Okay, good afternoon, everybody, to this webcast of Boliden's First Quarter Result, 2011. Together with me, I have Mr. Håkan Gabrielsson, Director of Group Control. The first quarter of this year did not exactly start in line with the market expectations, and as a CEO, of course, one of the first questions you ask yourself is whether the market did misunderstand what we did or did we underperform. I think this time we did underperform with about SEK 250 million, and I think we should have been around where the market expectations were. We have our PowerPoint presentations on the web, so you can follow the slides there. In summary, the market was continuing to be good. We had a market industrial activity which continued to improve. We had good metal demand, and in particular, we had very strong silver price development.
The macro environment was volatile, and not least in the end of the quarter when the different events happened in Japan, and we saw the tsunami and the events on the nuclear power plants. That put pressure on the metal prices in the end of the quarter, which had a quite significant impact on our inventory revaluations, which you have all noted. Boliden, we had sales of SEK 10.2 billion. We had earnings before interest and tax, and excluding the process inventory revaluation of SEK 1.5 billion as compared to SEK 1.043 billion for the previous year. The operating profit was SEK 1.4 billion compared to SEK 1.2 billion the year before, and here we see the big impact of the process inventory revaluation.
We had good cash flow, and that includes payout of tax of close to SEK 1 billion, and that included, we think, the cash flow was quite satisfactory. We had lower terms for smelters, and I think we're coming back to that because that is obviously one of probably the deviations come from the market expectations, and the other one was the Aitik ramp-up, which had some problems in the quarter. We had the e-scrap recycling project, which has started well, and we are about halfway into it, and it is on plan. We took in the quarter a decision to start a new gold mine in the Boliden area, which is called Kankberg. It's on plan, even it's early days still. We are on the expansion program of the Garpenberg zinc silver mine, and also that project is on plan.
On the next slide, you can see the trend charts here, and you can see the evidence of the very strong impact from the lower metal prices in the quarter, even if the metal prices as an average in the first quarter were higher than the previous one. The light blue graph is showing the decline because of the process inventory revaluation, and the darker blue line is continuing up, and we probably have a, we should probably be SEK 250 million higher than that one. More on that later. If we go into the market in the first quarter, it has continued to develop well, both when it comes to the zinc and the copper. Continued growth in both, and we see copper demand, even if the copper demand in China was lower in Q1 than the previous quarter.
We think the fundamentals in China are good, but the fact is that the published demand was down. We have a good industrial demand in Europe, and if we turn to the supply side, we had lower growth in metals production in the world. We have a zinc concentrate market in deficit, copper imbalance in the middle of the quarter, and surplus towards the end. We see low activities in the Chinese smelters, and there are speculations if that is an attempt to push up the treatment charges for the negotiations or for other reasons. The prices have continued up, and as an average, the first quarter was clearly over the fourth quarter, but in the quarter, it was a decline, as I mentioned. The silver had a particularly strong development.
The concentrate market, we see the zinc TCs coming down, and that was further developed with the price participation, which brought the TC down further. The copper TCs, on the other hand, went the other way around and was on a higher level. We have several contracts on two or three years averages, and because on the three-year average, we exchanged the three-year back high TCs with the present one, and it is considerably lower. On the three-year average, it was despite the year-on-year increase, it was a decline on the three years average, which we have on some contract. That might be an explanation if someone thought the effect from the higher copper TC was not coming through as expected. On the next slide, we see the GDP development in the world, and I think we all know about it.
Continued development strong in China, and GDP growth in the world of 5% or close to 5%, which is, of course, a very strong fundamental market. If we follow the demand sectors or sector of demand for our zinc and copper, it's construction and automotive. We see a very strong development in the construction market in China. We see Europe and in particular North of Europe coming up, and the USA is still lagging behind with negative growth numbers. The automotive markets have been going well. Europe and North America, or high growth in the USA, Germany is somewhat slower, and the rest you can see on the graph. If we then turn to the metal markets, we had a global increase of 2% in the metal demand in copper and a 5% increase of the global demand for zinc.
If we look at the main metals, the zinc price came up, and on the graphs here, you see a vertical line which is showing the quarter averages, and we see that it came up a little bit. If you adjust that to the Swedish currency and adjust it for it, it's even down. Certainly, within the quarter, if you compare it with the price starting the quarter and finishing the quarter, it's a decline. That is seen even more so, sorry, in copper. Copper here. The copper TCs were coming up a little bit, and we can see the spot treatment charge has been developing very strong, and we see the copper premiums to the right coming up as a benchmark level, but the spot terms are down.
If we look at the other metals, they have all been developing strong, and as I mentioned, silver in particular very strong, but we also are quite positive about the lead development. Let's now look at the business area breakdown, and we start with the mines production. Obviously, we are not happy with the mine production in Aitik. The metal production had suffered from low availability in the crushers again. I will come back to exactly how we planned, and the new crushers and the old crusher, which is on the way to change now. Right here in my presentation, we can just say that we had low availability on the crushers and to some extent also on the hauling trucks. If you look at the straight line, the bars is ore production, and the straight line is a contained metal in the ore.
It has been on a quite good level because Boliden area and the open pit in Maurliden East contributed well to that development. We also, as predicted, had good grades in the quarter in Aitik. I think it was 0.27%, so that's well over the reserve average. If we look at the zinc production from the mines to the right, we see that that came down, but we can also see how strong Q4 was. One other explanation there is, again, Maurliden East , where we had the top cover of zinc ore, and below that, we're coming into the copper. In the first quarter, we're seeing more copper from Maurliden East. In Q4, it was more zinc from Maurliden East. It had actually quite an impact on both these diagrams.
If we connect the different quarters with each other, it is a disappointment to see the earnings coming down in Q1. The simple explanation is the Aitik volumes were not up to expectations, either our own internal or the market's expectations. Let's now look at the ramping up period and what we're doing here. In the previous quarters, we have said that we have the capacity in all different main areas of the entire Aitik mine and concentrator. Because of the startup issues with the crushers, we didn't have any chance to run more than the flotation and the mills when it comes to reliability. The reason for it is that we have had a long time with absolutely no problems whatsoever. We had the problems with the crushers.
We rebuilt them in the end of last year, and we thought that was going to give us a clear enhancement of the functions, which was not really there when we look at the first quarter. The mine and logistics, we are still ramping up, and we are still having some issues with the hauling trucks, but I think those are behind us. We have exchanged a number of engines there or motors because of breakdowns, and it is for reasons we don't fully understand. We think that if we follow the reliability of the hauling trucks, it is improving. That concludes basically the startup of Aitik. If we then turn into Garpenberg, the plan is followed so far. We are expanding SEK 3.9 billion, almost doubling the ore production. Start of production is 2014, and full production at the end of 2015.
The CapEx is subdivided in both a new concentrator, a totally new industrial area with a new concentrator, and new infrastructure and underground developments, and new ore hoists and personnel shafts. The life of mine of Garpenberg including this doubling of capacities through 2030. When we took the decision of Garpenberg, we also started a hedge program so that approximately 1/3 of Boliden's metals or minmetals are hedged, and we have corresponding hedging of the US dollar to Euros or Swedish krona. All of this hedge program is referring to the period from the beginning of 2011 to the middle of 2013. The next project that we informed the market about is a decision to start a new gold mine, the Kankberg mine. It's half a billion CapEx, which is low considering the value of what we're doing here.
The reason is it's an old mine, and we're using the old ramp and build some new infrastructure and a new section in the concentrator for hot leaching. It's a high rate of return. Life of mine here is 2020. We, of course, hope that while we are mining this new ore body, we will find or get into new exploration positions and will be able to lift the ore reserves further, which is not something I can promise, but which is a good probability. We're going to do 300,000 tons of ore with an average grade of 4 g. It's going to produce as an average with high variations over the life of mine, but as an average of about 1 ton of gold. We're going to do 41 tons of tellurium, which makes this mine the largest in the world.
We have hedged the gold production here at 80% at an average price of $1,460 per oz, and we have also a long-term contract for the tellurium at $280 per kg. So, well secured. When we turn to smelters, we can see the production of the copper mines or copper smelters. After the period of low production in, say, a year ago and before, we had a strong year-on-year development, but we had a throughput slightly below that of Q4. We had a lower metal content, and that's a reason why the copper in cathodes declined a little bit compared to Q4, but strong year- on- year. In zinc, we had a continued strong level after the very strong Q4. We were on a similar level, even if it is a little behind. When it comes to the disappointing results in the smelters, it's not because of low production.
It's more of the terms. I'm coming back to that in a moment. Earnings were 226 in Q1 compared to 256 a year ago and compared to 530 in Q4. We have a number of reasons for it. The TC developed positive when it comes to copper, but was offset by the negative in zinc. We had the three-year contracts of some of the copper contracts, which you could add to your modeling if you like. We have free metals, and there we are seeing a trend, and this is nothing that is very transparent. There are no published numbers here, and it's also mixed changes. The volumes of free metals are minimized by the mines, and we are seeing a negative mix change and a lower volume of free metals, which we think is prudent to count on also going forward. We had a strong currency effect as well.
If you compare with Q4, we had, as you can read in our interim report of the fourth quarter, a strong or a one-off revenue or positive from some pension or personnel cost. We had an unfavorable, we say unfavorable feed mix, but you can also say that we had a very favorable feed mix in Q4, and time will tell whether this is an unfavorable, but compared at least with Q4, it is. If we then turn to the electronics scrap expansion project, we are increasing the electronics from 45,000 tons to 120,000 tons of electronics per year, almost tripling. We are well on the way with the buildings. We are starting to put or install new equipment, and CapEx of this entire project is SEK 1.3 billion. It makes us the largest electronics recycler in the world.
The startup of the new plant will be in the end of this year, and the ramp-up will follow in the first quarter of 2012, and we are on plan. With that, Håkan, I hand over to you, and you can take us through our financials.
Thank you, Lennart. Okay, going into the first slide, that's the financial summary. As you can see, EBIT, excluding process inventory revaluations, has improved slightly to SEK 1.5 billion in the first quarter of 2011 compared to SEK 1,445,000,000 last quarter. The reason that we see an improvement in the group level, whereas the two business areas are showing lower results, is due to internal profit eliminations.
During Q4 2010, both the internal stock, primarily of copper concentrates, and the prices, the volume and the prices increased, which made part of the good result in mines not possible to realize in the group level. In Q1, we see in the opposite direction with the falling internal inventory of copper concentrates, which has had a positive impact on our profit and loss statement. Free cash flow, as Lennart mentioned, is SEK 448 million, which includes a tax payment of close to SEK 1 billion regarding Swedish corporate tax for 2010. Earnings per share is 3.51 in the quarter compared to 5.17 in the previous quarter.
The fact that we've had close to SEK 0.5 billion of cash flow and close to SEK 1 billion of net profit means that we've been able to decrease the gearing from 24% at the end of Q4 to 21% at the end of this quarter. Going in then to the profit bridge, this compares Q1 this year compared to the same quarter last year. We see, excluding inventory revaluations, we see an increase of the result by SEK 457 million. Most of that is related to prices and terms, which has added SEK 819 million to the result. Now, roughly 50% of the price increase has been lost in currency changes. The net effect is still significantly positive. In addition to that, we have SEK 529 million increased profit as a result of volume increases, and that is mainly related to the expansion in Aitik.
Aitik also adds a significant cost together with the energy cost that has increased for the group that adds up to SEK 464 million increased cost compared to Q1 last year. Compared to last quarter then, I think the main change to highlight is the SEK 238 million negative volume deviation. The better part of that is related to Aitik, as Lennart said. There is also a grade element in Boliden and in Aitik, and then we have a significant reduction of the three metals mainly related to the Rönnskär smelter. Costs are lower than the previous quarter. We had some one-off costs in mines related to reclamation costs in Q4, but even adjusting for that, we have a cost decrease compared to last quarter. The main reason for that is that the personnel cost was relatively high in Q4 due to provisions for variable pays.
Cash flow, I think we have been into that fully. The main difference is related to the paid tax related to 2010. Moving over then to the capital structure, we've seen a quite strong trend to come down in gearing from a level of about 40% at the same time last year to 21% now. The net payment capacity at the end of the quarter is just above SEK 11 billion compared to just below SEK 11 billion by the end of the year. It's roughly at the same levels. In the material, there is also a sensitivity analysis similar to the ones we publish all quarters. This one shows the effect of a 10% change in metal prices compared to the price level at the end of the quarter, and the same thing with currencies.
As you can see, the main sensitivity is on the dollar price, and that has had a significant impact, at least comparing to the same quarter last year. I think I hand over to you a summary from you, Lennart.
Thank you. No, so when we summarize, it's, of course, a high profit and high performance, a good macro, and Boliden is basically in very good shape. I think that, of course, it's a disappointing report we came with today, and the low mine production in the quarter was due to the issues in Aitik. I have actually a very positive feeling for what is going on here, and I think we are seeing many improvements, but for each improvement, it's one step forward and one step backward and sometimes a little bit up and a little bit down. I think it is important to remind you that we were very explicit with a set of slides on reliabilities for Aitik, that we are in particular now the first half of this year with the crusher 165, the old crusher out of business.
It is making us very vulnerable to the new crushers, which we had hoped had obtained a good or at least a reasonable level of reliability, and they are still failing, and we have problems. This uncertainty is going to continue until the end of the second quarter, but behind this, I must say that we're seeing a lot of positive signs. We have no doubt whatsoever that we are on plan for what is going to happen in the end of the day, but we will need to be a bit cautious also for the second quarter. The volume of free metals is a slightly different story there. I don't think you are aware of the pressure on the free metals. We have seen that as an element which had an impact of, what is it, SEK 60 million, SEK 70 million in the quarter.
Together with TCs and currencies and so on, it did put some pressure on the smelters. The other expansion projects are moving on. The electronic scrap recycling in Rönnskär is going to be on stream in the beginning of next year, the Kankberg gold mine, later 2012, and Garpenberg expansion 2014. Over this period, we are also going to continue the tuning in of Aitik. We also like to mention here that we have the maintenance stop in the smelters. We have about SEK 200 million per year, and they are often, we try to put them on within Q2 and depend on in Q3. It's going to be more in the second quarter with about SEK 170 million and a little more than SEK 200 million for the two quarters together. It's going to be very low in Q3.
I'd also like to mention now that when we have had this negative or lower production in Aitik in Q1, it has also been the mining out of the bottom of the north part of the pit with high grades. What we haven't done in Q1 will be done in Q2. The decline of grades, which we have for structural reasons for many years to come, which was foreseen to come early second quarter, is now forecasted instead to be in the end of the second quarter. Part of the bad news in the first quarter will come back in Aitik in terms of grades, will come back in the second quarter. I think that concludes our presentation of today. Again, I think it is clear it was not your forecast, which were wrong. It was our delivery, and we're sorry for that. Thank you.
To your questions.
Ladies and gentlemen, if you have a question, please press zero one on your telephone keypad and you'll enter a queue. We have a question from Mr. Julian Beer from SEB Enskilda. Please go ahead, sir.
Thank you very much, and a very good afternoon to you, Lennart.
Thank you.
Can I just ask on the cost side first? Would it be possible to run through mine by mine how costs develop from Q4 to Q1? I know that on a group level, you said that costs were slightly down, but it'd be interesting to hear how things develop from the mine side. Specifically for Aitik, given the logistics and crusher challenges you highlight, how would you expect the mill throughput to trend from Q1 to Q2?
We do not do the cost breakdown, and I don't have it, so even if I wished, I cannot do it, Julian. I can say that the cost is from Aitik, and the cost for Aitik is, first of all, the double, as we have had also in Q3 and Q4, that we continue to run in Q3, Q4 the both mills or concentrators. In Q1, we continue to do that a little, which is probably surprising when we closed off the crusher 165. We actually do have, which we haven't been talking about much, a little crusher up right at the concentrator. With the production problems we had, we could truck up some more into the old mill and run it. That duplication of cost actually partly continued.
We have the ramping up and the difficulties where we have to drive trucks to one crusher and then return and go to something else. You can say that we both have startup issues of Aitik continuing in Q1, and of course, we have the volume-related cost, which we have seen at the higher rate.
Just to understand, Lennart, the mine costs for Aitik did not fall sequentially?
I think the mine site cost of Aitik actually increased. It's higher than it should have been, and yes, I think so.
Okay. Would you expect those costs to stay high until you've got everything sorted out, crusher and logistic-wise?
I think so. I think that the second quarter is very important here because after the second quarter, despite the disappointing numbers, I must say that there are some improvements also in the new crushers, and at the end of Q2, the old crusher is coming in again. I think it can be a good production number in Q2, but it can also be lower because of the reliability problems that we are now exposed to, the two crushers here. Uncertainty is what I would say, and that goes both for production guidance and for the cost.
Okay, great. I'll let someone else come back in to investigate the issue with the trucks. Just on smelters, I noticed that the copper cathode output was down about 5% sequentially. Were there any specific operational issues behind that? What would you regard as a normal cathode output rate for your combined smelters?
I think the capacity we have is 350, and we were on a good level in Q4. We were down a little in Q1, and it's basically the contained metal that came down. The contained metal is both the payable or the TC-related stuff, which is, I mean, is independent of if the ore con is including a lot of copper or not. The other one is free metals, and both came down a bit. I think the worrying, if there is anything worrying or ongoing here apart from the TCs, is the free metals, and I think we are going to see pressure on it. No one wants to give away free metals when the prices are as high as they are.
The quality of the concentrate that you're running through the copper smelters is leading to a lower copper cathode output than it did in Q4. Is that what you're saying?
Yeah, partly, it is what I'm saying. Part of that decline doesn't matter because the TC is independent of the copper content, but part of it is also the free metals. Part of what you see there is a problem. Part of it is not a problem.
Can I just drill down there? Is that an issue in terms of availability of cathode on the market, or is that more to do with what's coming out of Aitik?
That has nothing to do with Aitik.
Okay. All right. Thanks a lot.
Thank you.
Next question comes from Mr. Ola Södermark from Swedbank. Please go ahead, sir.
Yes, hello. Good afternoon.
I have some questions on the same theme as Julian had here with the smelters. You said that the lower free metals is probably going to continue, and it's more a structural issue, and it's hampered in earnings by SEK 60 million-SEK 70 million in the quarter compared with Q4. Is that right?
Yes, that's correctly understood, yeah.
Can you give us any ballpark number for the underlying profit going ahead for smelters? Are you going to be on the current level between, yeah, 200, 300, something there, or?
I mean, we don't give forecasts going forward, but I think that part of this free metal stuff is something where you don't, there are no benchmarks. You cannot follow or track it to public data. I think this is a trend which is probably, I mean, it's partly a mix change, which is due to people not wanting to give away certain materials that they did before when it's containing valuable metals. Another impact is that if we are looking at our own concentrators in our own mines here, we are trying to tune them to get as much of a metal as possible as payable and consequently as little as possible to be free metals. Every mine in the world is trying to do the same thing. The impact, it's hard to say, but I think there is going to be pressure going forward.
Okay. The other figure you mentioned was in the beginning, straight in the beginning, that the result probably was about SEK 250 million lower than your internal expectation. Should I add this SEK 60 million-SEK 70 million to the SEK 250 million, or are they included in the SEK 250 million?
I think if you look at Aitik, it's probably, I don't have a recall, but it's probably SEK 200 million below where it should be, and the balance is smelters, or is it SEK 175 million or SEK 75 million? I don't, you know, it's to give very precise data of our internal expectations. It's depending on many things. Basically, the majority of the issue is Aitik. I'm totally convinced it's going to be solved. I'm not sure when exactly that is happening, and certainly Q2 is continuing to be the uncertainties we spoke about. When it comes to the smelters, I think it is an ongoing situation which we have to sort of factor in.
Okay. When it comes to just general cost inflation for the whole year compared to last year, do you have any changes there, or is it a minor cost inflation in general?
We're seeing a very mixed picture there. We're seeing that energy was a big item in Q1 here, where energy came up very much, and we know that the other costs were on a reasonable level and down from Q4, which was quite high cost-wise. We're seeing inflation in many of the equipment and spares and chemicals and raw materials, whatever. It's a lot of talks about high inflation. I think we are seeing it somewhere, but I think we are reasonably happy with the contracts we have done lately, and I think we are able to control the cost. I think that's probably the guidance I can give.
Okay, thank you.
Next question comes from Mr. Oskar Lindström from Erik Penser. Please go ahead, sir.
Yes, hello. Actually, I have three questions pertaining to financials and one regarding the Aitik startup. If I may start with the financial questions, there was a SEK 119 million poster in the other line in the EBIT. What does that pertain to? The second question regards the SEK 85 million reclamation provision, if you could provide some explanation exactly what that is. Thirdly, the forced engine renovation program, if you could provide some more details on that. Is that something somewhere where we should expect more costs in Q2 and forward? Finally, number four, in Aitik, how certain or has your certainty about the Aitik ramp-up running as normal increased or decreased? I think you've been speaking about the second half of this year. Should we be looking at Q3 or Q4? Yes, those were my four questions.
The financial 119 is eliminations. It's the internal project or profit which was in the inventory of our internally produced mine concentrates. The 85 in reclamation cost refers to Q4, right?
Yeah, that was a cost we had in Q4 where we made an unusually large provision for future reclamation costs in the Boliden area.
Okay.
That was basically setting the provisions to the level that they should be.
Okay.
The forced renovation program, we have had some issues with our hauling trucks, and we started actually on the day of the inauguration of Aitik, which was in August. One of the engines suddenly blew the gasket and was badly damaged, and we had to replace that. We had a sequence of hauling trucks and engines, and we are currently, or we always have one or two engines in spare, so we can exchange those and rent or repair or maintain the engine out of the truck and then put it in again when it's time for another replacement. Given how important it is now to produce many ton kilometers, I mean, this is related to the crushers. When we only have two crushers, the average distance to the crushers is longer.
If we on top of that have a bad reliability, we sometimes have to go a bit left and right here or from one to the other and so on. We have a lot of pressure on our truck fleet now to keep up so that the truck fleet is not turning into sort of the bottleneck of the system. We have taken a decision together with our supplier to have a forced program of exchange here. We have done a lot of changes. Two-thirds of the planned exchanges were done, some in last year and most of them in Q1 here. Most of that is behind us, and we're seeing the reliability of the trucks coming up.
Sorry, I follow up on that. How much was that?
We have.
Which was an exceptional cost in Q1, which won't be repeated in Q2.
It's coming out as volume variances, more than cost. We have a service agreement with the supplier. So far, we are not in, it's not, we are discussing some of the costs there, but basically, it shouldn't hit our, it didn't hit us on the cost line, and we do not think it's going to either.
All else equal, that sort of will improve in Q2 compared to Q1?
Yeah. Okay. It's very important now that we have a high capacity for the pushback six, which is coming, that we can take in addition to the ore production, that we can waste rock or produce a lot of waste rock and put it on the waste rock dump so that we can ramp up when the crushers and the rest is permitting that to happen. That's going quite well.
Sorry, the final question was regarding your certainty about the Aitik ramp-up sort of normalizing more in the second half. Is that unchanged, or, you know, what sort of quarter should we be looking at or hoping for?
It's a tricky question, you can say. I mean, when you fail to deliver in one quarter, you're not saying that because of that, I'm very confident. I do urge you to have a look at the second quarter. I'm not suggesting it's going to be a bad quarter for Aitik. I'm just saying that the uncertainty, which was hitting us in the back in the first quarter, can hit again. I'm not certain, and I certainly hope it's not going to. It could be a good quarter, but it could also hit us. I think the quarter has started reasonably well. We are not suggesting that we have an additional problem from Q1, but the risk elements or the risk level will prevail.
When it comes to the second half of the year, when the crusher 165 is back in the system, I don't think that if I'm looking where I'm sitting today and compare it with where we were, for example, in November after Q3 or something, I'm probably not anymore pessimistic because of what happened here. Again, we have the uncertainty until the old crusher is in place. I think that's my emotions about this, my belief.
Thank you.
Next question comes from Mr. Luc Peth from Exxon. Please go ahead, sir.
Hi, gentlemen. A few questions, actually, related to Garpenberg. First of all, if you could provide some updates with regards to environmental approval. Secondly, partly related to the disappointment today at Aitik, not saying that you would expect any issues, but I'm somehow finding that this project seems to be more challenging given the depths at which mine should be done. Therefore, if you could perhaps quantify the level of confidence with regards to CapEx, overrun, and timing of the startup, I would appreciate it. Thank you.
Yeah. When it comes to Garpenberg, we have sort of the normal procedure of the permitting rounds. We do not see any increased risk of the permitting in Garpenberg, but we haven't got the environmental permits fully. That's still pending, and it is on plan. When it comes to Aitik and whether this is a level of issues beyond what could be expected, I think that if you go back to last year, we started on time. We ramped up both the first or second line on time. Everything went actually quite well until, or I think probably a little bit behind plan when it comes to the ramp-up production volume. Everything turned well, but we had to keep this fricking well, we had to deal with the crushers, which have created us big costs and big problems in the whole program.
One of the impacts was that we had to keep the old crusher out of reconnecting to the new system. That was a clear delay because of the fact that we didn't dare to rely on the two crushers. I think given the reliability issues there, we did right. We said we have to bite the bullet now. We have to do it. We disconnected the crusher on the early days of January, going to be ready at the June time. The problems we have had connected with the crushers, absolutely, it's beyond what is acceptable, and we feel bad about it. I still believe that it is a problem which we are going to get our arms around.
I think it's a good probability that that will happen very much when the crusher 165 is there because after all, we have with three crushers in place, we have a very substantial overcapacity in crushing. If one is failing, we can live with two, and it's a hell of a problem or a difference when you have two, as we had in Q1, and one is standing still for a week. You have a big problem. I'd also say that we have less of a totally sort of breakdown stoppages in the crushers now than we used to, and more we are exposed to very long calendar time for changing the overhauls or doing the maintenance shutdowns, which is coming probably after 1/5 of the time that we planned. It's more that we have very, very much more maintenance time than we planned.
It's a lot better if it is planned than if it is coming from the blue sky as breakdowns. I think despite the big problems here, we are also seeing some improvements.
Thank you.
Next question comes to Mr. Christian Kasper from Nordea Markets. Please go ahead, sir.
Next operator. Just some follow-ups on the mines first. On Garpenberg, you had quite nice volumes of refined ore in Q4. Now you drop about 10% in Q1. Is these kind of levels that we see in Q1 representative going forward, or should we come back to Q4 levels, do you think?
Q4 was very strong. Garpenberg has a tendency to surprise in a positive direction over time. Of course, it's a normal variation as with any mine. I think that the difference between Q4 and Q1 is of normal variation. I think that we are considerably over the theoretical capacity of Garpenberg, but we keep surprising both you and ourselves with new production records here. I think Q4 was high. I think that level as an ongoing level is probably on the high side.
Okay, that's great. Also on head grades, I think you have earlier mentioned in Garpenberg that you are moving towards the average head grade in the mine on something like 5.4%. Is this still valid?
True.
Okay. All right. I think that was it for me. Just one question also on the copper smelters. Those new spot terms that we have seen already, do you think you will see any additional impacts going forward, at least in the Q2, on the very high spot terms on copper?
We are buying some amount spot, but of course, when the spot terms are up, it's because many smelters are well supplied, and therefore, the spot terms are coming up. Unfortunately, I think we have our needs for the next couple of quarters basically secured, and we cannot benefit from the spot terms.
Okay.
Just seems that.
Okay, thanks.
Next question comes from Mr. Rob Clifford from Deutsche Bank. Please go ahead, sir.
Yeah, hi, Lennart. Thanks for your time today. Three quick questions. Firstly, on that question on you mentioned the Chinese are holding out, slowing activity in copper smelters to drive the TCs up. What do you feel or you guys feel, and how long can they do that for, or can they hold out for before they have to start producing again? The second question was just on the free metals, the holding back of free metals because they don't want to supply them at the moment. The mines obviously still have these, and they don't benefit anyway because they're free. By holding them back, I guess that implies they're going to try and negotiate that you start paying for those. Is this what you think will happen? The third question was just on e-scrap, obviously, given the intense movements in precious metals.
Is that likely to be a source of feed that will also have an increased cost for you?
Three very big questions. The first one on China and what happens there. I mean, the fundamentals of China continue to be very good. There's no reason why we have seen a decline in demand in Q1. We have had a board meeting here today, and the board really nagged, or we discussed a lot at length the inconsistency in the market behavior now. I think that it's hard to come to any other conclusion than that it's either temporary or something bigger is happening in China, which no one is aware of as far as I know. I would probably believe it's temporary. The free metals, as you right said in your question, we have different elements in it. I think we have both.
I mean, if you're a miner and you are seeing the value of the free metals, some are trying to negotiate lower levels of free metals. We are also seeing a development that the process can be sort of tuned in order to, even if it is costing more than in a normal case, you don't do it, but you probably can run your concentrator slightly different in order to get more of the metals into payable. You can mix concentrates in order to reduce the level of free metals. There are a number of process and mixing situations. Nothing of it is very tangible and a big thing, but I think it all adds.
In our case, and probably this might be a market situation, but it's certainly a part of our situation in the first quarter, we have some materials which are heavy when it comes to or containing big volumes of penalties and also high levels of free metals, which we are good in processing. When the metal prices are high, we have lost or not been able to negotiate and buy some of those metals or materials which are profitable for us. We have a bit of a mixed change. There's a little bit of all of these reasons. You said something on pressures. Can you repeat your question?
It was just simply the expansion in the e-scrap business, the precious metals, obviously much, much higher. Does that mean you're going to have to pay more for your feed to the e-scrap?
Yes, we will need to pay more for the feed, but we will also gain more from the higher metals. You can say that we are not indicating any change in direction when it comes to the electronics.
Okay. No change in percent payable in the scrap?
Based on what I'm saying, one should probably expect something to happen there for the same sort of drive in the market. I haven't heard anything and nothing I'm aware of.
Okay. Thanks very much, Lennart.
Next question comes from Mr. Julian Beer from SEB Enskilda. Please go ahead, sir.
Just a quick follow-up, this is more on the longer-term issues. In previous capital market studies, you've highlighted that you would be interested to build your zinc asset base through acquisitions. There have been press reports which have quoted you, maybe correctly or incorrectly, I don't know, as being interested to acquire assets such as London's Zinc Group of Mines . My question is, if you were to make such a move, would it be based entirely on debt financing, or would, as has been suggested in the past, there's a possibility you would use your equity base to make such acquisitions?
If we subdivide the question in two here, first of all, I don't think it is prudent or right to speculate on our positions in deals or potential deals of this nature. I cannot comment on that. When it comes to now, if we did something, how would it be financed? I think we are quite conservative when it comes to how we would like to see our balance sheet developing. We have a lot of financial ability right now, which would enable us to be active in the market, but we would not like to expose our balance sheet to a tremendous level, as you are well aware. What would happen in certain cases and we paid certain things and whatever, it's hard to say. I think as a general theme, we have the gearing ratio in the good times.
We would like to see gearings coming down to 20%, and we are actually now after the first quarter on 21%. We are in the neighborhoods where we would like to be. I don't think I can sort of discuss it or I have much more to say.
No, I understand. On the issue of gearing and your comfort level, we saw you trigger the Garpenberg project at a time when your balance sheet was considerably more geared. I guess you got comfort from the fact that you were going through a very structured hedging program to know that your gearing would subsequently come down despite the project going ahead. Could the same be said now about any acquisitions, that you would be prepared to gear up in the knowledge that you could structure to ensure that gearing came down over the course of the next couple of years?
First of all, we don't know what we would do in a case that I don't know if we would do. It's about an unknown over an unknown. I think that what we typically do, and the parallel with Garpenberg is very good. We are looking at what is the situation, how is the cash flow in our plans and in our plans for the next couple of years, what's the CapEx going to look like, what's the present cash flow generation as it looks now. We are simulating in different kinds of nasty scenarios, and we try to make sure that we could survive in a stable, good, and controlled fashion even if we had a bad downturn in front of us.
Of course, it depends on what is the situation when we do an investment and what's the investment looking like, what's the duration, and so on, exactly as we did in Garpenberg. I think that logic has been quite well understood by the market, and we have tried it out now, so we feel that we have our model of doing it.
Very good. Just to complete that direction of questioning, the zinc mine acquisition market at the moment, do you feel this is a good time in the cycle to be buying compared to previous points in the cycles that you've seen?
I think that metals are high, but if you look at previous peaks or consensus sort of long-term levels and so on, I think it is definitely much more challenging to buy copper assets and zinc assets. I think that's how much I can answer.
Thank you very much.
Thank you. There are no further questions at this time. Please go ahead, Speakers.
Okay. In that case, it was a lengthy Q&A, and no surprise. I think we have a couple of issues. I'm confident that some of it is of a more of a temporary nature when it comes to the mine. We're confident. We still have uncertainties on the time when we have everything up running as we planned. We have a couple of issues in the smelters which are of an ongoing or recurring nature, which has also been part of our presentation. We thank you very much for attending this Q1 presentation, and thank you from Boliden. Thank you.
Thank you.