Good afternoon, and a warm welcome to Boliden's Q2 Earnings Call. My name is Sofia Arnios, and I'm Head of Investor Relations. We will do as we normally do. We will start with presentations from our CEO and President, Lena Terjeld and CFO, Mikael Staffas. After that, we will open up for questions.
Bernard, please go ahead.
Thank you. Very welcome to this presentation of the 2nd quarter results. The quarter was dominated by the maintenance shutdowns, which were planned in the smelters, which cost a lot of money, which is keeping the or lowering the output from the smelters. That said, I think that we have we're quite pleased with the smelter results. We are also pleased with the mining business area results.
I think according to or in comparison with the market expectations, a big difference or the difference was the internal profit, which was eliminated in the quarter, which was a fairly large minus. Mikael will comment more on that later on. But all in all, I would say we have solid production. We are doing basically what we should. If we look at the numbers first, in summary, in the Q2, we had SEK 9,400,000,000 in sales compared to SEK 8,000,000,000 and a little in the previous year.
Earnings before interest and tax and excluding the process inventory revaluation was 3.74%, which was very close to the level of last year. Earnings including the process inventory revaluation was $4.78 compared to minus 59 a year ago when we had very strong negative impact from the process inventory value. The cash flow was strong. We're almost SEK 1,000,000,000,000, nine twenty as compared to a big minus when we were in the middle of the Aitik or Gatenbai expansion. Production was good both in smelters and mines.
And to comment on a few, I think we're very pleased to see Garpenberg ramping up as it should. A little high cost, some consequences on the bottom line in the ramping up is normal, but I think that everything is going according to plan. Aitik did 10,000,000 tons in the quarter. That's the highest we have seen so far. So it's a record production in Aitik.
The maintenance shutdowns were planned to be SEK 140,000,000 and we did them on time and a little cheaper and a little better than planned. So the actual outcome was about 120. And that compares to minus 305 a year earlier, which was the biggest maintenance shutdown we ever done in a quarter. The metal prices have increased and we saw the first effect in the end of the Q2 and the metal prices have continued up since. And if I stay on this level, we have an additional good improvement on the market terms.
The Swedish krona is of specific interest and that changed the interest rate. The prime rate cut was in July, which reduced the value of the Swedish krona, which has a very good impact on Dooliden if it stays. If we look at the market in general, I think that we see a slightly improved sentiment both or several of the large metal and mining analyst houses have updated their forecasts. And I think the general picture is positive. We see a continued recovery in the mature economies, the U.
S, Europe. We see continued good growth in China, even though some sectors are concerning the housing sector, for example. Metal markets are dominated by the quite fast change and improvement of metal prices in the end of June beginning of July. They are back to where the reasons for them are supply disruptions. Several of the mines have difficulties and we see some metal deficit in the market.
We see a lower supply forecast for zinc, which is what we have seen. So no change there. It's only that the closing of the Century mine, the very large mine is coming closer and the zinc market tightness seem to materialize as we have indicated before and is coming closer. The bigger difference is that copper, which has been obviously obvious from the fundamentals to be a risk of being oversupplied, that risk is somewhat reduced in the updates because of delays in the startup of new mines, because of some disruptions and problems that several of the large mines are facing. The premiums are stable.
The exchange rates, of course, is the most important for us. Not only does it have a major impact on our earnings, it is Swedish krona is moving us to more competitive positions. So that is an advantage that we don't share with the whole industry. It is only for ourselves. So we are particularly happy to see the Swedish krona moving as a result of the Swedish Central Bank rate cut.
This is a somewhat busy slide. It's from CRU. As a source, we have the zinc on the top and copper at the bottom. It's a very astonishing reduction of mine supply and I will only comment on the second from the bottom line, mine production zinc, which had a minus 4% year on year development in Q1 and another quarter of minus 4%. And of course, the market is growing at around 4%.
So even if it has been an oversupply before, it is the reason why metal markets and metal prices are responding positively. If we look at the prices then, this is the zinc price. We can see that it has been going up in the quarter And we see the blow up in the past couple of quarters. And also beyond the Q2, we see how it was coming up to $1300 Today, it's slightly below $1300 but $23,000,000 So a very nice positive price trend for zinc backed by the fundamentals, but also by the inventories, the official inventories that you see on the shaded graphs behind the line, the price line. The inventories or the official inventories are going down.
In copper, it's a more stable situation. And here, we have been expecting inventories to go up, but they continue down. But there is a very it's a big lack of transparency of the inventories, which are not official here. So a number of question marks. But what we see is that the copper prices are holding up.
They are stable. And there was a risk for and there still is a risk for falling copper prices. So that's holding up, which is positive. Gold, silver and lead, fairly stable. Gold fell down in the previous years, but have for 12 months been rather flat.
The same goes for silver and lead is a development a bit similar to zinc and copper. If we then go into the operations. In mines, we did $336,000,000 compared to $376,000,000 a year earlier and $147,000,000 in the Q1. CapEx was reduced to $657,000,000 We are coming to the tail end of Gautlanday. It was almost $1,000,000,000 a year earlier.
We have enjoyed improved prices and currencies. We have had good production start up in Garikunday, but which has also been followed by quite high cost in the ramp up. Record production in Aitik, but slightly lower grade than in before. Higher operating cost is basically an effect of the higher volume and the start up of Gripenberg. Increased production, good development with a start up in Garpenberg and in general the volume, which have impacted depreciation sorry.
Copper production was good. As you can see on the bar diagrams, it's the ore production. It has been a good month for or a quarter for ore production and with quite good grades, the line diagram. Highpeak was high and stable, 10,000,000 tonnes I mentioned initially. Buliden area, slightly lower production, similar recoveries and grades as in the Q1.
In zinc, very good throughput. We had in the previous quarter some problems in Tara with rock conditions. That continued into the Q2, but we were fairly soon done with the additional reinforcement of the mine and could continue as planned and we had good production there. Gripenberg of course with a start up is a major contributor now and we're almost doubling the or I shouldn't say doubling, but we're ramping up force the almost doubling capacity. Buliden somewhat lower mill production same there.
We're focusing on Kankpa Gold gold ore, which is taking a bit of capacity here. Seemingly grade and the recoveries in the Q1. In the smelters, earnings were $174 compared to $199 in the Q1, but minus 30 last year when we had the big maintenance shutdown. Improved metal prices and improved treatment charges and refining charges are supporting the profits in the smelters. The maintenance shutdowns I mentioned was EUR 120,000,000 versus plan of EUR 140,000,000,000 so it went very well.
Production in general has been very stable in all the different smelters. The action plan in Rundshall where we for several consecutive quarters now have been talking about process instability and we have been implementing cost reductions and improvement plans for the production. We deliver on the action plan and we're quite happy. We have released about our inventories of these intermediary products being part of it. And we have released EUR 200,000,000 in cash flows as a result of this action plan.
New environmental permit for Rundshall is also a very big thing for us. Let us go a bit deeper on that one. For several years for many years, we have been talking about solutions or improvements for our environmental situation in Rundshall. Boliden has suggested different improvements and we have proposed investments of €1,000,000,000 or in the around €1,000,000,000 We have been negotiating exactly how to do it and where to do it and the terms around it. And we have now got an agreement and the environmental permit and we are happy to invest another €1,000,000,000 in improvement of the environment in Wanschka.
It's a very big undertaking. No one should be or rather we have had this ballpark investment in our guidelines. So nothing is changing in guiding on CapEx. But I think it is a big discussion, a very significant issue and we are happy to come to an end of that discussion. And when you are in negotiations about the terms, obviously, we cannot be too detailed about it.
It's like every negotiation. But I think we're happy that we have this not behind us, but we have the settlement. It can still be changes in that settlement, but or in that decision in the permit, but we think it will hold. Coca Cola silver recovery is also an important new project for us. We are have started initial production and we are on plan.
The production in copper, if you compare the light shaded or light colored bars, as you can see, we are a lot better than last year when we had this big shutdown. But we are also this year having a shutdown. And that given, we are very pleased with the volume. Recoveries are following. So basically, the metal production is following the throughput there.
On zinc, slightly lower than the strong Q1. Planned maintenance shutdown in Kokola here, but everything has gone as planned. Stable zinc production And we have had good planning around the maintenance shutdown. So we have been able with some stock of some materials to be able to supply the zinc metal despite the shutdown. So we have done quite good there.
Oda, good production and we are now with 4 leaching reactors in production. 1 was collapsing or we had a problem a year and a half ago. A year or 6 months ago, we got the new one, we installed it and then we have maintained the other 4, which have been running without maintenance in the meantime. But from now, we are in full capacity when it comes to leaching in order. And with that Mikael, if you can take us through the financials.
Thank you, Larek. Let me just quickly run through the financials for you. Starting looking at the overall summary, I think what the number here that's, of course, the one that we're most proud of in this quarter is the free cash flow number of $920,000,000 which came out very well. We'll get into a little bit of detail around that in the following slide. The investments were around €900,000,000 and I'm sure that somebody of you will ask how this rhymes with the guidance that we have for $4,000,000,000 for the whole year as we are now running under that speed for the first half of the year.
But that guidance is remaining in place. There are especially on the development side and on the stripping side a skew to the second half year, which in some ways compensating overcompensating the fact that Karpenberg is more or less taken care of. The profit excluding process inventory revaluation looking at these numbers here extremely stable compared to both periods that we're comparing with. I'll get down into those and we'll see that there's actually quite a lot hiding by those numbers. If we start then by comparing against last year, you will see first that there's a very small deviation of only €4,000,000 That comes from a pretty high positive volume effect.
The big volume effect comes from the lower smelter maintenance and the Garpenberg production coming online. Some of you read the report might argue that it should have been a bigger number than that and that there is something that you could discuss around that. And it's true that in Garpenberg, although the new concentrator worked very fine and we got very high volumes, the mine is not really up to speed and we have been taking out of ore storage in order to fill the smelter and that shows up in the volume that we've been using up existing inventory. Price and terms plus 90,000,000 that's a very good number as such, but actually the terms are much better than so compared to last year because last year we had a hedge of €156,000,000 in that number in place. Costs slightly above last year.
Depreciations are higher and that's not so strange. It has to do with the higher mine production in Aitik that also drives automatically depreciation the way that we account for depreciations. And it we also have the Garpenberg coming online in early May and is now fully into the depreciation numbers. Internal profit, I think is the area that most of you might have looked into or maybe not been quite understanding what has happened here. We have a situation where we in this quarter we are putting a reservation of €84,000,000 for internal profit.
That compares with last year where we actually could take out €55,000,000 So the difference is 100 and €40,000,000 between those two numbers. So where does the €84,000,000 come from? Well, this is mainly driven by prices and terms. As you know, there's a relatively fixed volume of our mine production that goes into our smelters. And when it goes into the smelters, it stands stays there for a while until it's a finished product and it can be sold off.
That volume and the profits associated with that volume cannot be accounted for until it's taken out. And when you have increasing prices, you have increasing margins coming in that will show up in internal profit revaluation. You can also have changes in inventory, but the larger effect in this €84,000,000 is the prices and terms coming through. Comparing against last quarter, we once again had a very positive volume and this is of course the mines developing well with Garpenberg coming online and also Garpenberg sorry Aitik producing fine. Price and terms €237,000,000 higher.
Costs higher, but this is mainly due to the maintenance shutdowns that come in and to higher mine production and are largely budgeted for. Depreciation is higher mainly linked to once again higher mine production and the fact that Garpenberg is now online and is depreciating. Internal profit evaluation once again we have our 84 that we are putting into the reserves this quarter comparing to $52,000,000 that we could take out last quarter typically as well as the quarter last year were quarters with falling prices within the quarter. That's when you typically will see internal profit being positive coming out and now we have a negative number that's built up with increasing prices and terms. Looking at the cash flow, and as I said before, this is maybe the most positive news that we have in this quarter with the SEK 920,000,000 positive.
The astrologist then comes out of the working capital with a SEK795 1,000,000 of cash coming out of the working capital. Out of that roughly EUR 200,000,000 you will see is due to the improved process situation in run share where we have reduced the metal content in the intermediary storages and the other EUR 600,000,000 is mainly due to timing. I think there will probably be a question around what is a sustainable level and I'll say right now that this level that we have right now is not really a sustainable too of shipments coming in and maybe a too low level of inventories to be for safety. Capital structure. This is a slide that we normally don't talk too much about because normally not much changes.
But in this quarter, it's actually quite a significant change in here, which is linked to the refinancing. If you look first just on the net debt, you see that net debt is reduced. Despite the that we paid dividend in the quarter, we still have a positive cash flow even after that, which has reduced the debt and the gearing is down. But the loan duration is much longer. We refinanced large part of the debt that we had in new syndications coming online during the quarter, which has increased the loan duration.
But they've also reduced the net payment capacity that you see down on the bottom line, which is all according to plan. We had payment capacity put up very high during the Garpenberg year to have a safety margin in term in case things will go really sour during that investment. And as we now going forward have less investments and therefore more of our own cash flow, the need to have a big payment capacity is not that necessary. And we have therefore in the refinancing reduced our facilities accordingly. Now with that, Lennart, I'll give it back to you and you can talk a little bit about the projects in the summer.
The project pipeline of course is dominated by now by the day IT project is from IT 36 is delivering over plan ahead of time plan and very satisfactory. We have the Garpenberg which was the 2nd large project, which or the 2nd largest ever and we are starting up and we have the inauguration in August. It looks very good. Ahead of us, we have the IFRIC 45 that we are looking or we're investing in some better uptime or more reliable equipment in order to take advantage of the full capacity that what we think is the finest concentrator in the whole mining world. And I we know now that we if we have ore supply ore supply is stable and reliable oil supply, we can expand it up to 45,000,000 tonnes.
We spoke about that earlier. And then we have new potentials. We continue with Lager to see if that will make sense. We are still several years ahead of before any decisions can be taken. We do not at this point have any other opinion than to say that it's interesting enough to continue the feasibility study on that one.
But then of course we have done something else on the project pipeline. We bought a mine Kuehlakte in Finland. And I think the story is really quite nice. As a mine, you can say it's nothing to write home about. It's a small little Kristineberg kind of copper or a small copper mine 650,000 tons per year of ore high grade.
But the primary reason why we bought the mine is that we have got the permits or the exploration rights in a very interesting part of Finland. The era resembles very much of the Shelefte field. We think there might be very good potential there. Nothing much has happened in exploration after 1980 when Outokampo discontinued their exploration efforts. Little Altona Mining of Australia bought the rights and all the documentation and all the mapping of the geology there and invested in one deposit only, which is a Kirillakti mine.
It's a well managed positive cash flow, well managed little startup mine. And we like it as a mine absolutely, but we like it much more because it's a center where we can have some offices, some management, some people and reallocate our exploration resources in the group and spend more in this quite virgin land that we have in the old Uttokampo field under 400 meter because basically Uttokampo has been searching the area above 400 meters which is typically what you did those days. But we have now better equipment. We can look deeper down. So we think there might be opportunities there.
It's not going to be imminent. It's going to be we are going to start exploration very soon. But we of course, if we find something there might be mine extensions in the Kyulakti mine, which is already operating. If we find something new, it's going to take a long time as always with mines. But what is good here is that we have roads, we have power, we have everything.
It's a mining country here even though most of the mines are closed and have been dormant or closed for quite some time. Finland has low country risk and we think this is blending very well with our smelters in Finland with our expertise both in mining and exploration. So we it's a small thing, but we think it is very exciting. If we summarize, we have a couple of facts here or important informations, which are important when you plan for or model Bullizen going forward. First of all, IPIC, we are below the average grades 2012, 2013, 2014.
We have announced this many years back, but we're coming to the end of the mining high up in the pit. We are coming down lower and we are going to 1st go on average grades and then we're going to go over the average grades when we come deeper down. So we are seeing a positive grade development in Aitik. Garpenberg, I'm talking beyond 2014. Garpenberg, obviously, the start, I hope it continues.
It has been as always, it's costing. The cost is quite high in the ramping up, but we have been through most of it. The concentrator is doing very fine. The skip or hoist has been some problems with normal start up stuff. And we are in good pace to be both on CapEx plan where we can say that we are going to be very, very close on the pan there, a little over or a little under.
I certainly hope a little under. We are ahead of time plan on it. We will for very independent of the startup of the new equipment fee on slightly low grade in Q3 of this year. Tara had an unfortunate breakdown of an underground conveyor, which stopped basically the mine for a week. That was not a good start of the quarter in Tara.
It's not the biggest thing, but since we know it now we can tell that one. We are more importantly negotiating cost reductions and productivity improvements in Tara. We have already taken important steps, but we are discussing another or additional steps in order to lower the cost position of Tara, which would be very good if we could achieve the results we hope. Coca Cola silver project, full production in the end of Q3 and Q4 as a quarter will be the first of impact of the silver project of significant impact on the project. We are share big problems we had a year ago or 6, 9 months ago.
And after the Q1, we could show some initial improvements and we are seeing additional improvements. And I think we are going in the right direction. Euros 200,000,000 in released capital is one indication of that. All done. Full leaching capacity from now, I said that already.
And maintenance shutdown, we will have also in Q3 lower than in the Q2, but still €80,000,000 So quite significant there too. And that concludes our presentation. And well, we have one more thing here to invite you to Capital Market Day on November 10 to 11 in Stockholm and visits to Gattenberg Day 2 there. You can contact Sofie Anjes about that or look at the information on bulliden.com. Disclaimer and now we are prepared for your questions.
So let's see if we have any questions here in the room in Stockholm.
Thank you. Could you ask a question regarding IT reserves?
You said that you'll be in
line with reserves in 2015 2016. Is that 0.20 or 0.22. 0.22. Okay. Thank you.
And regarding costs in the Mines division, is this quarter run rate going forward? Or is it going higher with the ramp Garpenberg ramping up further? No. It's a bit high now because of the stock up of Gartnerberg, one thing. And then we had some repairs and some maintenance job on some equipment in Aitik, which was a little over the normal.
So I would say that it's not very representative. It is on the high side primarily because of Gatobank.
Do we have any more questions? Yes?
Yes. Just regarding the internal profit elimination, am I understanding it correctly that, that negative would swing to a positive then next quarter if we assume constant prices?
If you assume constant prices, you will have a 0 next quarter, but you will have a positive in the comparison.
And on the Kili Lati, how much could you expect to spend partly on the facilities kind of on the actual mine going forward, but also on the exploration going forward? That is a good question and I don't have an answer on that today. What we are doing, we have a mine which is operating and going well. They have investment plans and things going on there. It's a relatively recent start.
So we follow their plans and we think they have done very good so far and follow that. What Boliden will do in addition to Altona as owners is of course to look at what can we contribute with and we think we have significant synergies, but they will cost. But what they are, I don't comment on right now. What I can comment on is for sure we're going as soon as the closing is done and the deal is not done yet. We have agreed to buy it, but it is conditional to shareholder vote and competition authorities.
But once we're in and the plan is on the 1st October sorry, is to look at exploration and obviously what we can do as quick improvements if any in the mine and the concentrator. Okay. Thanks. Just a question on the environmental permit in Aitik. You're now producing 40,000,000 tons a quarter.
Isn't that over and above the permit? And does that cause a problem? It is causing a problem if we would continue to do 10 every quarter. So the permit we have right now is 38. So we are touching that level.
But we know that in a year, we have stronger and weaker quarters. And the winter quarters are slightly below. So we are but we are right on that level or perhaps even above. So this is an issue. And we will or we are discussing on how to do it.
We think there might be solutions around that. Right now, we're very happy with 38,000,000 tons for the year. So but if everything goes well, it's really on the limit there.
Okay. Thank you. Let's see if we have any questions from our audience via the telephone.
Ladies and gentlemen, Our first question comes from Stephanie Basel from Bank of America. Please go ahead.
Yes. Hi, everyone, and thanks for the presentation. My first question is on Garpenberg. We've obviously seen a positive development in grades during Q2. But are you able to give us a sense on where this will trend for the rest of the year?
And my second question is on cost inflation. We've seen the devaluation of the SEK over the last few weeks, which should be a tailwind for your earnings. But I wanted to get a sense from you whether you expected some additional cost inflation to creep in and whether this would essentially offset that positive impact to profitability.
Okay. On the first one, on Garfonberg, we are indicating a slightly low or lower than average grade in the Q3 in Garpenberg. We have not been guiding for a low 4th quarter and that means that for your modeling you should plan for reserve grade in Q4.
We should make sure that just the guidance for Garden Bay is the old reserve grade for 2014, 2015 2016. Yes.
Okay.
And then on the Swedish krona, well, what was driving the change in the value of Swedish krona was the primary change. And I don't think and it was more than the market expected. And I don't think the sentiment now is that anyone will increase in or interest. So I think there is a good probability that this will shown as somewhat weaker. We have our revenues in U.
S. Dollars. We have some imports of some different things. Most of that is in dollar was before and is now when it comes to concentrates for our smelters and so on. I don't think there is a major risk for inflation.
Of course, there is a degree of it on what we import. But basically, I think this is very good news to us.
Okay. That's very helpful. Thanks very much.
Our next question comes from Mr. Leon Fitzpatrick from Credit Suisse. Please go ahead, sir.
Afternoon, everyone. I've got three questions. Firstly, just on working capital. I know it's a difficult one, but you're saying with the low trend at the moment. Can you give any sort of rough guidance on where that should normalize in the second half?
And then adding on that in terms of sustainable working capital reductions, you did €200,000,000 in Q2 from You're saying that elevators in Q2 will come down in the second half. Can you be a little bit more specific in terms of potentially percentage terms H2 versus Q2? And finally, just on Tara, can you confirm whether it's cash flow breakeven at the moment? And what sort of order of magnitude we could be looking at in terms of cost reductions if you are successful with your negotiations there? Thank you.
On working capital, I mean, basically, we have a level which is not very high. We are quite good in trimming our working capital. And at times, it's going down and at times, it's going up. What happens now of a more structural nature is Ronshark where we had not a huge capital value, but more indications of a poor performing process. To release €200,000,000 there is sustainable and very important for the bottom line and for reliable production for environment for every reason.
So I think that we have elements there, which are for to stay on the level and which are indicating something good. But the valuations, I think you can take more on that with our normal valuations.
I was going to say the normalized working capital is difficult to to say. The only thing that's for sure for us is that we will never be on the normalized. We do have events that happen just in terms of the batch sizes we deal with in terms of the size of the boat shipments and so on that will always play around. And what we said that what we have achieved in this quarter is probably on the very low side that we can do in that cycle. And we had relatively high last time.
That's where we got that EUR 600,000,000 coming out on top of the EUR 200,000,000 Lener just talked about. And let me comment on the EUR 200,000,000. We have previously announced that Grensford has somewhat in the order of magnitude of €600,000,000 too much tied up working capital. €200,000,000 that came out now. That means there's still $400,000,000 there, but we're not giving any guidance on when that is going to happen because there are more ease and buts around the timing there.
But there's still too much working capital there sustainable tied up.
The easy stuff first and it's going to be a bit of a slope down. You also asked about the Tara cash flow positive. Yes, Tara is cash flow positive. And breakeven, what was it? Could you repeat your question on Tara?
I guess, there's two parts maybe on Tara. 1, I mean H1 wasn't you've had a number of operational issues. I know that's continued in early Q3. So I mean should H2 be fairly similar cost wise to H1, I guess is the first part. The second part, I mean you mentioned you're in negotiations I think with the 3 sustainable cost reductions at that asset.
I mean, can you give any guidance at this stage what sort of order of magnitude we could be looking at there?
I think we are a bit careful in doing that because we are negotiating and looking at different alternatives. The plan is to reduce headcount, to reduce the number of vehicles and machines underground, increase productivity and reliability of the mine. If we are successful in or if we the plan we have right now if that materializes, we're going to see for Tara a quite important cost reduction. We will have one time cost associated with it, which will probably come in the second half. But we don't guide too much about it, because we are looking at different options as we speak.
And then you had a question about the Garpenberg unit cost. I'm not excited to show what you mean, but if you look at the unit cost pre depreciation, it has already come down, but it hasn't come down to 25% that we have guided for when we started the Garpenberg project and that's the 25% we're still standing by. We have not guided exactly how quickly that will happen, but the end goal is still the same.
I mean, we are right in the beginning of ramping up now. We are in full production, but it's still a lot of work and we're fine tuning and the improvement is coming in the following quarters.
Okay. All right. Thank you.
The next question comes from Mr. Gustav Sandstrom from Danske Bank. Please go ahead, sir.
Thank you. Good afternoon and congratulations on a very sound operational quarter, I believe. First question on the internal profits. Could you remind me, are those also reflected in cash? Or is this a pure P and L statement?
P and L.
P and L. Great. And also, Leonard, you mentioned on another question that there might be solutions on the Aitik production. Is there any way that you would be able to produce say 40,000,000 tons this year at current expiration?
No, I don't think so.
All right. And then the depreciation was quite high in the quarter. Is there anything else besides Garpenberg and Aitik volumes behind this figure?
No. Those are the 2 main deviations that we have. Everything else is relatively small.
Okay. Great. That's all for me. Thank you.
Our next question comes from Mr. Ola Sodermaier, Transferred Bank. Please go ahead, sir.
Yes, good afternoon. A question on TCRs.
Are there going to be any more positive effects in Q3 from the higher TCRs that we have seen this year given your contract structure?
We saw the TC improvements in Q1. What we said is it's in the inventories and the throughput or the lead times will have no impact. But basically it has been in the Q2. So I don't think there is much more to expect from that.
Okay. And sorry to bother you with one more question about costs in the Mine division. Can you is it possible to kind of quantify the higher costs compared to when the production is running in normal or the Gaspe ramp up is fine tuned?
What do you think, Mikael?
50,000,000 or
No. I wouldn't want to give a number right now because I don't have it on top of my head. Regarding Akerberg, I will repeat that the 20% cost reduction guidance that we gave based on 2,000 basically based on 2010 because it was given early 2011 of 25% that one still stands. And the unit cost, as you see right now, is not anywhere close to that. But we are aiming for that number as we're coming into the fine tuning.
But I will say several quarters until we're fully fine
tuned. I think it is a bit of the right ballpark, but it's on the high side you mentioned here. I think it is somewhat lower, but it's only my quick comment on it.
Okay. Thank you. That's very good.
Our next question comes from Mr. Rob Clifford from Deutsche Bank. Please go ahead sir.
Yes, good afternoon gentlemen. Three quick questions. The $1,000,000,000 investment in Oronsha in environment over 2015 to 2018 is that evenly split so about $250 a year? Second question, the Tara mine life, if you do get the costs out that you're hoping for, how long do you think you'll be able to run that operation? Or when will you stop it?
And the third question, the ATIC45, can you just remind me what the milestones from now are in terms of decision points for the remainder of the CapEx on
We take it well to start with the €1,000,000,000 we are planning that obviously that decision. Is not 100% firm yet. We're planning along the €1,000,000,000 And we prepared for the Starting up in if you take it by Starting up in if you take it by quarter or something, we will have the first cost in the end of this year and then even split. On the IT-forty five, we do not have any additional information right now. We are working on the 1st stage investments we have said and the guiding for the coming investments have not changed.
And you had a question in the beginning or in the middle. The Tara mine life. Yes. The life of mine of Tara. We have extended it from 20 18 to 2019 and with a good development on cost reduction.
And if the market sentiment of a higher zinc price would come, well then there is a chance of additional extensions.
Are you talking a small number of years? Or are you talking sort of somewhere nought to 3 or 5 years sort of extension?
I don't know what we are going to do. If we're successful, we're going to spend a lot of money on exploration, near mine exploration. So the answer is not we don't have an answer. But there are probably a couple of years clear. And then is there a significant increase?
That I don't know.
Right. Understood. Thanks
James. Our next question comes from Mr. Eulan Baer from SEB. Please go ahead sir.
Thanks very much. Good afternoon everyone. Three quick Garpenberg questions. Could you please remind me what is the reference year for unit cost from which you target the 20% reduction?
2010.
Secondly, what was the Garpenberg depreciation in absolute numbers in Q2? And if the call rate is unchanged in Q3, will it be the same in Q3?
I don't have the exact number, but it will be more in Q3. You can basically 5% more because there's only 2 months have been taken in Q2. And you would the way we said that we have EUR 4,000,000,000 and let's assume that we're going to depreciate this EUR 4,000,000,000 over 20 years just as a number that means 200,000,000 per year means 50,000,000 in a typical quarter. And if that's true, that means that we would have had around 35 extra in this quarter. That's how far as we have guided to you.
Okay. And that's based on mine rate or mill
ore rate?
That one is that was built Well, the depreciations are different in the different parts depending on well, for the mill on the mill and for the mine on the mined ore rate. And therefore, yes, well, that is what it is.
Okay. I've got that. Ore rate Q2, 5 36 KT using a bit of backlog. What should we expect for Q3?
Sorry, once again, Jurgen.
Yes. Your milled ore rate in Q2 was I think 536,000 tons. What sort of mill rate can we expect for Q3 with the full quarter?
What we have guided for is 2,000,000 tons in the year. Part of that is coming from I mean the mill is doing one thing. The mine is ramping up more gradual. We have some stockpile of ore. So some will come from the piles and some from the ground.
And then you can model sort of an increase from the second quarter to the third and fourth So I think you have all the elements to do your estimates there.
Okay. About SEK 570,000,000. Okay, great. And then for Rundshare, what was your Q2 run rate of Iskrapp? And how would you expect that to trend during the next few quarters?
I mean what happens with e scrap right now as you have seen from our comments and also from competition is that there is a soft market on the supply of electronic scrap. For us, it's not a bad idea. We have reduced our volume of the scrap, but we have retained some of the high quality feeds, which we need to have in order to get our process control improvements that is part of their action plan. So we I can say that we are partly lucky here that the shortage of electronics scrap is coming in quality and quantity quite well timed with what we are doing anyhow. So I think the impact on us is not as great as one would probably think.
So I think we're maneuvering quite well here. But there is a shortage of material in the market. We would like to have more of good quality and we can have that the prices we are not paying to higher than we want.
Okay. That's great. And then finally for me. If anything has happened regarding the environmental court hearings for ITIG 45, could you please give us a quick update on what has happened?
Can you do that, Michel?
Well, I think the update is that the court hearing have taken place and we are now waiting for the court's decision. Sorry about that. I don't think there's much more to it.
Okay. I mean, did anyone present any straight appeals?
Well, no, they will only appeal once the and appeals will only happen once there's a court decision. But of course, there were comments and there are parts there are other sides or other stakeholders that are you could say either opposed or at least have different ideas about emission standards and other things. So yes, that's there are other people with other points of view than us.
Okay. Fair enough. Do you have any idea at all when the court will make its preliminary decision?
Do we have it? Is it early Q4 somewhere? I don't know exactly.
In the second half of this year somewhere. We have a date if we you can call us and we have a date somewhere.
Gentlemen, thank you very much indeed.
Thank you.
Our next question comes from Mr. Keith Sankof from Nordea. Please go ahead sir.
Thanks. Good afternoon. Just some follow ups. Firstly, on treatment charges. You enjoyed higher earnings in the smelters because of the treatment charges.
On the other hand, you show minus €33,000,000 on higher treatment charges in the month. So the net effect on the higher treatment charges are almost 0. How should I interpret that?
First of all, in zinc, we are very balanced. Plus for smelter, there's a minus to a large extent in the mines. In copper, we buy the majority of the copper come from external suppliers. So an improvement of TC copper TC is clearly much more positive than negative for basically Aitik.
The
main thing. We like improved or higher TCs in copper more than high in zinc, because high in zinc is just changing the internal pricing. But in copper, it's a real impact. And we think there the TC improvements there are good for us.
So there is no extraordinary thing or so in the impact from treatment charges for their full firm so to speak in the second quarter?
The inventory changes and stuff. It's never easy to be too late. I don't know if you have a comment.
I said no. There are timing differences because increased TCs will hit the mines right away as a negative, but it will only come into the smelters with a delay as it flows through the process. So with increase in TCs, you can see these kind of effects.
Okay. That's good. And finally then, if I look at the EBIT bridge between quarters on the smelters, you have a volume effect of almost €40,000,000 negative and minus €100,000,000 on costs. If I add those together, it's €140,000,000 negative. But the maintenance only was minus €120,000,000 So what is the additional €20,000,000 negative coming from?
Cost. Cost? Yes. As we said, we had some in addition to the maintenance shutdown. We had some repairs in the mines, which are a little bit higher than normal.
So
But this comes only on smelter. Was it only on smelter? But also in smelters, the costs are a little bit higher than they were in Q1. We had a better a very good run-in Q1 on costs and now they were a little bit higher this quarter.
So do you think the cost if we just exclude the maintenance stop, are the costs representative in Q2?
As I think Lennart said in the beginning, we are slightly higher on cost in Q2 and that's true for smelters and mines. And they should be slightly reverted. It's not a big thing, but it's a slight high. Yes.
That's understood. Thanks.
Our next question comes from Mr. Alan Gabriel from Morgan Stanley.
Yes. Good afternoon, everyone. Then I have a quick question on your comments regarding the grades at both Aitik and Gothenburg for the second half of this year. Is it possible to put some numbers behind those comments that the grades would be below average grades or below average metal grades on both mines?
We had a guiding on 0.20 in Aitik and we were on 0.21 in Q2. And we will if we don't adjust anything, we will have an average. And that means that we have to go down a bit in the second half in Aitik in order to get that math to work. On Gaerten, we have in the start up ramping up of the mine, we I mean in a normal sort of ongoing operations, we have high grade and low grade areas and we try to mine such that we can even out the differences and have as smooth as possible grade over time. But in the starting up here and or the ramping up, we will be slightly less good in balancing and having a very strict or a very stable grade.
And what we're saying is we're going to be on the lower side of variations in the Q3 in Gatenbach. More than that we haven't guided for.
Okay. Thank you.
Our next question comes from Mr. Johannes de Ancelis from ABG. Please go ahead, sir.
Yes. Hello, everyone. Johannes Kraneselius here. I have a question on your realized prices throughout the quarter because we started in Q2 with relatively low prices and then we ended the quarter with very high relative high prices. So were your production and shipments evenly spread over the quarter?
Or what can you say there for me to understand how you realized prices were matching LME prices?
Yes. I think it is relatively stable. If anything slightly sort of heavy towards the end of the quarter with higher price. But what the impact is there, I cannot say. I think it is small, but perhaps a slight direction of volume of high price, but fairly stable.
Okay. Then on CapEx, because you've been explicit about CapEx guidance for this year and 2015 on SEK 4,000,000,000, right? Now you're talking about an environmental investment in Rundskaya, but that was already in your budget and so forth. But could you sort of indicate how we should see your CapEx for the group for 2016, 2017, etcetera? I mean excluding ITEC 45?
The answer is that regarding 2016 that will be one of the topics on the Capital Market Day that you just got a date for. Otherwise, we will just revert to what we said before that we say that we have a maintenance CapEx level around EUR 2,500,000,000. That's kind of the basis. You know that there is an ID 45 number out of EUR 600,000,000 that will be split and larger that is most of that is happening in 2015, but there will be an ID 45 Part 2 that will happen in 2016. And then it's a little bit question about other things and there's a question of this run share divided on 4 years and so on.
More than that we haven't said.
Okay. We bought a little mine for €95,000,000 too. So But
that's in
this year. Yes. That's in this year.
But maintenance CapEx of 2,500,000,000, yes?
Yes. That's the guidance we've given.
Anita, any more comment to that question? I think that their own share is a very big it's a very important thing. We have now the direction to do this investment that we have wanted to do and we know now how to do it. And I think there is a bit of an unknown, which have been sort of moving around, which is now much more concrete or we know what we're going to do. So I think that's even though it's a big number and it's a big sort of burden on our balance sheet.
€1,000,000,000 is €1,000,000,000 But the uncertainty is, I hope, gone now and that's good.
Okay. Okay. Thanks very much for that.
Our next question comes from Mr. Jatin Agouel from Citigroup. Please go ahead, sir.
Good afternoon. Just two questions on Tara negotiations. If you don't succeed, what are the consequences? Would you step back from the operation? Or would you reduce the mine life?
And what are the implications on Oda Smelter? Secondly, there is a comment about additional crushers and additional crusher and conveyor belts for Aitik. Is that for 45 as well? And how much additional money are we looking at beyond 600,000,000 approved CapEx? Thank you.
First of all, on the life of mine, if we don't succeed, of course, we succeed. We are not planning on not succeeding. The question is more what kind of variations could I think of and I don't have an answer to that. The Life of Mine plan is based on the things as they stand right now and what we're talking about is standing for improvements. So that's giving the flavor of the impact there.
On IDIQ 45 and underground conveyors, what we have said is that we have a second or we have a crusher in the pit deep down on 285 meters. That will need to change. When we are going into the deep or higher grades we talk about, we mine deeper down in the pit. Well, unfortunately the or not unfortunately, just as planned, we have to change the position for this crusher. And when we do that, we're going to upgrade it to a better quality and more robust and reliable equipment.
Together with that, we're also going to do the conveyors. And we have been quite open that we have not decided exactly where to put it and the variations are quite wide between low cost, high CapEx or high operating cost, low CapEx or the other way around. We have not decided yet.
So is it possible to get both the options? How much CapEx versus cost are we looking at here so that we can at least look at the sensitivity on both the options?
Once we decide, we'll come back to you with what the impacts are. Before that, we can only say to you that we are working on this and we're modeling this. And it's not kind of an option A or an option B. There is a gray scale here about different options that we're working on.
Okay. Thank you very much.
Our next question comes from Alexandra Bukeysseva from BMO Capital Markets. Please go ahead.
Hi, Leonard. Thank you very much for the update. Just wondering if you were to extend Tara Mine Life that maybe 2 or 3 years extension that you've alluded to, what sort of grade profile would it have at least relative to the reserve grades?
You talk Cara now?
Yes.
Yes. I don't think the grade will differ much. The trick here is we're going deeper and in less sort of massive ores or ore bodies. So it's going out in veins and in smaller rooms. So it's more a productivity and cost issue than a grade issue.
And obviously, as you understand, we don't have the plans and we don't have the numbers because then we would comment much more about it. But we see there is an opportunity to extend. If we can lower the cost then it becomes economical to take more ore, which is going down in smaller veins at depth.
Understood. And sort of order of magnitude, what sort of cost increase would you potentially look at like 10% or 50% or somewhere in between?
I don't have that number.
Okay. Okay, thank you. That's it for me. We have time for one more question.
The last question comes from Mr. Gustaf Saastra from Danske Bank. Please go ahead sir.
Yes, thank you. Just one quick follow-up. Regarding Coca Cola silver recovery, did you have any positive impact from that for this quarter? And also could you give us point us in the end direction what sort of impact that will have going forward?
Would you like to ask?
If you care to look I think at page 25 or page 26 of
the report, you will see that
there is a silver production in Coca Cola. And you can see that that's a little bit less than 2 tons. As you know that the guidance is for around 25 tons per year once this thing is fully running, which is 6 or 6.5 tons in a quarter. So we did have production and it has played in to that whatever 25% or 30% extent. We had then also guided that it's not going to be a full production in Q3.
It will be on a lower level because there are certain things in that has to be changed. So we're waiting for some equipment that will come towards the end of the quarter. And once that is in place, we hope for a relatively quick ramp up towards Q4.
Great. Thanks.
Thank you so much for coming to our call here in Stockholm and also participating via the telephone. Thank you.