explosion, and we can't take that risks. What we have done now is that we have installed a dryer, so we can dry the sludge, and then we can safely feed it back to the process, and we can extract the metals. That are typical actions that we are doing now in Rönnskär to get the value back from the intermediates. If we look at the second strategic area, increased flexibility, it's about optimizing the raw materials. Once again, I will come back to this repeatedly, impurities, valuables, and our capacity and capability. Basically, when you are a smelter, you can choose two different routes. You can choose to treat clean concentrates.
Well, everyone can treat clean concentrates, and the only way you can compete is by having lowest cost. That is quite difficult for us in the Nordic regions. The other way you can go is to treat complex concentrates, probably in a combination with clean. You mix clean and complex concentrates. You must also understand what you do, and you must understand the trade-off between the complex materials and the costs they might incur. How do we do this? Well, we evaluate each concentrate, and this is now a zinc case. It's 10 different concentrates. We look at them, and you see on the positive side, we have the different gross profit components. It's the treatment charge, it's the free metals. Actually, it's different free metals. It could be penalties, but penalties is normally quite little.
On the negative side, you have not all the costs related, but the ones that are specific to that raw material. Normally it's consumables. The red is consumable. You see it's quite stable for most of them. We also need to consider what is the waste treatment cost, because these materials contain impurities. When you look at this, you see that, okay, concentrate number 1 and 5, they look nice. Those are the ones I want to put in my feed. The problem is, it's not as simple as that. We have, once again, we have all these different, and it's numerous boundary conditions. We need to consider arsenic, mercury, cadmium. If it's zinc, we need to consider copper, and et cetera. In order to do that, we need to have some sort of IT support.
What we do is that we use linear optimization. Well, simple, I would say, but a standard mathematical model to optimize the profitability. The result that comes out of that is, well, I will give you an example, could look like this. You see that there is an average profitability of this feed, and you see that there are not only two concentrates, it's actually a blend of maybe 10, 15. You also see that when you look at it, that this here, the big bulk volumes, well, they are not the ones with the highest profitability, but you need them. You need them to dilute the impurities that you bring into the process. They don't give you the highest revenue. If you look at the ones to the left, then you start normally to look at the more complex ones.
You see that they actually contribute with a quite high gross profit. Of course, they are related with some issues. For instance, the one to the left, I know is very high in arsenic and mercury, and the treatment cost or waste handling cost for that is quite high, and we have limitations. Maybe we don't want to fill up the mercury limitation with just one concentrate. We need to consider all this again. If we, for instance. Also to say that the ones to the left normally are low in zinc, because then we get high TC. If they are low in zinc, of course, they contain a lot of other stuff that we don't want to have. If we, for instance, take this one, it's a concentrate with fairly normal zinc concentrates, but it contains free metals like silver.
Still working on the second one, on the flexibility, the new environmental permit in Rönnskär. We received it this summer. We have communicated that the total investment will be about SEK 1 billion. It's a lot of money. We will have two things, two important things. We will have the possibility to expand our copper production, but we will also have the possibility to build a deep deposit storage under Rönnskär plant. The deep deposit storage as such is roughly estimated to cost SEK 600 million.
It's very expensive, but it will give us, on the topic of flexibility, it will give us what we have in order today with the mountain caverns, a safe deposit, sustainable for future to take care of the more complex materials. This will be the same, only it will be underground. This is what it looks like. It's quite amazing. You know Rönnskär, it's an island, water around it. What we will do is that we will start to build this ramp now. That will be the first step. We expect it to be some 350 meters down below Rönnskär, and there we will build the storage rooms for the material. The very nice, the beautiful thing with this is that we don't need to transport the material. We just put it underground.
We see this as something that is expandable depending on future and how raw materials develop. We're coming to the 3rd one and the third strategic area, and the one I really find the most exciting one, because this is how do we maximize our metal and by-product production. If we look at this, now the system again with the five smelters, we consider them as being one integrated. I should have put the mines on the slide as well, because we also consider and work quite hard with the integration between mines and smelters. That's one of the strategies behind being in an integrated company that we actually can benefit between mines and smelters. We have the feed going into the system. We actually have quite a lot of recirculation within the system.
We try to recirculate as long as it's technically or financially viable. In the end, it has to come out as something. Of course, the target is to take out as much as possible as finished refined metal. Today we take out 6, copper, zinc, gold, silver, lead, and cadmium. We don't take out very much cadmium, but the alternative would be to put cadmium in the residues. Instead of doing that, I think it's great that we actually can take it out as a refined metal and sell it. Of course, the target is to reduce the waste because we put valuable metals in waste deposits, so we lose the metals, but it's also very expensive to build the deposits, and they take quite a lot of space in nature. The target is to reduce the residue streams.
Actually we have a 3rd one, which is intermediates. I was a bit amazed when I looked at the numbers because actually we take out 13 metals as intermediates. We take out tellurium as copper telluride. We take out platinum palladium concentrates. We take out selenium, antimony, bismuth, et cetera. Totally, 19 metals we take out of the system. I think you're, in principle, only aware of 5. Also to give some examples, what do we circulate? For instance, and we consider them to be complex, some zinc concentrates contain copper. The zinc smelters normally don't like copper, but we have some capacity to take out copper, which we do, and then we send the copper as an intermediate from Odda or Kokkola to Rönnskär and Harjavalta, and in the end, it comes out as a finished product.
For me, this is one of the most exciting areas we have. I will give you now some examples, and we have already touched upon them. Some are known since before, and some are known since this morning. Taking the first one, and this we have worked with for quite some time, and that is to actually take care of the silver that is present in the zinc concentrate. We took the decision to spend EUR 27 million investing the silver recovery in Kokkola. It had some hiccups. We started well in the 2nd quarter. We have made small deliveries to customers. We had a tank reactor damage in July, and we had to stop the silver recovery. It has been idling, and now we are slowly starting it up again. It will take some time, but we are in process.
Besides this unfortunate situation with reactors, we consider the project to be on time and on CapEx, and we'll start to deliver quite soon. We have a second one, and that is the zinc expansion in Odda. We have done some small minor debottlenecking, so the capacity today is 170,000 tons, and as Lennart said, one of the consequences is that we have put one old tank house idling. That has a capacity of 30,000 tons. If we modernize it, restart it, we could add on 30,000 tons. What else do we need to do? We need to install two new direct leach reactors, and we also need to do some other modernization in the plant. Totally a CapEx of NOK 350 million or SEK 400 million.
Just to be sure, or to clarify, the new capacity expected to come on stream in the second quarter 2017. In times where the zinc price is favorable, the outlook looks good. We find this to be a very exciting opportunity to by quite small means add on more zinc to the market. We have the third one, which is even more exciting and maybe a little bit more new, and that is the nickel. As I said, we have been smelting nickel for a long time, but it has not really been something we have talked about, but we have very much investigated, analyzed, and thought about what do we do with this asset we have in Harjavalta. If we look at the global market, we see that it's growing. It's driven by the demand of stainless steel in China.
We also see, this has been up and down, but we see right now there is a favorable market because there are new mines coming on stream, so there is concentrate available. There are smelters closing, mainly for environmental reasons. Not all of them have sulfur capturing, for instance. We also see that we don't know what will happen, but the Indonesian ban that was put in place beginning of this year has actually right now taken out 25% of the nickel from the market, which of course increases the nickel prices. Probably, the idea is to build capacity in Indonesia, and the nickel will come back again. When and how, we don't know. Right now, it adds on to the story that this is a favorable market. We consider ourselves to be very well-positioned within nickel.
We are the only nickel smelter or the nickel tolling smelter in Western Europe. We are located in Finland, and we see, for instance, that there is local feed available in Finland or in the Nordics. There is exploration ongoing. We see that we have very favorable logistics solutions. If you look at this map and you see the green ones, which are the ones that are and are planned to be in operation in future, you see that most of them are located inland, while Harjavalta is located close to a port. Logistically, it's very favorable. We also have very good environmental performance. One of them has already closed down, Fortaleza, and there are plans to close down the Vale operations in Northern America. Coming back again to the fact that we also have long experience in nickel smelting.
We were the first one to start to smelt nickel in the flash smelting furnace already in 1956. We are producing a nickel matte, and today, as we said, we are in this tolling agreement, or you could say customer smelting agreement, which means that we don't buy the concentrate, we don't own the material, so we smelt it for a customer. Totally today, the outcome from the smelter in Harjavalta is 25,000 tons of nickel. We also said before, we have a tolling agreement. It expires mid-2015. We have thought quite long about what to do when this expires. Do we want to continue to have one customer? Should we add on a portfolio of customers, or should we go into the business ourselves?
What we see with all this, the favorable market situation, and also we feel that there is a real strong interest for Boliden matte. We have taken a decision to go into this business with a new business model. The business model is, as said before, we will start to buy nickel concentrates, we will sell matte, and it will be on long-term contracts. We will build a portfolio. It will be several suppliers of concentrates and several customers on the matte side. We already have entered long-term agreements today. It's always when you build a new business that you start to build a book. Of course, it takes time before we are where we want to be, but we are in a very good way. Why do we do this? Well, of course, there are financial reasons.
We see we will improve the results. Basically, the nickel is less transparent than copper and zinc, so it's a little bit more difficult to understand, but the principle is more or less the same. There is a treatment charge, and there are payable metals. What we get from it, besides the treatment charge, are the free metals. As you see, there are quite many. It's nickel, it's copper, cobalt, platinum, palladium, and also the precious metals like gold and silver. Of course, now we build a new business, and nickel is expensive, so we will build up a working capital, but we expect the result to exceed the working capital we build up. We expect to improve our profitability. Otherwise, we would not taken this decision to go this way. That was the last one for now.
Of course, we would like to come back with more interesting projects in this strategic area. Just to conclude or to sum up, how do we do when we work with this expanding our project pipeline? Well, we have R&D sources mainly located in the smelters, and we work together with these mines. I just this morning had a nice opportunity to have the welcome address for the first technical seminar we have held in Boliden for many years. It's a joint seminar with people from the mines and from the smelters. I think we gathered somewhere between 50 and 60 people. These two days now, when we have the capital market days, they are sitting at Aurlandia having a two-day seminar. I expect the outcome to be good, experience a change, but also in the end, something that will turn into new projects and technology.
What does it look like, the pipeline of our projects? You see the ones that have already sort of come out. We built the hot acid leaching in order to prepare for the silver recovery in Kokkola. We have the e-Kaldo, putting us as number one recycler of electronics in Rönnskär. We have expanded the roaster capacity in Kokkola, which means that now we are back to flexibility. We have the flexibility to choose if we go the roaster line or the direct leaching line, depending on the concentrates and what gives the highest profitability. Now we add 25,000 tons in a new business model for nickel, and also decided last week, 30,000 tons of zinc. Of course, there are more ideas coming, but we need to prepare them and put them into a technology that could give us what we need.
Just to summarize, coming back to the strategic areas, we have and we will continue to deliver on improving our operational performance. We see increasing flexibility both on treatment side and waste handling as a competitive advantage and with the possibility to access more raw materials. We see that by adding on new metals, more metals, we will support Boliden by increasing the gross profit. Thank you.
Let's open up for questions for Kerstin. Should we start with Luc?
I'm from BNP Paribas. Quick question. Maybe if you could provide a bit more color and quantification with regards to the cost savings that would be generated out of the Odda expansion. That would be my first question. Second one, if you could elaborate a bit more as to how much profitability boost or working capital requirement boost you would expect out of the change from turning into smelting of nickel. Thank you.
Well, the cost savings in Odda, I don't really have the exact numbers, but it's quite easy to calculate because we add on the 30,000 tons, and it's only the variable costs besides the depreciation from the investment. Coming to nickel, it's a bit sensitive because we are still in negotiation with our new long-term partners, and we can't reveal our margins. We don't really know where we will end up in the negotiations either. I would say it's not major.
We have one question over there from Alain.
Hi. This is Alain Gabriel from Morgan Stanley. If I look at your slides, you seem to have a quite rich pipeline of investments. If you were to tie this in with what Lennart has said of the desire to put in more capital into smelting, this is in contrast to almost no capital having gone into smelting in the last eight years. Has your outlook changed on smelting, or is it more to do with the past that has been undercapitalized as a business?
Well, I would say it's both. We do have a lot of maintenance needs. We have the environmental permit in Rönnskär, SEK 1 billion. We will have environmental permits in the other smelters as well. When we speak about this project pipeline, I'm more focusing on what will add value. Then, of course, we evaluate each and every project based on the return of the project. If there are very good returns, well, I don't see why we shouldn't do them.
All right. Thank you.
Gustaf A.
Thank you. Gustav Hanser , Danske Bank. I have a question regarding the upcoming benchmark negotiations of TCs. Do you see any reason why the contracts should not improve for the smelters given the recent hike in spot TCs?
This is a difficult one. Of course, I would like to see them go up, and we argue for it. We see that there is some, what to say, that the uncertainty about the development in Europe in general, et cetera, makes the process a bit slow. We don't really have the indications yet, so I can't really answer that question today.
Another question. Given that you all seem to have a pretty thick project pipeline now, I assume you see good profitability ahead for these investments. Could you maybe elaborate a bit on what you think a reasonable return on capital employed for this type of business over a business cycle?
That's also a very good question. We have group targets, and we try to reach those. I think that's where I stay unless, Mikael, you wanted to have all the questions here. No?
No. Okay. Thank you.
Just to follow up on the nickel production at Harjavalta. We can understand it a little bit more. Is it going to be a material contribution through earnings at Harjavalta, or is it just a good supplement?
Somewhere in between, I would say. We take the decision because we see that it's adding more value than the today setup. Once again, when you look at the different business cycles, there have been times when nickel have actually contributed to Harjavalta more than copper, and the other way around. There are more than one reason for doing it. One is the different business cycles, and one is that this will add on more value compared to today's setup.
Okay. Just to follow up on the treatment charges for copper. I think it was in end of last week, there was some indication that the treatment charges next year is going to go up by 20%-30%, to 110-120 next year. Is it something you can comment on?
We have not made any agreements yet, we have the same information as you have when it comes to what the analysis says.
Thanks. Christian Kopfer, Nordea again. On the restructuring program in Rönnskär, you mentioned that you expect to achieve SEK 150 million by year-end. How much have you achieved for the three quarters this year?
Well, now we are on the running rate of 150. It means that we see that we have had the spring and then the second quarter has been quite stable. We will stay on the level we are right now.
You don't expect any further impact on cost savings in Q4 then?
No. We expect to reach 150 by year-end.
Okay. Have you taken any restructuring costs on this program?
Not yet. There could be in future, but not yet.
Okay. On the SEK 600 million deep deposit investment in Rönnskär, is that matching your capital requirements? I think it's 12% nominal WACC or so.
Well, the deep deposit is something we need to do related to environmental permits. It's a little bit more difficult to calculate return on such a project. As I said, it is expensive, but we do see a benefit of having it. We might not have done it if we would not have had the requirements to do it, but now we have, and we see the benefits.
Okay.
On the Odda project, I know that Boliden in the past has liked to talk about payback time in terms of EBITDA cover. What sort of payback are you expecting for the Odda expansion?
That's above the normal. We spoke about the WACC of 10. It's well covering that.
It's, what, four or five years on that one? Okay. One or two nods from the front of the room. With regard to the nickel inventory, what sort of sums are we talking about? The buildup of inventory you're going to have to make at-
Yeah. I can't reveal that since we are in the middle of negotiations.
Okay. That was secret. What's a normal number of weeks of inventory you need to hold?
Well, with number of weeks, I don't really know. You want to comment or
I can maybe just step in and say that if you look at our other businesses, having around 10% of sales tied up in working capital is not unknown. You could then figure out what the sales is here. It's roughly SEK 3 billion. No, all that's very premature since the negotiation with the suppliers and the customers are not all finished yet. Some are finished, but not enough to give a precise number.
Okay. Most of it's going to be seaborne suppliers, I guess you've got to hold your inventory on site.
Yeah. No. It's also a question about payable terms.
Okay. With regard to the zinc TC outlet, which has obviously been a big factor you've had to think about in terms of this investment at Odda. We've heard that Boliden is not expecting any appreciable increase in global mine supply of concentrate over the next five years, and Lennart Evrell's expecting capacity utilization for zinc smelters to stay high as well. Does that mean that you're not expecting any of your competitors to follow you down the line of expanding zinc smelter capacity?
I think there will be. I think Nyrstar has announced that they plan to do some debottlenecking investments. Yes.
Okay. Is your investment decision premised on TC staying at the current rate?
Yes. The calculations are based on that, but the sensitivity analysis actually allows for quite a big drop in TC and still give a good return.
Okay. Thank you.
Okay, then. Thank you, Kerstin. It's a great pleasure to introduce our last speaker for today, Mikael Staffas, CFO.
You mean last and least.
Yes.
I hope you're still all awake. I will try to keep the energy level up also for this last few minutes, and try to help you through some of the questions that I want to discuss, and then maybe answer some of the questions that you had along the way as well. What I want to talk to you about is first a general setup regarding our targets. Where are we standing in regard to our targets, and how do we look at them going forward? We will come into some of the questions you've already had questions around, which is the guidance, especially around CapEx, but we'll also talk about maintenance stuff in that.
As always in these occasions, I cannot stop myself from having a tutoring session with some of you regarding how some financials work to help you all in your work going forward. Our targets. These should all be very well known to you. They're the same as they've been for quite some time, the same three targets that we have had. We have a target regarding the returns that we have on new investment. I will dwell a little bit more upon that in just a few moments. We have the balance sheet target regarding our debt equity.
I will dwell a little bit on where we are in that journey, but also a little bit around how we think about the whole financing side of the balance sheet, and a little bit recap what we did in the spring when we refinanced a large part of the balance sheet. The last step, which is one-third payout ratio, I will come back to that very quickly, but that's, I suppose, the simplest one to state. Investments and investment portfolio, how do we do with that? The calculations, we have a rate of 12% nominal or 10% real. We actually do all our calculations in real, just for you to know. We're looking at the total system impact.
This might be a strange word, but we did have a question just a moment ago, how do you look at something like the deep storage in Rönnskär? Can you calculate return on that? If the alternative to that would be to close down Rönnskär, yes, we can do it alternative. You get a very high profitability. The alternative might not be that. The alternative might be to actually send it away to somebody else and pay somebody else to take care of this, which is also doable in the legal context. We looked around that alternative compared to doing it ourselves, and you get still a very good number of doing this ourselves, more reasonable maybe than the other alternative. It's important that you do have a full impact of the whole system, what you're looking around when you're looking into these different options.
The other thing is also there's a very strong emphasis to make sure that we have several options. The worst thing you can do as a company, when you're especially in capital-intensive industry, is to say that either we do this or we do nothing. If we don't do this, we do nothing, we get a very bad result, we have to do this. Of course, the whole challenge here is to make sure that we, for this thing that needs to be solved, we create a number of different options. With a number of different options, we can choose the option that gives us the best return. This is probably the most challenging part, both for me in my day-to-day job, but also for all the managers to make sure.
Have we looked into all the potential options that there are so we know that the one we're picking is the best? Finally, we do have transparent prices and terms, and you all know these ones because you've seen these already before. They've been published in our annual report, at least a column that says 2013. You've all seen these numbers, you could read them. The one that says 2014 has not been published yet, so you see these numbers for the first time now. You can see to a large extent, they're very much the same. We, of course, build ourselves a point of view about the long-term prices and the long-term conditions, and we're unlikely to change them drastically unless there is new information. We have, in a very condensed way, just keeping them the same.
Now, looking at this, you can see, which might surprise you today, how on earth, if they were going to change something, why did they change the exchange rate and in that way, given the recent developments? Well, this was all done in the spring. We're changing them that way would actually seem to be the prudent way of dealing with the situation then. We need to put these conditions in place in the first half of the year because they're also the basis for calculating the ore calculation.
Life of mine.
Life of mine plan ore calculation. That all needs to be put in place. It takes quite a few months to do that through, You need to put these conditions in relatively early. Now, for investments coming back there, we use these prices that you see here for year two and onwards. For the first year, we actually do use what we call budget prices, They happen to be the forward curve on August 31st of every relevant year. That's used for the first year. Now, today, that might not be a big difference, At certain times, that could be a bigger difference. Now, combined with these long-term prices, we also work on scenario analysis. I'll come back a little bit to that, I'll show you the numbers right now.
These are the numbers that we are using when we're looking into scenarios of a downside, where we're looking into what we call floor prices, then we typically apply them for a year. What happens to this investment if those floor prices were to come into play for 1 year? What happens to returns? We also look at what we call the long low prices. That's when you have a situation where you might have an extended period, in our case, 4 years of low prices, and what happens then to the return of the investments. Once again, if you have different choices that might be different in terms of the trade-off between OpEx and CapEx, the answer might not be the same in the different low scenarios as in the standard scenario.
That, of course, leads to discussions regarding what is actually the appropriate way of solving the situation that you have in front of you. We do investment calculations. This might seem very simple, but we do use them, and we use IRR as the primary method of selecting which investments to do. If you have several different options to solve the same problem, NPV might also come in as the prevailing choice of which options to use. We also look at payback as an important part of the total calculus that we do. Then comes all the other things that come in, and maybe I, as a CFO, should not talk too much about them, but these are actually quite important considerations that come into play. Do we have the management enough to carry through these different projects that we have?
Is there things around corporate responsibility that plays in? How do our permitting play into the different options? Sasha already mentioned the situation we're having in Renström, where we have roughly SEK 1 billion worth of investments to be able to handle the permitting. We're, of course, trying very hard to make sure that this is not just a simple cost of SEK 1 billion, but we also combine that with maybe some offensive moves at the same time and getting the best total effect out of this all coming into play in this developing the different options. Having said that, once we put all the different potential investments for a year, for example, together, we then apply the different scenarios to see what happens to the balance sheet in the different scenarios to make sure that we have a balance sheet integrity going in here.
Moving over to the balance sheet, there's a clear target that you can read in our annual report that we're supposed to have a 20% gearing at an end of a good cycle. This is the historical numbers that we've had that you've all seen. You can also see that after having built up debt for some time, we're now on the way heading down. This should not be of any surprise to anybody given that we've been through a relatively heavy investment period. At the same time that we haven't had a Garpenberg, we haven't had a Kokkola Silver, and we have not had the grades in Aitik that we want to have on average. Going through such a period, it is not a strange thing that we built up some extra debt and that we're now heading out of this situation where we've had high debt.
We already talked about that we are continuously simulating our balance sheet on basically a weekly or monthly basis to make sure that we all the time have a good standoff for a situation where things could turn bad. We also use this in terms of handling the financing side, both when we set up the facilities, and I will talk a little bit about that in a moment, what happened in the spring, but also on a day-to-day basis in terms of which facilities we draw upon and how we use the different options that we have at our hand. Of course, the point is that we want to reach the 20% over time, and of course, keeping the payout ratio that I will come back to into play. All these things played into the refinancing that we had in the spring.
Just a little bit of recap. There should be nothing new to anybody on this slide. We did have a bond issued back in April. That one was issued at 190 basis points over STIBOR for a six-year bond. We, at the same time, set up a bilateral facility with SEK with a duration of seven years. We renegotiated the syndicated facilities to get a harmonized banking group in place of 13 banks, also to be able to set up a duration profile that we wanted. We now have two tranches of a EUR 850 million facility.
This was all based on a simulation coming back to the low prices that you saw a little while back, that if we get that situation with the really low prices for one year or we get the slightly better prices, but for four years, we will always keep a SEK 3 billion payment capacity in place to make sure that we do not have to get into a situation where we need to suboptimize in our day-to-day business. As you also pointed out, and somebody pointed out, that this is a slightly smaller facility than we had before. We actually scaled down on it slightly, and that, of course, has to do with the projections on how much debt we do need. Basically taking back some of the facilities that we increased a couple of years back for what we then anticipated to be a buildup of the debt.
If you look at the financing profile that we do have in place today, we have SEK 12.7 billion, out of which SEK 12.4 billion is for over a year. We have a commercial paper program in place with a limit of SEK 4 billion. Out of that, SEK 2.7 billion was drawn at the end of October. We have the bond, we have the bilateral loans, we have the syndicated facility, out of which SEK 1 billion was drawn. We have some pension debt, just to put in the total debt position. We had some cash also in place at that time. The net payment capacity was SEK 5 billion, and the interest rate that we paid on average was 1.7% at the going rate to the end of October.
The maturity profile of our banking or total debt portfolio looks quite favorable with large undrawn tranches sitting back in 2017 and 2019. Hedging. The title here is conservative hedging policy. Of course, hedging also plays into how we deal with the balance sheet. If you go back in time and you look on the bottom part here, what's called strategic hedging, we have decided to take big hedging portfolios over time when we knew that the balance sheet was stretched. That came as an alternative to having bigger bank facilities in place to be able to handle a downturn. We have used that actively when it was felt necessary. Today, we don't have any strategic hedges in place, and when they will come, will have to be in connection with the new situation where we're stressing the balance sheet. Otherwise, apart from that, we basically don't hedge.
Having said that, we do have a full offset hedging in our smelters. Making sure that we should not have any adjustment of inventories reflected in changes in prices and terms, apart from the process inventory. We have one specific hedge in place, which is the Kankberg gold mine, where we actually use the fact that the gold hedges are available for a long time to actually lock in a large part of the return on the Kankberg gold mine already at the start of the project, and these hedges go through 2017. On the payout ratio, just very quickly, we have a very clear policy of one-third payouts. We've been around that numbers from 2027, which is actually the year when it was put in place, the one-third payout ratio. We've been around there. We've had some rounding up and down just around that target.
We should not read too much into that rounding. It's literally a rounding. Moving into guidance and moving into investments. There's been lots of discussion about this, and there's been some questions and some answers already. Let me just quickly go through what we are guiding right now. We are guiding for this year SEK 4.5 billion in investments. That is to be compared to what we said to be SEK 4 billion before. The reason why there's a difference, and it looks like it's gone up, but of course, the Kirunavaara acquisition is in these SEK 4.5 billion. If that was not to be there, we would be rather at a SEK 3.8 billion, which is slightly below what we have guided. Looking for next year, we had guided SEK 4 billion. We're now guiding that up to SEK 4.5 billion.
What's the difference between SEK 4 billion and SEK 4.5 billion? Somewhat of it is a rollover of the fact that we haven't done really all the development work this year as we were supposed to do. We're a little bit behind, and we're catching up some of that next year. We have the other expansion, the SEK 400 million, out of which maybe half comes in already in 2015. Of course, we're now adding Kirunavaara. Adding Kirunavaara, we get one more unit that needs its maintenance CapEx. Of course, the maintenance CapEx of Kirunavaara was not in the previous guidance. The SEK 4 billion to SEK 4.5 billion, I think there's nothing really that changes the underlying guidance that we've given. It's things that have come extra into the situation.
There are maybe two things that should be commented, or three things that should be commented of things that are not on this slide. The first one is we will, in the end of 2015, have a fake investment. Linked to Aitik 45, we will adjust up the future reclamation cost. When you do that, the way IFRS works is that you get an increased debt, but at the same time you get an increased asset. This asset is a fake investment, but it does come as an investment the way accounting works that will then start to be depreciated going forward. That number is a non-cash item, therefore we tend to never talk about it. We had a similar situation a couple of years back around that. It shouldn't come as a surprise when it comes there.
We have the position during next year, which actually is a cash item, which is linked to the nickel in Harjavalta. We will build up some working capital. We don't know how much yet because we haven't gone into being in a stable position regarding the book building on the nickel business. The next thing that is not on there is 2016. We are not, at this stage, ready to guide on 2016. There are a couple of reasons behind that, I think you've asked lots of these questions around, we can just summarize them, that there are issues that we're trying to get our arms around. I've already spoken about the Rönnskär. What will the investment be when you combine the environmental liabilities that we have talked about before with some of the actions that we want to do in order to handle more impurities?
It is not 100% clear, therefore we prefer to wait. There has been discussions around when will Harjavalta need a new acid facility to handle acid. A little bit unclear on timing, therefore we prefer not to guide at this stage regarding that. I think those would be the two main reasons why we're, at this stage, not quite prepared, but there's also been somewhat of a discussion that there is an Aitik 45 phase 2 or phase B that is most likely to maybe be beyond 2016, but we don't know for sure yet as we haven't made any decisions on the phase 2 of the Aitik 45 expansion. Those are some of the reasons why we're not prepared to give a number today, we'll come back to you all when we feel that we have our arms around these numbers and the timing around these things.
A more simple guidance, but still a guidance that come out is the cost that we see as an EBIT effect of the maintenance shutdowns planned for next year. Total effect of SEK 265. Slightly above average of, we say, SEK 200 is more of a normal year. SEK 265 will be a little bit more than a normal year. It is a little bit skewed towards Q2 with SEK 170 in Q2. Actually, we managed to get a little bit pushed out into Q4, which we normally say is free of maintenance shutdowns, but in 2015, we will have some small maintenance shutdown also going into Q4. Based upon this, I think the guidance part, now I'll come to the tutoring session of my discussion. The first one is maximizing NPV. Now let's see if I can find the actual marker here, the laser marker.
I very often get questions about how do you do all this investment that you're supposed to make sure that you increase your return, but actually the return goes down. That is not a situation that's uncommon, that you have a situation where when you maximize your NPV, actually the short-term return on capital will go down. This is a very simple example. If you have a mine that still has some 10 years left, it has a capital employed of 50, has an EBIT of 10, that gives you an EBITDA of 15 because you're depreciating these 50 over 10 years. It gives you an EBITDA of 15. Let's assume all kind of other timing difference are zero. That gives you an NPV of 98, and return on capital employed is 20. If you take 10 divided by 50, you get 20%.
What if you were to do an investment of 150 here? If you do an investment of 150, your capital employed goes from 50 to 200. That's your investment. This is an investment that actually changes your life of mine to 20 years. It increases your EBIT to 30. That means EBITDA goes to 40 because you have the 200 now divided by 20 years, that goes to 40. If you do the NPV of this, it's 340. You had basically 100, you add 150. This is a really value-creating investment. You create a value of 90. Your return on capital employed in the short term, that's your 30 now divided by 200, is only 15%.
You can look around these numbers, and you will find lots of situation where it is quite clear that a good investment will lower your return on capital employed in the short term. The very clear example that we have of this is, of course, Garpenberg. Garpenberg was having a very healthy return on capital employed before we did the investment. The investment is a great investment, giving all kind of value to the shareholders, but the short-term return on capital employed actually goes down. The other example would be Aitik. If we had not done the Aitik 36 investment, this would be next year would be the last year of Aitik around, but it would have all been depreciated. It would have been a perfect, very good return on capital employed year of maybe over 100%, it would be the end of it.
Mining is around extending life of mine, extending life of mine will, not always, but a lot of time might compromise the return on capital employed in the short term. Next thing, next interesting little tutoring session is the looking into maximizing NPV, and here's actually real pictures from the Renström mine. What you see here, if you start moving to the right, you will see that if you have a high cost or low prices in your planning, then only the very high value ore becomes interesting to mine. If you go to the other end with a decrease in cost or higher prices for the ore, suddenly the ore body becomes much bigger. Now you start getting the secondary effects because when you have a bigger ore body, you can use more cost-efficient mining techniques.
You get your cost down even further, you get a cycle working your way. The same way as when you go that way, suddenly you get higher cost because you cannot use the large scale mining methods as you could here, and you might move even further out. This is how important it could be in certain situations to make sure that you have the right conditions in place for your planning, because it does give you lots of secondary effects in how you look at your whole ore body and what is really ore and what is waste. It could really play into the whole planning. Of course, this is something that we spend lots of time with working through in our different mines what does the optimal mine plan look like given the conditions that have been given.
The next area that's been lots discussed during this year has been the internal profit, as our internal profit tended to move around. Internal profit, that's only a timing difference, End of the day, we're going to get the whole profit. Since we're a group, we cannot give the mining profit into our bottom line until it has gone through the smelters. This is a relatively simple curve that shows that this is the Boliden weighted in SEK metal price index over the last five years. The red one here is the reserve that we have for internal profit. There's not really any strange that when you have prices and terms going up, then you make more profit, and when you make more profit, most likely you have to take some of that away because you cannot recognize it until it comes out.
You've seen that in the individual quarters, there have been some jumps in this, The reason why there's jumps is that the trick here is that there are some very rich concentrates that we produce that are very rich in precious metals. They tend to come from Garpenberg, that has a copper and a lead concentrate, very rich in precious metals, and Boliden area has a copper concentrate, very rich in precious metals. These can jump up and down a little bit in the end of the quarter. They can be on a higher inventory level, on a lower inventory level, Therefore because of that, you can see some of these jumps sometime. The general trend, when price and terms go up, you will have to put more into reserve.
When the prices go down, you can take some of that reserve out, When this goes down, that generally helped the profit levels. When it went up again, started coming up again, the build up a little bit more of the reserve again. I think in general, it's very clear there's a correlation over time that correlates very well with this, then we can have some individual jumps in individual quarters, which is nothing really strange around that. One last slide, this is maybe should have been first because this might be the most simple one, just to reiterate again, where does the profit come into the different business areas? If you have a total metal value, comes here, the mines get the gross profit, which is the total metal value minus the TCRC and minus the free metals.
In a copper world, this might be 10%, and this might be 90% going to the mines. In zinc, this might be 30%, and this might be 70%, just to have an order of magnitude of how it is split. These things, these parts, they move over to the smelters and becomes part of the smelter gross profit. On top of that, smelters get premium, and they can sell byproducts. That's a simple way of just clarifying how the revenue models work for our different business areas. With that, I just wanted to summarize what I have said. While I've gone through the financial targets, I hope I've given you some clarity on how we're standing with the financial targets and how we're dealing with them.
I've given you some guidance on CapEx, and I've given you some guidance on the maintenance stops, and I've done some tutoring sessions. There's something I haven't spoken about. I haven't spoken about the process inventory revaluation, which has been a kind of main theme last year. There's a reason I haven't spoken about it, because to the left here you can see what it looked like a year back when lots of you analysts there were not really quite on the target, and lots of you were quite way off the mark. It's gotten much better during the year. If you look, for example, at our Q2, I feel that as a group, and these are the analysts that are part of our consensus from SME, and when you look at that, you can see that the group as a whole has performed much better.
I was going to try to restrain myself this year from having another tutoring session regarding how to do the process inventory revaluation. I think that that one is now well done and well finished. Having done that, I think it's interesting to see who got it most right. What we did, we took the last four quarters, and we looked at your estimates beforehand and looked at the real process inventory revaluation. We did a little competition. The winner is, with an average deviation of SEK 23 million over these four quarters, having hit almost perfect for one quarter and was a little bit more off for other quarters. The winner is, give a big hand to Ola Södermark from Swedbank. Come up.
This is for you for having done this, and this is just to make sure that you can keep warm now when you're going to go out in the ice in the winter and make yourself warm and remember our company.
Thank you very much.
You're welcome. With this, I think it's over for questions.
Yes. Do we have any questions for Mikael? Yes, we do. Let's see if I have any microphones. Thank you.
Hi, Mikael. This is Alain Gabriel again from Morgan Stanley. My question is around capital management. How fixated are you on the payout ratio that you've just highlighted, and how flexible can you be in case you approach quickly to the 20% net debt to equity? How does this fit into your capital return to shareholders ideas?
I think that as long as we are where we are now and as long as we are above or around the 20%, nothing will happen. Your question, I suppose, is what happens when you were to go significantly below 20%, and what I will say that as always that we don't have a fixed answer for that beforehand. We will deal with that issue as it comes, if it comes.
Right.
Hi. It's Fawzi Hanano from Goldman Sachs. Just a quick question, details on the SEK 4.5 billion 2015 CapEx. You mentioned there's rollover from 2014, there's the Odda expansion and Kylylahti, but there's no mention of the deep deposit permit for Rönnskär. That SEK 1 billion or SEK 600 million that's supposed to be spent for the next three years, is that within the SEK 4.5 billion or that's going to be additional?
No, that was in.
Okay.
That was in already before.
Okay.
there's nothing really new in this period.
Thank you. Sasha Bukacheva again, BMO Capital Markets. What's your exposure to Swedish krona in your operating costs and the capital expenditures, like roughly high level as a percentage?
Operating costs, I think we are around 70% Swedish krona, I can come back.
Consolidated for the company, right?
For the company, for the whole group. On the CapEx side, that's a little bit more tricky to answer. The first question would be that it's roughly the same, but indirectly there will be more EUR in there because even though we buy some things in SEK, there could be a EUR producer behind it who will eventually adjust their prices.
Thank you. With respect to Odda, what is the distribution between fixed and variable costs?
In general, in the
For the smelter, yeah. For the operating costs, how much of that is fixed? How much is variable?
Help me, Kerstin. We have a little more than 40% electricity, for sure variable, consumption, which is variable, another 20 more. Let's assume around 60 variable, 40 fixed.
Okay. Thank you.
Hi, it's Daniel Major from UBS. A question on your sort of CapEx going forward. You mentioned in the smelting business a number of other potential projects and obviously environmental projects that may be required. Could you give us an indication of a sort of long-run sustaining maintenance CapEx number, excluding those projects from the smelting business and also from the mining business?
The total guidance has always been, or has not always been, but it's been for quite some time that we're around SEK two and a half billion together between mining and smelting. For simplicity, that's roughly 50/50 between the two units. It's not exactly that and it varies little by year, but roughly that. As you're pointing out, that is excluding what you can call the really heavier maintenance, like your new acid plant comes above that.
Thanks so much.
Do we have any more questions? No. Thank you, Mikael.
Thank you.
Before Lennart sums up with his closing remark, I would just like to point out some practical details. We will have dinner served outside in the exhibition area. For those attending tomorrow's visit to Garpenberg, please make sure that you have the details from where the bus departs at 8:00 A.M. tomorrow. Lennart, please go ahead.
I will start to tell two anecdotes. The first one was after a week with Kerstin or maybe two when you started here. We went to Finland. We were standing in the copper nickel smelter, I am telling the story because it has a lot of relevance with what we have talked about today or what we spoke about today. We stood at the far end of the smelter in an absolutely God's forgotten place, under big machines, rusty, dirty. It was incredible. We stood there and one of our Finnish hosts said, "We have never taken any visitor here before, but this, Kerstin, the new boss of the smelters, this is where we produce the secret money." You know PMs, precious metals, you know gold and silver. We know PGMs, the platinum group metals, which is also produced there.
Here in Finland, we do OPMs, they said. What? OPMs, other precious metals. Okay. What is other precious metals? Well, it is name of metals you haven't heard of before. They are showing up at the end of this little.
Happened in the spring, but also, on a day-to-day basis in terms of which facilities we draw upon and how we use the different options that we have at our hand. Of course, the point is that we want to reach the 20% over time, and of course, keeping the payout ratio that I will come back to into play. All these things played into the refinancing that we had in the spring. Just a little bit of recap, there should be nothing new to anybody on this slide, but we did have a bond issued back in April. That one was issued at 190 basis points over STIBOR for a 6-year bond.
We at the same time set up a bilateral facility with SEK with a duration of 7 years, then we renegotiated the syndicated facilities to get a harmonized banking group in place of 13 banks, but also to be able to set up a duration profile that we wanted. We now have two tranches of a EUR 850 million facility. This was all based on a simulation coming back to the low prices that you saw a little while back, that if we get that situation with the really low prices for one year or we get the slightly better prices but for 4 years, we will always keep a SEK 3 billion payment capacity in place to make sure that we do not have to get into situation where we need to suboptimize in our day-to-day business.
As you also pointed out, somebody pointed out that this is a slightly smaller facility than we had before. We actually scale down on it slightly, and that, of course, has to do with the projections on how much debt we do need. Basically taking back some of the facilities that we increased a couple of years back for what we then anticipated to be a buildup of the debt. If you look at the financing profile that we do have in place today, we have SEK 13.7 billion out of which Sorry, SEK 12.7 billion, out of which SEK 12.4 billion is for over a year. We have a commercial paper program in place with a limit of SEK 4 billion. Out of that, SEK 2.7 billion was drawn at the end of October.
We have the bond, we have the bilateral loans, we have the syndicated facility, out of which SEK 1 billion was drawn. We have some pension debt, just to put in the total debt position, and then we had some cash also in place at that time. The net payment capacity was SEK 5 billion, and the interest rate that we paid on average was 1.7% at the going rate at the end of October. The maturity profile of our banking or total debt portfolio looks quite favorable with large undrawn tranches sitting back in 2017 and 2019. Hedging. The title here is conservative hedging policy. Of course, hedging also plays into how we deal with the balance sheet.
If you go back in time, and you look on the bottom part here, what's called strategic hedging, we have decided to take big hedging portfolios over time, but we knew that the balance sheet was stretched. That came as an alternative to having bigger bank facilities in place to be able to handle a downturn. We have used that actively when it was felt necessary. Today, we don't have any strategic hedges in place, and when they will come, will have to be in connection with the new situation where we're stressing the balance sheet. Otherwise, apart from that, we basically don't hedge. Having said that, we do have a full offset hedging in our smelters. It's making sure that we should not have any adjustment of inventories reflected in changes in prices and terms apart from the process inventory.
We have one specific hedge in place, which is the Kankberg Gold Mine, where we actually use the fact that the gold hedges are available for a long time to actually lock in a large part of the return on the Kankberg Gold Mine already at the start of the project, and these hedges go through 2017. On the payout ratio, just very quickly, we have a very clear policy of one-third payouts. We've been around that numbers from 1927, which is actually the year when it was put in place, the one-third payout ratio. We've been around there. We've had some rounding up and down, just around that target. Should not read too much into that rounding. It's literally a rounding. Moving into guidance and moving into investments. There's been lots of discussion about this, and there's been some questions and some answers already.
Let me just quickly go through what we are guiding right now. We are guiding for this year SEK 4.5 billion in investments. That is to be compared to what was said to be SEK 4 billion before. The reason why there's a difference, and it looks like it's gone up, but of course, the Kirunavaara acquisition is in these SEK 4.5 billion. If that was not to be there, we would be rather at a SEK 3.8 billion, which is slightly below what we have guided. Looking for next year, we had guided SEK 4 billion. We're now guiding that up to SEK 4.5 billion.
What's the difference between SEK 4 billion and SEK 4.5 billion? Some of it is a rollover of the fact that we haven't done really all the development work this year as we were supposed to do. We're a little bit behind, and we're catching up some of that next year.
We have the Odda expansion, the SEK 400 million, out of which maybe half comes in already in 2015. Of course, we're now adding Kirunavaara, and adding Kirunavaara, we get one more unit that needs its maintenance CapEx. Of course, the maintenance CapEx of Kirunavaara was not in the previous guidance. The SEK 4 billion to SEK 4.5 billion, I think there's nothing really that changes the underlying guidance that we've given. It's things that have come extra into the situation. There are maybe two things that should be commented, or three that should be commented on things that are not on this slide. The first one is we will, in the end of 2015, have a fake investment. Linked to Aitik 45, we will adjust up the future reclamation cost.
When you do that, the way IFRS works is that you get an increased debt, but at the same time, you get an increased asset. This asset is a fake investment, but it does come as an investment the way accounting works that will then start to be depreciated going forward. That number is a non-cash item; therefore, we tend to never talk about it. We had a similar situation a couple of years back around that. It shouldn't come as a surprise when it comes there. We have the position during next year, which actually is a cash item, which is linked to the nickel in Harjavalta. We will build up some working capital. We don't know how much yet because we haven't gone into being in a stable position regarding the book building on the nickel business.
The next thing that is not on there is 2016. We are not at this stage ready to guide on 2016. There are a couple of reasons behind that, and I think you've asked lots of these questions around, and we can just summarize them, that there are issues that we're trying to get our arms around. I've already spoken about the Rönnskär. What will the investment be when you combine the environmental liabilities that we have talked about before with some of the actions that we want to do in order to handle more impurities? It is not 100% clear, therefore, we prefer to wait. There has been discussions around when will Harjavalta need a new acid facility to handle acid. A little bit unclear on timing. Therefore, we prefer not to guide at this stage regarding that.
I think those will be the two main reasons why we're, at this stage, not quite prepared, but there's also been somewhat of a discussion that there is an Aitik 45 phase 2 or phase B, that is most likely to maybe be beyond 2016, but we don't know for sure yet as we haven't made any decisions on the phase 2 of the Aitik expansion, Aitik 45 expansion. Those are some of the reasons why we're not prepared to give a number today, and we'll come back to you all when we feel that we have our arms around these numbers and the timing around these things. A more simple guidance, but still a guidance that come out is the cost that we see as an EBIT effect of the maintenance shutdowns planned for next year.
Total effect of SEK 265, slightly above average of we say SEK 200 is in more of a normal year. SEK 265 will be a little bit more than a normal year. It is a little bit skewed towards Q2 with SEK 170 in Q2. Actually, we managed to get a little bit pushed out into Q4, which we normally say is free of maintenance shutdowns. But in 2015, we will have some small maintenance shut up also going into Q4. Based upon this, I think the guidance part. I'll come to the tutoring session of my discussion. The first one is maximizing NPV. Let's see if I can find the actual marker here, the laser marker. I very often get questions about how do you do all this investment that you're supposed to make sure that you increase your return, but actually, the return goes down.
That is not a situation that is uncommon, that you have a situation where when you maximize your NPV, actually, the short-term return on capital will go down. This is a very simple example. If you have a mine that still has some ten years left, it has a capital employed of SEK 50, has an EBIT of SEK 10. That gives you an EBITDA of SEK 15 because you're depreciating these SEK 50 over ten years. It gives you an EBITDA of SEK 15. Let's assume all kind of other timing difference are zero. That gives you an NPV of SEK 98, and return on capital employed is 20. If you take ten divided by 50, you get 20%. What if you were to do an investment of SEK 150 here? If you do an investment of SEK 150, your capital employed goes from SEK 50 to SEK 200. That's your investment.
This is an investment that actually changes your life of mine to 20 years. It increases your EBIT to SEK 30. That means EBITDA goes to SEK 40 because you have the SEK 200 now divided by 20 years, that goes to SEK 40. If you do the NPV of this, it's SEK 340. You had basically SEK 100, you add SEK 150. This is a really value-creating investment. You create a value of SEK 90. Your return on capital employed in the short term, well, that's your SEK 30 now divided by SEK 200, is only 15%. You can look around these numbers, and you will find lots of situation where it is quite clear that a good investment will lower your return on capital employed in the short term. The very clear example that we have of this is, of course, Garpenberg.
Garpenberg was having a very healthy return on capital employed before we did the investment. The investment is a great investment, giving all kind of value to the shareholders, but the short-term return on capital employed actually goes down. The other example would be Aitik. If we had not done the Aitik 36 investment, this will be the last year. Next year will be the last year of Aitik around, but it would have all been depreciated. It would have been a perfect, very good return on capital employed year of maybe over 100%, but then it will be the end of it. Mining is around extending life of mine, and extending life of mine will not always, but a lot of time might compromise the return on capital employed in the short term. Next interesting little tutoring session is looking into maximizing NPV.
Here's actually real pictures from the Renström mine. What you see here, if you start moving to the right, you will see that if you have a high cost or low prices in your planning, well, then only the very high value ore becomes interesting to mine. If you go to the other end with a decreasing cost or higher prices for the ore, suddenly the ore body becomes much bigger. Now you start getting the secondary effects because when you have a bigger ore body, you can use more cost-efficient mining techniques. You get your cost down even further, and you get a cycle working your way. The same way as when you go that way, well, suddenly you get higher cost. You cannot use the large scale mining methods as you could here, and you might move even further out.
This is how important it could be in certain situations to make sure that you have the right conditions in place for your planning, because it does give you lots of secondary effects in how you look at your whole ore body and what is really ore and what is waste. It could really play into the whole planning. Of course, this is something that we spend lots of time with working through in our different mines, what does the optimal mine plan look like given the conditions I've been given? The next area that's been less discussed during this year has been the internal profit, as our internal profit tended to move around. Internal profit that's only a timing difference. At the end of the day, we're going to get the whole profit.
Since we're a group, we cannot give the mining profit into our bottom line until it has gone through the smelters. This is a relatively simple curve that shows that this is the Boliden weighted in SEK metal price index over the last 5 years. The red one here is the reserve that we have for internal profit. There's not really any strange that when you have prices and terms going up, well, then you make more profit. When you make more profit, most likely you have to take some of that away because you cannot recognize it until it comes out. Now you've seen that in the individual quarters, there have been some jumps in this.
The reason why there's jumps is that the trick here is that there are some very rich concentrates that we produce that are very rich in precious metals. They tend to come from Garpenberg, that has a copper and a lead concentrate, very rich in precious metals. Boliden area has a copper concentrate, very rich in precious metals. These can jump up and down a little bit in the end of the quarter. They can be on a higher inventory level, on a lower inventory level, therefore, because of that, you can see some of these jumps sometime. The general trend, when price and terms go up, you will have to put more into reserve. When the prices go down, you can take some of that reserve out. When this goes down, that generally helped the profit levels.
When it went up again, the build up a little bit more of the reserve again. I think in general it's very clear there's a correlation over time that correlates very well with this. Then we can have some individual jumps in individual quarters, which is nothing really strange around that. One last slide, this maybe should have been first because this might be the most simple one. Just to reiterate again, where does the profit come into the different business areas? If you have a total metal value comes here. The mines get the gross profit, which is the total metal value minus the TCRC and minus the free metals. In a copper world, this might be 10% and this might be 90% going to the mines.
In zinc, this might be 30% and this might be 70%, just to have an order of magnitude of how it is split. Then these things, these parts, they move over to the smelters and becomes part of the smelter gross profit. On top of that, smelters get premium and they can sell byproducts. That's a simple way of just clarifying how the revenue models work for our different business areas. With that, I just wanted to summarize what I have said. While I've gone through the financial targets, I hope I've given you some clarity on how we're standing with the financial targets and how we're dealing with them. I've given you some guidance on CapEx, I've given you some guidance on the maintenance stops, I've done some tutoring sessions. There's something I haven't spoken about.
I haven't spoken about the process inventory revaluation, which has been the kind of main theme last year. There's a reason I haven't spoken about it, because to the left here, you can see what it looked like a year back when lots of you analysts there were not really quite on the target, lots of you were quite way off the mark. It's gotten much better during the year. If you look, for example, out of Q2, I feel that as a group, these are the analysts that are part of our consensus from SME, when you look at that, you can see that the group as a whole has performed much better. I was going to try to restrain myself this year from having another tutoring session regarding how to do the process inventory valuation.
I think that that one is now well done and well finished. Having done that, I think it's interesting to see who got it most right. What we did, we took the last 4 quarters, and we looked at your estimates beforehand and looked at the real process inventory valuation, and we did a little competition. The winner is with an average deviation of SEK 23 million over these 4 quarters, having hit almost perfect for one quarter and was a little bit more off for other quarters. The winner is, give a big hand to Ola Södermark from Swedbank. Come up. This is for you for having done this, and this is just to make sure that you can keep warm now when you're going to go out in the ice in the winter and make yourself warm and remember our company.
Thank you very much.
You're welcome.
With this, I think it's open for questions.
Yes. Do we have any questions for Mikael? Yes, we do. Let's see if we have any microphones. We have questions. Yes. Thank you.
Hi, Michael. This is Alain Gabriel again from Morgan Stanley. My question is around capital management. How fixated are you on the payout ratio that you've just highlighted? How flexible can you be in case you approach quickly to the 20% net debt to equity? How does this fit into your capital return to shareholders ideas?
I think that as long as we are where we are now, and as long as we are above or around the 20%, nothing will happen. Your question, I suppose, is what happens when you were to go significantly below 20%? What I will say to that, as always, that we don't have a fixed answer for that beforehand. We will deal with that issue as it comes.
Thank you.
If it comes.
All right.
Fawzi Hanano from Goldman Sachs. Just a quick question, details on the SEK 4.5 billion 2015 CapEx. You mentioned there's rollover from 2014 of the Odda expansion and the Kylylahti, but there's no mention of the deep deposit permit for Renström. That SEK 1 billion or SEK 600 million that's supposed to be spent for the next three years, is that within the SEK 4.5 billion, or that's going to be additional?
No, that was in.
Yeah.
That was in already before.
Okay.
There's nothing really new in this period.
Thank you.
Sasha Bukacheva again, BMO Capital Markets. What's your exposure to Swedish krona in your operating costs and capital expenditures, like roughly high level as a percentage?
Operating costs, I think we are around 70% Swedish krona. I can come back-
Total for the company, right?
For the company, for the whole group. On the CapEx side, that's a little bit more tricky to answer. The first question would be that it's roughly the same, but indirectly there will be more EUR in there because even though we buy some things in SEK, there could be a Euro producer behind it who will eventually adjust their prices.
Thank you. With respect to Odda, what is the distribution between fixed and variable costs?
In general, in the-
For the smelter, yeah. For the
For the smelter?
Operating costs, how much of that is fixed? How much is variable?
Help me, Kerstin. We have, whatever, a little more than 40% electricity, for sure variable. Consumption, which is variable, another 20 more. Yeah. Let's assume around 60 variable, 40 fixed.
Okay. Thank you.
It's Daniel Major from UBS. A question on your sort of CapEx going forward. You mentioned in the smelting business a number of other potential projects and obviously environmental projects that may be required. Could you give us an indication of a sort of long-run sustaining maintenance CapEx number, sort of excluding those projects from the smelting business and also from the mining business?
Well, the total guidance has always been, or has not always been, but it's been for quite some time that we're around SEK 2.5 billion together between mining and smelting. For simplicity, that's roughly 50/50 between the two units. It's not exactly that in the various little by year, but roughly that. That is, as you're pointing out, that is excluding what you can call the really heavier maintenance, like your new acid plants, comes above that.
Thanks so much.
Do we have any more questions? No. Thank you, Mikael.
Thank you.
Before Lennart sums up with his closing remark, I would just like to point out some practical details. We will have dinner served outside in the exhibition area. For those attending tomorrow's visit to Garpenberg, please make sure that you have the details from where the bus departs at 8:00 A.M. tomorrow. Lennart, please go ahead.
I will start to tell two anecdotes. The first one was after a week with Kerstin or maybe two when you started here. We went to Finland, and we were standing in the copper nickel smelter. I'm telling the story because it has a lot of relevance with what we have talked about today or what we spoke about today. We stood at the far end of the smelter in a absolutely God's forgotten place, under big machines, rusty, dirty. It was incredible. We stood there, and one of our Finnish hosts said, "We have never taken any visitor here before, but this, Kerstin, the new boss of the smelters. This is where we produce the secret money." You know PMs, precious metals, you know gold and silver. We know PGMs, the platinum group metals, which is also produced there.
Here in Finland, we do OPMs, they said. What? OPMs, other precious metals. Okay. What's other precious metals? Well, it's a name of metals you haven't heard of before. They are showing up at the end of this little pit at the end of the smelter. They said, "You know, it's a brilliant business concept.
We don't feed it anywhere, and still it's coming out here. See how much it is. They had little plastic bags weighing heavy like gold or something, and I said, "It's higher kilo price than gold, and we have no clue where it's coming from." Of course, that's another day at work for Kerstin, one week in the company, and we spoke about that, of course. We have been talking about it for a long time. This three-spoke wheel here, with feed in and different metals out, we have to maximize the primary metal output, but we also have to look at other things which otherwise go to the tailings. I think OPMs is another word of what we talk about here. It's improving our financial performance. It's improving our environmental performance. Where is it coming from?
Well, it's coming from copper, sometimes coming from ore concentrates, sometimes coming from zinc concentrates. In Rangifer, we probably have quite plenty, and it's coming with electronics, and in Harjavalta also, as you said on one of the slides, with the nickel. I think there are, going forward, every company in our industry or in anyone else, we have to make sure that we take care. We process big volumes. We have to take out all the value elements there is in there. The other one is an interesting discussion Mikael and I had lately. We were looking through our plans, as we all do, and I'm sure you also have yearly sessions, and we were looking through the strategic plans. We had threats and opportunities, and we have, you can imagine what it is. One threat was increased environmental cost.
We sat here late evening, and we really got pissed on the whole thing here, because if we have a problem with living up to high standards when it comes to our environmental performance, we can look at it as a proactive thing. We want to be good. We don't want to destroy the world. We want to make things good around where we are. We can be defensive. Okay, we get a new permit. Damn, it's going to cost X hundred millions more. I think if it is a threat or an opportunity, I can tell you one thing. If we call it a threat, which we don't, but if we would call it a threat, imagine what everybody else in our industry has on their table, and what they have on their tables. Environmental legislation and environmental demands are increasing all over the place.
I think we have come a long way. If we are taking additional steps, which we do, we do it because we think it is good to do it. We have our own agenda. We are not only going to look at legislation. We think legislation is far too misleading and costly in some situations. We think the authorities are missing out on a couple of other areas where we think that we should do a lot more than what we are asked. We start, and I think we will be a bit of a forerunner in, or we hope that we are a forerunner in really making our own agenda. Where should we argue to be paying less or investing less because it has very little marginal impact? Where shall we do more?
We're working very hard on modeling this and having this as our own agenda. Again, is it an opportunity or a threat? I think for us, it is much more an opportunity than a threat. Certainly, I think it's a big threat for many in our industry when demands are improving. We have projects. We are proud of our project pipeline. If we look at this, I would say that we have positioned ourselves. We have positioned Boliden where we are today. We have always been favoring high-return projects. We have wanted to be in smelting and mining. We have been selecting, or we have been in copper and zinc, but we have also been working on many different metals opportunities or options. We have stayed where we are because we have the knowledge there, and we like them.
I think we have seen the macro development being in favor for many years in the primary metals where we are. The project pipeline is very important for us. When someone here, I think the question, "Oh, Kerstin, you have a lot of projects." Probably the question came with a concern that we are going to spend a lot of money, but you should absolutely look at it. We want to have a portfolio and a pipeline so we can pick and choose. With the management capacity we have, we are not going to do stupid investments because we have a strong cash flow. We have high demands on delivering returns to shareholders. We are going to pick the best projects. If we don't have projects, we think it is a great value creation to return more money to shareholders.
It's a very good route going forward. Of course, even better it is if we can do like, I think the other project, for example, will look like. It's a better return than anything else that we can think of. Finally, we have now been spending the afternoon here. It's interesting. I think when we compile everything, it's a good story, in my opinion. We have some weak points. We have some strong points. Tomorrow we have the highlight or the high point of the capital markets days this year. I think what we see tomorrow, it's a demonstration of years and years of upgrading and continuous improvement and improving our project management capacity, our technology when it comes to mines and mining and mine design. I hope that for dinner, you have to look at the different stands up here. All of them are very interesting.
The leaching with Paul Kruger, with remote controls which drive a different kind of organizing our company with much flatter organization, with people dealing directly with each other, taking the control rooms out in the plants and so on. Garpenberg tomorrow is, for us, sort of a demonstration of everything we have been talking about here, basically. Hope you will like it. Finally, I would just like to thank Sophie. You have got all the management team here to stand in front of TV cameras looking good. We haven't done that before. I don't know if it helps, but in any case, it has been a good work from you and I'm very proud with everyone in the company. I think the top management here on the front row, I'm very happy to be the CEO of Boliden.
Of course, everyone out on the stands out there, and I hope that you will see smiling faces tomorrow in Garpenberg. I think at least every time I go there, I'm seeing beautiful things, machines and mines and whatever, but I see very dynamic troops of people. I think that concludes our presentations. Am I going to stand here for another few minutes and take questions or?
No.
No?
Now we're heading for dinner.
That's perfect. Thank you very much.