Good afternoon and welcome to Boliden's 4th Quarter Earnings Result for 2013. Welcome also to those joining us via the web. My name is Sophie Arnus. I'm the new Head of Investor Relations here at Boliden since beginning of this year. Today, we will have presentations from our CEO and President, Lena Sevel and CFO, Mikael Staffas.
After their presentations, there will be an opportunity It's a great pleasure to present Lennox De Brels. Thank you.
Thank you. It's a good picture here on Aitik in the winter. And fortunately, it wasn't much of a winter in the 4th quarter and I think we surprised a lot of our investors with the strong results or strong production in Aitik, but more about that in a moment. Summarizing the Q4, we had sales of SEK8,600,000,000 which is down from the previous years. And in all of the comparisons whether you look at the quarter or the full year, the profit decline is entirely and more than that over explained by the weaker metal prices and currencies.
We had free cash flow, which was negative in the quarter and it's following the heavy investment periods we period we are in and also that we had a bit too much working capital in the turn of the year. Mill production in Aitik was 10,000,000 tonnes and multiplying that with 4, it's a big number. But we have to be clear on since we are guiding that Q4 and certainly Q1 is lower in production because it's obviously outdoors in the pit. But we had a mild winter and we did not have any realigning of the mills or we did not have any planned maintenance. So it was really a very ideal production quarter despite that it was a Q4.
If we summarize the full year of 2013, of course, it's the same explanation as I said. The prices were low. We have a strong Swedish krona. Much of this happened in the early part of the year and has been sort of continuing with the main explanation of the profit decline. We have had a very significant difference from the average year in that we have or we had a lot of maintenance planned maintenance shutdowns in the smelters.
It was the next ordinary year when we had so called 25 year stops for some of the equipment in the smelters. And that is a big negative or profit impact, which was essentially happening in the second quarter. Since then and also well all the quarters after the relatively weak first quarter has been strong and when it comes to production stability. And in the full year we have I think we're quite pleased and proud of the cost development. I mean, most following us are used to hearing big inflation numbers, but we have had a good cost development.
Ground share is the weak spot. We have no particular new news this time. We announced this already in the Q3. And the Q4 is basically not worse, but it's not better either. And we forecasted or guided with the kind of process stability problems normally take several quarters to resolve.
On the other hand, we have had a very strong development in Harjavalta. So copper production and copper business has been all in all sort of partly offsetting the weak performance around share buy by strong in Hoeghualt. The cash flow, I already mentioned are impacted by the big investments dominated by Garpenberg. The zinc silver mine is in the final stages. Basically everything is installed and we are in starting up of the subsystems.
The Board met today this morning on a meeting and we proposed NOK 1.75 a share which is slightly over 1 third of the net profit slightly over the dividend policy. If we look at the market development in general, I would say that I think you are all aware we are seeing a continued high level of business in China. We are seeing improvements in the U. S. And Europe.
And it's basically a better than before picture of the general global economic development. If we look at construction, which is the largest segment for both zinc and copper, it's a little bit mixed feelings here and you can see the declining light blue line in the middle there which is a U. S. Construction industry. But we also have a blow up or not a blow up, but an early indicator of the construction industry in the U.
S. Which is starting housing starts. And that has a very positive development as you can see. So I would say on construction, it's the same in China looks negative in the U. S, but relatively sort of positive development in Europe and good signs also for the U.
S. The automotive industry is following in large the general development in the first slide. So it's positive trends and we can see that people in the world are buying more cars again. The market balance what we have said before is that the demand is good, but we have been somewhat concerned with the supply in particular the copper supply and the mine supply from the global the copper mines in the world. The reason being that many years of high profits and high metal prices or copper prices, it has fueled the market sentiment and many new projects have started over several years.
Well that took an abrupt halt almost or at least the sentiment turned very negative because IRRs return on investment have been not brilliant on some of the pre calculated pre calculations of some of the large projects. And therefore many of the super majors or the very large projects have been sort of halting or delayed these projects. So the risk of an oversupplied copper market might eased a little bit lately. I would say that personally I'm less concerned now than I probably was 6, 9 months ago. These charts are showing basically a similar demand pattern for both copper and zinc indicating very clearly that we have strong growth numbers on copper mine supply and very weak supply in zinc mines.
And that is both the effect of fuel starts because the zinc price have not been sort of building the interest in the same way as for copper, but also a number of closures. And we are going to see more of that. So many people, many metal analysts and so do we are seeing a fundamental market or the fundamentals for zinc being quite interesting going forward with weak supply and continued good demand. If we look at the price development, it has been both for zinc here and two slides from here copper. It's several years of very, very stable prices.
But we can also see the shaded curves in the back there which are the official inventory levels. And after many years of increase and increased concern of a flooded zinc market we have seen the official inventories going down in Shanghai and LME. The premiums, we have been nervous that to the few people having zinc concentrates will hold very hard and be very difficult to negotiate with if you are a zinc smelter. But as you can see the zinc TCs have been holding up and are quite constant. And we can see a positive development on the premiums.
This is probably better than we had All right. Copper as I said also here quite strong or quite flat price development even though it's a slight negative which is in line with more supply. But all in all, I would say that it's more stable than probably many were nervous of not too long ago. And if we see the TCs quite as expected, So as you can see, the new benchmark level is considerably higher than the So as you can see the new benchmark level is considerably higher. So that is in line with what we have said before.
Also for copper, we get a nice premium on top of the LME price. Gold and silver are the problem areas. Buliden are we are very dependent on the 3 metals together here. And we have invested a lot in both silver and gold. And of course here we have a significant impact on our earnings coming from those declines.
Lead is on the other hand stable and on a good level and we continue to be optimistic and believe a lot in the lead market. If we go through the mines, the results are following the fundamentals I said with lower metal prices and terms. We continue to have high CapEx because of GAPENBERG. We had the very strong milled production of 10,000,000 tonnes. And in general, we have had a very stable and good production level in all our mines in the Q4.
If we add that to the 3 1st quarters, I would say that after the Q1 we have had when we had low production in Aitik, very strong winters, a lot of freezing problems and cracks in steel. And we had a lot of things to tell after the Q1 of last year. I would say that production has been going smooth and very well after that. And with the 10,000,000 we did in the Q4, we ended up at 37,000,000 tonnes in Aitik, which is 1 year ahead of plan. We had announced a long time ago that 36,000,000 tonnes will be reached 2014.
So here we have a project which is advancing faster than planned. We like If we look at the individual mines, basically it's the same pattern in the different mines. But I think that Tara is probably coming out in a good way. We are not earning a lot of money there. We time to time get questions if we have positive cash flows or things like that.
As you can see here, we are going up in profit. It's a bit of extraordinary there. But in addition to it, I would say that we have cost plans. We have a lot of buy in from the unions. We have a lot of work groups and a very strong commitment from the whole company now to lower the price, extend the life of mine and we're very happy to have an extension of the life of mine in Tara because of exploration result, but also from the cost actions.
So good news there too. So I would say, Ipic and Tara are the good examples. Buliden is I think maybe a surprise to some, but we are very dependent on the other metals and copper and zinc there where we have seen declines. The productions the production ore production, the light yellow bar in copper very good because of Iclick primarily or almost entirely. And we also have some quite good grades given that we are in low grade areas for year 2012, 2013, 2014.
So both grades and production was mill production was good. In zinc, I don't think there's much to say else in that, well, it went well. We have also today updated the mineral reserves and resources. The total of the reserves and resources increased by about 8% and the increases are primarily from the projects which are not sort of near mine exploration. It's Lager the big contributor to the mineral reserves.
In the mines, mineral reserves up in Buliden and Garpenberg, but we have a lower grade situation in Garpenberg, which is a bit of a bad news because first of all, we lift resources to reserves and the resources are lower grades. But more important is that the infill drilling, the detailed drilling have identified slightly lower grades grades than we had anticipated before. So with a higher degree of knowledge of the deposit or certainly one of the deposits in around the main Lappar yet is showing quite a bit lower grade. But that is far out in time. So it's not going to have an impact yet.
It's going to take a while and hopefully we can see something find something higher grade in the meantime. Mineral Resources decreased in the areas basically or partly because we lift resources to reserves. Laven and Rocklidden also Rocklidden is a very interesting case where we are starting to see pretty significant volumes and its high grades is down to 800 meters or from the surface also also with the metallurgical composition there. So it's not only to look at 1.8% copper and a lot of tonnes. It's there are challenges which are a bit open there.
But it's good news in any case. Expiration of 2013 was a little down from the previous years. We have declining prices. We have held down the cost here as we have in other areas. So we're holding a bit lower pace in exploration this year or 2013 compared to the year before.
These following curves are showing a line diagram, which is representing the current speed of production times 10. So it's basically 10 years of production at current rate. And the dark blue is the proven and probable of the reserves. So if the dark blue is above the lines then it's 10 years or more than 10 years production out of the reserve. And as you can see in Aitik, we have huge resources even though they have declined a bit in this year's update because of higher prices and infill drilling, which has identified some areas which cannot be longer sort of qualifying for mineral resources.
Bulleit and area, good addition. Basically as you can see the light blue is down and the dark blue is up. So we have been able to lift resources to reserves which is good news. Glarthenberg big tonnage, but a bit of a sort of you should be aware that we have a great decline there, even though it's going to impact the numbers sort of several years from now. Antara is a decline, but not as much as anticipated.
And we have good increases in mineral resources. The light blue there and the life of mine has been extended from 2018 to 2019, which is very good news, because I think you have heard me being nervous rather that 2018 is probably going to be 2017 or so at least that's the sentiment we have had. Now it's the first time in a long time when we are probably being more optimistic rather than the opposite. In the smelters, everything is dominated by Donshire. But the numbers first, euros 149,000,000 compared to €202,000,000 in Q4.
CapEx €254,000,000 in line with last year. Prices are down. Byproducts are down. Many of the small odd metals some free gold is not very odd and some of the more well unusual small products have had very sharp declines. So the products or the metals and byproducts we don't normally talk about many of them have very sharp declines in addition to whatever else.
Kalkala silver project is running on plan. It's going to start in the second half of the year. And basically we are in the sort of running in of some of the subsystems now and it looks good. We had a little fire in Harjavalta. No one was hurt, but we had to stop production for what was it 10 days or 7 days or whatever?
10 days on copper and 4 days on nickel or the other way around.
Yeah. On full year, basically a similar pattern all in all. But the big thing in the smelters full year numbers is of course the SEK 300,000,000 or even more SEK 330,000,000 in maintenance shut down. And we announced this well a year in advance that we are going to have very significant shutdowns in June in Q2 of 2013 and that happened. The good news is we did it.
We did it on plan and we started up after very major or significant changes. So that went basically well, but it was a big hit on the P and L. Process instability in drone share is the bigger thing and we continue to have a combination of lower quality copper feed, copper concentrate with lower grade and lower quality scrap. And one negative development plus another negative development created a combination which went a bit out of control. We have an action plan in place.
We're working very hard to implement it and to get results. I couldn't say that Q4 had more than sort of we're not continuing down. We are rather flat, but on an back to where we want to be. On the good news is that copper production as you will see on a couple of slides from now, Harjavalta has been having a very good development on free metals. So very much the opposite of Vanshard.
Unfortunately, it's a smaller smelter, so it's not offsetting the entire problem, but still it's going the other way around. If we take them unit by unit as you can see here, Bergere is a small unit, good development, very good returns on investments, but a small unit. Oda is negative. We had this unfortunate collapse of a leaching reactor. We have maintained a good production, but we don't have an entirely ideal production mix.
It's not a big thing, but we are struggling with a high cost unit and the cost counts we have in the action plans are working very well. But despite that we're on a negative result on EBIT. We're positive clear positive in EBITDA. Kokkulan is moving on like a Swiss clock. It's going real well.
Harjavalta 2, so the Finnish units here are making up the profits. Down share you can see the big decline and I explained that. The Q4 oops sorry, the production as you can see is not that hard hit by the problems in Johan Sjesare, which is probably slightly difficult to understand. But the profit generator for copper smelters is not the copper volumes. It's how good the recoveries are, how much free copper and free gold we can generate.
And that is a relatively modest tonnage, but we have too little of that. And that's why we have so much impact on the P and L. In addition, we have the sulfuric acid and the other byproducts. Cost is relatively under control. Action plans are going.
Results are badly hurt by the continued instability and low recoveries. In zinc, not much to say. It's going well. And now Mikael?
Thank you, Lennart. I will take you briefly through the financial numbers. If you look in the general financial development, I think that Lennart has touched already on most of these numbers. The profit including process inventory valuation was at $548,000,000 which is a number that is we'll come to the bridges in a while, but a number that I think is in line with many expectations. Investments in the quarter ended up at almost 1 $300,000,000 which I'll come to the full year number in a while, but it's also been in line with what we have guided for.
We had a negative free cash flow in the quarter as a combination of that we're having lots of investment, but we're also having a relatively high tie up of working capital at this time. We can talk a little bit about what the reasons for that are, but the instabilities in rent share is part of the problem why you have higher inventories than normally at this time of year. If you compare the results and do it now against Q3, you can see on this slide that there are not really any comments on it because lots of things are actually going to plan. The volumes are higher, but that's seasonally expected and the cost are higher. That's also seasonally expected.
Apart from that, there's very little news in terms of comparing quarter after quarter. Now if you look at that year on year, I think there are more to comment on. You can see that the profits are clearly lower $2.91 lower than they were a year ago for the same period. And that is all explained and over explained by the prices and terms where you have lower prices especially for precious metals and sulfuric acids and also the currency. Those aspects may being the main contributors to the lower profit level.
We have a higher production, higher mine production coming from Aitik, but also coming from Tara that's producing better this year than it did last year. Cost development has been good. We've been able to keep a good control over costs compared to last year. Now, depreciations are up and that's also nothing strange. We've been investing loss for many years and therefore the depreciation are coming here because of the commissioning of new production facilities, but also the increased mine production and the way that we do depreciation in line with production is also showing off here.
We're coming to the full year and I want to actually just make a quick summary. You might have gotten an English version of the report out very early and unfortunately there was a sign an error sign. It says here free cash flow on this exhibit minus 1466 and that's I This negative cash flow, as I said, it contains some more tie up of working capital than normal, but otherwise it's been communicated and it's been in line with the high levels of investment that we have had during the year. Now if you look at the profitability for the full year, you will also have the same discussions that we as you saw on quarter on quarter. We have in total a lower earning of $17.70 or $1,800,000,000 and that's almost exactly explained by pricing terms.
And that's again is especially lower precious metal prices and some other metal prices and the currency and also sulfuric acid playing into that. Year on year, we have a higher volume. It's also in line with the new production we put in place and the higher production in Aitik. We do have higher costs. But if you look at these costs, a very large part of that increase is actual electricity cost.
And electricity cost for us some might wonder why are your electricity cost going up when the general electricity price in the Nordic market is going down. Well, we have long term agreements with our suppliers that are linked to other events in the market price that are linked to indices and they're also linked to the tax burden that our suppliers have for their production of electricity. And since that has increased over the year that is pushed on to us straight off. And therefore, we have seen increasing electricity prices over this year. Depreciation are higher again with the all the investments in the last few years coming online.
Looking at cash flow in the whole year, you can see that in total we have a buildup of roughly SEK 500,000,000 in working capital something that we would like to see reversed and we hope to see reversed in 20 14. We have investments of close to $5,000,000,000 which is right in line what we have communicated and guided for. And that gives a total free cash flow of minus 1,500,000,000 On the capital structure, I think the most interesting part here is the bottom part, bottom line. We have a net payment capacity of SEK 6,400,000,000 which is lower than it was last year, but is in line with what has been in the last few quarters. Looking a little bit further up, you will see that the interest rate that we're paying is 1.8% roughly.
And you will also see that the total net debt is about $8,700,000,000 which is a little bit higher due to the negative free cash flow that we've had in the quarter. With that, I will give it back to you Lennart to summarize.
Looking at what is going on now and important for 2014 is obviously what is happening with Aitik and what is more important is the silver project and the GAPENBERG project. We have reported today that they are both on plan. We are in I have said many times that when you are 5 years after or 5 years before you start a production or a big project you know almost exactly when it started or when it will start. But when you are in the middle of it you don't know has it started and you can sit with the project management and no one can tell, because it's a process. It's a process where we are starting bit by bit.
We are first running all the sub segment or sort of parts mills and flotation and the pumps and all the subsystems water. And then that on water. And then that is the first real test acid test together and control systems and things like that. And then gradually you start to everything is running, you start bit by bit to add a bit of ore, because you want to see if some zinc or silver is coming surfacing in the flotation cells. So it's really hard to say when you start.
I know for sure that we have a startup process which is the first half of this year and we're absolutely committed to have the first production before the half year is or before the turn of the half year. But it's very it's an amazing project right now. The project leader is more pale pale than ever before and every second day is bad news or it's good news. And it's I got the information today. It was very good news.
Yesterday, he was pale again. So but it's normal. It's always happening. I think my own takeaway is we have a solid team. And I think we have every chance to start as we have indicated.
I don't think there will be big production of the CapEx, which we should be we don't of the CapEx, which we should be we don't have a lot of margin, but we should be there. And we should have the first product coming out in the half. Coca Cola Sink Smelter is almost exactly in parallel with the Garpenberg project. If I talk with 1 or the other and don't know exactly what they're talking about, it's exactly the same kind of phase they are in. Going forward, of course, we have a big thing happening Aitik to go up to 45,000,000 tonnes a year.
And we hope to take Aitik to go up to 45,000,000 tonnes a year. And we hope to take a decision later this year. If we summarize what we have said here and focusing in on what is important for analysts and what kind of facts shall I bring with me and plug into my models. Well, first of all, I think there is it looks obvious that the general demand is solid and if anything improving I think so. The global market is developing well.
A lot of people need the metal in order to reduce sort of poverty and have food to eat and roads to drive on. I think we are in an industry which is doing great, great support to a very sound development with less inequalities in the world. So that will probably continue. The prices have been flat and I don't know what we shall say about it, but I think the risk of falling copper prices is there. But I think if anything maybe less than it used
to be.
We have a benchmark set for copper, but we don't have one for zinc $929,900,000 We have a dollar which is having a significant impact on us as you know. And if we look at the events internally here, we had the plan to be reaching 36,000,000 tonnes next year and we did 37,000,000 this year with a very strong finish of the year. I think it is dangerous to put too much into it. But of course, we reached the target 1 year ahead of plan and that's good news no doubt. Garcon Bay, we have spoken about or we spoke about the Coca Cola startup, we spoke about.
And John Scherr, I think it's going to take a while for us to fix it. I'm convinced we are going to do it, but it's going to take some time. And at the same time, we have Harjavalta on partly extraordinary high levels of free metals, which should probably be expected to fall back a bit. So that concludes our 4th quarter result. All in all, we're happy with Aitik.
Thank you.
Thank you, Leonard and Miguel. Let's open up for questions. And please state your name and company. And we'll start with questions here in the room.
We have a time lag there, because we have material. And as Mikael said, we have if you combine huge volumes, unexpected huge volume from Aitik with the fact that Ljointfer is having problems with sort of supporting or supplying. We have too much inventories, which you saw on the cash flow in the Q4 and they are on old terms. So it will take a while until that will filter through. Premiums will come sooner.
Okay.
So the question was the mine plan of Gripenberg when will we see better grades and so on. I think that we have announced low grades now for a while and we are going to see that in the first quarter. I think we have guided for and therefore we have not guided. So that should be coming back to better levels thereafter. Thank you.
Yes. So, Oscar Lindstrom from Danske Bank. I have a couple of questions and maybe I can take them one after another. The first ones are on Aitik. And you mentioned that the mild winter weather here during Q4 was important.
How important if we would have had a normal winter weather? What would you say about production? Should we have been at a sort of a 38 1,000,000 tonne per annum run rate? Or what's sort of the magnitude of the impact of the mild winter? I think that
most of the guiding of if you are 36,000,000 tonnes as we're approaching that level since we're going into 2014. So an expected level if I had been an analyst I would have said, okay, 36 divided by 4 that's 9,000,000 tonnes in the quarter. And then is winter condition maybe 8 or something like that. We should ask you. You have your model, so you tell me, but something like that.
So that's one thing. With the fact that the cold winter wasn't there well then we're back to 9 then. But then we had and we knew that we had a couple of good things in that we didn't have any relining. We have relining and stuff coming sort of 3 or 2, 3 quarters of the years and they are coming a bit random. And we try to pile up as much as possible and try to short or to speed the production at the same time.
But it has a normal quarter. Well. It went very, very well. So I think that's how much I can say. We had we didn't have the bad news that should have been expected.
And everything went very well and we didn't have any planned storms.
A follow-up question on Aitik. You have an environmental permit allowing you to produce 38,000,000 tonnes per year at the moment I understand. I think that's also actually a temporary exemption from the sort of underlying permit of 36. Is this something that you could get another exemption from easily? Or is it out of the question?
Or what's the status sort of of that environmental permit
issue? We have applied for permits to pave the way for a 45,000,000 tonne plan, which will take several years to come. In the meantime, we saw that we have a chance actually to come to 36 or even a little bit more next year If everything was fantastic probably we could surprise the market already or 2013. So we applied for a margin there. Well, now certainly we are very close to the margin already.
So could we get further? I don't think we would get more than 38. I don't think we would need more than 38. But I would certainly hope that we're not falling back to 36% again that I don't think. So I think that the permit levels hopefully can be 38%.
And I'm not suggesting we're going to necessarily do it. But on the permits I hope so.
In
In the Buliden area, we see now that you had a fairly weak result during this year. How much of that is caused by the decline in the gold price or precious metal prices? And or are there sort of operational issues underlying, which are behind us weaker earnings?
You saw a decline in the Boliden area of roughly 3 $50 prices in terms of roughly $300 as of $350,000 Then there's $50,000 more to be explained and that can be rather easily explained by the phasing out of Marlyden East open pit and being replaced by Cangpey which is a great investment but being underground is higher cost. That's basically the summary of the Boliden area.
And we mailed a bit more of slag and stuff. So it's but basically it's terms and it's on gold.
Terms of our mix. Yes.
All right. And if I may a question on the smelter side and on Rungev. You talk about this action plan. How confident are you about resolving the stability issues? And when should we expect to sort of start seeing a slow if sequential sort of steady improvement?
Or will it come sort of all of a sudden? Or will we
I wish I could tell. I think there is a degree of uncertainty. I don't think you should plan on deteriorations from this level. But when the improvements will come and how it will come, I think it will go step by step. And I think you will hear it as it happens, because the nature of instability is stable is in control, unstable is out of control to an extent.
And therefore, it's very hard to say what the impact of the action. I can tell what we're doing in quite a bit of accuracy or certainty, but I cannot tell the results to the level that I would like to or would wish to guide the market.
And a final more general question on acquisitions. You say here that you're now slightly less worried about oversupply in copper. Is this or any other factors that are making you more or less interested in making acquisitions I suppose outside of Sweden?
We are in good control, but we have quite a debt in the company after the investments we have been doing. We are looking at investments and we think that Boliden could potentially be a more interesting and a better company if we could increase the portfolio of assets a little bit more to be not too dependent on Aitikarpenberg which we are and certainly will be. So I think it would be good. But we continue to be of the opinion that organic growth project or own investments are safer. And as long as we are having a portfolio of internal projects, we are going to in most cases favor them.
But we are going to compare. I mean some assets are potentially cheap. And if they are blending very much with our really the best knowledge we have in certain areas then we will be tempted. So we are following the market and maybe, maybe not. We have as you know not been focusing on acquisition or we have focused on acquisitions, but we have all the way given priority to the internal projects.
Okay. Thank you very much. Questions I have.
Hello. Ioannis Kanslius, ABG. A few questions on the smelters first. You mentioned Leonard that free metals at Harjavalta will go down year by year and you had $100,000,000 or something like that in positive contribution. Can you elaborate on that and what we should expect there?
Harjavalta is a smaller unit. And therefore problems in Harjavalta which we had did not impact the group in the same way as in many ways the biggest unit we have in the group is run share or at least it used to be run share. So when we had a similar problem in Haria Walthas we are now facing in run share. And consequently, we had poor performance for quite a time. We had inventories building up with a lot of free metals.
We resolved the situation. And when it was resolved, we produced and we processed those difficult materials and out is coming the periodic system and not least the most expensive part of it. So there's a lot of expensive and exotic metals coming out and we make and they are all free metals. So they have a significant impact. But that we have been doing for a while and we are happy that it coincided with the problems in run share.
So that was pure coincidence. But it happened. But we have to be fair and say that these inventories are not going to last forever. But I think on the other hand that we have learned something and we have a very good sort of recovery in or good production in Harjavalta. I think it's declining.
Yes.
On one of the details in the Q4 report, it says that costs at smelters were up $40,000,000 quarter over quarter. Was that due to the production issues Runescaero? Or was it other stuff?
I would say that the main part is vacation effects. The personnel costs are quite cheaper in Q3 when you don't pay anything for the white collar people for a month and that comes in every year.
The reason I'm asking is I'm sort of after how we should view the cost development at the smelters for 2014. But what do you say? It's a small inflation there or?
I would say a very small inflation hopefully.
Then I have a question on Aitik as well. Surprisingly good volumes obviously congratulations. Was can you elaborate on the mix there because I know you have satellite deposits next to the big pit. So did you take out anything from the small deposit this time? No.
We have an online system now, so we can follow Aitik very carefully. But this we have been cut off. So we they are not telling us. They say, Danak, we have to have some secrets here. So we are they are trying to balance the lower grade parts with the higher grades.
But as you can see, we have had a slightly higher grade than probably anticipated. High in the main pit. So I would say both are in very heavy production.
Would you say that 0.2 2 is the lowest level that we will see? Or can it possibly go lower?
No. The average is we have pointed at down towards the 0.2. And if we are high one time, it's probably going to be low next time. We have had some positive surprises fundamental surprise that we're milling and we're seeing slightly better grades than we anticipated. But it's a lot where we are mining.
So I wouldn't say that we have said that 2014 will continue to be on the low levels and improvements beyond. And I don't think we are prepared we are not prepared at all to change that view.
Okay. Thank you very much.
Any more questions from the room?
Ruptus Smith, Rivalta. Just a question on the CapEx for 2014. Have you mentioned any figure?
Yes. We have guided for as we've said between €4,000,000,000 and €5,000,000,000 and closer to the lower level, closer to €4,000,000,000 5,000,000. That's what we've guided.
And when will the CapEx significantly diminish?
We have not guided for CapEx beyond 2014. And there are reasons for that and it's linked to there is one thing that Leonard was just alluring to which is the IT 45 decision that we will have done sometime during this year. So therefore we have not guided for any CapEx beyond 2014.
And then on the Aitik 45,000,000 last time around, I got the impression that you had looked into Aitik and the logistical situation didn't permit a profitable increase from 36% to 45%. What has changed since then?
I don't think we ever said that. We I think you're mixing. We at the time we looked at an even higher expansion. And that is the one where we have said that doesn't look like a good idea. ITIG-forty 5 is going to be as far as we can see a good step to take.
However, it can be taken in many different ways. So there are we're sort of there are big, big, big calculations and a lot of quotations and a lot of plans to evaluate the different things. And depending on our price scenarios and everything else, they are coming out probably with the same similar IRR or NPV, but in a different way. Shall we focus or prioritize high priority or high profits earlier or late even if it is bottom line giving the NPV the same. So it's more like that.
On the logistics in particular, we are looking at well, it's very clear. We are looking at 3 crushers in pit crushers. We're going to continue to have 3 in pit crushers. I don't think we will have 4. We will rebuild them for better reliability and lower cost.
And the big question here is whether we put them there or there. And if we put them there, it's going to cost us enormous amount of investments. There it's a big question here is an underground 3 kilometer conveyor because it's costing a freaking fortune. So we will do it if it is paying off, but we I prefer not to do it and find a better way. But we'll That's why we're calculating and working on it.
Operator, do we have any questions from our audience participating via phone?
We have a question and it comes from Mr. Owen Skares from Goldman Sachs. Please go ahead, sir.
Hi, Werner. Just a quick question, I mean, on my numbers and hopefully on yours as well, you'll be generating quite a lot of cash in 2015 2016. You mentioned M and A earlier, but assuming you want to give cash back to shareholders rather than do M and A, what would you prefer, Special dividends? Or do you see potential for a buyback? Or is it still too early to say?
Thank you.
We're struggling with a big debt and a lot of CapEx. Those are good thoughts. But we no, we haven't started to think about that. But it's we probably should start doing that. So I don't have an answer.
I think we will listen with our shareholders and we will look at sort of the consequence. I don't think we have a clear answer on that. Or would you say something else?
No, we don't. I mean I can to some extent agree with that the cash flow situation looks better when you get better grades in ITEC. But exactly how they will be spent is of course also due to another previous question what will happen on new projects and what will happen on M and A and therefore it's I think it's premature to speculate what we'll do.
Got it.
Thank you, gents.
The next question comes from Mr. Amit Bensari from Societe Generale. Please go ahead. Hi. This is Amit from SocGen.
I have three questions, if I may. The first one is on your tax rate for Q4 2013. I calculate tax rate as 8% compared to corporate tax around 22% and much lower than what you had in the previous three quarters. So could you have some color on My second question is on Tara. Looking at the annual numbers, the Tara revenue was down SEK 185 1,000,000 and EBITDA was up SEK 24 1,000,000 implying a cash benefit of SEK360 1,000,000 year on year.
I understand SEK171 1,000,000 is a one off gain that you recorded in the Q1. So can you explain the rest of it? And finally, just for my understanding, what is it that spot TCs for zinc are always lower than the contract TCs? Thanks.
Well, the first one you take.
I'll take the first one because it's relatively easy. There has been a lowering of tax rate in Finland from I think 25% to 20%. And when you lower the tax rate, you get to reevaluate what you have in the balance sheet and therefore the tax rate will be apparently low in the quarter. And that explains the whole difference that you have on
Tara question what was that? Can you repeat it
Yeah. The question Tara was we see a dividend decline of €195,000,000 and EBITDA increase of 174,000,000 year on year, so which implies a SEK360 million roughly cost reduction. So what is driving that cost reduction of €360,000,000 in Tahira?
The cost reductions are basically driven by we have reduced the headcount from 700 to 650. We are trying to reduce the contractors for mocking or for and for development of new mine areas and do more in so both in sourcing if you like as well as reducing the headcount. That's what we are trying to do. What is coming out of the numbers in the actual quarter and forecasting into the next one, I don't think we do. But do you have more to say about Q4?
No. If you look are you talking about Q4 year on year there is a no I will rest my head. I have to get back to you because I have to look at the numbers.
Sure.
In the full year we had an extraordinary plus but that's well described in our presentation.
All right. And my last question was on spot TCs for zinc, which is like always lower than the benchmarks or other way benchmarks are spot TCs. So what is driving that?
Well, what we have said a long time for our main methods is that we see quite a lot of supply coming on copper concentrates, which will make or ease the TCs for copper. And we see a lot of closures from mines, which is giving the opposite impact on the zinc TCs. That's basically what is the situation. But I don't think the forces or the situation is very, very clear. And but that is basically the fundamentals and the benchmark level has not yet been set.
So those are my comments to that question.
If I may have a follow-up on zinc TCs. What I was trying to understand on slide 10, you saw zinc TCs both spot and benchmark. And over the last 4 years, the benchmark has been much higher than spot TCs. So just wanted to understand what is the reason for the difference? Why we have always higher benchmark than spot TCs?
Wow. It is depending on when you have volumes available in the market. The spot issues are reacting very quickly on shiploads and basically the very, very short market availability. So I wouldn't and we are not we are buying basically all the material on or at least most of the material on benchmark levels. So I think it is difficult to read too much into it.
Okay. Thank you. The next question comes from Mr. Julien Baer from SEB. Please go ahead, sir.
Thank you very much and thank you very much for taking my question. I'd like to understand a bit more the trend in falling smelter income for the quarter sequentially. I think if we look at the EBITDA adjusted for inventory revaluation and maintenance costs Q3 to Q4. Q3 were €513,000,000 We're €125,000,000 in Q4. And as you answered Johannes €40,000,000 of that change is due to seasonal cost differences, but that's leaving an €85,000,000 drop, which is €340,000,000 annualized.
Could you break down that a little bit more between issues such as lower sequential asset income versus further run share issues? And then anything else?
It is on free metals and byproducts. It is not coming from cost and the volumes you have in the charts. But you can probably look at the details of it.
I was going to say don't forget the high level of fire.
Yes, absolutely. So that was €4,000,000 But okay but we're still talking about €250,000,000 annualized sequential drop in free metals and byproduct income?
Yes. I will have to sit down and together we maybe do the numbers, but that might be the case. I'll have to look into it.
I appreciate that. The issue of sulfuric acid, I think I'm correct in recollecting that you sell something like 70% to 80% of your asset on term contracts, which get renewed on a sort of biannual basis. How much of what's the sort of year on year fall in those asset contracts that you've renewed so far this year?
I think I revert to the previous question in order to put some more light on it. I think the recoveries are recoveries in drone share are the big number. And the recoveries are giving a significant negative on that sequential development that Mikael is coming back to. When it comes to sulfuric acid, we are having the long term prices and they are often they can be 2 years fixed, they can be 1 year fixed or they are just volume commitments. But we cannot push volumes on customers who cannot buy or do not need it and have no storage.
So even though we have fixed contracts, when the market is down in Scandinavia to a large extent the pulp and paper and chemical a get transportation cost. So it's quite a bad exchange when you have to sell it at lower price and further away the balance and the balance is coming up because of low demand in the near market or in the
That's very clear. And thank you for that, Lennox. Do you see that situation continuing into 2014?
The sulfuric acid is extremely volatile. We all know from metal and mining that if you have byproducts coming out the output, the supply is a function not of the demand of the very product, but the demand of zinc or copper. Well, the sulfuric acid is coming out in a constant stream. And when that is more than what the buyers are wanting to see, you see a sharp decline. You see that in Molben for example a very important byproduct not for us, but for other mining companies.
Acid is even worse because it cannot be stored. Metal you can put in the shelf and wait for better times. But you have very significant difficulties with sulfuric acid and that's why this is a super volatile material.
Okay. That's great. And then finally for me, I'm sure everyone was very happy to see a 37% payout ratio on the dividend. When you discussed this in the board this morning, did you view this as a one off increase in payout? Or is this something we can expect more of going forward?
My suggestion was 1.58%, $58,000,000 because that is 33.0 percent and that is or 33.3 percent. But the Board informed me that, hey, you cannot have a dividend of 1.58. And after a lot of discussions, we discussed different levels, but we have been a little bit short of the exact 1 third for the previous years. And then we said, well, let's be a little bit on the high side. But you should not read into it in anything else and that this was as close to a third we wanted to go and we didn't want to be below 1 more year.
That's the discussion we had.
Well, that's a very generous position to take. And thank you for that. And thank you very much for taking my questions.
Julian, I will revert in this to 2 comments. My brain is a little bit slow. But on the sequential on smelters, Harjavalta, I think it's important to point out we have in the report said that you should basically we have one offs during the full year. Those one offs were to a large extent in the previous three quarters and not so much in the Q4. So you see some of that lowering of free metals in Harjavalta came already in the Q4.
That's one. The second thing on I'll just point that out to everybody because when you really report you think that we're stupid because we're saying regarding sulfuric acid that the market is stable and then we're saying that we're having lower profit because of it. Well, for new contracts the level is relatively similar in Q4 as opposed to Q3, but we do have this delayed effect coming to us when all contracts are moving out. And we had some relatively good contract that expired after Q3 where we've seen lower prices in Q4. So that's also part of it.
Thank you. We have a question and it comes from Mr. Christian Kopfer from Nordea. Please go ahead, sir.
Thanks, operator. Just a follow-up on Carlsberg. I think you said that, Lennart, that you expect grades to come down during this year. If you look at the reserve report, the weighted average grade seemed to be in the region of 4.6%. So is that kind of the grade we should look for this year?
The grades we have we spoke about this Q1 nothing else. And I think that the new that we are lifting up and well what is happening with the reserves and resources I think is a more long term development. When you do a when you sort of set up a mine plan, you do it for Garpenberg for 20 years. And we are doing developments and we are doing sequence, which are very stiff or very sort of we don't change them. So I think that in the near term, you not read much into this.
You should look at lower grades probably later on and that will impact your modeling in later years. I would think, right now, I don't think there is any major change in the short or medium term.
Okay. You also mentioned that you have
And we added a lot of tonnage. So if it was sort of lower grades, it is also a lot more tonnes. So of course that goes without saying so.
Okay. Sure. But in the very short term then you had 4.9% grade during the Q4. So you still expect that to go lower sequentially version?
I don't know. I must say that what have we guided on here, Sofie or Mikael or someone help me here because we don't have any more news. So you should go back to the Capital Market what we said there and I don't think we have any more information right now.
The guiding has always been that over time you cannot plan for anything else that was in the reserves. Now the reserves are down, so you have to plan with a lower. Now we're adding a little bit of information saying that this lower grades that are coming in now should not come in right away from this year. Now on top of that we have said that Q1 we said that Q4 2013 and Q1 2014 will be slightly lower. That is on a separate note that has been graded before or have been advised before.
So but we have not really said anything for as we say for Q2, Q3 and Q4 this year you should probably work on the old average.
Okay, cool. And then you mentioned Leonard, I think it was about the environmental permit of 45,000,000 tonnes and you said that that's going to take a couple of years. How should I interpret that? Is that environmental permit to get fixed for 2017 first? Or is it already by 2016 you think?
I think we have 2 things here. The permit we hope if things go well, it's going to come soon or probably this year. But then we have our ramping up ourselves. And what I think I heard on the previous question, if that is delayed and if you want to extend the 38 temporary permit, will that be possible?
And I think so.
But hopefully, the permanent permit will of course it's a question of our own investments and planning and ramping up. It's a lot of things that needs to be done in order to gradually step by step over a period of some years arrive at 45. So the permits, if it is going well, it's not going to be a limitation. If it is going wrong or wrong, if it is going to be if it is delayed, we don't know what kind of these are very hard to forecast. Then I think that we will anyways be able to produce at good levels.
Okay. Fine. And then finally on exploration spending, I think you spent some €400,000,000 for last year. Is this representative for this year as well?
We were on 300,000,000 or 330,000,000. What was that? Remarks? I repeat for the 3rd time that we're happy with Aitik. And if I shall say something more, it's that many years of high cost inflation turned into a much better level.
And I think we have done a good job there. We have a new organization in procurement and we're really happy with the development. A lot of people have been working hard here. And obviously, the market is soft. A lot of suppliers are less well they don't have too many customers for some of their products.
But I think we have done a good job there. So that can be my concluding words. And thank you very much for attending this.