Good afternoon. A warm welcome to Boliden's Q3 earnings call. My name is Sophie Arnius, Head of Investor Relations. Today's presenters are our CEO and President, Lennart Evrell, followed by Mikael Staffas, CFO. After their presentations, we will open up for questions. Lennart, please go ahead.
Good afternoon. I think we are pleased with the result of the third quarter. I think we had a strong performance in the smelters. I think that Boliden has always been proud and convinced that the combination of mines and smelters is a good combination. The Swedish krona has weakened, which has a major impact on our performance. I would say that the operations and organic development has been good. Garpenberg is performing very well. Ramping up is going according to plan. We had somewhat low degrees or grains in Aitik, but that goes together very well with the longer-term guiding we have done on a year with about 0.2 of copper. Revenues were SEK 9.2 billion, compared to SEK 8.4 billion the previous year. EBIT before or excluding the process inventory evaluations were SEK 711 million compared to SEK 603 million a year ago.
If we include the process revaluation, we had a profit of SEK 858 million compared to SEK 680 million the previous year. Cash flows are coming as a result of the improved profit, but also the fact that we are now seeing lower CapEx when the Garpenberg project is done. On the terms, take away the currency for a moment. Metal prices have been going up, in particular on zinc. When zinc is going up, it's also automatically pulling the zinc TCs, which has a price clause in it, so-called escalators. Therefore we had a quite significant improvement in the smelters, which is going negative in the same way for the mines selling the concentrates. Else than that, we have seen also copper TCs going the right way and the effect of improvement plans. Low grade in Aitik in line with the long term or the guiding for 2014.
Swedish krona very important. Odda can we also be mentioned that we are in full production now after a year or more than a year of impact from a reactor dilemma which has followed us. We had pre-announced that after the first half of 2014 we will be on full production. That means that Odda has been a good story in the quarter. The macro development is the demand is continuing to grow, but the demand is unclear, and I think there is an increasingly nervous reaction when it comes to slightly lower growth rates in China. More important in the metals markets that even though the metals demand is firm, that there is a somewhat more nervous reaction on the supply from the copper mines. We will see that on next slide.
When it comes to Boliden's exposure to the general market in terms, of course, the Swedish krona development has been very good for us after a time when we meet people missing that we are not Switzerland. Sweden is more to the north, and we don't have exactly the same currency. The Swedish krona has now weakened considerably, which is easing the very difficult situation that Boliden has had for quite some time now. If we look at the market balance or the metal markets, I think you see on the top line, top right here, we have 2.7% growth in the zinc demand and 4.2% of copper demand. Healthy demand development for both metals.
What is somewhat contradictory to what intuitive many would have believed, I would say, is that we have a mine production in zinc which is increasing by 3.5% following a number of negative numbers, as you can see on the slide. Whereas the copper market which was assumed to be oversupplied on copper concentrates has a minus. Both of these numbers are more a reflection of what happened last year, where copper was very strong. Now compared to that quarter, we have a minus and the other way around for zinc. I think the long-term situation remains that we have a thin mine supply going forward in zinc, and we have a well-supplied market at least for a year or two in copper.
Thereafter, I think more and more people are seeing the effect of low investments on new mining and a possible deficit in copper beyond that period. Currencies we spoke about. If you look at the dark blue, it's the dollar Swedish krona exchange rate, which is so important, and we see that it has been coming up gradually in the year and certainly in Q3. We can also see that compared to Europe or euro, the last period here also are showing the weakness of the euro and the strength of the dollar compared to both euro and Swedish krona. Positive developments for Boliden. Zinc price, the long-term picture is flat and the last 12 months, clearly positive. As you can see on the smaller blow-up of the past five quarters. If we look at copper, in contrast, it's a long-term negative and short-term, very flat situation.
The quarter had a little bit higher copper prices, as you can see on the black horizontal line over the quarter, which is higher than in the second quarter, where we saw a gradual increase in the quarter. The longer-term picture is flat or/and the longer is negative for copper price. If we look at the precious metals, negative trends on both, and the lead price is continuing to mirror quite much the zinc picture with a good demand pattern and with low demand. Even though now the lead price is a little lower than zinc, so it has had in the latest couple of months, a slightly less positive development than zinc. If we then go into the operations and start with the mines. Earnings were SEK 355, that is lower than the market expectations.
From what I read, it's lower than last year and a little bit better than the second quarter. The impact here of higher zinc price is good for the mines, no doubt, but it also pulling up the zinc TCs, which is going negative for the mines and positive for the zinc smelters. The production ramp-up in Garpenberg went very well. We continue to be on plan. The concentrator plant is in the volumes. The zinc concentrate production is good, but we continue to take some of the ore from the stockpiles we have accumulated over, say, two years. The mine is ramping up according to plan, a little bit gradual, and the concentrator plant is more of doing a step change, and we have prepared for this by building an ore stockpile, which we take ore from. The general situation is very good.
We have a positive or a mixed change going to zinc in Boliden, which is temporary. As we know, the Boliden area is going a little bit, depending on where we choose to mine. We have increased depreciation as a result of Garpenberg, of course, starting up, then the depreciation is starting, and we are in Aitik, the new or the accounting rules call for separate depreciation in different parts of the pit. We are now working in capital-heavy or expensive pushbacks. That increased the depreciation in Aitik. We have a union agreement in Tara, and we were 700 people when we started this exercise one year ago, or a little bit more than one year ago. We took the head count down to 650, and we are now trading down, and we have an agreement to go below 600 people.
Fairly significant headcount reductions in Tara, and we have good relations with the unions. We are sitting on the same side of the table, basically. We have to defend the cost and competitive position in order to maximize the value of that mine, which is not very long life. The production numbers are representing or representation or in consequence with what I'm saying. The bars to the left are ore production. We had a record production in Aitik in the previous quarter. We are on a more normal 38 million tons, which is very satisfactory too. In addition, we have Boliden area, which is going in the direction of zinc right now. The solid line diagram is showing the copper production, which is down, which is essentially an effect of ore production and the lower grade in Aitik.
I stress again, for the third time, I guess, that the lower grade in Aitik is perfect in line with the guiding we have done for 0.20 for the full year. No problem with that. On zinc, well, the ore production is increasing. Obviously, it's a question of Garpenberg coming up. The metal production is going up, but a little bit lower grade than we have seen before. Basically, it's a reflection of the improvement. The lower grade is coming from Tara, where we also had a conveyor belt which stopped, and it was collapsing, and that took a while to correct. Nothing major, but still. Ore mix in Boliden, I already mentioned. On the smelters, we have a good profit, SEK 464 compared to SEK 262, excluding the inventory revaluation, and it's a lot up from the second quarter when we had the big maintenance stops.
Stronger US dollar is playing in here as well as for the mines, we had all the other parameters, both premiums, free metals, byproducts have been going positive. In particular, the TCs are developing well for us here. The lower cost is a result of both seasonality, but also from the cost reductions we are doing, in particular in Rönnskär, where the action plan is doing very fine. The full production in order following a period of lower or at least impacted production from the reactors I mentioned in the beginning. We do have a lot lower maintenance shutdowns in the third quarter than in the second quarter this year. It was 85, but still higher than the previous year, where it was only 25.
We had a leach tank which collapsed, a bad accident, a scary situation right after the Q2 report, we issued a press release when we had the full understanding of the impact there. We announced a 7 million EUR Q3 impact, thanks to very active management, very creative solutions, we balanced that and actually got a slightly lower negative impact than anticipated in the beginning, so only 50 million SEK impact. What is more important than the monetary impact there is that no one got hurt and nothing was emitted to the environment. It calls for reviews of all the tanks, and we certainly have done so. It was not a good situation. Completely unexpected. On production, we have some deliveries.
We have been short of secondary materials, we have been slightly short also of concentrates, we have had good quality materials in the quarter. You can see that, which is also a reflection of and also a shutdown situation planned. In zinc, we had a positive development in that basically the zinc production went well, with the exception of the Kokkola. Again, the impact there was lower than anticipated. With that, Mikael, you can take us through the financials.
Thank you, Lennart. Let's see if I fit in here. Looking at the financials, you've all seen the numbers on this summary. I'd like to highlight the two numbers down towards the bottom. The investments are lower, as most of you've seen, at 720 SEK. They're also, as most of you can figure out, they're lower than we have guided for. This is, of course, good for cash flow. The underlying reason is not that we've gotten extremely much more efficient. We are slightly late with our capital investment program. We have guided that we will not have quite the 4 billion SEK as we have guided before for the full year, we will come back in the Capital Markets Day if there will be any adjustment for the guidance for 2015 because of this.
There are some delays in capital development and in pushback, but they're not in any way that we see it impeding the production. We still have headroom enough in our planning. Therefore, the free cash flow moved up and was relatively healthy, SEK 728 million. Start looking into what the bridges look like and how we explain the EBIT. If you start looking year-over-year, you see the main number coming out here being the SEK 195 negative volume. We do have a pretty large part of this, or you can say almost all of it is explained by lower grades and recoveries in Aitik. These recoveries in Aitik are not due to that we're having worse performance in the mill than we should normally have. They're linked to the lower grades, and with the lower grades in the mineralogy with that, you also get lower recoveries.
We've also had, as you've probably seen, both lower grades in copper and in gold at the same time. These tend to be a little bit independent, but in this quarter they've gone down both of them at the same time. That alone is an impact of around SEK 150 million to SEK 170 million, depending on what basis you look at. That's the largest part of that volume mix. We have spoken about the Kokkola accident. That has an EBIT impact of SEK 50, but if you're talking volume terms, of course more than SEK 50, because you're getting some back on the cost side when you're not running full in the operation. If you take those two alone, they will be very much explaining that. We do have a lower secondary feed, which is something that we pointed out.
We do have an issue with the secondary feed in getting the right material that we want to have. With the lower secondary feed also comes lower free metals, which is part of the volume, and that comes in there. On the other hand, on this side, the ramp-up of Garpenberg is positive and of course, looking year-over-year, positive on the volumes. Price and terms, that should not be any big surprises looking at our sensitivities and the changes in the currencies and in especially the zinc price, you will come up with a number like that. I think that where it might be difficult, because we don't guide, is what comes on smelters and what comes on mines.
I think in general, looking at from the comments I read, I think there's been some underestimation of what comes on the smelters as opposed to what comes from the mines. When the zinc price goes up, as Lennart's pointed out before, lots of that goes actually to the smelters through the escalators on the TCs that helps the smelters and actually the mines need to pay for. Depreciation is up SEK 142 year-over-year. That's of course the Garpenberg coming in there, but that's not alone explaining it at all. That's more in the order of magnitude SEK 55 million.
As Lennart also pointed out before, the fact that we're now moving into Pushback 6 in Aitik, which has much more stripping capital in it, and with the IFRIC 20 way of accounting becomes more expensive, that is showing up here as opposed to the old Pushback S1 that we've been mainly mining out of in the last years, which had lower stripping into that pushback. The internal profit of SEK 95 million, that is relatively stable. That is mainly a prices and term effect. When prices and terms improve, the value of the not yet realized profit that goes through becomes higher, and you tend to see these kind of variances that should be in line with that changes in net prices and terms. Looking sequentially quarter-on-quarter, once again, we have a strong negative volume effect.
Once again, the grades in Aitik play the largest part here. Maybe SEK 150 million out of that is the Aitik. We have the accident in Kokkola playing in here as well, and the secondary feed mix, that all play on the negative side. We don't really have a positive Garpenberg effect since Garpenberg was already running at a very high pace already in Q2. Price and terms have increased also, if you look on that one, I think this one should be worked right out looking at the sensitivities and the changes in the prices. Costs significantly lower. A relatively large part of this is the lowest one, which is seasonal effects. We always have lower costs because of vacation times on the white-collar side, especially in Q3. We do have a less maintenance quarter-on-quarter. That's not a big effect, but it's in there.
We do have a lower mine production. We do have slightly lower tons also in Aitik, which comes in here and lowers the cost, and also slightly lower production in the smelters due to the accident in Kokkola. Also the Run For action plan is actually starting to yield some results and also plays into the lower cost situation that we have. Overall, we feel that we have the cost well under control. The depreciation is, if you look on a year sequentially, also up, and this is also now mainly the Aitik effect since we had most of the Garpenberg depreciations were in already in Q2. This is the Aitik and Aitik working a different pushback. Looking at the cash flow, I've already mentioned the free cash flow number of SEK 728.
The main thing to look at here is that we've had a very stable, basically zero development on the working capital side, which we are also quite pleased with. We had a strong cash flow from working capital in Q2. You tend to see rebounds of that sometimes. We managed to contain it despite the increased price and terms, which will also tie more working capital. We feel that that's been working out quite well for us in the quarter. The capital structure, not very significant changes, but we do have a lower gearing down to 35% compared to 39% a quarter back, which is in line with the positive cash flow that we have had that also plays into the lower net debt and into the higher payment capacity that comes all out of that.
Finally, before I turn over to Lennart, I also want to brag a little bit because those of you who do not know too much about Boliden, you can always read our annual report that Report Watch put out as the global number one annual report, which we are of course, very happy that they did, and we feel very proud about this distinction. Hopefully, you who read it also feel the same way when you are reading, get explanation to our numbers. With that, Lennart, I will leave to you to come back and talk a little bit about the project update.
Okay. Again, Garpenberg is a very exciting project. It started on time. We have mine production, which the project is SEK 4 billion, SEK 3.9 billion. Half of it is invested underground and about half is a concentrator. The concentrator is a step change, and similar to Aitik, we have enjoyed a very positive development there. We have some equipment breaking down. We have some equipment with lower performance, but we are timing it, and we have sort of regular shutdowns in the plans, and we could take care of all the sort of early issues in a good way. The suppliers have supported us, no big major financial or any impact of it. Normal stuff, and I think taken care of in a good way. The mine is, of course, a different animal.
We are doing all the developments, all the roads, all the infrastructure systems, and they are taking when you build a lot of road networks below there, you are taking capacity on the roads and you take capacity from the ore transportation. You have to plan it. We have planned it, of course, years in advance, which made it possible or thereby we have overproduced ore for a while. We had a stockpile, and right now we are producing more in the concentrator than we actually get out of the mountain or out of earth. That is perfectly in line with everything. We are going to have the pile, I think finishes maybe at year-end or something. I think that is the plan. It is going beautiful.
I was showing on the board meeting this morning to our board the gradual step-up of the mine production, and it is going perfect. Right on plan and as planned. The only issue right now is probably that we have a little bit lower recoveries. I do not think it is on the details for you. I think could I wish for something more, it would probably be recovery, but in the big picture, fantastic. Far so good and touch wood. I hope it works. I got a question how long is the ramp-up period? I said, "Well, maybe two years." Because of course there is trimming for a longer period of time, and sort of things are going quickly in the beginning, and then they are sort of leveling out on the expected levels and perhaps in some cases even above.
I think all in all, good project, it looks good. We had only good things to say about that. The silver recovery plant in Kokkola is different though, because the startup was on time and on CapEx. The normal trimming situation's also there, suddenly we had this reactor breakdown in the zinc plant. The problem there is that the material for the silver recovery is coming from the leach tanks, which collapsed. All the silver production was zero or very close to zero in Q3. When you have a new plant, you're trimming it, you're ramping it up, then no material. That's not ideal. Something else could have gone wrong, but not exactly the leach tanks feeding the material to it. As we write in the presentations, the leach tanks are okay.
We have repaired, we have full zinc production from really the turn of the quarter here. The material and the leach process takes some time, the trimming will start again, or ramping up of the silver. Given that accident, we had a serious delay, which we are not calling a delay of the project because it is not. The whole situation there is, of course, unfortunate. We are saying that we will have the silver production going in November. Give us a month for the other stuff, we should be well on our way there. Aitik 45, interesting. We had a Friday 11, say two weeks ago or three weeks ago, what it was, we were expecting the result of the permitting there, the permits came. Basically in line with what we expected.
Basically we're happy with it. We can ramp up to 45 million tons. We can continue the plans as anticipated. There are always things which we could have expected to be better, we're not pleased with every detail of it. The big picture of what we're doing in Aitik 45 is okay or good. We're still on an early stage. We are working on budget and on time. We are in the process of placing the first orders now. It's progressing as previously planned. We are going to talk more about Aitik 45 on the Capital Markets Day a couple of weeks from now. In Laver, not much to say, there have been some new interesting press from the local newspaper up there.
When you read the local newspapers, you realize that it's a very big project, it's probably going to start tomorrow, which I definitely inform you, no, it's not going to start tomorrow. It's a big project. We are not in any decision point. It's a big CapEx. We are not at all anywhere near a decision point there. We got some permits to take some ore material from the area to pre-process and as part of our feasibility. If we summarize, we are on low grades in Aitik, 2012, 2013, 2014, thereafter it's going to be better. The low grade in the quarter, which was clearly SEK 150 million, SEK 200 million impact if you look at it, was well in line with the full year guidance.
From us, we are just saying that if we are a bit higher than the guidance first, don't believe that that is a good reason to believe that it's going to continue. In order to arrive at the guided number, obviously it has to level out gradually, and therefore the low grade was expected. Garpenberg, we have said 2 million tons as a guidance. We are probably on the high side, or we are on the high side of that, we're saying that it's going to be around 2.1 million ton production in 2014. Good news there. The pace 2015 has to do much more with the mine production, and we are not changing that guidance. The Tara organization implementation is going well. We have probably a better work relation and management of the mine than we have ever had before.
We're really pleased there, and we talk very much. We are sort of on the same side of the table, which has not really been the case at all times. I think we have a very good understanding of the importance of lower the cost and the possibility to really have a profitable continuation. As long as you produce in a mine, we are drilling, we are looking, and the probability of finding new extensions is there as long as you produce, but high cost is effectively, very efficiently cutting any additional potential. I'm not indicating any new potentials, but I'm saying that it's a good relation there. Kylylahti, from the 1st of October, we are the owner of the little Finnish mine in the Outokumpu field, and we have the exploration right for the whole area. We are excited about that.
It's a lot of high-grade copper ore that has been mined there in the past 100 years, and everything was really stopped after 1980 or so. Then we have the little startup mine, Kylylahti, which we bought. We are equally interested or more interested in the exploration opportunities potential in the area. Very little has been done below 400 meters depth, and therefore we think with modern exploration methods, there are open ends and open opportunities to the depth. This will take time. I will always get questions, when do we know how much it is there, and the answer is never. When do we know anything about it? It's probably give us a year or maybe two years, and we will have a first broad picture of the area and where we're going to focus our efforts. Kokkola Silver, we have spoke about.
Rönnskär action plan is going well. The CapEx guidance is lower than the previous guidance. I think all in all, a good quarter. You are all welcome to the Capital Markets Day on the 10th and 11th of November. The program is that we're going to be in Stockholm to go through the normal stuff, but some very interesting presentations, I think, and then we're going to see our new Garpenberg mine. I didn't mention, but in the new Brook Hunt or Wood Mackenzie update of productivities, we are the highest productivity underground zinc mine in the world in the forecast. We are now doing the same trick as with Aitik, highest productivity in the world. It looks. With that, we conclude our presentation. Disclaimer, if we said something, we probably didn't mean it. We are 90 years this year.
Yes, thank you. Let's open up for question. We will start with the audience here in Stockholm.
Thank you, Sophie. Julian Beer from SEB. Can I ask an initial question on the smelters and the cost variation from quarter to quarter that you say is down SEK 171 million. How much of that was seasonal that you would expect to come back in Q4, and how much was due to the lower Kokkola production rate?
Do you have an answer on that?
If you can have rough numbers, I will say that somewhere in the order of magnitude of SEK 70 million will be seasonal, and say that the cost effect was somewhere in the order of magnitude of SEK 30. If you have roughly SEK 100, that should come back.
Okay. All right. With regard to Aitik 45, Lennart, there was some press from the north of Sweden on the day of the judgment, which quoted one of your managers as saying that along with the approval came some more stringent requirements regarding wastewater or tailings water cleanup. Could you give some initial thoughts on what that could mean economically to the project?
We are not happy with every detail of the permit as it came. I think we can live with it. I think we can live with it without major financial consequences. We are going to have seasonality, big rains. We're going to have difficulties in certain periods. We are looking at the consequences. We think the margins for us to be on the limit values is reduced. For the capital market, I would say it's not a significant thing. For us, it's an issue that we have to think of and take care of.
Okay. The judgment or this requirement won't make any difference to your view that the 45 will be achieved in a couple of years' time?
No. The financial consequences will be marginal, as I see it right now.
Okay. Do you expect any appeal from any other parties against the judgment?
We are not commenting on if someone else would appeal. No, I don't have a comment on that.
Okay, great. Finally from me, Tara, you have an agreement with unions to cut costs. Will that have an impact on the life of mine?
Absolutely. If we wouldn't do it, then the risk of shorter mine life would be there in the case of low zinc prices somewhere 2018, 2019. Mines are becoming very sensitive to bad conditions in the final phase. The lower we can take the cost, and of course, a very similar impact would a higher zinc price have. I think that the development we have there is maximizing the opportunity to, number one, mine the full life of mine as we have it, and spend money and figure out if we can even extend the life of mine. All of that, I think the guiding is no change. It's what we have said before 2019, life of mine, but the probability is improving that we do the 2019 or beyond, and the risk of being shorter is lower. I think that's how you should read it.
Thank you very much.
Any more questions from the floor here in Stockholm? No. Operator, do we have any questions from our participants over phone?
We do. Our first question comes from Mr. Alain Gabriel from Morgan Stanley. Please go ahead.
Yes. Hi. Just the first question for Lennart on the Aitik 45 permits. Assuming you are happy with the way it's going, theoretically would you be able to mine and process at a higher throughput rate than 38 million tons in 2015? In other words, will you be constrained in 2015 by the 38 or will you be able to produce at 40 million tons at Aitik? The second question is for Mikael, which is on the CapEx guidance. Are you able to give us a range on the revised guidance for 2014? Would you be sticking to your SEK 4 billion target for 2015 or will it imply an increase in CapEx into 2015? Thank you.
When it comes to the permit and our ability to ramp up, this is going to allow us to produce up to the level of 45 pretty instantly when it comes to the permit. Now, we don't have a mine able to produce 45 million tons yet, but the permit is lifted right from soon of now. It's not exactly from now, but it's going to allow us to have no limitations 2015, which is your question. On the CapEx guiding, Mikael?
As I said in my presentation, we will have a slightly lower CapEx. We have not set an exact number on this, but we will be a couple of hundred millions below for the whole year compared to what we have guided before. Whether this spills over on next year or not, we will come back on the Capital Markets Day because we are right now doing our revised planning for next year to try to establish exactly what impact that would have.
Okay. Thank you.
Our next question comes from Ms. Stephanie Buswell from Bank of America. Please go ahead.
Yeah. Hi, good afternoon. I've just got a couple of questions. Firstly, on grades both at Aitik and Garpenberg, can you just confirm that at Aitik you expect to hit the 0.2 for the full year and at Garpenberg you expect to mine at reserve grade for the fourth quarter? Secondly, on Rönnskär, can you just give us some additional color on how you see the market for secondary feed material evolving in the final quarter of this year?
Okay. The guiding on Aitik for the full year remains intact. The guiding for Garpenberg remains intact, which means that we are going to be on around the reserve grade in Q4.
The old reserve grade.
The old reserve grade. Yes.
5.1.
5.1.
Yeah.
When it comes to the feed for secondary materials, the price environment and the supply and the general economy in our markets around or in Europe means that we have a lower supply of good secondary materials. It's not only electronics. Sometimes we mix probably, or there is a risk that someone is mixing electronics from other secondary feeds. In general, the supply, a lot of people I think, are holding high quality material for better times. We are seeing a shortage in the market. We can fill up the volumes if we would like, but Aitik or the Rönnskär action plan is very much about getting the process stability, and as we have quite detailed explained before, we are backing out from the more challenging materials. We have a better feed mix, but we're short of tonnage.
I think at this time, and you can see it on the numbers and the results, we're very happy. I think we're doing exactly the right things. What we hope is a combination of better feed in the market and our own action plan starting to improve our performance on difficult materials, then we would have a dual effect there.
Okay, great. Thanks.
Our next question comes from Mr. Christian Kopfer from Nordea Markets. Please go ahead.
Thanks operator and good afternoon. Just a few follow-ups, firstly on Garpenberg. I understand that in the mill you have put through some inventories, so you have put through a mix of inventories and ore from the mine. If everything moves according to plan, when will you produce only from the mine?
Around the end of the year.
Perfect. Also on Tara, on the cost savings in Tara and the agreement with the union, is it fair to say that you will see some impact on this already in the fourth quarter?
I think that we are seeing it coming a bit gradual. It's not going to be a step change, but it's visible in Q3, it was in the first half and it's going to be in Q4. It's coming, but not a very dramatic step change.
Thanks. Finally from me on Rönnskär. I heard from you saying that it's starting to yield results. Are you expecting to see gradual improvement also in the following quarters in this matter?
We do. I think that what you are seeing is an action plan which has two sections or two parts. One is process improvements, one is cost. I think the cost has been taking some significant steps already, which you see, there, I think the coming effects are going to be lower. On the other hand, on the process side, we are working with the inventories with all the complexities in, that will, I don't know, next year start to yield an impact. I think on the process, more going forward, on the cost, less going forward, but additional impacts.
Okay, that's great. Thanks.
Our next question comes from Mr. Ola Södermark from Swedbank. Please go ahead.
Yes, hello and good afternoon. Sorry to bother you with a follow-up question on Garpenberg about the recoveries. They have fluctuated around 86%, 87%, and now 85%, and previously with the old plant, it was around 90%. Is it fair to assume that it is gradually going to improve coming quarters to 90% at the end of 2015, or it's going to be quicker?
First of all, it's true what you're saying that as you can see it from the numbers, the level we are at is not where we should be in the long run. We're going to go to 90% or probably a little bit more over time. The timing of it, I am somewhat hesitant to give a time plan, but it should develop over the time you're suggesting, absolutely.
Is it a couple of quarters or one year, or?
I don't like to answer that too precisely. I think that it's going to come step by step going forward. That's as much as I can say.
Okay, thank you.
Our next question comes from Samit Pansare from SocGen. Please go ahead.
Hi, thanks for taking my questions. I have two questions, each on zinc and copper market. On zinc market especially, do you see any risk of Chinese zinc mine production coming back or ramping up again because the zinc prices are sustained at high levels? Also we have seen some export of zinc from China, which has had impact on zinc premium. How do you see the situation evolving going forward? On the copper market, the question is around what is your expectation on copper TCRC for next year, given that the spot market is really very good. Are you seeing any impact on the copper scrap market? Has it improved or it just continues to be at a low level as it has been in the last two quarters?
The mine supply from the zinc mines in China, I think that the general opinion is that the very strong response to high zinc environments from the smaller but combined big volume or big capacity in China will be a lower reaction in new high price environments. I think that's the general feeling, that is driven by environmental situations in China and the fact that Chinese mines are no different from elsewhere, that they are going deeper and more difficult. The Chinese mines are very low grade and do not lend themselves to very large-scale methods. It's a combination of aging mines, many small manual, and environmental situations. Zinc as a metal is going to continue to flow the world.
The metal will find the customers wherever it is. That's why we are, from Boliden, have been all the time less excited about the import/export statistics to China, but more looking at the combined global supply, mine supply, global zinc smelters, and global zinc demand. I think that metal will flow, but I think more important, if not the particular low-cost production, either from the smelters or from the mines in China. The risk of low-cost material to flood world market, I think is low. The other one was on the TCRCs of copper. As we can see, the benchmark levels are exceeded on the spot terms now. I think the general picture is that it is coming for the next one or two years, a lot of mine supply, which would benefit a higher copper TC.
I think that's the general picture. That's also what we feel in the market. The last one was on the scrap side and the scrap market. I don't think we have too much more to say than what I said before. The scrap market is short today. There is material, but it's not on very good terms or terms quality. The scrap market is thin in general.
Okay, I have just one more question on concentrate availability because the Rönnskär smelter, the concentrate there was pretty much down if you see the mix there, and the scrap and the secondary was almost flat quarter-on-quarter. There was some comment in the report, I think that there is some delayed concentrate shipment or something like that. Can you just clarify what exactly is the situation there?
Yeah. Random sort of disturbances on the freighter. Nothing to read into that more than that we happen to be a bit short on the delivery.
All right. Thanks.
You should all. By the way, don't forget that Aitik is part of that as well. The Aitik lower grades and therefore the lower production there also plays into that whole equation. It's not just shipping.
All right. Thanks for clarification.
Our next question comes from Sir Johannes Grunselius from ABG. Please go ahead.
Yes, hello gentlemen. Johannes Grunselius here. A few questions. My first question is on the smelting side, and Lennart, you said in the presentation here you were very happy with the mix and quality of the feed. Could you give some color on that? My question is then, is this a sustainable quality level, or should we see any variation going forward?
What I mean is, Rönnskär has a period of where we were trying to push for better margin material, in other words, more complex, where we are better than anyone else. We take very complicated stuff and we get a good return on it. We get good margins. Suddenly we are taking too much in a short time, and there, in addition to our intentions to go for a more complicated material, we also have market changes, and those in combination were going too much. The problem is that you cannot just take a little step backwards. You should go a big step backward and make sure that, okay, now I'm in control again. I start to add the complicated thing step by step.
The nature of it is you're coming closer and closer to a sort of an invisible wall, and then you're falling. You don't want to do that again. Therefore, we are intentionally working with higher quality, and we sacrifice the volume. The answer if we can stay there is we don't want to stay there, but we want to go only in a controlled way, away from the point where we are. The market is one thing, what we do, what we want ourselves, and how we manage the feedstock or the feed is a different one. I think this is clarifying my previous statement.
Yeah, sure. Just sorry to bother you again on follow-ups on Garpenberg, but there was a question from Christian about you're now feeding in both inventories and ore from the mill into the concentrator in Garpenberg. You said you will only do new ore from the mill as of January next year, if I understand correct.
Can you help us? How will this impact the financials?
Not very much. Could you elaborate on that?
I think that one, we're now taking the ore from the stockpile. Just so you understand the mechanics of the accounting. That ore has already been produced most of it in 2013 and already been accounted for at cost where it's staying. Of course, by using that ore, we're not getting the full profit as we would get if we were to take ore that would come all the way from the mine. Therefore, even if there were to be a slight reduction of production in the mill in the early part of the year because the mine is not quite there when the stockpile will come down to a lower level, it should not have a very big impact on the financials.
The pile is not a big pile. It's a small pile balancing. I mean, it's not that we're not producing in the mine. The vast majority of everything we run through the mill is already from the mine. It's relatively small volumes, but important in order to balance this more gradual sort of increase in production in the mine compared to the more stepwise in the mill.
Okay. That's very helpful. Thank you.
Our next question goes to Mr. Robert Clifford from Deutsche Bank. Please go ahead.
Good afternoon, gents. Just on Aitik, Lennart, you weren't completely enamored of the 45 license that you got. Just a question, now that you've been granted that license, does that apply all the more onerous conditions around water release, it sounds like. Does that apply to your existing operations? Even if you weren't to embark upon the expansion, you're now required to meet stricter requirements on the existing operation.
It is applying to the existing operation, absolutely. We can go according to this permit right away. The other comment was the stricter emissions and whatever as I commented before.
Does this mean I should expect some seasonality in the production from Aitik going forward?
No, just to be clear, lots of these conditions that come in terms of emissions, have a stepwise. These will be emissions from 2016 or 2017 and so on. We might not be totally happy with some of these levels where they were put in, it's not that if we get this permit now that we have to change our emission levels as of tomorrow in most of the cases. Therefore, there should not be an immediate impact in terms of lower production just because of the emission level.
Okay. Just to confirm, even if the board for some reason chooses not to go ahead with 45, you will still be impacted by the seasonality from 2015, 2016, 2017 here?
We will be impacted by, You say seasonality, we'll be impacted by the new emission levels.
Yep.
Yes.
Great.
Yes.
Our last question comes from Mr. Liam Fitzpatrick from Credit Suisse. Please go ahead.
Good afternoon, everyone. First one just on working capital. I think we expected an increase in Q3, just given your comments in Q2 that you were at abnormally low levels. That hasn't come through, so should we expect an increase in Q4, or have you reached a sort of new normal in terms of the working capital? Linked to that, on Rönnskär, I think, again, at the end of Q2, you mentioned a further SEK 400 million in working capital release really through the rest of this year in 2015. Did much of that come through in Q3, or will more of that be weighted into 2015 still? Very last question on CapEx, I guess another way of answering it. Can you just clarify when you gave the guidance previously for this year in 2015, what local currency that was based on?
On the inventory levels, I think we are on very low levels, and that would be expected to come up. Against that is the action plan in Rönnskär, which starts to deliver, and what the balance is, I cannot comment on. On the CapEx guidance, I don't know.
I think what you're asking is whether the change of currencies would drive up the CapEx level, and that's because of the weaker Swedish krona, and as you can see in 2014, that has clearly not happened. Regarding 2015, as I said, that is one of the effects that we are right now calculating through ourselves, and we'll come back on the Capital Markets Day with a more firm guidance for 2015, where we could take that into account as well as the fact that there will be projects that will not be done this year that should've been done this year, and we have to look into the effect on next year.
Okay. Thank you.
There are no further questions on the telephone.
We have one question from Gustav Sandström, Danske Bank, from the web. ''To what degree do you expect the improved cost situation in the smelters division to be sustained?''
I think we answered that already, or do we have any additional information? I think it is answered already.
Just a question on Laver. I've never set foot there. Is this a reindeer Sami forest nation territory that will create problems?
It's whatever. You can ask that question and many others. There the answer is generally yes, on every issue you have on a new mine. We are good in managing a situation like that one. We have a very active dialogue. We have specific people. I think we are thoroughly and truly caring for environment, the local community, and related questions. I think that it's never easy. It's a big open pit mine. Would there be one? We are not there yet, and it's going to be quite a while still, but we're doing the feasibility. I think we demonstrate a lot of respect, of course. I think that we are not pulling out that specific question as any particular here compared to similar situations.
You have started to negotiate with the Sami population already.
The first time we issued a press release on Laver. I think it was actually the day after, or if it was a few days after, we invited everyone in the village of Laver and the Sami population and everyone else to a general review, what are we going to do? We have continued to do that. Calling it negotiations, I don't think we do anything which resemble a negotiation. Certainly, with a very deep involvement and information. A lot of people are nervous what will happen if there is a mine, but many more than that are hoping and being so excited, that is unbelievable. We feel very welcome by some, and we are meeting other being very nervous because they live there. They have all the normal situations.
We try to have a very balanced sort of communication and management of that situation. Is that all?
I think that was all the questions we got. Do you have any final comments, Lennart?
It should be in that case, as we have said for a long time, that 2014 was a year of a lot of investments, low grades, not yet the impact of the big investment in Garpenberg or in Kokkola, more than the second half. Next year, we should have the full impact of all the investments. We should have a slightly better grade in Aitik, and then we count on the zinc price going up and the Swedish krona to stay weak. That's probably what I would wish to happen, and probably some of that will materialize. I hope much of that will materialize. With that, we thank you for coming. Thank you, and I look forward to as many as possible on our Capital Markets Day. Thank you.