A warm welcome to this, the first quarterly presentation for the year 2013 from Boliden. As usual, we have two presenters, Lennart Evrell, our CEO, and Mikael Staffas, CFO of Boliden. The whole event is planned to take not more than an hour because we also have an AGM here today, so we have to leave this conference at 2:30 P.M. With that, I hand over to Lennart. Please.
Thank you. Okay. Welcome to the presentation of the first quarter. As Frans said, it's the first of this year. 2013, we don't have any new investments starting up. We are not in really any very big change over the year. It's an in between year, which we have really carefully communicated to the market. We are on low grades. We have winter conditions in the early parts of the year in the open pits, exposed to Arctic conditions. Basically, the development on the financial terms are in line with the guidance we have been giving previously. Revenues were SEK 9.2 billion compared to SEK 10.3 billion the previous year. Earnings before interest and tax, and excluding the process inventory revaluation, was SEK 751 million compared to SEK 1,258 million a year earlier.
The cash flow was negative, with this result. We are in very hectic investment programs, in particular Garpenberg. Obviously we have lower earnings from the previous line. We had in the result, a positive one or unusual item, a one-off effect of SEK 171 million, which we will explain later on. In the operations, I think that we are happy with the development in the smelters. We are slightly disappointed with the mines, even though most of the decline is in the guiding we have been giving previously. The cost level has been maintained after several years of high cost inflation. We have had a couple of quarters with lower cost increases. We have higher depreciations in the mines, which is a quite big number, and we will come back to that later. The projects are on plan, and in particular, Garpenberg is very exciting right now.
More on that later. The market outlook is uncertain. I'd say that the industrial production in the world is not very dramatic. Most of the curves are looking or trending or not trending. They are on a lower growth level or on a bigger negative level when it comes to Europe. Not too dramatic. The world industrial growth is trending down. You see the yellow curve here in the first quarter is going down. We are mostly exposed or dependent on the construction activity and automotive activity in the world. If we look at the U.S., it's on a healthy growth path, lower than in previous quarters. The year-on-year numbers are good. They are on relatively low levels still. China, rather flat on high growth levels. As we can see, Europe is on negative, had a better situation in Q1.
In the automotive, negative growth in Europe, positive in the U.S., but lower growth than previously. China turning up after 2009, 2010 with very strong growth. It has been more or less of a flat development, but it's on a positive move there. The metal prices have been reflecting partly the general economies. In zinc, supported by the general sentiment that there is a risk of shortage has held up better, and we will see that also in the fundamental numbers. We have a decline. If you see on the bottom right here, we have after the Q1 or in April here, seen a gradual continuation of a lower price. It's still not lower than the low point in Q4. Not very dramatic development in zinc. Premiums have been holding up well. They are on a good level.
TCs are improving as a result of the benchmark negotiations. Copper is more dramatic. The most dramatic is, of course, the inventory, the bottom part of the chart here where you see the gray areas peaking very dramatically in a short period of time. I would say that this is very difficult to understand. The transparency is not good. There are beliefs that this is a moving of inventories, and despite the high levels or very fast increase in inventory levels, there is still not a huge sort of oversupply in the market. It's not easy to buy copper concentrates, for example, when we close Rönnskär for maintenance shutdown. The whole picture is not very transparent for the market or from us as both a seller and a buyer who concentrates in the market.
The price is a reflection of that sharp spike in inventories. Copper prices are far below the bottom in Q4 if you compare with the zinc situation. Quite negative copper price development in the quarter, and also after the quarter end. TC increased. Spot TCs are on good level. Metal premiums are not very dramatic. Nothing much to say about. On the other of Boliden's main metals, gold is going down, as we know. Silver the same. Lead is like zinc, and a lot of the lead in the world is coming as a by-product from zinc mines. Lead has held up very well and it's one of our favorites, and I think we have said that in several quarterly reports previously that we like zinc, and the market fundamentals are looking favorable there. This is a picture which is showing in somewhat more details.
It's from CRU. You can look at on the top here we have copper and zinc metal demand, 4.5 and 4.1 plus, or zinc and copper demand increase year-on-year. It's a similar situation when it comes to the demand. Metal production, on the other hand, is very different, 4.4 up in copper, which is slightly more than the demand, and zinc only 1.4% growth. If you look at the previous quarters, you see a pattern here, which is in line with what we have said before about the fundamentals. Tightness in zinc and zinc risk for big supply in copper. If we look where the copper is coming from the mines, you have the concentrate or mine production at the bottom. You see a similar picture there.
I think our view on the metal markets that we have been talking about for at least one or two years is it's here now. If we go through our operations, mines, SEK 427 in earnings compared to SEK 842, but that includes the one-off of SEK 171. Gold production is a particular where the lower grades in Aitik, which was well communicated, was followed by lower grades in gold. There we haven't guided in particularly the gold grades, and they have fallen more than the copper grades, so this is probably one of the reasons why we have disappointed the market. Production has been relatively good, but it's grades in Aitik and Boliden Area, and in Boliden it's mixed. Depreciations are higher. Tara, positive one-off, as explained there, projects on plan.
To blow up a bit the result, I do this in mines because I think you are interested in that. Lower mine production is primarily grade, not ore tonnage, or it's entirely grade, not ore tonnage. We have lower precious metals prices. We have lower hedge result, and we have a negative TCs impact adding up to SEK -59. We compare here Q1 with Q4 of 2012. The dollar Swedish krona exchange rate difference is well known. We have cost, which is SEK -39, so we have a cost increase, but comparing with historic increase, this is low, and we have maintained the cost well here. Depreciations, we will talk about that later, but basically it's the commissioned things or commissioning we have done. In Q4, we had an exceptional low level of depreciation at the year-end where we have over-depreciated in a couple of places.
If you look year on year, it's an easier understanding of the depreciation. We have the one-off. If you look at the production, as we can see here, the ore tonnage, if you look at the light yellow bars, it's on the level of last year. Winter conditions are basically every winter sort of playing in here, and we can see it on all the Q1 bars in light yellow that it's lower than the average for other quarters. We see that the metal content, the line diagram, is going down grade again, as I said. On zinc, we had not a fantastic quarter in ore production, but it was better than Q4. It's a little Q less than a couple of quarters earlier.
We had warned for lower grades in Garpenberg and Tara, we had a little better grades here, but still we are on lower than reserve grades in Garpen. In the smelters, basically good news, SEK 298 million in result or profit before interest and tax and without revaluation of the process inventory, compared to SEK 360, so a little down. SEK 202 in Q4, so it's a very big investment or improvement from Q4. CapEx SEK 213, it's down from a year before when we had the final payments of some of the e-scrap recycling payments to do. Kokkola silver plant is on plan, we're very important here. We have SEK 300 million in profit impact in the maintenance shutdowns we have in this quarter.
Rönnskär is running at very low speed right now, we have some big equipment which has been taken apart in order to remake them or maintain them. The production, as you can see here, not very dramatic, slightly lower metal production than before, but a good level of feed. In the zinc, we have a higher level of feed in Q4. We had the Odda leaching reactor breakdown, we're moving on in a good way. Not too much to say here. We turn over to you, Mikael, on the financials, please.
Thank you, Lennart. On the financials, you've seen these numbers, you've seen them before. Lennart has talked about them, the SEK 751 of EBIT excluding process inventory revaluation. You also see here that the investment level is kept on a level of around SEK 1 billion per quarter, which is in line what we've had in previous years, not quite as high as it was when we had a very strong or high investment quarter in Q4. The free cash flow has been negative in the quarter due to both the relatively low income and also due to high investments. Start looking at analysis. How does it break down? Some of these things you've seen through Lennart, let me just restate some of them and also take a look at last year.
If you start looking first at Q4 and look at the whole group, it is a lower mine production that stands out with a minus SEK 33 million. Prices and terms combined with the currency effect is slightly negative compared to the last quarter, not a lot. The costs are very much in line. It's a very small change. Depreciation is up. Lennart said we're going to come back to that, it's basically new commission projects. Comparing to Q4, we had unusually low depreciations in Q4 because of corrections for higher depreciations early in the previous quarters last year. We have the one-off of SEK 171. If we compare with last year, here, of course, you can see that we have a dramatically worse terms and conditions and also currency effect. Those two together would add up to more than SEK 300 million on a quarterly effect.
Also, the volume is sharply down from a year ago, this is primarily the grades as we were a year ago in very, relative to today, very favorable grades, both in Garpenberg and in Aitik. Cost SEK 73 million, corresponding to an inflation or a cost increase of roughly 3%. We have an inflation level of less than 2%, we have slightly higher volumes, we have more operations than we had a year ago that we're making up for that last percent. Depreciation, this SEK 72 is very clearly an effect of commission projects. There is also one piece that's not too big, but I think it's about SEK 8 million. As you remember, in Q4, we increased our provisions for reclamation costs and put that both as a liability and as an asset, we're now starting to depreciate on that asset.
That's roughly SEK 8 million per quarter. Then you have the one-off effect again. Looking at the cash flow, as you've seen before, minus SEK 220 free cash flow in the quarter, combined of a somewhat increased working capital of SEK 300 million, then the investment of SEK 1 billion that puts us into a situation with negative cash flow. On the capital structure, though, it's a relatively healthy position. The gearing has actually in the quarter gone down by one percentage point from 28% to 27%, also the net debt went down in the period. The balance sheet is very healthy at this point. Changes in accounting principles. Some of you might be looking at your old numbers for Q4 and wonder why you can't find certain things, certain numbers, we of course have restated the numbers.
There are two accounting principle changes that we have in our numbers. We have IFRIC 20, Deferred Stripping. The main difference with IFRIC 20 compared to how we have been accounting before is that we are calculating our per pushback and not for the mine as a whole. When we did that before, there was a netting. If you were doing investment in one pushback and taking ore out of another pushback, that was netted. In the new accounting principle, there is no netting in that stage. You have to depreciate the old pushback that you're now mining from. At the same time, you have to calculate the investment on the new pushback that you're working on that you're going to produce in the future. That has a relatively big effect.
If you're talking in order of magnitudes, it could be up roughly SEK 80 million difference as a lower cost first because you activate that cost, then it comes back as a higher depreciation. The total cost and total EBIT impact is close to zero. It also becomes as a higher investment coming out as an investment part as well. 2012 has been restated. Then we have, as everybody else, IAS 19, Defined Benefit Pensions. The corridor method has been discontinued, which has had impacts on our balance sheet when the off-balance posts that we had in the corridor of pension liabilities is now fully in the balance sheet. With that, Lennart, I will give it back to you to put a project update to us.
This is a picture we have been looking at many times before. I'd say that Aitik, when we were on a 38 million tons pace in Q2 and close or at least over 36 million in Q3, everybody said we are on 36 million, and we said, "No, we are not on 36 million. We're going to be there by 2014." We have the pushbacks. We have a lot of waste rock. We have a lot of things to cope with. We demonstrated high capacity, we informed everybody that we are going in the direction of the plan. Q1 was 33 million tons. I think we are spot on, basically, the expansion plans. We could have been a little bit better without some little freezing conditions and whatever, basically, we are following the plan on Aitik. Electronics recycling is going as planned. Nothing new on that.
It started well last year. It has been continuing through, and we see good results as smelters, and its part of it is coming from there. The Kankberg mine started well and actually ahead of plan. We have had some issues in the leaching. We have long lead times because all the ore is going through leaching instead of some of the gold coming with the copper con and whatever. We have some, I wouldn't call it struggles, but we have some running in or ramping up, I shouldn't say, but slight delays perhaps, but it's going well. This is smaller. We have the miners operating well, and we are in full production as we speak now. Some of the gold is sitting in Rönnskär. In Rönnskär, we have long lead times when we process the gold.
It's a process when you ramp up a gold mine like this. The zinc smelter in Kokkola with the silver projects, it's going on plan. It's a big building. I was there looking at it on site. It's an impressive one, and it's well underway. The big one is, of course, Garpenberg, where we have been going through some very significant milestones recently. We are done with the raise boring of the ore hoist, and that is the part of the Garpenberg problem that we have several times been sort of saying, "Hmm, if we have an issue on this project, this is probably where it could end up." We have replanned. We have been doing excellent work with the issues we have had there. We are on plan.
We are on time, and we are through one of the more risky parts in building a 1,200-meter deep underground mine project. We had a project meeting, which was very convincing the other day. Far so good. The future projects on further expansions of Aitik. We are working on all the feasibility studies. We do not have anything new to say about that other than that we're working on it. Laver, it's the same there. We are continuing to drill, and we're continuing to plan, and we're continuing. Now we're not drilling for new ore, but we are sterilizing different parts. We want to know that we're not putting a plant right on top of very rich ore or things like that. Of course, permitting and environmental or permitting issues are basically taking most of the time.
It's a long-term project, we are still in early days there. Summarizing this quarter, good development in the smelters, not very good in the mines. Most of the weak result or weaker result in the mines have been well communicated in terms of lower grades. Probably a surprise that the gold is going down more than copper. Other than that, I think a few things here and a few things there, most of them are negative and not this plus here and minus there. Smaller issues, but not too dramatic, I should say. Boliden Area is a complicated one for you, too. You probably think it is a very difficult and poor visibility. I think it is because we have five mines with distinct different kind of ores, and on top of that, we have the processing of slags from Rönnskär.
You can say that we have six very different materials going in through three different lines in one concentrator. It is going up and down depending on what we do. We have pushed Kristineberg, the zinc mine, more than we had planned, therefore, we are in lower grade areas than we have planned. Also in our own planning, we are slightly low because of that. The other one is, of course, the maintenance stops, SEK 325 million this year. It is normally about SEK 200 million, it is a big year when it comes to maintenance shutdowns, what is more dramatic is that almost entirely or almost all of it, SEK 300 million, are in the second quarter. It is a big minus hitting our P&L in the second quarter. When it comes to the market, I would say that there is uncertainties.
I would not say that there are very big problems in the market in general, the fundamental demand and the industrial demand. Metal prices have been going down quite dramatic when it comes to copper and gold. You can be surprised, we are, I think, all a bit surprised why now and why so steep. I think part of the explanation can also be seen in that we have said that we are slightly surprised that it is holding up so well. We have said for a couple of quarters now. I do not know if it is now that it is low or if it is before that was high. Why did it happen now? I think it has to do with stocks and inventory movements more than anything that it is triggering the change now.
Swedish krona, big problem for our big, it is unlike previous soft markets where we have had help from the Swedish krona, we have the opposite now, that is a difference from us. I have nothing to say more than that this is hitting us. Soft in mines, good in smelters, little less good than we had hoped for, most of the picture is, I hope, well known to the market. Thank you very much.
Thank you, Lennart. Before we hop into the telephone conference and the participants, I know there are questions there. If we should just check in the room here if we have any questions. Start off with Gustaf Sandström.
Thanks. Gustaf Sandström, Erik Penser Bank. Just to start off, if we are to find ourselves in a situation where metal prices do not level out but continue to slip, what sort of actions can you take to protect the cash flow and your balance sheet?
On short term, what is really impacting our financial position or strength is CapEx and inventory changes. We have been stepping up the alert level in the company, both on the balance sheet and on the P&L. We are trying to move or at least sort of delay smaller investments. Smaller investments and many add up to a lot of money. Of course, we are not changing the Garpenberg project. Of course, we are not changing the silver project. The main things which are going, we don't touch. Some small and unfortunately, the maintenance shutdowns have been ordered SEK 300 million. You don't buy that one week and then sort of do it the other. It's long lead time items. That was also committed quite a while ago. On new, smaller CapEx, we're delaying, and then we look at inventories, payables, receivables, so the working capital side.
That's one thing. The other one we're looking at is, of course, our exploration activities. We are basically continuing but holding a little bit of care on the cost side there. We have put in a general cost management program, nothing dramatic. We have done some things in Tara, and that is particular. We are holding, we are refraining from spending money we don't necessarily need to do by now. What else? What do I forget now? Working capital, CapEx. Yeah, basically, I think I covered that. We have a program without calling it sort of an action program. We have a conservative look at CapEx and cost at this point in the group line.
Great, thanks. Regarding Tara, could you shed some light on what's the development there for the past three months with the managerial changes and everything?
Yeah. We had a management change in the beginning of the year. When that happened, we recruited someone we had to, which was not good, and we had to discontinue that employment. Jan Moström, the Business Area Director, he took the acting director position, because we couldn't change, because we were right in the midst of union negotiations and managing a program there. It was absolutely the right thing to do. I think Jan has had a chance to dig into issues that he would now otherwise not have had. We have had a continuation of the working there. We did not restart the recruiting process in the middle of it, but we are starting it now as we speak, basically. I think it's regretful. It was rather dramatic when this happened on top of cost reductions.
I think we did the right thing, and basically, I think we never lost control at all. We had it in good control, less dramatic than it seemed. It was scary, I think, but it managed well. Under control.
We have another question here.
Thank you. Christian Koldbye, Nordea. Firstly, a follow-up on the previous question here on what you could do to handle a more tough macro environment. You didn't mention anything, Lennart, about potentially going into more higher grade areas. I guess maybe that's tough to do, or what do you see?
We can do that, if it is going down, sort of, if it is continuing down to SEK 1,500 for zinc and SEK 6,000 for copper or something like that, of course, we are going to take more other measures. We will consider care and maintenance situations in some units. We will definitely go after cost harder, we are going to do a number of things. We have sort of a contingency plan, but we're now just being conservative and going out to everybody. "Hey, guys take it easy now." No small bits and pieces good to have kind of investments. It's nothing. We don't do that. We have raised the level of approvals of everything, both cost and CapEx is up to 1 or 2 levels up in the organization to sign off. We're holding off here to some degree.
Thanks. You mentioned that you are enjoying slightly higher TCs. Would that also mean that you will have a continuous positive impact from the higher TCs during the course of this year, or have you felt the impact already for the full year, so to speak?
In copper smelters, there is a flat TC, as you know, but we're very dependent on free metals and metal prices are going down. The net effect of the gross profit of the smelters are still exposed to the general market. The TCs are good, but the rest is negative. All the parameters are calculated by all of you, and I think you calculate it approximately right. When it comes to zinc, we have lesser byproducts, but there we have a price participation. The total of the TCs are moving with the metal prices. I think the smelters are negatively affected by the present market conditions in general, but not so much If you look at mines and smelters. Mixed picture basically between mines and smelters.
Sure. On gold volumes, you mentioned that you maybe come down a little bit more than you previously thought. Are you ramping up gold volumes continuously now as you are ramping up Kankberg or should it be very volatile going forward?
The gold will be impacted by a few different things. First of all, it's the gold deposits in Renström and Kiruna. In Kiruna it's down. It's gone, basically, the bigger deposit we had there. Renström is up and down and will continue. We are a little bit low there, but that should be improving. Kankberg will increase over time, and Aitik is on low grades through 2014 and beyond. Over time, gold should increase. I'm not suggesting it's happening next quarter, but it's going to more, yeah.
Thanks. Finally from me, on the D&A charges, is the Q1 level also representative for the next couple of quarters?
On what, sorry?
On depreciation and amortization.
Yeah, it should be relatively well-positioned for future quarters as well.
Okay. Thanks.
Ola Södermark, Pareto Öhman.
Could I add one thing? It's very important when you look at the depreciation numbers, that you also look at the reduction of cost when we invest. EBITDA will increase, the EBIT will not be affected. Higher depreciation, lower cost. On EBIT, little change, on EBITDA, a very positive change.
Okay, just to follow up on the grades and the coming quarters. Should we expect grades in Aitik at the current low levels or should they improve slightly?
We are around 0.20. If that is 0.19 or if it is 0.21, I don't know, honestly. I think we are within the margins that we know. We follow the guidance we have given. I think that's the answer.
Okay. When it comes to Rönnskär and the maintenance stops there, after maintenance stop, can we expect an improved profitability in the smelters area? The smelters were very good now.
I'm refraining from giving forecasts of what is it going to be. You can say that if we are very successful, what will it be? If we are less, will it be delayed and whatever. I think that the base case maintenance shutdown is just maintaining the equipment and it's the same before and after. That's the base case. In Rönnskär, we have had a little or not so good process stability. Would this include an improvement in the process stability? It could be a slight improvement after.
Okay. Yes, if one is calculating backwards with the e-scrap profitability that you announced and so on, the profitability for the other part of the plan couldn't be so good right now.
No, absolutely. Rönnskär is the business, except for the electronic scrap, is not developing very strong. You're right there.
Thank you.
All right. I know we have some questions from the participants on the telephone conference. Operator, if you could start ticking off the list, please.
We have a question from Mr. Oskar Lindström from Danske Bank. Please go ahead.
Yes. Good afternoon, gentlemen. I have three questions, actually. The first one relates to the Q1 Aitik maintenance stop, which I think you described as a little bit complicated. What was the nature of these complications, and is that something which should impact the remaining quarters of the year? The second question, you almost referred to an informal cost reduction program. Would you be able to add any numbers or quantify that? What is your cost reduction potential as you see it now? The final question, just also coming back to this Q2 maintenance stop on the smelter side. Beyond the SEK 300 million negative effect, is there a significant risk for complications? Is this a difficult maintenance stop that we sort of need to worry about or is it more just this SEK 300 million effect? Those were the three questions.
Number one, the Aitik maintenance risk. Normally we don't talk much about it. It's a realigning of the rubber parts of one of the big mills, and we do that every nine months, and we have several mills. This is happening, well, several times a year. We have an ore storage, which is good for two days. A typical realigning is taking four. We run one line full speed. We stop one and of the four days we have ore for sort of running through the other.
This is timed and basically over a quarter, it's marginal. Now this time it was different because we had these ice problems and we had the ore in the ore storage, but we couldn't get it out of there. The problem is that if I could draw well, if you have a hole under the storage, and you take the ore out of there, you have a V, like an open pit, the ore is falling down in that hole. If everything is freezing, you get more and steeper and steeper angles, and suddenly you have like a pipe. If you then stop for whatever reason, and you have ore all over the place, and you start to take from the bottom, well, then it doesn't come down. It's building like it's clogged and you don't get out of there.
We also have some mechanical things in our concentrator. It has been, as you have seen or we have said many times, it's going like a clockwork. It's unbelievable. Here we had one hydraulic pipe breaking. Has never happened before. Very unusual. It's a material defect. Difficult to repair. Took a couple of days. We had a few other things happening, similar things, big mechanical part at the exit of one of the mills which collapsed. Things like we don't have any action plans. We haven't seen it happening, but it was a couple of bad lucks, I would say. Your final point was should we expect anything beyond? No, I don't think so. I think we have a winter situation, which is likely lower, 33 million tons. It's on the way up. No, I don't think it is.
We would have been very happy had it been 34 or something. It could have been if we hadn't had these complications and icing and whatever as a pace. No, I don't think you should change your future plans because of this.
The other one was cost reductions. The big cost reduction we are, or the cost reduction we're doing is in Tara. That is basically to balance the deeper depth or the greater depth and the smaller rooms we're working on. Basically, we do reduce cost, but we do that only to balance. Unfortunately, I don't think you should factor in a profit improvement from that. The other cost reductions is really more of a, I don't think it is a big number, but we are doing what is necessary to prepare if the prices are continuing down, and then we have more that we can do. Basically, that's my answer on your second question. Then the third was on risk of the maintenance shutdown or the maintenance jobs in the smelters. Oh, absolutely. If you tear apart big equipment, of course there are risks.
Are those any risks that you should factor in or put something on? No, I think we have put the realistic number on the SEK 300 million and in the previous years the normal maintenance stops. I think we basically, as far as I can remember, we have just said afterwards that, okay, we said had an impact, which was what we said. No, I wouldn't recommend you to be optimistic or pessimistic. Then of course, maybe it can go a bit better. Maybe it can go a bit worse. Maybe it can be some kind of unexpected things, but we're not too nervous about that.
Okay. Well, thank you for very clear answers. Just finally, the stop. What dates is it taking place? The Q2 stop?
It's happening now. We actually started on the very first days. I think if you went up to Rönnskär, as an example, sort of the last week of March, you would have seen that oops, what is happening here? Production was still going, but we were building a lot of things. It's big construction site. We started in the early days of April.
All right. Thank you.
Harjavalta is on. They are doing it right now. They are slightly late. Kokkola is working now, I think. I don't recall that everything is basically opening at the same time.
All right. Thank you.
Our next question comes from Mr. Fredrik Ahrberg from Handelsbanken. Please go ahead.
Thank you very much. Hi. I have a question on the head grades in Garpenberg and Tara. In Q4, you reached what appears to be very low levels or bottom levels, and in Q1, zinc grades have risen in both mines. In connection with the Q4 report, you said that this was likely to linger for another two quarters or so. Could you give any updated guidance on what to expect here on grades in the coming one or two quarters?
I think that you catch it right. Here actually we have a slightly better situation than we probably guided for slightly. No, I think we have said that when we build in Garpenberg, we are going to have certain disturbances, and sometimes we have to rework. I think the main thing is you should look at the average for the year and go for our previous guidance. I think that's as good as we can say.
Could you just repeat the previous guidance, please?
Do you have that, Frans?
Just so I'm clear on the numbers for whatever you said before.
Yeah. Well, when you look at Garpenberg, it should be at around 5% or slightly above that for the year as it looks now. I'm talking 2013 on average.
Ore grade is five and a half. The reserve grade, right? What is it?
The reserve grade is 5.1.
5.1. Okay. We're close.
We should be around that level for the full year, with some quarterly variations to that.
Yep, sure. Tara then, you're now at 7.3 zinc.
Yeah. Close to seven, I would say, for the year.
Okay. Thank you very much. That's all for me.
Our next question comes from Julian Beer from SEB. Please go ahead.
Good afternoon, everyone. On the Aitik, the big negative surprise for me was the gold grade. Did I hear you say that you expect low Q1 Aitik gold grade to persist until 2015?
In the first sort of approach, you should look at a proportional change in copper and gold. Not that gold is independent, not that gold is not influenced by lower grades, but that they are sort of varying in a similar path. That's only partly true because, first of all, we are in the open pit. We are drilling, we are making the reserves and the calculations on quite big distances and interpolations between holes, and gold can be tricky. We think we're very accurate when it comes to the average, but for shorter time periods, it can vary, and it has been so in the past. Sometimes we have sort of gold helping us and sometimes the other way around, and now we are the other way around. Basically, I think you should factor in a proportional development.
Okay. Q1 gold output was down 30% sequentially, copper was 15%. Should we therefore expect the gold to catch up some speed going forward?
I would think so. I think when it's happening and exactly how, I'm not able to tell, but it's an unusually low gold situation.
Okay, thanks. On Kankberg, you outlined the somewhat previously guided complicated lead time to go from production at the mine to final product output at Rönnskär. Given that long lead time, should we expect sometime this year we suddenly see an increase in gold sales appearing, even though the actual production happened some time ago?
We should see an improvement in the gold shipments going forward, yeah.
Would you know how long that might be from mine production to output at Kankberg?
I'm not sure. No, I'm not able to tell, but it's quite lengthy. No, I cannot say.
Okay. My final question, can I just go back to the issue of Tara cost savings? I'm sorry if I drifted away at one point when you were quantifying those savings. Could you just say how much you expect to save cost-wise at Tara in 2013 versus 2012?
Have we quantified the number? I think anyone can factor it in. Variable pays have been declined. We have reduced or are reducing from 700 to 650 people. We have basically maintained several of the cost count or lowered some of the products we're buying. We have some cost increases on a few. The total package is maybe half. I don't have the exact number, but maybe half of the savings is in the headcount reduction, maybe a little more, and the other part is on other cost items.
Okay.
Against that, again, stands the smaller rooms for mining and the further distances we are in going forward.
Okay. On depreciation, I think Mikael indicated that the depreciation level will be more or less flat going forward. Can I ask specifically for mining, would the SEK 459 million krona of depreciation in Q1 be the typical run rate for mining sector going forward?
Off the top of my head, I will say yes. If we take some more questions, I will look it up in more detail, but it should be relatively stable.
Okay. I'm just doing the calculation here, Lennart, where you said that cost savings would balance increased depreciation, and it seems to me that depreciation is up somewhere between SEK 15 million-SEK 100 million a quarter in mining.
What I was saying is that the change in accounting principles, from the principle change, we have higher depreciations, which is balanced quite exactly one to one to lower cost because the investment is crediting the cost side. In addition to that, we have more depreciations because we have the electronic scrap in production.
Having checked the numbers, I will restate again that you can expect mining depreciation to be quite stable the rest of the year.
Any more questions from any participants on a telephone line?
We have one more question from Mr. Thorsten Zimmermann from HSBC. Please go ahead.
Good afternoon, gentlemen. I have two questions, actually. The first one is regarding your hedges. Your hedge volumes seem to have halved over the quarter. The question is, will you run out of hedges after the next quarter, or will the remaining hedges be distributed over the remaining year? The other question would actually be regarding Boliden Area mines, because mill overall was up, the head grades were up, but gold production was actually down. The question is, in the leach process in Kankberg, is that creating a lot of problems? Are you losing a lot of metal there at the moment? Is that the answer, or why is production actually down?
On the first one, the base metals hedges are expiring after the second quarter. Then we have gold hedges, which are continuing according to what we publish. Most of the hedges are expiring now. On the gold, we have the leaching starting up there. I think that we are going to see both recoveries, grades, and everything be stable maybe six, nine months from now. At this point, we are ramping up, basically, I would say that we have a degree of uncertainty in the beginning, which is totally normal. I think it is quite in line with our expectations.
Okay, thank you.
We have one more question from Mr. Johannes Groselius from ABG Sundal Collier. Please go ahead.
Yes, hello gentlemen. Johannes Groselius here. I have a question on the mine specifically, where you showing us the earnings bridge year-over-year and quarter-over-quarter, you highlight to us that the costs are up SEK 49 million versus year-over-year and SEK 39 million versus last quarter. Can you shed some light on which type of cost, and if you perhaps can highlight which mines do we see this? Did I understand you right, Lennart, that you foresee a sort of flat cost inflation going forward?
The reason we show the bridge was to convey to you that we had little cost increase, not that your interpretation that we have much increase. In any case, I do not have the precise answer where it's coming from. It's probably more action-oriented where we do maintenance or whatever. I think some of it is related to what we have done in Aitik from the top of my head. I do not think that the analysis of why was it SEK 45 million on a year-over-year and SEK 39 million or whatever you said in sequential. The point is really we are into a lower cost increase period. That's how we see it.
Yeah, sure. I understand it's small numbers, if you would have expected, for instance, falling costs over the comparison period, it of course makes a difference.
Yeah, sure. Okay, well, I hear what you're saying, basically, we are reasonably happy with the levels now, we see low inflation going forward.
Sure. When you discuss currency impact, because you're showing us the difference, the delta with metal prices and terms, is that the dollar impact, then you do the Swedish krona impact on an isolated basis, if you see what I mean, or how should I view this?
Yes.
Okay. That's very good. Very clear.
If you look at cost, it's in local currencies change. The gain on currencies is not on that line. It's coming on the currency effects. Right?
Yeah. Okay.
There are two different things there, the currency effect is both of those. Both the costs are in local currency, and then the currency effect is in the currency line, and the prices and terms effect is in dollars and also corrected for in the currency line.
On Garpenberg, have you passed any important milestones for that project? You're guiding us that the project is under good control, as I understand. Can you just shed some light if you have sort of passed any milestones on the project?
One of the biggest we have. We are done with the ore shaft, that is one where we have had some difficult technical issues with raise boring equipment and a lot of replanning and a lot. I would be happy to explain how very good we have managed quite difficult situations. We are done with raise boring. We are now doing some increases in diameter from a platform which is just trimming the shaft, and we are soon starting to assemble or install the guides and, well, the equipment for the hoist machineries. We are installing a lot of equipment in underground. We have the building for the concentrators. It is up. From the outside, the building is ready. We are installing a lot of equipment in there. We are delivering the secondary mills from Aitik. We have secondhand mills from Aitik.
What was left when we invested in the Aitik 36 is going into that plant, and the transportation is, only that is a big project. It is done. We have the different sections of the mill in Garpenberg today. It is a cool place. It is a fascinating place to go now. We have passed several very important milestones, and we reiterate that we are on plan. That is good. That feels really good.
Okay. Thanks a lot for the update.
Thank you.
All right, everybody, it's time to close this webcast. Any final remarks, Lennart, before we leave the room?
Good smelters, not so good mines. Most of it was guided for, and then if you have some good news and some bad news, I think we are a bit lacking the small bits and pieces going in the right direction. Basically as planned, but with a number of smaller negative issues on the mines. That's basically making up for it. We're excited about the market, how metal prices are developing going forward. Thank you.
Thank you. See you in three months.
Thank you.