Ladies and gentlemen, a warm welcome to Boliden's Earnings Release Presentation for Q1 2014. My name is Sophie Arnios and I'm Head of Investor Relations here at Boliden. Today's presenters are our CEO and President, Lana Tverel 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 1 hour.
Lennart, please go ahead.
Thank you. We released the result for the Q1. Basically, 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 ITIG 45 and we have taken a decision to take the first step of the investment of that investment program which is about SEK 600,000,000.
Production was stable. Cost was maintained, but we had some issues in Tara and more on that in a moment. Revenues were SEK 8,500,000,000 as compared to SEK 9,200,000,000 a year earlier. We had earnings before interest and tax and excluding the process inventory revaluation of SEK 385,000,000 compared to SEK 7.51 a year earlier. The cash flow was negative €432,000,000 It's in the tail end of the Garpenberg investment, the 2nd largest investment history of the group.
The reason for the decline is essentially lower prices and terms. And 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. So 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 in particularly in the smelters.
But basically, I think we have good management of the cost side. And 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 and which has over a long period of time stabilized the zinc price at around $2,000 And 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 and they are going in a positive direction have not had any major impact in the beginning of the year, but will follow later. If we look at the zinc price, first as you can see here, we see month by month.
In the second in the Q1, we saw the dive in March And then a good recovery in April again and we are over 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 see 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. And we have seen a somewhat better development in the beginning of the new quarter.
Gold and silver has had a bigger impact on Boulliden 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 Gjartanberg. We have the gold mine, Cancbei and we have the electronics recycling.
So a lot more gold business and silver business than we had some years back. So 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. If we go into the mines result, earnings of 147 dollars which is a big decline from the previous year. Metal prices and terms and this final price or a definite pricing has significant impact on this.
If 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 extraordinary good copper production in Aitik in the Q4 of last year. Winter conditions we have always talked about as lower. We cannot produce at full speed when temperatures are going down. So that has a little bit of impact.
And we had some maintenance planned maintenance nothing to nothing special, but we were very free of our maintenance in the Q4. In addition, we had better grades in Q4 and the normal grades as have been guided in Q1. But the quarter over quarter there is a significant decline. The other one which and I think this was expected. What was not expected and not by ourselves either is rock conditions in Tara are time to time difficult.
We have 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 Q2.
It's nothing fundamental. It's nothing major, but it has an impact now for maybe 2 months or something in Q1 and maybe into Q2. The costs have been maintained. Some costs for maintenance, but nothing special. And the test production in Gatenbeg, 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. Then you continue with rock and you continue later when everything functions. You go in with ore and you start to flotate and get the first concentrate out of the plant. We were early on and everything went much better than anticipated in the beginning there.
So 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 May or if it was the last of April or the second. But since almost a week, we are in full production. No production in the old concentrated plant now.
We have it of course idle, so we can start it up when we need now to do new adjustments, which can very well happen. But 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 2,000,000 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 on a bit, it's within plan. So of course, it's a degree of uncertainty. But right now as we speak, it's going very well. The target is to be on a pace of 2,500,000 tonne the nameplate capacity by the end of next year. And 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 start up there or the test production. If we move on to the smelters, basically a result in line with our expectations within €199,000,000 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 run share plan, which is to cut cost, which is which gives effect sooner than the more long term job we do on process stabilization or recovery of the process stability. But 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. So the difficult intermediate stocks are maintained on a flat level now. They are 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 John's share. But I think the first steps of these action plans have been going approximately as planned and that's good.
In Kokola, we have the other project in the zinc smelter. We have the other big investment program going parallel to Gatenbei. It's a silver recovery from silver rich zinc concentrates. The project is on plan and on CapEx and we expect production to start in the beginning of Q3. Rundshare 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. I mean, Rundshare is one of the leading smelters in the world to process complicated materials, but we have the combined effect of difficult electronics feed and copper concentrate and the combined effect gave us a problem. So 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, 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.
And he is really going after fact based recipes and how we feed and how we manage the process with the crew in Earningshare. 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. But that's still a long time and early to say.
The impact on the Q1 was stabilized production. We had high copper feed. We had slightly lower electronics material with the impurities we don't like at this point. And we have seen the stabilization of 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 €50,000,000 improvement compared to before the project.
The production is good in zinc. And so the feed is good. The grades are slightly lower, but basically okay. And on the copper side, not much to say. And 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 profits inventory revaluation of $385,000,000 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 with guiding. And I'll come back to the investment guiding in just a slide or 2. We had a negative cash flow of about $400,000,000 I'll come back a little bit with 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 SEK365 1,000,000 less excluding process inventory evaluation.
That is entirely and more than entirely explained by the changes in prices and terms of $4.56 compared to last year. You can also see that volume is up and that is primarily because ITIC as you remember Q1 last year had both low volume and low grades and IT compare and that comparison has done very well in this Q1 of 2014. You can also see that the cost is positive. So we have a lower cost this year than we've had last year and that is mainly the smelters been able to take out cost. Also you see down here the $171,000,000 which was a one off positive item last year and we don't have any one off items this year.
So that one takes away from last year. Now, comparison with last quarter, this one might be more needing more explanation. You can see that we had £162,000,000 less of profits and that comes mainly all from volume and I'll just come back to that. We also have a slightly negative effect on price and terms. And if you start with that I think Glenn has 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.
And even though the average prices for the quarter were not worse than they were for quarter for the Q4, we still have a negative price effect of around 50,000,000 dollars and that basically all comes from the final pricing effect. The 160,000,000 negative is of course mainly coming out of Itik. I think this should have been well guided for this is both the lower volume, but the volumes in Q4 were also extremely high in Itik. And also the grades the 0.20 that we have now is of course much lower than the 0.22 that Aitik had in Q4. And then to that comes Tara that was not guided for before in advance.
And as Leno has mentioned that is due to rock problems and that plays into these numbers as well. On the cash flow side, you can see that the of course the investments are big and they're continuing to be relatively large. But we also did have a tie up of working capital. This tie up working capital is due to basically 2 grounds. 1 is a fundamentally good ground.
We have had a very good demand from industrial customers in Europe. That is fundamentally good. We get better premiums from industrial customers compared to traders. But 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. And therefore that part plays into tying up more working capital.
And if you remember last quarter, I also said that we were hoping to be able to release some working capital from the unusually high intermediate products that we have for example in Rundsher. As Thanav mentioned, we have a good news that that's not tying up more. But we've not yet come to a situation where we're leasing working capital out of the intermediary project at Runge. 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 6,000,000,000 and the balance sheet is generally in pretty good shape.
Now on CapEx and this is something that will be new to you at least what you see to the right. On the left you see the €4,000,000,000 dollars CapEx guidance for 2014 that we've talked about before. There's nothing new around that. With the ITIC investment that you've seen, but also and I think Leonard will come back to that when he comes back and talks about IT45 with the high continued high around 1.0 stripping ratio that we see and combined with increased volumes for 2015. And as you know we mentioned we measure CapEx with the IFRS twenty adjustments so including all the stripping in Aitik.
And that stripping alone is close to €1,000,000,000 or a little bit less than €1,000,000,000 So that together with the investment and together with regular maintenance means that the 2015 numbers will also be around $4,000,000,000 So 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 IT-forty five.
The first slide here is the project update, which we have looked at many times before. But I think it is exciting times now. We are through basically or almost through the big investment period with ITK 36 now up on well on that level or above within 37,000,000 tonnes to 2013, which is 1 year ahead of the original plan. Within the Kankpais, which is going well, Roshar, we spoke about and we have some issues, which is partly related to electronics. Garpenberg is the 2nd largest project we have had ever.
And we have said that it's high grades. It's the silver zinc combination we like. And we have a massive ore body and we sink the shaft down to 1200 meters. So we deliver the ore on 3 minutes straight into the plant, which is brand new and it starts producing exactly as we speak now. The Coca Cola silver recovery is going in parallel with this and as going on as planned.
But the news of today is of course the Aitik 45. And let's have a look what have we done here. We have decided on the Board meeting yesterday to start a project we call ITIC 45. This project will include the €600,000,000 we have decided to spend 2014 2015, which is basically a new crusher and in 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.
So 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. But 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.
And we don't know how when we move the in pit crusher, how we shall 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 €100,000,000 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. So before we are there, we cannot draw the very clear details.
So we are not under feasibilities of everything yet. The first step is to enable 45,000,000 tonnes, but the second step is needed in order to keep 45,000,000 tonnes and enjoy the improvements we have seen in the reserve. Grades are slightly lower, but reserves are up considerably up to over 1,000,000,000 tonnes in the mineral reserve. We have never been there before. So 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 higher yellow 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 I think 36. Truck fleets will have to be renewed. Shovels will have to be renewed, whatever else and normal regular maintenance.
And we are not going to increase the truck fleet. We are going to continue to have very short drive distances 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. But the pushback itself, which is a bit of a maintenance CapEx that of course will increase with speed. If you produce €45,000,000 under 1:one ratio, you have to produce €45,000,000 waste too.
If you do 36, 1 to 1, we produced 36. So of course, shipping will go up in proportion there. But I think it is very encouraging. We have enjoyed a very strong development in Aitik and we took the decision probably earlier than we have guided for, but with 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. Going forward and what are the important things we said at this Q report?
Well, I think it's 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 planned 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. Kokolas 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, but so far it has gone very well. And we certainly hope and see hope that that continues. It's going well. Rheonshares action plan started to deliver the first cost benefits and some indication on the process stability. But that's still far too early to draw conclusions on.
And now we are going into the maintenance periods summer quarters, so Q2 and Q3. And 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. And with that, Sophie?
Yes. Let's open up for questions.
We have the first question from Mr. Liam Fitzpatrick from Credit Suisse. Please go ahead sir.
Good 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 projects to begin to come through?
Is 2017 a realistic type time frame? And 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 €600,000,000 you would expect the next approved amount to be similar in size. Does that include the underground conveyor that you mentioned?
And also in terms of sustaining Okay. On the first one, it was the
Okay. On the first one, it was the ramping up here. And of course, it is dependent on we have a permit now, which is a temporary to go over 36,000,000 tonnes. It is a temporary on 38,000,000 tonnes. We expect to continue on 38,000,000 tonnes until we get the new approval.
To give forecasts on permits is very, very, very difficult. And I think it would be wrong for me to say. What we can say is we issued or the process started 2012 and we expect a decision later this year. But appeals are not uncommon. And 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. But I think there is quite a probability or a risk that it will delay be delayed. And why speculate? This is very hypothetical. So we don't know.
If everything would go as planned, I think 2017 is a realistic target, but it's depending on that permit in particular. And then as a consequence, the timing of the Part 2 investment program. And then going to the investment program, you understood it right. We have SEK 600,000,000 approved from the Board. We're going to do that.
It's a long lead time items. It's what is sort of it allows us the fastest track to full production of 45,000,000 tonnes. So we do that immediately before we are ready with the details of the rest. The package number 2 excluding the underground conveyor is probably ballpark similar. So maybe it's another 600.
And the underground conveyor what is it? Well, it's not under €100,000,000 I mean it's not €100,000,000 So it's maybe a couple of €100,000,000 or some €100,000,000 But that is very much dependent on how we decide finally to structure it. I think that was yes, sustaining CapEx and this is probably your question Mikael.
Yes. We have said before that we have a sustaining CapEx of roughly 2.5 in a normal year going forward and we will stay. We don't have any new guidance on that as of right now. 2.5 is still a good number to work around. So for 2015, it's roughly 1.5% above that and that's the stripping the high stripping level and of course the 600,000,000 which is mainly happening in 2015 are the main contributors to the extra investments.
Okay. Thank you.
Our next question comes from Mr. Luke Petts from Exane. Please go ahead sir.
Hi, gentlemen. If you could maybe as a follow-up on ATIC rate rate or confirm the 0.2 percent copper grades you were guiding on for this year. And if I understood correctly, you're striving to achieve the 38,000,000 tons before reaching the Phase 2 approval for the 45 expansion. So if you could elaborate a
bit on
that. And 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 other rocks to process and therefore higher cost to process these ores? Thank you.
On the grade, I think the guidance has been given already. And in the near term, it's 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 at after the project has been done. And I think that all is in the report. So we don't I don't think we have so much more than what is writing in the writing there.
On the 38,000,000 tonnes and if we are there or if that is the starting point of a next step, Absolutely, we did produce 37,000,000 tonnes on a positive slope or in a sort of on a positive trend. So I think that we are close to that level and we don't give forecast. But I mean we are around that level right now. And it looks as if the permit level is a limiting factor there. So I think somewhere 37,000,000, 38,000,000 tonnes of production is sort of to be expected unless something happens.
And 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. And downside, I don't see any downside risk as we see right now. So 38,000,000 tonnes 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. And 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 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 difficulty and it's taking a time because there is a stop which we cannot mine as planned.
And that has an impact in the Q1, which we have seen obviously and it has 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. And 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. But in the mine plan, in the life of mine CapEx, of course, it's small numbers, but they are coming early.
So it's But the cash But 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 OraSure.
Okay. I understand. But 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?
I'll say that the we have a lower grade in the 45 scenario. We have a cost per tonne, which is going down I think maybe 20% and the cash cost will go down 10%. So it's depending on which kind of cost development you're looking.
Okay. No, I was just reading that you're saying that the cost per tonne of ore mined should fall the operating cost per tonne of ore mined should fall 10%?
Was it so? Yes. Yes. I'm mixing up the numbers. I'm sorry there.
Yes. Okay. Sorry.
Which kind of suggests that you've got more variable costs than fixed costs per tonne in the mine. Is that correct?
It's very, 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 main plan.
Okay. Looking forward to coming back to that. Just then a brief follow-up. It's my understanding that you've got the first hearing for the environmental permit, I think it's June. What happens after that presumably, Matthew Verkett will appeal against the plan.
Is there just been 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. So 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.
And let's not speculate about what happens, but that's kind of all that is possible in the process. But there will only be one appeal process.
Okay. That's very clear. Does the 2015 CapEx guidance include any of the step 2 ITIG 45 CapEx?
There's lots of things and there could be some of that, but it's not much.
Okay. Thanks very much, Elit.
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, if you're able to give us more granularity on the growth CapEx component, given that you've always guided maintenance CapEx to be close to EUR 2,500,000,000.
So how will the other EUR 1,500,000,000 be spent? Are you able to give us more color on that?
What I said is that, let's assume that most of the $600,000,000 that we have decided happens in 2015, which is a fair assumption. Then we have stripping. And of course in the $2,500,000 we do have stripping, but the $1,000,000 that we're having right now is much less than we're having long term. So the stripping is maybe at least €400,000,000 more than it will be in a normal long term situation. There you have €1,000,000,000 if you add those 2 together.
And then you have another €500,000,000 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 there are also in the plan some without going into detail, but 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. Jonas Grunselius from ABG. Please go ahead, sir.
Yes. Hello, everyone. Johannes Grunselius here. Yes, most of my questions have been already been discussed now. But perhaps on the Bouhilden area and on the Tara mine, first on Bouhilden, 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?
Yes. But we had some increase in copper in Q1, so
It's a very good question. 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. But 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.
But exactly what happened in Q2 I don't want to answer.
Okay. Then on tar, I think you said this here very clearly Leonard that you will continue to have the issues you had in Q1 will continue in Q2. But would you be able to help us a bit on how we should look at the milled ore here in Q2? Is that roughly the same as in Q1 or slightly better? What would you think?
No. It depends. I think we're basically through this issue now. So I think we're back on track now. So if there was something happening in the end of Q1 and beginning of the second or beginning of the second.
So maybe the same. I don't know. But it's not something continuing. Maybe the same, maybe a little up.
Yes. 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 here for Q2?
Q2 we have some we don't guide on maintenance or planned maintenance. But we have a few smaller things happening in the Q2, but that is all I'm aware of. Normally we wouldn't. But since you asked the question maybe a little, but basically it should be a normal quarter, but with some maintenance though.
And regarding grade, it's very clear for the rest of the year Q2 through Q4, we have guided for 0.20 plusminus10 percent of grade.
Okay. Thank you very much.
Our next question comes from Mr. Fredrik Agard from Handelsbanken. Please go ahead, sir. Yes. Hi.
Thank you very much. I had most of my questions answered as well here. Just one thing on Ronngere. 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 stabilized the process now, when do you think we could see that being brought on or brought back to the snuffing process?
You say when I think or when I hope? Sirius, I think that we have the biggest step now is to have it stabilized. In other words that we produce no more than we can feedback in the system. We are 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. But 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.
And 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, but I think more important is that we continue to feed in as much as we produce have it stable or on a constant level.
And 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. But 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. Our next question comes from Mr. Ola Sodermaier from Swedbank.
Please go ahead, sir. Yes. Hello. We have to follow-up on Garpenberg. How should we 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 start up, but I think we not excessively. I think if there is something you should be a little bit careful, it's probably recoveries. We had lower recoveries in the test runs, of course, but to the extent that they were visible here. But I think very, very soon we're going to see a positive impact. And I think the Garpenberg, if it continues well and of course, it's a process as I'm really making clear.
But if it is going very well, I think we will have a positive impact in the Q2. Not too big, but to some extent the bottom line impact of Gatine. Okay.
Thank you.
Let me just add on that just to be clear. On the EBITDA, we should see some cost decreases. But as we now start real production also the depreciations will start coming online during Q2. So there's a mixed balance there.
Okay. Thank you. Our next question comes from Mr. Gustav Sandstrom from Danske Wann. Please go ahead, sir.
Thank you, operator. And most of my questions 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 to full production?
I think that the big risks the big identifiable risks, if we look at our sort of spreadsheet to look at consequence, big consequences, big risk or small and small. So 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 1,000,000 small things. And 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. But then again, we have about 1,000,000 things which can go wrong. And some of them will go wrong, but I don't expect any major impact.
But 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 return to 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, Fred.
Our next question comes from Mr. Christian Koffler from Nordea. Please go ahead, sir.
Thanks. Just a follow-up on Tara. Sorry if you already answered this, maybe I missed it. But you mentioned that Tara and IT hit quarter on quarter with EUR 160,000,000. How much of that is approximately signable to the problems that you had in Tara?
I think the numbers I don't know if you have. But I mean the unexpected 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 Atara, which was unexpected. It was unexpected by us too.
And how big an impact was it?
50. 50.
50. 50.
Just a word.
One time. And then of course at final pricing, we 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. And then finally on Lava, I haven't talked about too much lately, but do you have any can you say anything about when you're planning to communicate anything on that project further? How is the process is going and so on?
No. 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. So it's not something which will be on the table for I'm guessing now, but minimum a year and maybe 2 or maybe 3. I don't know.
But it's kind of long term still.
That's very clear. Thanks.
I remind you that if you have We have a question from Mr. Jatinder Johal 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. And 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 lever 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 Lava we would be prudent. It's a big one. And we would like to see us paying off debt and sort of digest all the investments we have done so far. But that is not really on the table until at a later time. So what happens then there and then, I we don't know.
But I think the current situation with the current CapEx plans and the current financing and I think we are 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 1 or 2 years ago. But we have put together a financial or a balance sheet structure for much worse times than this including the CapEx we have now. So we're comfortable.
So 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. We Well,
on the high side, we haven't really given a number. But I think it's important to point out that this will play in if you 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 and unless the prices go down much further, we do have a positive cash flow situation coming up. And therefore, this number should reduce everything else equal. The only way to get it to jump would be to do more expansion. And in context with that we will come back to what we do with the balance sheet.
So where would you consider any excess capital return at what gearing level if there is one in the mind?
Capital returns, I think we will 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. But I think we are going to 20%. And at that point, we will 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. I'm sorry if I missed these in earlier questions. Did you get any benefit during the Q1 from improved copper TC and RCs?
Limited or nothing probably?
Basically nothing.
Okay. Thanks. And then finally, Garpenberg, 2,000,000 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 1 year and look at the average grade of the reserve that's what we guided for the 1st 2 to 3 years before the new averages will start hitting in.
Okay. Can you remind me what that was?
5.1 5.1
I think. 5.1 I
think. 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 difference between your €4,000,000,000 guidance for 2015,000,000 and the €2,500,000,000 sustaining guidance partly I think, but then also suggested higher 1,000,000,000 sustaining guidance partly I think, 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 multiyear effect?
We have not guided for CapEx regarding 2016 and we'll come back to that most likely at the Capital Market Day at the end of the year regarding 2016. So that one is not clear yet. What we have said is that the stripping in Aitik is likely to remain also for 2016, but that's the only kind of component of it that we haven't 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?
Yeah. Well, if the profit wasn't great in the month and it was a concern or 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. But I think that apart and which is not a detail, it's very important what we what kind of profit we generate of course. But I think it is good news.
The 2nd largest investment in the group's history is in production right now. And it's very early days, but we produced in the test production in March. We were still standing still in April. And we are sort of in continuous production from the 1st May. I think that's 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 ITIK45. We take it in stages. Probably we have thought or our idea earlier was to take one big block and do it later.
But we realize that we have some open items, which we can push out in future. And we have the sort of long lead time item, the first crusher, which we can take early and some electricity and some environmental pumping or water pumping. So we take that early. And I think it is a way to sort of take the long lead time items soon and to leave more flexibility of what we're going to do and push the other projects as much as we can. So I think basically we had a good project or a good quarter, but the profit was of course not fully satisfactory.
With that, I think we finish and we thank you for participating. Thank you.