Ladies and gentlemen, a warm welcome to Boliden's earnings release presentation for Q1 2014. My name is Sophie Arnius, and I'm Head of Investor Relations here at Boliden. Today's presenters are our CEO and President, Lennart Evrell, and CFO, Mikael Staffas. There will be an opportunity to ask questions after their presentations. As we will have our AGM today, this event is planned to take not more than one hour. Lennart, please go ahead.
Thank you. We released the result for the first quarter. I think on a good note is the start of Garpenberg, which is a piece of very good news. We are slightly ahead of plan, and it's going as expected. We have also taken a decision to start the project team we call Aitik 45, and we have taken a decision to take the first step of that investment program, which is about SEK 600 million. Production was stable, cost was maintained, but we had some issues in Tara, and more on that in a moment. Revenues were SEK 8.5 billion as compared to SEK 9.2 billion a year earlier. We had earnings before interest and tax and excluding the process inventory revaluation of SEK 385 million, compared to SEK 751 million a year earlier. The cash flow was negative SEK 432 million.
It's in the tail end of the Garpenberg investment, the second largest investment in the history of the group. The reason for the decline is essentially lower prices and terms. We have this final pricing clause in most of our deliveries, which means that the decline in metal prices we saw in March affected not only the March results but also had to adjust the sales of the previous month, February. We had a double month of the lower price, and might be that some missed that. Of course, that clause is going double positive when metal prices are going the other way around another time. Costs were maintained, particularly in the smelters. But basically, I think we have good management of the cost side.
The test production in Tara in March was good news, and we have also announced that we, from the beginning of May now, are in full production in Garpenberg. More on that later. The markets are changing somewhat. China has a lower growth rate than previously. On the other hand, we see the U.S. market going well. The European has good year-on-year development numbers, of course, from a low level. But the picture is slightly different than what we're used to, where China is not so dominant at this point. It's more the old economies, the mature economies, which are contributing to the global demand of our metals. Mine supply growth is limited in zinc, which has over a long period of time stabilized the zinc price at around SEK 2,000.
We have seen new capacity coming in on the copper side, which has led to the decline in copper prices for a time. The latest development is, however, positive. Benchmark terms have been cleared on both zinc and copper. They are going in a positive direction. They have not had any major impact in the beginning of the year, but we'll follow later. We look at the zinc price first, as you can see here, we see month by month. In the first quarter, we saw the dive in March. Then a good recovery in April again. We are over SEK 2,000, which is, given the general base metals picture, quite okay. The copper price, and you saw also the official inventories going down in zinc, which is very important to note.
Copper also sees a decline in inventory, but the concern that more capacity is coming in is putting pressure on the copper prices. We see here in the smaller graph to the right that in March we saw a distinct fall, which had an impact both for the March result and the February revaluation or final pricing. We have seen a somewhat better development in the beginning of the new quarter. Gold and silver have had a bigger impact on Boliden now than some years back. We have the content of gold. We have seen lower grade in Aitik, but gold is reasonably good. We have silver, very high silver grades in the expansion of Garpenberg. We have the gold mine, Kankberg, and we have the electronics recycling. A lot more gold business and silver business than we had some years back.
This decline, of course, has a negative impact on the group if you look a couple of years back. The lead prices have developed similar to the zinc, basically good. We go into the mines result, earnings of SEK 147, which is a big decline from the previous year. Metal prices and terms and this final price or definite pricing has significant impact on this. We compare with Q4, we saw the copper coming down, but I think that was expected by everybody following us a bit in detail. We had an extraordinarily good copper production in Aitik in the fourth quarter of last year. Winter conditions, we have always talked about as lower. We cannot produce at full speed when temperatures are going down. That has a little bit of impact.
We had some maintenance, planned maintenance, nothing special, but we were very free of maintenance in the fourth quarter. In addition, we had better grades in Q4 and the normal grades as have been guided in Q1. The quarter-over-quarter there is a significant decline. The other one, I think this was expected. What was not expected, and not by ourselves either, is rock conditions in Tara are time to time difficult. The rock conditions in Tara gives us some problems time to time. It is not unique. It happens, and it happened in the end of the first quarter. We cannot access the mining areas as we would wish, so we have disturbances. This will probably continue into the second quarter. It is nothing fundamental. It is nothing major, but it has an impact now for maybe two months or something in Q1 and maybe into Q2.
The costs have been maintained, some costs for maintenance, but nothing special. The test production in Garpenberg I'm coming back to on this slide. Startup is a process. You start with water in the system, if you take the concentrator plant, you continue with rock and you continue later when everything functions, you go in with water and you start to floatate and get the first concentrate out of the plant. We were early on, and everything went much better than anticipated in the beginning there. We could start test runs in March. We registered and encountered a number of normal sort of smaller issues running in situations. We closed the plant in April, and from the 1st of May, or if it was the last of April or the 2nd, but since almost a week, we are in full production.
No production in the old concentrator plant now. We have it, of course, idle, we can start it up, when we need now to do new adjustments, which can very well happen. Basically, we are in production now since the beginning of May, which is extremely good news. The production plan is to do the guiding we do in order to understand this. We have a plan to do 2 million tonnes this year. Again, we are a little bit early, but it's a process, and even if we would encounter some new issues and we have to stop and start a little bit, it's within plan. Of course, it's a degree of uncertainty. Right now, as we speak, it's going very well.
The target is to be on a pace of 2.5 million tonnes, the name plate capacity by the end of next year. With this, we can say that unless something new is happening, we think we are going to close this project on time or a little bit ahead of plan and on CapEx. The production in the mines, to the left, we see the copper side, basically seasonality or a result of the very strong Q4. To the right, we see the zinc, which is an effect of basically Tara. If you dig into the numbers, you will see that we have low recoveries in zinc or understand that we have low recoveries. We produced in the test production some amount of concentrates, but at low recovery rates in the beginning of the startup there or the test production.
If we move on to the smelters, basically a result in line with our expectations within SEK 199 million. It's a little bit or it's below last year, but as a consequence of metal prices and conditions. The production went stable or was stable. Nothing much to talk about there. The cost was good. We had the first effect of the Rönnskär plan, which is to cut cost, which gives effect sooner than the more long-term job we do on process stabilization or recovery of the process stability. Also there, we have some good news, and that is that we produce less or we consume, we can turn into the production the same tonnage of this complicated intermediate products that we get out of the system or of the process as we produce. The difficult intermediate stocks are maintained on a flat level now.
They're not growing any longer, which is a good statement or a good news for the process stability. We have a long way to go before we are where we want to be with Rönnskär. I think the first steps of these action plans have been going approximately as planned. That's good. In Kokkola, we have the other project in the zinc smelter. We have the other big investment program going parallel to Garpenberg. It's a silver recovery from silver-rich zinc concentrates. The project is on plan and on CapEx. We expect production to start in the beginning of Q3. Rönnskär, what we did for process stability is to do a number of things here. First of all, we need to feed slightly less challenging materials.
Rönnskär is one of the leading smelters in the world to process complicated materials. We have the combined effect of difficult electronics feed and copper concentrate. The combined effect gave us a problem. We're working on the feed mix to improve the material planning and how we mix what we feed in order to not have this combined effect, which are very difficult when they happen. We are also learning and going deep into the process control. We have a very good new manager with a very good technical process industry or metallurgical background. He's really going after fact-based recipes and how we feed and how we manage the process with the crew in Rönnskär. This is a more long-term job. We also have some new test areas of some drying of some wet material, which is difficult to process in larger quantities.
We have some other process changes that we are doing in prototype format, which will probably take us to a better level in the future than we ever were before this problem started. That's still a long time and early to say. The impact on the first quarter was stabilized production. We had high copper feed. We had slightly lower electronics material with the impurities we don't like at this point. We have seen the stabilization of the inventories or the intermediate stocks. We think that if you annualize and see the cost impact of what we have done so far, we estimate that we are somewhere on a run rate of SEK 50 million improvement compared to before the project. The production is good in zinc. The feed is good. The rates are slightly lower. Basically okay.
On the copper side, not much to say. With that, Mikael, you can take over for the financials.
Thank you, Lennart. I will excuse myself right away for my slightly voice or voice out of tone. Hopefully, you will hear me better or hear me anyway. Regarding the financials, looking just first at a summary, these are numbers that you've seen. We have a total earning excluding process inventory revaluation of SEK 385 million in the quarter. I'll come back to the bridge and how that builds up. We have investments slightly below what they've been last year, which is also in line regarding, I'll come back to the investment guiding in just a slide or two. We had a negative cash flow of about SEK 400 million. I'll come back a little bit for that, talking about cash flow in a few slides as well.
Looking at the comparisons now between last year, you can see here that we had a profit that was roughly SEK 365 million less, excluding process inventory valuation. That is entirely and more than entirely explained by the changes in prices and terms of SEK 456 million compared to last year. You can also see that the volume is up, that is primarily because Aitik, as you remember, first quarter last year, had both low volume and low rates, Aitik in that comparison has done very well in this Q1 2014. You can also see that the cost is positive, we have a lower cost this year than we've had last year, that is mainly the smelter's been able to take out cost.
Also you see down here the SEK 171 million, which was a one-off positive item last year, we don't have any one-off items this year, that one takes away from last year. Comparison with last quarter, this one might be needing more explanation. You can see that we had SEK 162 million less of profits, that comes mainly all from volume, I'll just come back to that. We also have a slightly negative effect on prices and terms, if you start with that, I think Lennart's already mentioned that we do have this final pricing effect or month after month of arrival effect, which means that it matters how the prices play out in the quarter.
Even though the average prices for the quarter were not worse than they were for the Q4, we still have a negative price effect of around SEK 50 million, that basically all comes from the final pricing effect. The SEK 160 million negative is of course, mainly coming out of Aitik. I think this should have been well guided for. This is both the lower volume, the volumes in Q4 were also extremely high in Aitik, also the grades to 0.20 that we have now is of course much lower than the 0.22 that Aitik had in Q4. To that comes Tara, that was not guided for before in advance, as Lennart has mentioned, that is due to rock problems that plays into these numbers as well.
On the cash flow side, you can see that of course the investments are big, they're continuing to be relatively large, we also did have a tie-up of working capital. This tie-up working capital is due to basically two grounds. One is a fundamentally good ground. We had a very good demand from industrial customers in Europe that is fundamentally good. We get better premiums from industrial customers compared to traders. Industrial customers typically have better terms in terms of payment than do traders, and also ties up slightly more inventory to serve industrial customers as opposed to serving traders. Therefore, that part plays into tying up more working capital. If you remember me last quarter, I also said that we were hoping to be able to release some working capital from the unusually high intermediary products that we have, for example, in Rönnskär.
As Lennart mentioned, we have a good news that that's not tying up more, we've not yet come to a situation where we're releasing working capital out of the intermediary product at Rönnskär. Looking at the capital structure, you can here see that with the negative cash flow, the gearing has gone up to 40%. We still have a net payment capacity of close to SEK 6 billion, the balance sheet is generally in pretty good shape. Now, on CapEx, this is something that will be new to you, at least what you see to the right. On the left, you see the 4 billion CapEx guidance for 2014 that we've talked about before. There's nothing new around that.
With the Aitik investment that you've seen, also, I think Lennart will come back to that when he comes back and talks about Aitik 45, with the continued high around 1.0 stripping ratio that we see combined with increased volumes for 2015. As you know, we measure CapEx with the IFRIC 20 adjustments. Including all the stripping in Aitik, that stripping alone is close to a billion or a little bit less than a billion. That together with the investment and together with regular maintenance means that the 2015 numbers will also be around 4 billion. That's the guidance that we're giving you now. With that, Lennart, I will give it to you to talk about our projects and to talk about Aitik 45.
The first slide here is the project update, which we have looked at many times before, I think it is exciting times now. We are through basically or almost through the big investment period with Aitik 36 now up well on that level or above within 37 million tons to 2013, which is one year ahead of the original plan. Within the Kankberg, which is going well. Rönnskär we spoke about, we have some issues, which is partly related to electronics. Garpenberg is the second-largest project we have had ever. We have said that it's high grades. It's the silver-zinc combination we like. We have a massive ore body, we sink the shaft down to 1,200 meters. We deliver the ore on three minutes straight into the plant, which is brand new, it starts producing exactly as we speak now.
The Kokkola silver recovery is going in parallel with this and is going as planned. The news of today is of course the Aitik 45. Let's have a look. What have we done here? We have decided on the board meeting yesterday to start a project we call Aitik 45. This project will include the SEK 600 million we have decided to spend 2014 and 2015, which is basically a new crusher, and is some environmental equipment and some electric supply we need for the bigger capacity, but also some smaller debottlenecking. This first step project we do because there is lead time, and we try to push as far out as possible some of the investments, because we have to move them along with the gradual stripping and mining of the pit.
Instead of taking one big project on the information we have now, we have taken the first step now. We will come back with a second step. That one will include the next crusher, the in-pit crusher, and some more equipment and probably a similar ballpark as the first one. That excludes the big open item, which is the underground conveyor system. We have an underground conveyor system from the existing in-pit crusher, which was very expensive to build. We don't know how when we move the in-pit crusher where we shall put it, and consequently, how much we will invest. We can take lower investments and get higher operational costs, or we can take a longer-term approach to it with slightly bigger investment. It's a couple of hundred million SEK, so it's a fairly significant piece, and that is open at this point.
The whole package number 2 is open and not decided yet. Before we are there, we cannot draw the very clear details. We have not done the feasibilities of everything yet. The first step is to enable 45 million tons, but the second step is needed in order to keep 45 million tons and enjoy the improvements we have seen in the reserve. Grades are slightly lower, but reserves are up considerably up to over 1 billion tons in the mineral reserve. We have never been there before. We can expect longer life of mine, and the calculation of it is, of course, the discounted cash flows from the longer life is important here in parallel with the higher yearly production, of course. Maintenance CapEx, as Mikael already said, we are going to continue outside of the project. It's the same we did with Aitik 36.
Truck fleets will have to be renewed, shovels will have to be renewed, whatever else, and normal regular maintenance. We are not going to increase the truck fleet. Over time, a slightly better or a better strip ratio so we can use the truck fleet to drive ore to a large extent than waste. All in all, the maintenance CapEx will continue in a similar way as before, the pushback itself, which is a bit of a maintenance CapEx, that of course will increase with speed. If you produce 45 millions on a 1-to-1 ratio, you have to produce 45 million waste too. If you do 36 1 to 1, you produce 36. Of course, stripping will go up in proportion there. I think it is very encouraging.
We have enjoyed a very strong development in Aitik, we took the decision probably earlier than we have guided for. We sequence, we have long lead times, and we start with the earlier parts, and we can push as much as possible forward in order to sort of smoothen the cash flow impact. What are the important things we said at this Q report? Well, Aitik is of course an important one. It will have an impact on CapEx this year and next year. We will have grades which are going to be as the original plan on low levels in 2014 with a bigger ore reserve in the new calculations we will continue on, but on a slightly lower level than previously guided for. Kokkola's project will continue as planned, start in Q3 2014. Garpenberg is in production.
A normal running in operation here is a bit on and off, so far it has gone very well and we certainly hope that continues. It's going well. Rönnskär's action plan started to deliver the first cost benefits and some indication on the process stability. That's still far too early to draw conclusions on. Now we are going into the maintenance periods, the summer quarters, so Q2 and Q3, here are the guidance I think we have said or told them before, but they are in line with expectations, I would think. With that, we repeat that if we had forward-looking statements, we should be careful with that. We try to tell what the plans are in today and be careful with forecasts. With that, Sophie?
Yeah. Let's open up for questions.
Ladies and gentlemen, if you have a question, please press zero one on your telephone keypad and you will enter a queue. That is zero one to ask a question. We have the first question from Mr. Liam Fitzpatrick from Credit Suisse. Please go ahead, sir.
Morning, everyone. Thanks for taking my questions. I've got a few for you just on Aitik, and on your CapEx budgets. Firstly, just on Aitik timing, could you give a little bit of guidance perhaps on when you would expect first production from the 45 project to begin to come through? Is 2017 a realistic type timeframe? Do you have any idea when you would expect the environmental license to come through also? Secondly, just on the CapEx side, could you just clarify, you mentioned that in addition to the SEK 600 million, you would expect the next approved amount to be similar in size. Does that include the underground conveyor that you mentioned? Also in terms of sustaining CapEx, could you give an update on what we should be assuming for that for the overall business on a go-forward basis?
Okay. On the first one, it was the ramping up here. We have a permit now, which is a temporary to go over 36 million tons. It is temporary on 38. We expect to continue on 38 until we get the new approval. To give forecasts on permits is very difficult. I think it would be wrong for me to say. What we can say is the process started 2012. We expect a decision later this year. Appeals are not uncommon. Because of that, I think it is hard to say. The earliest point is that we could have a go-ahead probably at the turn of the year. I think there is quite a probability or a risk that it will be delayed. Why speculate? This is very hypothetical, so we don't know.
If everything would go as planned, I think 2017 is a realistic target. It's depending on that permit in particular. As a consequence, the timing of the part two investment program. Going to the investment program, you understood it right. We have SEK 600 million approved from the board. We're going to do that. It's a long lead-time item. It allows us the fastest track to full production of 45 million tons. We do that immediately before we are ready with the details of the rest. The package number two, excluding the underground conveyor, is probably ballpark similar. Maybe it's another SEK 600 million. The underground conveyor, what is it? Well, it's not under SEK 100 million, it's not SEK 1 billion, so it's maybe a couple of SEK hundred millions or some SEK hundred millions.
That is very much dependent on how we decide finally to structure it. Yeah, sustaining CapEx, it's probably your question, Mikael.
Yeah. We have said before that we have a sustaining CapEx of roughly two and a half in a normal year going forward, and we will stay. We don't have any new guidance on that as of right now. Two and a half is still a good number to work around. For 2015, it's roughly one and a half above that, and that's the stripping, the high stripping level, and of course the SEK 600 million, which is mainly happening in 2015 are the main contributors to the extra investment.
Okay. Thank you.
Our next question comes from Mr. Luke Perlot from Exane. Please go ahead, sir.
Hey. Hi, gentlemen. If you could maybe as a follow-up on Aitik rate or confirm the 0.2% copper grade you were guiding on for this year. If I understood correctly, you're striving to achieve the 38 million tons before reaching the phase 2 approval for the Aitik 45 expansion. If you could elaborate a bit on that. Another question related to Tara, if you could maybe elaborate a bit more on what you were pointing to as tough rock conditions. Is it harder rocks to process and therefore higher cost to process these ores? Thank you.
In the near term is no change from previous guidance. In the longer term, of course, we extend the reserve and resources given the lower cash cost we will obtain after the project has been done. I think that all is in the report. I don't think we have so much more than what is in the writing there. On the 38 million tons, if we are there or if that is a starting point of a next step, absolutely. We did produce 37 million tons on a positive slope or in a sort of on a positive trend. I think that we are close to that level, and we don't give forecast. We are around that level right now, and it looks as if the permit level is a limiting factor there.
I think somewhere 37 to 38 million tons of production is sort of to be expected unless something happens. That can be either we get the permit and everything goes well, and then we can probably start to continue to climb a bit, even before the investments, I don't know. Downside, I don't see any downside risk as we see right now. 38 million tons is a level we are limited on as we speak. On Tara, the rock conditions, they are not unique, or there is nothing very unusual that happened now. Tara, and for that matter, Garpenberg, has sort of rock conditions which time to time give us some problems. In this particular case, what does it mean? It means that we cannot mine some of the areas where we plan to mine this right now.
It's not a long strategic developments that is failing or something like that. It's more the sort of month by month short-term mine planning, which had a difficulty, and it's taking a time because there is a stop, which we cannot mine as planned. That has an impact in the Q1, which we have seen, obviously, and it will probably have an impact also in the beginning of the second quarter. I'm not seeing or saying that we have any long-term sort of issues related to this.
Thank you.
Our next question comes from Mr. Julian Beer from SEB. Please go ahead, sir.
Thank you very much. Good morning to you all. Thanks for a great TV show that you've done here. If I can just carry on with the Aitik question theme. You're saying that the unit OPEX should fall 10% once you get to Aitik 45. Could you first say what CapEx scenario that's linked to? Does it include or exclude the underground tunnel?
We have a mine plan which we work on, that of course, has an assumption of all of this, but they are slightly vague at this point. We have not decided. We are not communicating exactly what it is because we know that there is an uncertainty. In the mine plan, in the life of mine CapEx, of course, it's small numbers, but they are coming earlier, so it's important to be precise when we communicate what we do to the market. The decisions on package 2 has not been done yet. The cash cost, returning to the question, is based on the life of mine, assumed life of mine plan, including all the CapEx.
The ones we talk about here, maintenance, CapEx, stripping, and whatever else, which is stretching a long time in the future because as you understand, we have extended the life of mine considerably with this recalculation of the ore reserve.
I understand. I guess the reason I'm asking the question is that the ore rate from 36 to 45, that's a 25% increase, but the unit operating cost falls just 10%, which is suggesting the variable OPEX is a larger proportion of costs than the fixed OPEX. Is that the correct way to be looking at this?
Can say that we have a lower grade in the 45 scenario. We have a cost per ton, which is going down, I think maybe 20%, and the cash cost will go down 10%. It's depending on which kind of cost development you're looking.
No, I was just reading that you're saying the operating cost per ton of ore mined should fall 10%.
Was it so?
Yes.
I'm mixing up the numbers. I'm sorry there. Yeah. Okay. Sorry.
Which kind of suggests that you've got more variable costs than fixed costs per ton in the mine. Is that correct?
It's very complex ore models. We have the variable costs are basically fuel and energy and a lot of things which is coming as an incremental impact. I think we have to come back with the detailed question. Of course, all of this is in the mine plan.
Okay. Looking forward to coming back to that. Just then a brief follow-up. It's my understanding you've got the first hearing for the environmental permit, I think it's June. What happens after that? Presumably, Natural [Resources Canada] will appeal against the plan. Is that just then one process where the court judges on that appeal, or can it be several appeal processes?
You can take that.
Well, there will only be one appeal process. That's clear. I think the other question that you didn't ask, which is linked to this, is what happens if you get a court decision that is appealed, and that, as you know, in the Swedish context, can be going several different ways. It could be that we actually get a permit that we can start using while the appeal process is going on, or it can be that we do not get a permit extension while the appeal process is going on. Let's not speculate about what happens, but that's kind of all that is possible in the process. There will only be one appeal process.
Okay, Mikael, that's it. That's very clear. Does the 2015 CapEx guidance include any of the step 2 Aitik 45 CapEx?
There's lots of things, and there could be some of that, but it's not much.
Okay. Thank you very much indeed.
The next question comes from Mr. Alain Gabriel from Morgan Stanley. Please go ahead, sir.
Yes. Hi. This is a follow-up question on the 2015 CapEx, Mikael. If you're able to give us more granularity on the growth CapEx component, given that you've always guided the maintenance CapEx to be close to SEK 2.5 billion. How will the other SEK 1.5 billion be spent? Are you able to give us more color on that?
Well, what I said is that let's assume that most of the SEK 600 that we have decided happens in 2015, which is a fair assumption. We have stripping, and of course, in the two and a half, we do have stripping, but the SEK 1.0 that we're having right now is much less than we're having long-term. The stripping is maybe at least SEK 400 million more than it will be in a normal long-term situation. There you have SEK 1 billion, if you add those two together, and then you have another SEK half billion, which is linked to that we are in a relatively heavy maintenance period during this period as well, with some reinvestments that come in, and they're also in the plan. Without going into detail, there are some assumed environmental linked investment that will need to be done in other parts of the group.
Okay. Thank you.
Our next question comes from Mr. Johannes Grunselius from ABG. Please go ahead, sir.
Yes, hello, everyone. Johannes Grunselius here. Yeah, most of my questions have already been discussed now, but perhaps on the Boliden area and on the Tara mine. First on Boliden, would you say that the mix would be roughly the same in Q2 as Q1? Is Q1 very much a reference? How we should think of the different metals?
Basically, yes. Right?
We had some increase in copper in Q1.
That's a very good question, and we'll have to come back to that. I would say that it's relatively stable, but of course, in the granularity, there will be some differences. It is in line with what we guided in the Capital Market Day of the shifts that are going on, where we are slowly increasing the gold part. Exactly what happens in Q2, I don't want to answer.
On Tara, I think you said that here very clearly, Lennart, that you will continue to have the issues you had in Q1 will continue in Q2. Would you be able to help us a bit on how we should look at the mill door here in Q2? Is that roughly the same as in Q1 or slightly better? What would you think?
It depends. I think we're basically through this issue now, so I think we're back on track now. It was something happening in the end of Q1 and beginning of the second. Maybe the same, I don't know. It's not something continuing. Maybe the same, maybe a little up.
Yeah. Perhaps also on Aitik, if I can take a last question. You had very good ore volumes in Q1, despite of the cold weather and all that. How should we think about the Q2 ore volumes and also the grade there for Q2?
Q2, we have. We don't guide on maintenance or planned maintenance, we have a few smaller things happening in the second quarter, that is all I'm aware of. Normally we wouldn't, since you asked the question, maybe a little, basically, it should be a normal quarter, with some maintenance.
Regarding grade, it's very clear for the rest of the year, Q2 through Q4, we have guided for 0.20 ±10% of grade.
Okay. Thank you very much.
Our next question comes from Mr. Fredrik Agardh, from Handelsbanken. Please go ahead, sir.
Yes, hi. Thank you very much. I have most of my questions answered as well here. Just one thing on Rönnskär. When do you think in time that you could start adding back the inventories that you've been lifting out now? If you say that you stabilize the process now, when do you think we could see that being brought on or brought back to the smelting process?
Did you say when I think or when I hope? Serious, I think that the biggest step now is to have it stabilized. In other words, that we produce no more than we can feed back in the system. I think we are fairly happy to stay on this and stable like this. This is more important than to start to take it down, and we're going to take it down as soon as we can. I'm more focused on the fact that the inventory is high. That's no good. It shouldn't be there, and it will not be there, but I think the main focus is to keep it and to be there month after month. If we are there, I'm sure we're going to take it step by step down. I think it is too early to think anything right now.
I hope it's going to be soon, I think more important is that we continue to feed in as much as we produce, have it stable or on constant level.
Is that 2014 or is it sort of 2015, 2016 story?
I would be surprised or I would be disappointed if we're not seeing any positive signs in the end of the year, let's say. That's not even my focus. My focus is process stability. When that is under control, the rest will be resolved. I think that's as far as I can give you an answer.
All right. Thank you very much. I have my other questions answered.
Okay, thank you.
Our next question comes from Mr. Ola Södermark from Swedbank. Please go ahead, sir.
Yes, hello. Just to follow up on Garpenberg. How shall we view the production cost in Garpenberg during this quarter when the expansion is ramping up? Shall we have some additional costs?
Always some cost in the startup, but I think not excessively. I think if there is something you should be a little bit careful is probably recoveries. We had low recoveries in the test runs, of course, but to the extent that they were visible here. I think very soon we're going to see a positive impact. I think the Garpenberg, if it continues well, and of course it's a process as I'm really making clear. If it is going very well, I think we will have a positive impact in the second quarter. Not too big, but to some extent, the bottom line impact of Garpenberg.
Okay. Thank you.
Let me just add on that just to be clear. On the EBITDA, we should see some cost decreases. As we now start real production also, the depreciations will start coming online during Q2. There's a mixed balance there.
Okay, thank you.
Our next question comes from Mr. Gustaf Sjöström from Danske Bank. Please go ahead, sir.
Thank you, operator. Most of my question have been answered as well. Just a quick follow-up on Garpenberg. Where do you see the biggest hurdles and risks from where you are now till full production?
I think that the big identifiable risks, if we look at our spreadsheet to look at big consequences, big risk or small and small. We kind of track them. I think the big ones are behind us. I think now what keeps me, if anything, awake at night is of course about a million small things. They are, as far as I could judge or if I'm trying to guess something, it is absolute normal startup situations, and I cannot identify anything of particular big risks. The big ore hoist is taken over by production. The concentrator is taken over by production. I think the big things are basically behind us. We have about a million things which can go wrong, and some of them will go wrong, but I don't expect any major impact. That's basically how I see it.
Sounds good. Thanks.
Our next question comes from Mr. Rob Clifford from Deutsche Bank. Please go ahead, sir.
Good morning, gentlemen. Just quickly, with the increasing CapEx profile or returns of spending, are you going to revisit your hedging? Are you going to put in some more hedges to protect that cash flow or cash spend?
Nothing planned at this point.
Great. Thanks, mate.
Our next question comes from Mr. Christian Kopfer from Nordea. Please go ahead, sir.
Thanks. Just to follow up on Tara, I'm sorry if you already answered this, maybe I missed it, but you mentioned that Tara and Aitik hit quarter-on-quarter with SEK 160 million. How much of that is approximately assignable to the problems that you had in Tara?
I think the numbers, I don't know if you have, but I think the feedback I got very briefly, we have been on a board meeting. I think you understood the picture quite well. It was at Tara, which was unexpected. It was unexpected by us, too. How big an impact was it?
50.
50.
SEK 50, just over SEK 50 million.
Then, of course, at final pricing, I mentioned that in the beginning. I don't know, some in the market might have missed that we had to reprice February sales for the decline we encountered in March, which might have been also an impact if we expand from your question.
Okay, fine. Finally on Laver, I haven't talked about it too much lately.
Can you say anything about when you're planning to communicate anything on that project further? How is the process going, and so on?
Laver, we spoke about after Q4, good updates of the mineral resources. What we're now doing, we're working on the feasibility, and it will take quite a long time. It's not something which will be on the table for, I'm guessing now, minimum a year and maybe two or maybe three, I don't know. It's long-term still.
That's very clear. Thanks.
I remind you that if you want to ask a question, you have to press 01 on your telephone keypad. We have a question from Mr. Jatinder Jandu from Citi. Please go ahead, sir.
Hi. Just a quick one on your balance sheet. You have been very prudent since, I think 2006, barring the financial crisis. Now with gearing ratio at 40%, how far beyond are you willing to stretch, given you've got a couple of heavy CapEx spend years and with a second phase of 45 expansion and potentially Laver coming into the picture as well at some point. Whereabouts do you see yourself comfortable, and at what gearing level would you consider any excess capital return if possible? Thank you.
I think before you comment on it, I think that Laver, we would be prudent. It's a big one. We would like to see us paying off debt and sort of digest all the investments we have done so far. That is not really on the table until at a later time. What happens there and then, we don't know. I think the current situation with the current CapEx plans and the current financing, and I think we're very comfortable and we have put together our financial packages for the scenarios we have right now. We have lower earnings with given market conditions and so on than we probably would have expected one or two years ago. We have put together a financial or a balance sheet structure for much worse times than this, including the CapEx we have now. We're comfortable.
In terms of do you have a gearing target on the maximum side as well? I think you have indicated 20% at the end of a high cycle.
I don't know if we have done that.
Well, on the high side, we haven't really given a number. I think it's important to point out that this will play in if we were to do some more expansion, which will be very expensive, because as most of you have in your plans with our investments coming online. Unless the prices go down much further, we do have a positive cash flow situation coming up. Therefore, this number should reduce everything else equal. The only way to get it to jump would be to do more expansion. In context with that, we will come back to what we do with the balance sheet.
Where would you consider any excess capital return, at what gearing level, if there is one in the mind?
Capital returns, I think that is in the guidance very clear. We are going to pay off debt to the level of 20%. If we're going below that level, the question will obviously be on the table on the board and for shareholders to vote on. I think we are going to do 20%, and at that point, the question will be there.
Great. Thank you.
We have a follow-up question from Mr. Julian Beer from SEB. Please go ahead, sir.
A couple of housekeeping issues, and sorry if I missed these in earlier questions. Did you get any benefit during the first quarter from improved copper TC and RC?
Limited.
Yeah.
Nothing, probably.
Basically nothing.
Okay, thanks. Finally, Garpenberg, 2 million tonnes is the ore guidance for 2014. Do you expect the grade to be similar to 2013 from a zinc point of view, or will you be running leaner materials which could bring it down on average for the year?
You should assume the average grade of, as we said, the old. If you were to go back one year and look at the average grade of the reserve, that's what we guided for the first two to three years before the new averages will start hitting in.
Great. Can you remind me what that was?
5.1-
5.1, I think it was for the zinc.
5.1 zinc and 130 silver.
That's great. Thanks a lot.
We have a follow-up question from Mr. Liam Fitzpatrick from Credit Suisse. Please go ahead, sir. Hello, Mr. Fitzpatrick. Your line is open.
Hi there, sorry. Just on coming back to the CapEx point. You explained the difference between your SEK 4 billion guidance for 2015, and the SEK 2.5 billion sustaining guidance, partly Aitik, but then also suggested higher stripping and also higher sustaining. Will that roll off into 2016 in terms of lower stripping and lower sustaining, or will it be more of a multi-year effect?
We have not guided for CapEx regarding 2016. We'll come back to that most likely at the capital market day at the end of the year regarding 2016. That one is not clear yet. What we have said is that the stripping in Aitik is likely to remain also for 2016. That's the only component of it that we have said anything about.
Okay. Thank you.
There are no further questions registered on the telephone. Please go ahead, speakers.
Thank you. Do we have any concluding remarks, Lennart?
Well, the profit wasn't great in the month, and it was concerned because of market conditions and the double effect of the final pricing. In addition to that, we had a weak production in Tara, which was unexpected. I think that apart, and which is not a detail, it is very important what kind of profit we generate, of course. I think it is good news. The second-largest investment in the group's history is in production right now, and it is very early days, but we produced in the test production in March. We were standing still in April, and we are in continuous production from the 1st of May. I think that is good news, and with that, we reiterate that we are on plan, both on time and on CapEx, and basically, we are ahead of plan when it comes to timing. It looks.
In addition to that, I think it is great news that we take Aitik 45. We take it in stages. Probably we have thought, or our idea earlier was to take one big block and do it later. We realized that we have some open items which we can push out in future, and we have the long lead time item, the first crusher, which we can take early, and some electricity and some environmental pumping or water pumping. We take that early. I think it is a way to take the long lead time items soon and to leave more flexibility of what we are going to do and push the other projects as much as we can. I think basically, we had a good project or a good quarter, the profit was, of course, not fully satisfactory.
With that, I think we finish, and we thank you for participating. Thank you