Good afternoon. Through, with presentation on Boliden's third quarter result. A quarter which was very good when it comes to production, where metal prices and the general markets developed well, until the last couple of weeks of the quarter when suddenly, a range of or a number of information was spread, which had a significant impact on metal prices, which tumbled quite dramatically in the two last weeks of the quarter. If we start to look at the market development, I would say that it's very difficult to say where the markets will go from this point. The decline in metal prices happened in the second quarter, second half of the last month, in September, and found a new level where it has swerved volatility but basically stayed ever since.
The question is now, are we going to see metal prices stabilizing at this point, or will they go up, or is this a plateau before further drops? The low growth, or there is a low growth in the construction markets. The automotive markets have been improving. In the quarter, we saw very little signs of any market reactions or real demand change. The metal demand was also stable. We have seen signs of a slower market in Europe. Some of our largest customers are reducing their announced volumes for the remainder of the year, but that has been compensated by others. If the metal prices have been going down and being negative on one side, we have also seen an improvement in the U.S. dollar from the second quarter. The base metal prices were down in the third quarter slightly, compensated for the Swedish krona, dollar exchange rate.
It was very much flat, and more on that later. We remain of the opinion that China and the development in China on the demand side is going to determine where the metal prices and the general metal markets will go from this point. If we then turn to Boliden's performance, we had sales of SEK 10.5 billion in the third quarter compared to SEK 9.4 billion a year ago. We had earnings before the process inventory revaluation of SEK 1.4 billion, almost SEK 1.4 billion, compared to SEK 1.2 billion a year ago. If we include the process inventory revaluation, we did SEK 1.2 billion in operating earnings in the quarter compared to SEK 1.3 billion a year back. Of course, we were in a general increase of metal prices a year ago, so we had an additional inventory revaluation last year, and it was a negative this year.
The cash flow was SEK 820 million. We are coming into a period of more investments as we speak, and that is a lower number than last year, when basically the new projects did not start to consume capital yet, and we have essentially finished the Aitik expansion. We see in Boliden the limited effects of the downturn so far. We have had stable production in all units, and the expansion targets are all on plan. On this slide, we can see in the darker color the profit development quarter by quarter before revaluation changes, and in light blue, including the process inventory revaluations. We can see the much more stable development in dark blue. If we go a bit deeper in the markets, on the demand side, China had good development, continued with very high growth, both in construction and in industry.
In mature economies, Europe and the U.S.A., the development was good in the quarter with high vehicle production. Construction markets remained weak, however, and the growth numbers are, in general, in the mature economies very low. Metal markets and the metal supply side, zinc metal production was flat versus the previous quarter, and copper production was slightly lower than the Q2. The global supply did not really pump out a lot of metal in the quarter. If that was metal, if we then compare with concentrate supply from the global mines, higher zinc production and lower copper production from the world's mines. The zinc concentrate balance was in balance after a deficit in the beginning of 2011, and the copper concentrate market was continued in a deficit. Prices were stable in general. The premiums were stable too. Copper premiums were down and below the benchmark levels.
If we look at construction markets in the world, on this slide, we can see the clear development where we have tremendous or very strong growth in China, which is also, if you average out the seasonal patterns in China, we can see that the growth is continuing there and the growth of growth rates too. This is a year-on-year % diagram. If we look at Europe and the U.S.A., we have seen a positive development of the graph, but as you see, they are still around the zero level, so it is that we are coming from negative growth to about zero, and that's what we saw in the quarter. Of course, all of this data are not exactly updated or they are sometimes adjusted, so they are not necessarily reflecting what happened in the last part of the quarter. In the automotive, we have more recent data.
This graph is having a very, well, strange scale with over 100% growth in the 2009 number. If you look at it, except for Japan, we have seen a stable and good growth in the car industry at about 10% growth rate. This will, or this had the impact of, if you look at the zinc prices first, we can see that the dark vertical line or horizontal line is indicating the average of the quarter, and as you can see, the zinc was on very, very much or very similar level as in the second quarter. You can also see the little black spot at the very end of the curve, which is indicating the levels, the average level of October so far. There we see that the price decline that came in the end of September has stayed on that level into October.
You can also, on the zinc chart, see that the general inventories or the official inventories have been fading or going down. The treatment charges in zinc are on the low level and we're suffering from spot levels, and we are buying quite some ore concentrate on the zinc spot markets, and the currency are very difficult for zinc shopping right now. The premiums have stayed or gone up over the period. If we go from zinc to copper, we see a similar pattern, Q2 and Q3. The first quarter was a little below the second quarter circled in there, but you can also see how big the drop was in the turn of the quarter. Inventories have been essentially flat for quite some time now.
On copper pieces, the level is certainly better than the previous year on benchmark levels, and we have seen so far the spot levels being over the benchmark level but have lately gone down under the benchmark levels. On premiums, we have a good level of benchmark premiums, and the spot levels are slightly below. On the other, on the precious metals, gold and silver, which are increasingly important for Boliden, we have, of course, seen a decline but the prices are on very high levels. Lead is having a very similar development as zinc. If we then go into the production data for the copper or copper and zinc smelters and miners, and we start with the mines.
We can first look at the earnings, where the mines did SEK 1.047 million in earnings in the quarter, as compared to the same level a year ago and actually the same level also in the second quarter. We had a lower U.S. dollar price level compared to the second quarter but compensated on exchange rates. Sold volumes were slightly lower than the second quarter because we have the lower grades in Aitik, and that has an impact. Ore production was very good, but it comes together with our coin size with the timing of the lower grades. Now, when we have basically mined out the bottom of the pit, we are up on the sides, and it's going to take several years until we're back in the higher, richer parts of the ore body.
The final pricing impact was quite big, and that is that mines are normally or often selling and doing an adjustment to the price of the following the month after. We call it month after month of arrival effect. With this sharp decline in the end of the quarter, we had to readjust the August sales numbers or profit or price numbers to the September end prices, and that has had quite a big impact on the mines' results. We had lower cost in Q3 than the second quarter where we had a lot of, or several big, maintenance shutdowns, and the year-on-year cost is having a negative development with quite a lot of costs and tradesmen in the system right now. The Garpenberg expansion is on plan. We start 2014, and the Kankberg gold mine is also on plan.
We'll start up in the middle of 2012 and ramp up in the second half. If we look at the production numbers, to the left here we see copper, and it's very evident what has happened. We know, we remember the quite disappointing numbers in Aitik in the first quarter, which was compensated when all presses, three presses were in production in the second quarter, and the progress has continued into the third quarter where we did almost 34 million tons in an annual rate. The line diagram is flat, and that is an indication of what I said, that we're finished with the bottom of the pit, and we're now in lower grade areas, but that coincides in time, so it's compensating well the metal production. To the right, we see the zinc mines where production was good and their grades were good as well.
On this slide, we can see the Aitik development with the production in bars, ore production, where we see the head grades in yellow, which has declined over the years and how the metal content has been increasing and is on flat, despite the falling grades here. If we then turn to the smelters, we have a development of, with and without the process inventory revaluation quarter by quarter, and we also have a rolling 12-month curve or rolling four quarters curve, which, with the seasonality of productions or maintenance shutdowns, is showing a continuous positive trend here. Earnings were SEK 356 million compared to SEK 238 million. Positive value volume effect, high copper prices but low zinc prices, which is very serious, but that is a problem for the zinc smelters. Maintenance of zinc Q2 were small compared to Q2 when we had most of this year's maintenance shutdown.
This is an unusual pattern where we try to have a 50/50 between the second and third quarter, but this year, as we have went around, we put the majority of the shutdowns in the second. We have the expansion project for electronics recycling, and that expansion project is continuing on plan, and everything is built, and we hope to be starting up on plan or we plan to start in the early parts of the new year. If we look at the smelter production, it's very visible here. There's shutdowns in the second quarter and the very strong level of those feed and metal production in the copper smelters and a similar pattern in the zinc smelters. This is a picture from Rönnskär. It was mid-September when the Skaldo furnaces came to Rönnskär.
It's big, 180 tons each, and one is there for maintenance when we produce in the other and very quick things over time when we have shutdowns here, so it's going to be very efficient for continued production. When we start up with this expansion, we are going to be by far the number one electronics recycler in the world. With that, Mikael, can I turn over to you?
Thank you, Lennart. Looking a little bit at the financials, the numbers that you've seen that Lennart already alluded to is the profits, excluding the profits, inventory revaluation, which is at about SEK 1.4 billion for the quarter. The free cash flow at SEK 8.8 million, and a CapEx of close to SEK 1 billion. This corresponds to a return on capital flow of 17% and a gearing at the end of the period of 27%. Now, if you go into and try to compare this with the quarters of the quarter last year, the full quarter, and the preceding quarter, if you start by looking at last year, you will see here that the volume effect is slightly positive, contributing a little bit more than SEK 100 million. This is high production and lower grades that is contributing to this. This is the always welcomed to before.
There is a cost item that is affecting, and this compares a SEK -239 million. This comes at many from higher production, but there is a cost inflation that I'll get back to in a moment that is also sitting behind here. We are now having the positive terms that are contributing positively to, and that's mainly the price of the metals we tackled last year. We have the currency effect that is negative to us with closer to SEK 200 million, and the net effect of all this is SEK 184 million. What is not circled here, but as you probably all would pick up, is a positive contribution from internal cost elimination, which is not surprising to me. Those of you who looked at this a quarter ago remember that this was negative.
This is an item that you would expect to be zero over time, and with the falling prices, we do get some of this coming back. Looking at the costs, if you look to the right in the picture, you'll see the SEK 239 million and a rough sense of what is due to volume, and the volume effect will be roughly SEK 160 million if you take the SEK 140 million plus the SEK 20 million depreciation, which is also a volume effect. There are other cost items that are pushing up, which are linked to inflation, which will be roughly SEK 80 million. If you look at the SEK 139 million on the left, you will see the items that are increasing. It is external services. It is personnel. It is energy that are coming up.
I would just like to point out that the personnel is in line with the progressive cost, but the external services and energy is pushing up, and there's inflation involved there. If you then go and compare with the last quarter, with the Q2 of 2011, you will see that there is a very zero, close to zero, a very small volume effect, and this is once again the higher production in Aitik but the lower grades that come through here. The costs are actually developing positively in this time period of the SEK 170 million, but this is mainly due to the maintenance shutdowns that were much heavier in Q2 compared to Q3.
Looking at price and terms, they were SEK -123 million, and this comes mainly from the lower prices that were in dollar terms, but this was more than fully offset by the improved exchange rates that were in this time period. Looking into the cash flow, there was a positive cash flow. The working capital was released, about SEK 200 million. There was an investment activity of close to a SEK 1 billion, which gave the free cash flow of about SEK 820 million. As you've now seen, as you all know, we had problems with the cash flow in the early part of the year, but now the year-to-date numbers also talk to over close to SEK 500 million going in this year. Looking at the balance sheet, you can see to the right that the gearing is going down. It is going down to 27%.
Also, the net debt is going down and is under SEK 6 billion. As a figure analysis, this is in line with numbers you've seen before, but with lower prices of metals, you will see that the numbers are slightly smaller, but it is still true, which has been true for a long time, that copper and zinc are roughly equally important for the sensitivities to us. If you add up lead, gold, and silver, those three together become also as equally as important as either zinc or copper. I'll put there about SEK 400 million each, a 10% deviation. Now, the dollar effect is also a bit low because of a lower base, but roughly SEK 1 billion with 10% improvement in the US dollar exchange rate. With that, Lennart, it's over to you to explain what we're doing next.
Yeah. We're following our own through, marine production here. We obviously have a market which is not very visible. It's not very, very easy to say where we go from here. Boliden, like many other corporations, are reviewing what is the situation in the case that we have a bad downturn in front of us. On this picture, we have summarized some of the most important elements that we looked at. First of all, I would say that we have a profit trend which is similar to, to if I'm comparing it 2011 after, well, today, and I'm comparing the end of 2007. The profit trend is similar. The commissioned CapEx, at that time, we had SEK 6 billion in Aitik in front of us. Now we have the three big investment plans which are also adding up to a similar number.
We have a cost and capital, or CapEx reduction potential, which are on this slide called similar, but improved probably a little bit better because Aitik expansion was very much turnkey installations on few and very large contracts which were very difficult to back out from. Garpenberg is more underground and rock mechanics or rock work, and there we are working more on contracts which we can slow down if it is becoming very difficult. All in all, I would say profits, committed CapEx, and the CapEx and cost flexibility is on a similar level, if not slightly better. What is changing, though, is the financial side of Boliden. Debt and the debt structure, we have a gearing today which is 27% as compared to 43% at the end of 2007.
We had a hedge portfolio then, and I'm looking here at two and a half years, which is typically the length of a bad downturn for as an example. If we're looking at the hedge portfolio for the next two and a half years then and two and a half years now, so comparing similar time frame, then we had $900 million in our hedge portfolio. Today, we have almost $1.4 billion. The prices in that hedge portfolio were then $6,000 for copper, and now it's over $9,000. We didn't have any zinc hedges at that time, and now we have them at $2,200 per ton. Gold was then $690 and is now $1,380. The dollar exchange rate to crude now was on a similar level. It's something like 50% higher hedge portfolio and maybe 50% or more higher metal prices. Considerably better hedge portfolio and better gearing.
If we summarize what we have said at this presentation, first of all, we've seen a decline in the global economy. We feel that the market will be slower going forward. We are compensating some of the declines of some customers with improvements in others. We hope and we believe that there will be continued high activity in China, and that will certainly help the metals and mining area in the same way. In Boliden, in Q3, we had good production which compensated for the lower grades in Aitik. When announced from forehand, I think none was surprised by the lower grades, but hopefully, probably positively surprised by the very good production numbers we had. Underlying cost increase, we tell you we'll see that in quite some different. Most of it is volume related, but we still have inflation in the system.
We have a lower cost in the second quarter, but that is more dependent on the maintenance cost we had then. Prices and US dollars combined made that the level of price was similar in the second and third quarter. The Aitik ramp-up is continuing. We are on plan for the 36 million tons 2014, so that goes well. The crusher availability is still not satisfactory. We continue to have issues with the crushers, and they are not ready. As you all know, or most of you know, we have three crushers. At least one is working very well, and the two new ones are slightly better than in the past. They are not likely to be limiting the production volume going forward. What have we said with our important or things which are important for you when you model the future here?
First of all, we have an exciting startup in Rönnskär with the electronics scrap expansion. We're ramping up this in the first quarter of 2012, so it's only a few months away. In the second half of 2012, we have the gold mine in Garpenberg. We are also there. I was down in the developments last week on Thursday, and it's big, big, big things we're doing there. It's an exciting project. Of course, the big project we have going right now is Garpenberg silver zinc mine expansion, which is going to go into production 2014. We are continuing to be below reserve grade in Aitik, around 0.20- 0.25 for quite some time going forward. We have a CapEx level which is around SEK 4 billion of 2011, which is slightly lower than we have indicated before, and 2012.
With that, I think we can conclude our presentation with a quarter which was not many surprises in. Everything has gone really as we had planned. Thank you very much. Now, we can turn to your questions, please.
Do we have any questions from the telephone conference? Ladies and gentlemen, if you have a question, please press zero one on your telephone keypad and you answer it here. The first question comes from [audio distortion] . Please go ahead. Your line is open.
Is it gone?
Hello, can you hear me?
We can hear you now, yes.
Okay. Sorry about that. Apologies for the confusion. Just a couple of questions. Can you please clarify your comment on, you mentioned that getting good, you know, good zinc concentrate is tough at the moment. I wasn't sure if you were talking just about copper or if you're also talking about zinc because when we look at the data for zinc, the zinc concentrate market is in a surplus. I just wanted to clarify that question. My second question is, again, your comments on your low gearing, which is definitely quite commendable. What's your view on M&A at the minute, looking at where asset prices are, and also when you combine that with your strong balance sheet?
Yeah. The question, number one was on, on this, the pieces. I think that, the present spot level, spot pieces, if you look at the curves there, are very much an indication of how tight the markets are. I would say that zinc is a tight, zinc con is difficult to find at good terms in the market, and the available concentrates are often quite complex and of lower quality. Copper is also a very tight market, as we know. Spot terms have been a little better, and both are difficult, but I would say that it's a little lighter markets, or at least in our portfolio, we have been, we have a slightly better situation in, in copper con than in zinc con, for the external side. Bear in mind, of course, that we are to a large extent self-sufficient in zinc, to 70%.
Of course, we are much more vulnerable to the external markets in copper than we are in zinc. I think that is our answer on question one. On question two, about M&A, our balance sheet and equities dropping. I think that it's a tough one to judge right now. We are active on a couple of projects, or have been active on a couple of projects. My answer has been in the past, and I can repeat it now, that it's the sellers, they are looking at discounted cash flows and values which are reflecting not the present equity values but of metal values and long-term prices and exciting long-term outlook on the metal market. The buyers, of course, hope to take, get an opportunity with equities falling. I think it looks to be difficult to do any good, or see good M&A activities, at low, low, low prices.
When it comes to our own balance sheet, it's strong. We are well equipped there, but we also have a big stamp program in our own very exciting expansions. We are not going to be rushed into M&A, but we are continuing to be interested. I'm not suggesting that we have anything imminent on the table.
Okay. Thank you.
The next question comes from Mr. Oskar Lindström at Erik Penser Bank. Please go ahead.
Yes. Hello. Two questions. Could you expand a little bit about the production problems in Aitik that you still have, you mentioned in one of the questions? Also, have you incurred any extra costs in the third quarter relating to any such problems that you may not expect to have in the fourth quarter? That was my first question.
On Aitik, we had a very good illustration of what was reliability and what was performance, and you probably noticed we took it up. We think that we are reasonably well under control when it comes to the whole system now. We are on the ramp-up period. All processes are not as stable as we would wish. The problem, number one, we have is by far with no discussion, continue to be the two new crushers. They are not performing as they should. As we said in June, we are not dependent on them at all to the same extent as we were in the first half of the year when the third quarter crusher was out of production. It needed to be reconnected to the new system. What's the bottom line and what's the consequence of this? I indicate that production volumes will not be limited by this.
What the problems are is that we need to do much or spend too much time on maintenance, which is, number one, costing time, and when they are down for maintenance, the trucks have to go elsewhere. We have actually taken on one or two trucks more which are on the lease programs, and we have maintained it. There is cost associated with the problems. There's more cost. The other one is the cost for the maintenance itself. We're spending a lot of money on wear material, wear plates, exchange parts, and, as you know, these machines are huge. We don't talk about little bearings or little pieces. We talk about tens or hundreds of tons of material per year that are going in as spares and wear parts. It's big costs for the maintenance. It's also cost consequences in the production because we have to drive longer distances.
Could you possibly quantify if you didn't have these problems, would your costs be GBP X million less?
First of all, it's looking, we are not overly optimistic that we are coming to a total solution to the pressure problem. I think we will stabilize somewhere better than we are right now. The money terms or the cost value is significant enough to have an impact. It's not huge. It's not making or breaking the mine or anything like that. It's more than just marginal. I don't want to give a number, and I don't have it by heart. It's quite big money involved here.
Okay. My second question, you mentioned a little bit about the projects that you're running now compared to when you had sort of the Aitik project ahead of you a couple of years back. You were able to slow down or adjust the schedule on that, so it seems to imply that you might be looking at changing the timing of a couple of these projects if metal prices, I suppose, decline further. Or are you considering to do so even now? What levels, that's, you know, what projects would be adjusted, and how would that look in practice?
When I went through the CapEx stamp, this because it's SEK 6 billion, so of course, it's a relevant question. Can we do something about it? The answer is yes, a little bit more than we did or could actually in practical terms do in Aitik. Do we have any such plans? Absolutely not. This is something, I mean, you can say Garpenberg, the electronics recycling and the gold mine, Garpenberg is too late. They will go, more or less, in all scenarios. Garpenberg is further down the road. In a very difficult scenario, there is a potential. Will that happen? I absolutely don't believe so. There is some potential if it works from, comes to work. What was the follow-up on that?
If you say that you're not looking to do any adjustments, I was wondering if there is a threshold level in sort of prices or your own cash flow.
Yeah. Yeah. Yeah.
You know, what's the key that really is the trigger to any such consideration?
Yeah. I think for starting to move around the time plan on Garpenberg, it's not even in our worst-case scenario, although it's, I think it's safe because we have a good stable balance sheet. We have no reason, in practice, to stop that unless there are very extreme situations coming up. What we have before that happens is cost reductions, smaller CapEx, delays, and we have a lot of maintenance program just as we did last time, where we can hold them for a year or maybe for two years. That would increase the risk of process sort of disturbances, but that's the risk we would take compared to a balance with a financial risk. I think we have plenty of instruments to work on before we do this one.
What kind of CapEx are you looking at next year and 2013?
It's about SEK 4 billion next year and the year after. I think it is a similar number on what we're saying.
Okay. You're not looking to change your previous guidance there?
We have a little lower this year, and we're not changing the guidance, but we have flexibility to reduce if needed.
Okay. Thank you very much. Those are all my questions.
Thank you.
The next question comes from Mr. Rob Tripper at Deutsche Bank. Please go ahead.
Yes, hi. Just a couple of quick questions. Firstly, just back on the product concentrate, the lower production numbers are seen as this quarter, costing an issue. The people, you seem to be suggesting that's the case. Are you comfortable that you're going to be able to source enough concentrate, or be it more digital, to fill your needs over the next three months to six months? That's the first question. The second is again on CapEx. You talk about the ability to cut it if needed, but none of the miners are cutting CapEx, and Caterpillar is also concerned. Are you, obviously, are you seeing escalation of CapEx? That SEK 4 billion number, could we see as being, you know, 10% or 20% higher over the next year or two?
Okay. On the three month to six month horizon, I don't see, I don't think we have any problems in that time period. No. We're well surprised. If CapEx, given the inflation numbers and whatever and cost overruns, do I foresee anything of that? No. We have said on one of the bullet points that all our plans are followed, so I do not envisage that. You can never say that it's excluded or cannot happen, but we are not indicating any cost overruns. No.
Okay, thanks for this.
The next question comes from [audio distortion] at Swedbank. Please go ahead.
Yes, hello. Good afternoon.
I was asking about the grades in Aitik. What's the floor level? Just remind me. It's just around 0.20 or 0.21, so we are up at the floor level for the grades now, or?
Yeah. We don't calculate them in hundreds, but we are on the floor levels, approximately. Yes.
Can we expect roughly the same level moving forward in Aitik?
I think that's a good assumption. Yes.
Okay. About the price adjustments due to a drop in metal prices during the quarter, I didn't catch if you quantified the price adjustments for business area mining.
Do we have that, Mikael?
We did not quantify it. Without being too explicit, I think we had an adjustment for deliveries made early in the quarter due to the final pricing of roughly 100.45.
It's a negative impact of about 100, or?
It was a negative impact of about SEK 100 million in Q3. On the other hand.
That is compensated. That's the flood, through the most in smelters, I think.
Yes. Yes. Yes.
Plus, plus on the internal copper elimination.
Okay, it equals?
They relatively well match each other.
Okay, sounds good. That's cool.
The next question comes from [guess] . Please go ahead.
Yes, good afternoon, gentlemen. I have a mining question, a shaft question, and a balance sheet question. First, to briefly unwind, the Boliden area's head grades fell quite sharply in Q3. Is that a temporary issue?
In the Boliden area, we are having complex ore, and we are having a very high volatility in the different periods, both because it's depending on campaigns we are doing in the concentrators. We try to process one kind of ore after the other in order to get production or efficiency as high as possible. The volatility is there, and if you look at the reserve averages, you can expect that there will be jumps. In this quarter, we had good copper production on the other hand, but they will switch and move around quite a bit.
Okay. No guidance for Q4?
No guidance for Q4 other than the average, or grade average.
Okay. Thanks, Lennart. On the smelter side, you had an improved underlying EBIT for smelters. We've seen that free metal prices have been down during Q3 and now well below the Q3 levels. Will that lead to lower smelter income because of lower free metal income, or are there other factors which will balance that on the upside?
No, I think this will be, I'm thinking as I sit here. No, that is a hint that we will, on these metal prices, they will give a full impact going forward if the metal prices remain.
Okay. The reason I ask that is just in case there are other factors such as fluid asset prices, you see continuing to rise or perhaps?
No, I think that, of course, if sulfuric acid prices are going up, that value will increase, of course.
Okay. How have they developed since the end of the quarter?
Since the end of the quarter, as you probably are aware, the sulfuric acid prices have developed very favorably, and byproducts for sulfuric acid for copper smelters are an important factor right now, where it's been for some time.
Okay. Great. Just to finish my add on that, the free of alta free felt fantastic. I think it was a record for you in terms of free felt?
Yes.
Is that something that can be sustained?
Alta have had difficulties to keep a very constant production level and process control. We hope that the maintenance shutdowns and some activities we did there would support a more stable production. Just to take a record and say that that is going to prevail or be the new level of indication or the new level, I think would probably be on the optimistic side. I think there could be good news on the stability in Alta.
Okay. Great. Finally, from me, working capital reduction in the quarter was a lot smaller than the build from Q2. Should we expect further working capital outflow during the fourth quarter?
We are on.
Sorry.
You could expect that maybe it's been reduced a little bit further. If you look into the numbers, you'll see that it's the payable coupon that are low because that's the way that it's sitting around the end of the quarter, and so there's maybe some potential to bring it down slightly more. Inventory levels are on target.
Okay. Great. You shouldn't be looking for a fully recuperation of the Q2 increase, but,
All right.
Good. Thanks, Lennart.
Thank you.
The next question comes from [audio distortion] .
Yes, hello? Regarding the grades, I'm quite of the question about the market, of course, but when it comes to Garpenberg and Tora, anything in particular to bear in mind when looking at the expectations for Q4 when it comes to thinking in Garpenberg and also in Tora?
No. I don't think so. Garpenberg has had, again, a convincing quarter. Tora is a bit struggling with being deeper down but has also done some good headway on some improvements. They, those who are matching each other, I wouldn't think of anything in particular. No.
Okay. Also, when it comes to the east trap, new east trap coming upstream next year, based off the terms and market conditions that we see currently, what would be sort of the financial impact, say, in the second half of 2012 based on the new east trap investment coming upstream?
You can compare it with a mine concentrate. You can say that we're buying it on terms similar to a TC, but the level of free metals is quite high. You have one component which is totally independent on metal prices, but you have a significant sort of escalator, de-escalator, or free metal kind of portion. Higher prices are good. Lower prices are bad. I would say, on today's level, we are still, I think, ahead of the planned levels. We are fine on terms.
Okay, very good.
Yeah.
Thank you.
The next question comes from [guess] . Please go ahead.
Yes, I'm good. Two quick questions, if I may. First of all, if you could remind us of the percentage fit of the business to do on stock pieces in the zinc side, if any, and certainly with regards to potential gains you could seek with regards to the wrong design in the new pressures, if there is any.
On the first, on zinc TCs, I think we already commented as much as we can. I do not have any additional comments to it. When it comes to the design of the crushers, it's evident that we have a design which is not ideal for crushers, and we have some significant problems, sort of fundamental problems there. We are, together with our supplier, redesigning stress and parts again, and we're going to install a new sort of variant or upgrade the crushers. We talk about maybe the next five, six months it's going to take, and we are taking step-by-step improvements. Today we are better than we were one or two quarters ago, certainly, and I think we're going to see a gradual progression. What I'm saying is we're not overly optimistic that we will reach the level we had originally planned, though.
Would it be downstream potential in Spain you could seek for against Sandvik, which I guess has been designing this?
We don't comment on our relations with our suppliers. Sandvik is a good company in this case. We are obviously not very happy with the machines there, but we don't comment more on that.
The next question comes from Mr. Christian Kopfer at Nordea. Please go ahead.
Thanks, operator. Hi, good afternoon. I'm just curious to know if you're seeing, if you have seen any changes to the behavior from your steel mill customers in Europe considering the latest drawdown of the cash that we are seeing in steel mills?
Yes, absolutely. I think, you know, we came with the earliest indications on some cash market events in the middle of September or early September or whenever it was, and we said that we had some big customers announcing lower production volumes going forward. It's evident that some of our customers are declining their production needs or their volume needs. So far, we have not had big difficulties in finding other customers which are increasing their volumes, not always at the same terms, not always a perfect match. I think we are going to see some more slot volumes going forward. All in all, it is, as of this point, not a too dramatic impact elsewhere, and of course, the metal prices. On volume, we are reasonably comfortable today.
Okay. Fine. The new customers you are finding, are those outside Europe, or could you say anything about that?
Can you repeat the question?
The zinc concentrate or the zinc metal you are shifting to other clients, are those clients or customers outside Europe mainly, or where are they located?
Most of them are within Europe. We think that those customers are reducing purchases from European imports, we think. We don't know that. That's probably what I think.
Okay. Also, just recognizing that zinc in commercial inventories have dropped quite dramatically in the last couple of weeks. Have you heard anything, market talk or something about your competitors on the zinc smelting side taking down capacity?
What we hear is that we have this compared to the last downturn, still relatively good levels that people are suffering. That's also true for our own zinc smelter. The TCs combined with, I mean, the zinc smelter or a copper smelter is, of course, a combination of escalators, free metals, byproducts, and TCs. The terms are difficult for smelters right now. I don't think one would need to see a tremendous metal price decline until we see some reductions of capacity. That is difficult to judge on. I can only speculate, but I would think so.
Sure, thanks for that.
The next question comes from Mr. Mark Burton at Metal Bulletin. Please go ahead.
Hi. Thank you. Just a question coming back to your levels of surface efficiency on the zinc smelting side. You said it was 70%. That question is, how sufficient are you in copper concentrate?
I apologize. I cannot hear your question. Can you speak in some other tone with a microphone or something? Please repeat the question.
Can you hear me now?
I can hear you slightly better. Yes.
Okay. It was a question on your level of self-sufficiency in zinc concentrate. I have a question. How self-sufficient are you in copper concentrates?
Okay. We are about 70% supplied by our own mines in zinc. Zinc smelters are taking 70% of the concentrate from internal mines in zinc and about 25%, or 75% from external, 75% internal in copper. We are a nest smelter to a large extent in copper and fairly balanced in zinc.
Okay. Do you have any projections for your level of integration in both copper and zinc over the next two or three years, perhaps?
We have process stability improvements in the smelters, which would increase the capacity in the smelters. We are expanding Garpenberg with numbers we have, are sort of showing very clearly or explicitly. We are doing the expansions in Boliden. Aitik Surface Exchange is continuing. I think you can model all of those. It's not going to be a dramatic change of the numbers I gave. Another important factor is that Tara in Ireland is declining, not probably immediately, but in a couple of years' time, we're going to see a sort of a decline there.
Okay. Okay. Thank you.
I remind you that if you want to ask a question, you will have to press zero one on your telephone keypad. That is zero one. We have a question from [guess] Go ahead. [guess], your line is open.
Yes, sorry about that. Can you hear me now?
Yes.
Perfect. Yeah, a question on Aitik then. How you view the ore production, which was, you know, SEK 8.5 million here in Q3. How should we see that? Is that, will you continue to grow from that number, or should we see that as a sort of a stable level for the next few quarters?
No, I wish I knew. The plan, I know, and it's on an up average. It's going up, absolutely. If you draw a line from where we are and you finish the line at 36 million tons, on a yearly average or yearly pace, 2014, I think that's the best sort of modeling you can do.
Yeah, I was thinking here, I mean, it seems that you're a little bit ahead of the plan with the production of eight and a half, but maybe you have run the crushers in a hard way or something like that that we don't know about. Are you ahead of the plan, basically? That's my question.
I mean, we talk small details. We're probably a little bit ahead of the plan, and another quarter we're slightly below. I think we are on plan. I think the problems are not in the production volume or ramping up. I think it is on cost, depending on, obviously, how your model was looking. I'm not suggesting that we have an increased cost. I'm suggesting that we have a sort of gradual improvement, and that will filter through probably on some cost improvements. Parallel to that, we have a gradual increase in production.
Sure. You gave us some, you elaborate on the east trap here in Rönnskär, but just more details on that. Do you think you will have any positive earnings contribution already by Q1 next year?
It's one of those which are very difficult and dangerous to, or difficult to answer. When you start up the production, we are on time, on plan. Everything is looking great now. In an ideal world, yes, we should see some revenues and contributions coming over in the first quarter. Be prudent. Of course, we don't know what kind of issues will come up. I think that, be a bit careful and prudent on the early, early times because any issue that is coming up is also associated with costs. I would be a bit, a bit careful in the startup quarter.
Okay, thanks very much.
There are no further questions at this time. Please go ahead with your question.
Okay, if that was the final question, we are pleased to see that production was moving fine. We are obviously concerned about the decline in metal prices, which will have an impact on Q4 if the metal prices prevail, stay on this level. I think at the same time, we have a company in good order. I think we have plenty of factors which are making us quite comfortable also if the times are getting more difficult than we have seen in the past couple of quarters. That could be my conclusions. I thank you for participating in the conference. Thank you very much.