Hello everybody, welcome to this outside presentation of our second quarterly results, live from Garpenberg in a beautiful sunny weather here in Sweden. As usual, Lennart and Mikael will present the results, then we will follow up with a Q&A session. With that, welcome, and Lennart, please.
Okay. Good afternoon. A very special quarter it has been. We have seen metal prices declining. We have had the largest maintenance store shutdowns in our smelters of all time. At the same time, we have large investments going on here in Garpenberg, where we are today with the board, and we're visiting the site and the project, which is on plan. If we summarize the quarter, we had revenues of SEK 8 billion as compared to SEK 10.3 billion. That is influenced, of course, by lower prices, but also by the shutdowns in the smelters. We had earnings before interest and tax and before process inventory revaluation of SEK 370 million, compared to SEK 956 million a year ago. It includes the maintenance shutdowns with a value of about SEK 300 million, and of course, the effect of lower prices.
We had cash flow of minus SEK 1.5 billion almost, which is a big number, which might be astonishing to some, but it's well in line with the things we're doing, the maintenance shutdown, the ongoing investments in Garpenberg here, and some adjustments or changes in the working capital. We have also paid dividend in the quarter, which has an additional impact on the net debt, and we have paid a one-off tax for diesel fuel, which is well covered in our report. All in all, lower metal prices, good mine production, extensive maintenance stops, and the high CapEx are the main points of the agenda of this quarter. Our expansion projects are on plan. The general market, if we look at all of the slides we have, I would say that we have a fundamental market which is not bad.
The industrial production is rather flat, with good growth in China, with negative growth in Europe still, and with reasonable development in the U.S., and we have positive GDP or industrial production growth in the world. The construction market is also quite flat, basically indicating the same thing. China is good, the U.S. is flat on a quite good level, and Europe is negative. The car industry is slightly different, where at least the German car industry is on positive year-on-year growth. Else than that, I would say that all the driving factors for the global demand of base metals remain relatively the same as compared to previous quarters. The metal prices have had a different development, and certainly for precious metals and copper. If we start with zinc on slide seven, as you can see in the quarter, the zinc prices have been stable.
Over the longer term, we see a relatively flat level on zinc, it's a level where a lot of companies are not earning basically good profits on this level, but at least it's not going down or not much going down. We can also see that the official inventories of LME in Shanghai has been going down. All of this, I think, is matching the global picture that zinc is more tight than copper, which we see on two slides ahead. On copper, we have seen a decline from the top 2011 in the early parts, we have seen the copper prices going down step by step. It was lower in Q2 than in Q1, we have seen a decline in the second quarter and the start of the third quarter.
The reason for the decline here is more the uncertainty about the long-term development of China and its impact on base metals market and the new projects in copper, which many of them are planned to be in production now and in the following years. TCs and premiums for both zinc and copper are reasonably in line. If you look at the premiums, the spot premiums are up in Europe, that is kind of a contradiction to the high inventory levels. There have been discussions whether there is congestions around the LME stocks, which has a contributing factor to the apparent scarceness of the metal in the market. More dramatic is gold and silver. Gold is down, we have all read about it in the press, silver is to us the most dramatic metal from the peak, which was very high and very short.
If you look at the peak, the silver prices are down 60%, which is having a major impact or a quite big impact on Boliden's financial performance. Gold is down quite a lot, lead, which is the third metal on slide 11, is more stable than even zinc, here we have had a positive development. If we go into the business areas and we start with mines, we had earnings of SEK 376 million compared to SEK 730 a year ago, SEK 427 in the first quarter. If we look at the price impact of our mines, it's much more than that. We have had a good production month in the quarter. It was good in Garpenberg. It was certainly good in Aitik, where we had record all-time highs with a pace of 38.5 million tons per year.
We had, in addition to the price impact on the ongoing business, we had, of course, a big impact on process inventory revaluation in the smelters, we had a final pricing adjustment in the mines. Cost development is reasonable. I think we have had cost for the maintenance shutdowns, else than that, I would say that we have a very modest cost increase in general. If we look at the copper production on slide 15, we can see the good mine production on the light-colored bar, we can see the line diagram, which is an impact or impacted both by high production volume in the mine, but also better grades than we have seen. Now we have been a bit higher than the point 20 where we are basically this year and next.
On the zinc side, similar development, a reasonably good month of production and slightly higher grades in the month. If we turn to the smelters, earnings before interest and tax were minus SEK 30 million, but that includes the SEK 300 million which we had informed about, which actually turned out to be a little over SEK 300 million. We had SEK 298 million in the first quarter, so less SEK 300 million for maintenance. We arrive at about a zero result, and last year we did SEK 251 million plus. Again, take away the effect of maintenance shutdowns of SEK 300 million this year and another SEK 100 million, which we also had in the previous year. Together with the maintenance shutdowns, we also run a number of CapEx projects in the smelter. For the maintenance itself. Some of the things we do in maintenance is capitalized and written off over time and regarded as CapEx.
We also do some debottlenecking projects where we install different kind of equipment at the time when we are in any way standing still for the maintenance. Of course, we also are in a hectic period for the silver recovery project in our zinc smelter in Finland, Kokkola. All in all, we don't only have the maintenance shutdown, we also have in addition, quite a lot of investments going in. The silver project in Kokkola is on plan. The production is low in the copper smelter where both Rönnskär and Harjavalta were standing still for parts of the quarter. In zinc, Kokkola had a small maintenance shutdown. Odda had a major one where we also invested in respacing in the cell house and a couple of other longer term improvements as part of the improvement plan there.
All in all, I would say that production is entirely a result of the actions we have informed about around the maintenance. With that, I hand over to you, Mikael, and you take the financials.
Thank you, Lennart. Well, it's been an interesting quarter also in terms of financials. As you probably seen most of the numbers, with lots of changes, we'll come into them as we speak on here. The revenues went down. I think that's quite natural, both with the maintenance stops and with the lower metal prices. The earnings before inventory valuation were at SEK 370 million, which is a good level given the circumstances. We've talked about investments, and you see here that the investments were at SEK 1.5 billion, which is a high number but not extraordinarily high. You can see it's a little bit higher than the roughly SEK 1 billion that we've been running in the last year or the last few quarters over the last year. The free cash flow of minus SEK 1,477 million, I'll come back to and talk about more in detail.
As you can also see on the bottom here with the negative cash flow, our net debt is also up, I'll talk more about that as well. If you start looking at the analysis now comparing first to the first quarter of this year, you see that the volume effect is positive, that might be surprising given the high maintenance stop. The mine production has been so good that it's also outweighing the negative volume effects coming from the maintenance stops in the smelters. That positive number of SEK 314 is then weighted against the SEK 418 in terms of negative prices and terms. We all know about this, that we have a negative impact from the prices. At the same time, we also know that we have hedges here that has helped us somewhat.
The costs are SEK -153 in this comparison, that's still also a relatively good number. We have, as we've communicated, SEK 300 million of effect from the maintenance stops of EBIT, out of that, roughly a third or SEK 100 million is on the cost side. Therefore, out of the SEK 153, SEK 100 is linked to the maintenance stops, the other SEK 53 is easily explained by the increased production. We're doing well in terms of keeping the costs under control in this quarter. Also, of course, we don't have the one-off effect that we had in Tara last quarter, which is here in the adjustment. If you compare to last year, the volume is pretty stable which is also thanks to the relatively good mine production because the maintenance stops were heavier this year than they were last year. The price in terms are negative.
Also, the currency effect is pretty strongly negative if you compare year-on-year. The costs are SEK 95 million higher. Once again, our maintenance costs were much higher this year, which means that in terms of the costs year-on-year for the ongoing production, we're seeing a quite modest inflation level. Depreciation are higher, mainly due to commission projects and reclamation that are increasing the depreciation. Looking at the cash flow, where does the SEK 1.5 billion come from, where's the background? You can see here that, of course, lower earnings plays into this. We have a change in working capital, which is also negative, slightly negative. There's a big change, as always, between the different areas with actually lower inventories, but lower payables, which gives a negative cash flow effect there. We also have a high tax paid item this quarter.
Tax paid item is also erratic, in our case, going down the preliminary taxes that you pay to the Swedish tax authorities tend to be linked to last year's profit. It takes a while to adjust, therefore we're high on taxes paid. What you don't see explicitly here, it was in the number, comes actually into the receivables is the SEK 173 million of the Aitik diesel tax that we had paid, not costed for in this quarter. The capital structure. This exhibit is here every quarter, normally not so interesting, not much change, this quarter is quite a significant change. The net debt is up from SEK 6.2 billion to SEK 9 billion. That's, of course, due to the negative cash flow, due to the big dividend that was paid out in May. The gearing, therefore, corresponding is up from 27% to 41%.
The net payment capacity, which is the mirror of this, is down from SEK 8.8 billion to SEK 6.2 billion, but still on a quite satisfactory level as we always knew we're going to have this quarter and we had planned for it. What is also quite significant is the lowering of the average interest rate from 2.7%-1.8%, which is due to a number of effects, but the main one is that we're rolling off old fixed interest rate swaps that we had, and that we have managed to play well in finding the short-term duration credits to get a lower cost. With that, Lennart, I give it back to you to summarize.
On this slide, we see the project update, and as you have seen in the report, we are on plan. Behind us, we will see the main frame or head frame of Garpenberg. This is the industrial area which we are going to leave when the new project is in operation, and we are commissioning that in the first half of next year. We are here to show the board the underground installations where they are right now when we do the presentation here, and then we will join them at the industrial area and our new concentrator, which we are currently building. The project is going fine. We have had our issues, and I can only say that as of now, we are on CapEx, and we are on time. We are quite pleased with the development of the project so far.
Aitik, we did production in the pace of 38.5 million tons. I think that confirms that we are on the way to produce 36 million tons a year next year. We had a low first quarter. We had a very good second quarter as we present now. I think that's encouraging. Kankberg is on plan, and it's going well. The tellurium leaching plant is in full production, so that goes well. The silver recovery project will start up after the half year of next year, and it's also on plan. We are also working with the feasibility to expand Aitik to a higher level. We call it Aitik 45 to take the ore production from 36 million tons to 45 million tons. We're working on that feasibility, and I'm sure we get a question of when will we decide on this.
I think that may be towards the end of the year or beginning of next year. We have quite a lot of calculations to do to see which is the most optimal mine plan given changes in metal prices and whatever. We work with a larger conceptual study, and we have no news on that one. We're working hard on it, and we will continue to do so. When the timing of that one it is, I don't know because it's only a conceptual study so far. The summary. The metals market are uncertain, and even if the general macro is looking reasonably stable, I would say the volatility in copper, and copper is driving much of the sentiment, is unclear because of new output coming out and uncertainties on China. The metal prices have been going down. Will they continue down or up?
We don't know, of course. We know that they could go down further from this point, but we have no evidence of that happening, so we have no opinion about that right now. The precious metals have had a sharp decline which has a significant impact on the Boliden area and the silver itself has a quite big impact on our performance as you have seen this quarter. We have a strong Swedish krona, even though it has not moved from the level in the second quarter. It has actually turned a little bit weaker. If we turn to Aitik or to Boliden, we continue to be in low grades throughout this year and 2014. We had very good production this quarter, but don't take too much of that as a reason that we're going to be 38 million tons every quarter.
I don't think that's either possible or a good assumption. The maintenance stops in the second quarter were the largest we have ever seen. We are not going to have as high as this one in the foreseeable future. I think the guiding of SEK 200 million as a good yearly average is applying also going forward. It was uniquely high in this year. Rönnskär, we have some stability issues. I think we have our arms around it, but it's not something which we'll go over in the next quarter, and it was nothing new this quarter, when additionally we had the maintenance shutdown. We have our issues there which we work with. We will be prudent on cost development. We will be very careful in taking on new costly things, whatever they might be.
We're going to postpone some CapEx projects, nothing of this is going to be major changes. We are prudent, and we take it easy with some items. That's the level we are right now. Of course, preparing us for more difficult times would they occur. We have had hedge programs since we decided on the Garpenberg project. They expire in the end of, or expired in the end of June. From now on, we are exposed to lower prices and we are also exposed or can benefit if the prices are going higher. We should be aware that we have been winning or saving some cost or getting a better price, thanks to the hedges in the previous periods.
The expansion projects are on plan, as I said, it's exciting to see if we can now maintain the pace and start up as planned in Garpenberg, we certainly hope so. In the third quarter, finally, we had one little maintenance stop with an EBIT impact valued at about SEK 25 million, that is in Deifelt. That concludes our presentation. Well, if we had anything forward-looking statements and others, you should look at the disclaimer here. With that, we are prepared for a Q&A session. Please go ahead.
Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. We have a question from Owen Skerrett from Goldman Sachs. Please go ahead.
Hi there, Lennart. Hi, team. Looks like a nice day in Garpenberg. I guess you're not going to be doing an outdoor presentation in Aitik this winter. I just had a quick question. Regarding Aitik 45, you've talked before about sequencing CapEx. Would you think about giving yourself a bit of breathing space for free cash flow before going ahead with the CapEx? The CapEx is low enough to mean that you could just proceed straight into that in potentially 2014, 2015? Thank you.
I think for the CapEx guidance, I will hand it over to you, Mikael. Before we do that, in the context of Aitik 45, as we have said before, it's not a major CapEx program. It is debottlenecking, where we need another crusher in the system. We need to adjust some of the process or the logistics and the material handling equipment. It's not a huge CapEx program in relation to the returns. What it is, it's a decision point to decide on what is a mine plan, what is a cutoff on when we continue to mine, and what are the environmental impacts. We are going to fill our dams sooner. That will give an investment maybe 10 years from now. That needs to be factored in, and we have to apply for permits.
There are some quite big questions, they are not related to CapEx, basically. With the CapEx guidance, Mikael.
I will just reiterate, we don't have a new CapEx guidance as such. We are prudent on CapEx and making sure we're staying where we are. We have guided for between SEK 4 billion and SEK 5 billion in 2013, maybe towards the upper end of that range, and that still holds. For next year, we have said for 2014, we're still between SEK 4 billion and SEK 5 billion, probably towards the lower end of that range, and that still also holds right now for you as a guidance.
That's great. Thank you.
Next question comes from Mr. Luc Pez from Exane. Please go ahead.
Yes. Hi, gentlemen. Maybe a follow-up question on CapEx. If you could perhaps quantify the maintenance CapEx you would have in mind going forward, whether this increased maintenance CapEx for Q2 is one-off and related to the huge maintenance work you've been doing at your operations. Therefore trying to understand what is the underlying figure there. Secondly, with regards to hedging, which you referred to at the end of the presentation. I guess that with your program coming to an end, wondering whether you would be inclined to consider new hedging or would you wait for commissioning or starting up new projects in order to do so? Thank you.
On the hedging, of course, when it's expiring and the gold is remaining, you can do your math and analysis from the report that you have. Bear in mind that we have been earning about SEK 300 million the previous year and the year before, we have had a good profit in the first half, which is well described in the material. If we consider to do additional hedge programs, I can say that no, I think that we have dimensioned our balance sheet and our financial structure to be robust and for periods when we expose our balance sheet quite well. I think we're very well planned for situations like this and worse. No, the short answer is we are not considering new hedges, and if we would, it would probably be in the context of new big spend programs, CapEx programs.
When it comes to-
Maintenance.
Yeah, the maintenance CapEx.
Yeah, maintenance CapEx, we have guided before that, if you go back a little while, we always guided it was slightly less than SEK 2 billion a year for maintenance CapEx. Now with the IFRIC 20 change of accounting principles that we have from this year, that adds some SEK 300 million or SEK 400 million of CapEx in the way that we report, even though it doesn't change anything in reality. Now the maintenance CapEx guidance is somewhere a little bit more than SEK 2 billion a year, and that one is relatively firm. Of course, it's a little bit higher this year because of the longer maintenance stops, but it doesn't vary that much between the years, and you should use that number a little bit more than SEK 2 billion per year.
Thank you.
Next question comes from Mr. Gustav Sandström from Erik Penser Bank. Please go ahead.
Thank you, operator. Question regarding Aitik. Given that the tonnage was more or less in line on a year-on-year basis, is the Q3 tonnage also likely to be pretty flat on a year-on-year basis, or is Q2 a better proxy for Q3?
Well, it's going well. That's all I can say. I think that if we guide for 36, or the plan, we don't guide at all. We don't go forecast like that, production forecast. The plan was to be on 36 million tons per year next year. We were on 34 last year. I have said if you go from 34 to 36, you will probably end up 35 or something. Fact is that we have a good capacity when everything is going well. We have big relinings. We have things that we have to do, and we don't have a mine with a capacity to run 38 million tons.
I think that you should look at a rolling 12 curve or rolling four quarters or something, saying that we are on a positive spin. I wouldn't factor in that it's not a too dramatic number. We had a bad first quarter, we had a good second quarter, I think we are on a basically, not dramatic, but positive direction.
All right. Fair enough. A question regarding your reserves. How would your reserves be affected if you change your long-term price estimates to the current spot price at current market?
I don't know. We don't try to simulate that, you can say that the current prices are still above the long-term prices in copper, they are below in zinc. I cannot say what that would mean. I think that your question might be that the prices are low now, if you readjust, it's going to have a huge difference. I don't think it would, we are not, in any case, changing the reserves for the spot price. We are looking at what are the long-term production plan that we stick to, we do that in the ups and downs. We can vary and adjust a little bit on the short term, basically it is the shape of a big open pit if we take Aitik where the question is most relevant. It's not a very relevant question.
The answer to it is probably not a big deal, we're not going to change our production plan or anything else on a change in the long-term price. If we do that, it's a small change. I think that answers your concern or your question really.
All right. Finally from me, given the recent developments in the M&A space and what seems to be a situation turning more and more into a buyer's market, does it still make sense to go for a big organic project like Laver or would you consider instead going out on the market and grab something?
I think we have said all the time that we are quite active in looking at alternatives. As you're rightly saying, the general price level has been going down. I think it's much more of a buyer's market. Of course, our muscle is not as great as it used to be, but that's true for everybody else, too. We are looking at alternatives, external projects, and we are going to match Laver, for example, to alternatives. Yes, we look at external or acquisition opportunities.
Great. That's all from me. Thank you.
Next question comes from Mr. Julian Beer from SEB. Please go ahead.
Thank you very much, operator. Alain Gabriel, good afternoon. I have three questions for you. Firstly, on the Aitik expansion, if the board approves that expansion early 2014, and given the limited investment requirement, could that mean that you could already sustain higher rates from the mine early 2015.
What would happen is, I think that what it would mean is that the immediate impact is a new crusher in the system. We need a new crusher in the system in order to go higher than we are right now. We need to speed with the pushback in order to open up mining areas, which are corresponding to this higher level. I think we perhaps could look at a gradual increase from the 36 level. Perhaps. That is to go too far, I think, that we refrain from. We're careful in giving guidance of that kind. I think that would we take the decision, we will invest, and we will then look at what is the more likely ramping up plan from 36 to 45. That is going to take quite a while before we hit the 45 level.
Okay. I think that's a clear answer. Thank you. Going on to Garpenberg. Now you're within a year of completion of that project. Could you please give a bit more color on the shape of the ramp-up during the first half of 2014?
We will save that to a capital markets day in the fall to be more precise on the ramp-up plan. What the basic concept is to have the production starting in the first half of the year. What we do in a typical startup period is that the constant, you can't see it from here, but it's three kilometers in that direction behind us. What we do is we start to run the entire process plant with water first, then we run it with waste rock to try out and do buyoffs with different suppliers. We're going to run low-grade ore in the new concentrator parallel to that we have the base production running in the old mill. Then we are gradually going to switch over production in, around the period of maybe Q3 or something next year.
That's the main plan. We will give a lot more detail when we come to the capital market day in the fall.
Okay, great. Finally, did you say that there were some costs in addition to the SEK 305 million maintenance costs, which did impact the Q2 smelter profits negatively?
No, I don't think so. Did I? No, I don't think so. No.
Okay, I misunderstood.
What I said together, when we do a maintenance shutdown, it has a combined effect of cost and lost production, SEK 305 million. At the same time we do the maintenance, we also put in or install a number of debottlenecking investments. Also we have an investment sort of peak around the maintenance shutdown, which has nothing to do with the maintenance, but we just take the opportunity of being closed to install equipment.
Okay, the debottlenecking is actually a capitalized investment?
Yeah, absolutely. Those are definitely investments.
That's part of the SEK one and a half billion and the reason why that SEK one and a half billion is so high. It's not just maintenance CapEx.
Got it. Thanks very much, gentlemen.
The next question comes from Mr. Daniel Luan from Bank of America. Please go ahead.
Yeah, good afternoon, guys. A few questions, if I may. Firstly, would you mind just making some comments on what you're seeing in the scrap market, both for traditional scrap and e-scrap, and how your margins in treating scrap compare to treating concentrate in your smelting business? Secondly, just going back to your increase in gearing over the quarter. If that sort of situation continues for the rest of the year, how would you be thinking about the dividend for 2013? Thank you.
On dividend, I think that's the easiest part. We have a quite firm statement in how we look at dividends. We look at one third of net profit. We don't have a lot of ifs and buts in that. I think that for your purpose, I think you should do your estimations of the net profit and take a third in dividends. I think that's good guidance and quite clear. What was the first question?
E-scrap.
Yeah, the e-scrap market. I think the general picture is the following. In a business cycle where people tend to, in Europe, we take electronic scrap primarily from Europe, where we see consumers being strained with a low economy and more unemployment and so on. People tend to buy fewer computers, fewer cell phones than they did before. If they're buying less, they are returning less. The availability is slightly lower. The other trend we can see is that electronics tend to contain less of the precious metals, if that is copper or gold, which is well in the plan. This is absolutely factored in in our investments. Most of that metal is payable, in any case. I think the combined effect is that we have plenty of material or we have material enough for our production.
We see the quality of material deteriorating slightly without being dramatic. I think that our competitive position, if anything, improves compared to other people doing electronics recycling. I think we are okay there. On the process, I think that on the return of the electronic scrap is going as planned, and it's going well. It has side effects which might have an impact on the copper flow because our instability or stability issues in Rönnskär, to a degree, has something to do with the much larger volume of electronic scrap flow coming, perhaps. This is nothing we think is of any concern longer term. We have a bit of an adjustment to do, and maybe the impact is there. We're a bit unclear ourselves why we have this instability in the copper process.
Okay. Are you able to give any color at all on how currently your margins compare in e-scrap versus your traditional smelting business?
The margins in the copper business, copper smelting is, if anything, improving, and we are not giving guidance. That is confidential information which we don't exhibit. Basically, the copper, if anything, it's probably improving. Therefore, in relative it's up. I don't comment on that, basically.
Okay, no worries. Sorry, just to go back to the dividend question. I guess the question was more, is there a level of gearing in where you think about deviating from your one-third payout, and then cutting the dividend more, say, if gearing the dividend got to a certain level?
I think, basically, no. Of course, in the end of the day, there are levels where we would probably take a different direction. I think we have simulated our dividend policy to different scenarios, I wouldn't think so.
Okay. Thank you very much.
The next question comes from Mr. Alain Gabriel from Morgan Stanley. Please go ahead.
Good afternoon, gentlemen. My question is on the Rönnskär smelter and the stability issues that you have highlighted. Are you able to elaborate more on those issues and maybe quantify the potential impact in Q3 and Q4? Thank you.
I think you should look at the past quarters and say that we don't have any immediate improvement in the plans. Maybe a negative impact to some extent. Now we talk a lot about this. It's something which is of concern to us at a time when basically most other production units are going well. I think maybe be a bit prudent, but take your starting point from the past couple of quarters.
Okay. Thank you.
Next question comes from Joakim Ahlberg from Kepler. Please go ahead.
Yes. Hello. I have some questions here. On the mining side, if we look on the cost development on the quarter-on-quarter, I see, of course, that you have somewhat higher volumes, et cetera. If you look, it's around SEK 200 million delta quarter-on-quarter. I also see that depreciations are up SEK 50 million about. Still then we have around SEK 150 million delta. I wonder how much of that is an effect of the lower gold and silver prices in terms of the cash cost effect. Do you think you can quantify that a bit?
I don't think it has to do with the silver and gold price. It has to do with the depreciation. You can take, Mikael, first.
Well, I think you put it clear, the depreciation, if you compare quarter-on-quarter, it is simply a production effect. With a higher production, you get higher depreciation as we depreciate over ore tons. That one is the easy one. Then in terms of the rest of the cost development we have had, in mines, we typically never comment too much on maintenance because it's relatively even spread over a year. We have had some maintenance costs which are a little bit higher in the mining area, also in Q2 than normally. We wouldn't make too much out of this. Basically, all easily computed from the increased production.
We have a continued cost increase, but it's not big right now. That's how we sense it, yeah.
Yeah.
If we go into Q3, Q4, both depreciation levels and full costs should be quite stable, then?
Yeah.
Yeah.
Okay. Thank you. Another one, if you look a little bit on the smelter side, given that you are one of the largest players here in this area, if we say that the consensus side is relatively correct on new mine supply coming out in the market for the next two, three years, how would you see the TCRC market in general developing, and have you seen anything more positive recently in the talks with long-term clients?
I think the tendency is quite clear, and that is, if anything, there are more mines coming with copper concentrates to the copper smelters than we used to have. A better, a lighter market for an improved market, perhaps for copper smelter and the opposite for a zinc smelter, if anything. Well, I'm careful in giving very precise guidance here, but if anything, that might be the tendency.
Okay, perfect. That's all for me. Thank you.
The next question comes from Mr. Robert Clifford from Deutsche Bank. Please go ahead.
Yes. Hi, Lennart. Hi, Mikael. One question for each of you. Just on the debt, looking down the barrel of SEK nine billion of debt, what level of debt or gearing are you comfortable with? You talked a bit about cutting some of your capital projects, so I take that to mean you're not comfortable with the current level, need to get it down. What actions? Could you go into a bit more detail about the actions you could take to control that? Second, the comment Lennart upfront about the markets actually looking okay, but the prices being negative. When you talk about the markets looking okay, what are you seeing in terms of your customer behaviors? Previously, you talked about them squeezing you on by-product credits or looking to source metal from you guys because you're local.
Are you seeing changes from your customers with regards to the markets?
On the gearing, we have had a quite big increase in the gearing. Of course, if you invest a lot and when you close your smelters to the extent we have done, which is absolutely in line with plans and everything, we do it at this time, we are comfortable with the level of gearing we have right now. The question where we are not comfortable, I don't know, we feel comfortable with the outlook in the market, the plans we have, and the level we are right now. That's reasonably okay. The second question on customers. I am studying very carefully. I'm giving guidance what do we see with our industrial customers. I cannot see that I'm seeing a much different picture in the demand from the customers or on the credit situations or anything from the past.
At a time when we have lower output from our smelters, of course, it's, for us, a lower visibility this quarter because we ship less than we normally have. Also our numbers are a little bit tricky to draw very clear conclusions on. I'm not seeing any increased risk, as far as I can see.
Okay, thanks. Thanks for that.
Next question comes from Mr. Thorsten Zimmermann from HSBC. Please go ahead.
Hey, good afternoon. I have three questions, please. The first one is on the sulphuric acid market. You indicated that the market is a bit troubled at the moment and that you have shipped overseas. I just wonder, given that there is some maintenance shutdowns, why is the market so bad in Europe and why are you going overseas? Is the market a bit blocked or what's the reason for that? My second question would be on the concentrate market. Similar line of reasoning. The numbers that you have shown is basically the concentrate market is balanced at the moment. We have a lot of maintenance shutdowns in the quarter. Is the implication really that the market is still quite a bit tight? Would that be correct?
The third question is on your grades, seeing that all grades moved up in tandem in basically all mines. Did you high grade during the quarter? Those are my questions.
Did we go out with a general order of high grading when we did all the maintenance shutdown? The answer is no. We are well aware that we have a strain in the cash flow. We have been pushing a little bit on deliveries on the bits and pieces, but high grading, no, absolutely not. It's more of coincidental. In Garpenberg we are working different parts and when we build the new mine, we cannot plan exactly which are the mining areas we're working with because we sometimes have to change. When it comes to the sulphuric acid, the change you see in our sulphur sales is more related to a couple of customers we have. One of maybe or some of them being on temporary shutdown, some of them are more long-term, and we have to move the sulphuric acid further away.
Partly probably a little bit of a timing effect, but also some longer-term impact where we have to move the acid a bit further from home and we pay the transport.
Here you can also comment quickly. You know that the pulp and paper industry takes maintenance stops roughly the same time we do. We normally have a relatively balanced situation with our customers. The fact that we had maintenance stop doesn't change the balance normally.
The next question comes from Mr. Johannes Granselius from ABG. Please go ahead.
Yes, hello gentlemen. Johannes Granselius here. If I can get a little bit more color on what happened in Aitik in Q2 here. We talked about that, can you explain if you had sort of very high production all three months or if you had one super month or so, is that something you can comment, Lennart?
Three super months.
Right.
I don't know if they are super months. I think that we have a level where we do produce in this level if we have very little issues happening and where no specific realigning or something. This is a level you can say that if you draw a graph, we can see that this is a level where we can be, we have to have the maintenance and we have some interruptions. I think that we are gradually going to reduce the number of incidents, then we're approaching 36, some quarters are probably going to be 38. This is the second time we are on this level. We were here a year ago.
Yes. Also on Aitik, did you produce from the satellite deposit during the quarter?
Yes, we do.
Yes. Right. That's the plan to run the satellite deposit, meanwhile you're producing in the big pit, right?
Yes, we do both. We did a little bit less in the satellite, which has lower grade, which is the reason why the average grade was a little bit higher. We had a little bit of an exchange.
Okay. I'm curious about what's happening in the exploration side in Boliden right now. I understand you have taken down activities a little bit. Can you explain that and what we can expect going forward, and how the budget has changed here going forward?
Yes. Basically, as with everything we do, we prioritize, and we say the most important highest up and the least important further down. What we have done is to adjust a little bit the drilling program, because drilling, we have had very good results, as you have seen in the past couple of years. Some of the drilling we are working on right now is very long-term and has very little impact on the profits in the next several years. Therefore we're slowing down a little bit. We do more of desk work with analyzing and planning, and we have an easy task to take back more exploration at a later time when we feel more relaxed about metal pricing, and we don't have the big investments and whatever else. Nothing dramatic at all. We are holding back a little bit.
We're balancing and preparing for things if they turn more difficult.
Yes. Do we see this in the numbers, you think, or is it negligible?
Well, what should I say? We are in the order of SEK 300 million or SEK 350 million a year. It's small, or maybe SEK 50 million on a year or something. I don't know really, but it's in the big picture, not a big number, no.
Okay. That's all for me. Thank you very much now.
Next question comes from Mr. Daniel Luan from Bank of America. Please go ahead.
Hi, guys. Just one more quick question from me. The remainder of the CapEx to be spent this year, is that going to be fairly evenly split over Q3, Q4, or is there some difference between the two quarters?
From a high level, it's going to be relatively even. I can't tell you more exact. I don't have the exact numbers, but it's roughly even.
Okay, great. Thank you.
There are no further questions at this time. Please go ahead, speakers.
Okay.
Well, there is one through email. Actually five questions from [Foreston Fisher] from Nature Finance, and they're all related to Rönnskär and secondary materials. The first question is, could you give some color on the continued stability increases in Rönnskär? I think we basically have covered that already. The second question is, how much e-scrap was refined in Q2 2013? That is actually in the report on page 26. It was a little bit more than 27,000 tons. A little bit up from Q1 this year. Third question, how much input material, e-scrap, is secured compared to your production capacity for 120,000 tons?
We have several two-year contracts. We don't have very long, like five or 10-year contracts in electronic scrap. We are okay with availability of scrap in, I think the next 12 months or 18 months or something. We don't have any volume issue coming up very soon, in any case. We don't think we will further down the road either. We're reasonably secured in the near term in any case.
Question number four, could you give some information on the quality of your input material? Do you think this quality might deteriorate in the future?
That's what I said before. We see a lower metal content. Fortunately that lower content is to a large extent payable metal and therefore not so bad for the margin. I think that all in all, there is a tendency of lower quality also for us. I think we have a better ability than many to treat the material which is in the market right now. Perhaps. We think so. We're not sure. We think so.
The last and fifth question is related to that but has more to do with what is Boliden's expectations for the supply in terms of if it's getting more difficult to source high-quality scrap and what the pricing trends in scrap.
This is hypothetical questions. I think lower quality material is something that we are good at. I think if anything, our competitive position, as I said before, I think should not deteriorate but rather the opposite. I have no other comments to it at this point.
Yes, that was all the emailed questions.
In that case, if we conclude today's conference, we have had a very special quarter with the biggest maintenance shutdown ever in the middle of the second largest investment program we have ever done and that in a market with declining prices. Of course it's a bit dramatic, but I think on the other hand, that we have structured the company for not only being good in the good times but also be reasonably robust in the lower periods. The good thing here is that we have very strong production numbers, that all of the smelters are back in production again. That all the projects or the silver project in the zinc smelter in Finland, Kokkola, and where we are right now in Garpenberg are moving on as planned. Thank you very much, and from us, we wish you a good summer. Thank you.
Yes, thank you, and have a good summer.