Ladies and gentlemen, a warm welcome to this telephone conference, where Guler then will present its 3rd quarter results for 2010. With me here, I am Franz Benson. We have Lennart Ebrell, CEO of the company and Johan Pfann, our CFO. And with that, I hand over to Lennart.
Good afternoon, everybody. Nice to present a 3rd quarter result, which is in line with what you had expected from what I understand. We are today at Boliden in the Boliden area in the north of Sweden where we had a board meeting today and the board is here to look at the Maroliden Astra, Maroliden East open pit copper zinc mine, which was started in August. And it is the first step in an important step in utilizing the Heiachan tailing pond, which has been under construction for over 2 years and which is now basically starting its operation. And with additional ore capacity from our Liden, we are now able to and have been for 2 months been running the concentrator in Boliden in full capacity.
We have 2 milling lines there and they are both in operation right now. We are following the presentation that is on available on our web and we will start with Slide 2. In summary, the quarter was in the market, improving market demand and good metal price development. If you look at the average between Q2 and Q3, it's not a big deal or a big difference, but it is quite a significant increase in the month and it has followed and continued after the turn or into October. We have in the market seen a slightly better availability of copper concentrates from in the open market.
We need a lot of coppercon, as you know, to our smelters. And the availability is somewhat better and the treatment charges have been improving. We do not necessarily believe that this is a long term trend. It could be more of a short term variation when China is having several smelters of care and maintenance or maintenance shutdowns and a couple of other short term things happening in the market. If we look at our own performance, we had sales of SEK 9,400,000,000 compared to SEK 7 point 0 a year ago.
We had an earnings excluding the process inventory revaluation of SEK 1,300,000,000 compared to SEK 900,000,000 a year ago. Operating profit, including the inventory changes, is SEK 1.2 compared to SEK 733 a year back. One of the strong points of this quarter was the good cash flow. We generated SEK 1,200,000,000 in cash flow compared to half that number a year back. And that is a combination of the good of the earnings levels as well as some inventory reductions.
Boudded and Area, as I said initially, is in the ramp up phase in the quarter and is now and towards the end of the quarter in full production, utilizing now the old mill, which has been only partly used in the lack of tailings and ore capacity. With Maurylidam, the tailings pond in operation, we're now running full in Boleylidam. I take a lot of questions. I think maybe on the crusher situation, the commissioning continues there. We think that crushers are going to the better, but more of that later.
Slide 3 is the trend lines and the darker of the two lines is showing the profit trend quarter by quarter. It's not rolling 12%. It's a quarter by quarter results. And it's indicating a smooth and positive trend. And I think someone on the board said it's very good to see that you have a continuation of sort of a good profit capacity.
And I think the continuous curve there is something we like. If we go a bit deeper on the market, and now we are on slide I can't read it, slide GDP and Industrial Production. The GDP growth has continued in the world as you are well aware. It's not a good development in the old economies, but it's certainly encouraging to see China continuing on the growth track they have been on for quite a while. If we look at the industrial production growth, China continues with high growth numbers and the Western world is also having very positive growth numbers.
But that is, of course, because of very negative comparison periods of last year. So it's more arithmetic than indication of a very good economy in the Western world. Next slide is construction market where we have China and U. S. And Europe.
And as we can see, we have negative year on year growth in Europe and U. S. A, even though it's not going down to even more negative numbers. But China is continuing to pull the construction market so important for us. And I think that also the mix of construction activity is good for the markets of copper and galvanized steel, if you like.
Car production on this slide next slide is even more sort of leveraged when it comes to comparison low comparison numbers a year back. I would say that we are seeing a good general picture even though quarter 3 is somewhat on a lower level. Next slide is the global metal demand, where I think we have some interesting observations. The top line is the world development for zinc. If we look at the left side of the chart here, zinc demand and to the right copper demand.
As we can see, the global demand is over and surpassing this is a Brukhan's data stretching also into forecast. But as you can see, according to Bruck Hunt, the metal demand, zinc demand is at the peak of demand before the recession. And if you break it down on China, just continues on a straight line of growth, and we see the mature economies with a decline and then a gradual improvement, but still far from the peak levels. The China impact is evident of this picture, and we continue to repeat that this market is very dependent on the positive continuation of China. If we turn to the right diagram and look at the copper, it's even more.
It's the same sort of basic picture, but you can see a few things changing. Here, it's even more so that we have quickly surpassed the previous peak on the global picture. We have seen a very modest growth in the rest of the world. And we can see that China not only passed the recession untouched, but rather increased the pace and probably took the chance of inventory building when copper prices were low to see the jump on 2,009 demand graph there. Consequently, if we look at metal prices, zinc, 1st of all, has been improving in the Q3.
We are not quite up to the level where we were at the beginning of the year, and we are far from the historic or from the 2017, which could not be expected given that there is an overproduction still in the zinc market. We can also look at the LME inventories and the Shanghai inventory in gray and the darker gray on the back there. And we can see that the first tendency of tendencies of inventory decline have now also been seen in the zinc market. Looking at the balance between smelters and mines, which is basically defining the or putting the TC levels and premiums, We see not a too dramatic change lately on the zinc TC on even though in the first half, as you remember, the spot TCs were declining. There's a little tendency of an improvement perhaps.
Zinc metal premiums have been on the way up, not by a huge amount, but still a positive trend. If we turn to the copper price curves, here we see that copper is in a deficit in the market. We see the inventories are going down since the beginning of the year. We're seeing that the metal prices or copper prices have continued very strong and that we are very close to the all time high levels. The reports from the LME days in London, many of them were upgrading their copper forecast of all the institutions or the analysts, metal analysts.
So there is quite a degree of optimism when it comes to metal prices and in the near term, in particular, copper. We look at copper titties, which has been such a big issue for us, we are much, much more a copper smelter than a copper miner, as you know, even after Ipic expansion. And the spot statistics have been on very, very low levels, but we have seen lately a clear indication or not only indication. We have seen a clear spot TC development where we have seen TCs over on or over the benchmark levels. So in the near term right now, clearly positive trends on copper TCs.
The premiums have been having a similar development as on zinc. Precious Metals and Lead, similar developments. Lead plus 6% in the 3rd quarter compared to a year back. And very strong developments on gold and silver, 28%, 29% year on year or a little up from Q2. Then if we turn into the production data and we start with our mines.
First, the earnings was SEK 1,600,000,000 in the Business Area Mines compared to SEK 7.27 a year back and $1.034 in Q2. So a significant increase in the mine earnings in the sequential period here. Buliden is not the biggest mine area we have, clearly smaller than Gatenberg Tara and Orfara and Aitik and also Gatenbeg. But it is a big change here when we're ramping up the low production to full scale now. Marlin and East was started, I think, and here, continued crusher commissioning.
We have done a number of jobs on these crushers. And we think we have a degree of optimism as of today, even though that it's clear to us that we have had more problems and issues than expected so far. And we are cautious when we say that we think and we hope that we are going in the right direction. But we are not saying that we think it's over and behind us. I think this is going to continue to be a big question in Q4, but we hope for a positive development from this point.
Given that the crushers have had all the commissioning issues, we have needed the capacity of the old concentrator, which is linked to the old crusher in the pit. So we have only been able to produce 7,500,000 tonnes in Q3 with the additional capacity from essentially the crusher and crusher more than the old mill, which was needed. And they are connected and cannot be disconnected. It will actually take 6 months when we disconnect the crusher from the old mill and reroute it into the new system, which eventually will be done. So before the 2 new crushers are really stable, we do not dare switching over the old crusher into the new system.
And therefore, we're going to have an additional cost for the 2 crushers 2 mill concentrators running in parallel for a while still. Mines production. Copper production was in Q3 flat compared to Q2. And if we had a lot maintenance and stoppages and lower availability on the crushers in Q2, we more had rebuilding stops in Q3. So it was slightly more under control, but it doesn't change the fact that we had very little crusher capacity in Q3, which is the reason for it.
If we turn into the zinc area, we had good production or milling capacity or production, but we had relatively low grade both in Tara and Garpenberg. I think worth mentioning is the ore production in Tara was good and the mill is running really quite well there. Gakkenberg drove low grades and also Tara did on the low side. We did an area ramp up, which is going to have an impact and has an impact both on copper and on zinc. Smelters, financial summary.
Earnings excluding the process inventory revaluation of SEK 238,000,000 as compared to SEK 110,000,000 a year back sorry, a quarter back. And we have seen higher copper volumes because obviously, if we compare with certainly with Q2, but also last year, we are running full production in Rundshall right now. Harjavalta is not running on full production partly because of maintenance stop in the Q3. If we continue with the smelter production charts, we can see on the copper side how positive the production development has been there, plus 43% in Ronnshare minus 14% in Q2 in Harjavalta compared to the previous quarter. And that is primarily an effect of the maintenance shutdowns, but also of better availability of cans.
We have also, if you are somewhat surprised about the earnings here, We should mention also that we have been able to utilize the feed flexibility that we're talking about kind of often. And we have been able to use other feeds than just copper comps. We have used a number of different materials and some of them with good margins. So in a period of difficult coppercon availability and low prices, We have demonstrated with it that we can add some interesting profits by using other materials. Berge had maintenance stock in the quarter.
If we turn to zinc, production was down 3%, which is I think nothing much to talk about. We have some problems in order having an impact. Else than that, I think it's a small decline in Coca Cola, but Coca Cola has been running well. And with that, I turn over to you, Johan, if you can take us through the financials.
Yes, Leavat. And I ask you please to flip 1 page ahead into the financial sector. The slide headed the group financial summary. And as you can see in the quarter and as Lennart has noted, we made an EBIT excluding the process inventory revaluation of €1,200,000,000 We had a strong free cash flow of €1,200,000,000 driven both by the good earnings, but also by the reduced CapEx and somewhat improvements in working capital, which I will come back to. We had earnings per share of over NOK 3,000,000,000 3.33 in the quarter and the gearing of NOK 37,000,000 a clear improvement from the 46% level we had at the end of last quarter.
Next slide please. This is the bridge that we use to explain our quarterly performance. And if
I ask you to focus on
the right hand column, we will look a little sequentially versus the first the second quarter this year. And as you can see, we have a slight improvement of our operating performance excluding process inventory of slightly below EUR 100,000,000 EUR 83,000,000. And what has happened during the quarter is that we've had somewhat negative impact from volumes, and that comes from the lower volumes of zinc, lead and silver that Laurent has noted. We have had a somewhat positive effect of a better cost position, but that is not that is explained by vocational effects when you compare Q3 to Q2 and the differences in the maintenance stops for Harjavalta and Ranskar respectively. We've had a positive development of prices and terms with which has however been compensated by the weakening U.
S. Dollar. As you can see, the effect of improved metal prices in terms of SEK 380,000,000 is fully lost due to the effect that we've had a stronger Swedish krona or weaker U. S. Dollar and the currency effect is over €300,000,000 negative.
We've had a slight improvement of the TCRC team's terms for smelters and that's because of our feed flexibility where we've been able to process a lot of profitable materials through our primarily copper smelters. Next slide please. If we then look instead at the comparison versus the same quarter last year, I will just highlight 3 things. You see here the higher volumes from Aitik contributing on the volume line with €150,000,000 But you also, of course, note that, that is not as much as one could have expected because of the crushers and commissioning issues. We would have liked that to be more.
You also see on the same line of argument that costs are have increased with 350. That is largely explained by Aitik, not fully, but largely. Some of it is driven, of course, by the expansion and the larger volumes and the higher depreciation. Depreciation for Aitik has increased with €80,000,000 in the quarter itself, but it is also driven by the extra costs to run to concentrators and solve problems that we have noted that we are having currently of around SEK 50,000,000. If you flip to the next page with the key ratios, here you see to the right hand side the nice decrease in gearing that we have had for a period of time now, and we now are down at, as I noted earlier, 37%.
You may recall that we changed our financial targets and that our gearing objective at the peak of the cycle is to be have a gearing below 20%. And in that perspective, we still have a way to go in reducing debt and improving gearing. Otherwise, you can also note here that we have when you compare the 2 quarters with each other, we have increased the duration of our committed credit facilities to EUR 4.4 €1,000,000 even though a year has gone. So had we done nothing, we would have been at around €2,000,000 And that is, of course, an effect of all the refinancing work that has been done this year. Boliden now have committed facilities that we deem enough for our needs and they have a long duration and no immediate larger repayments or refinancing to do.
Flip to the next page and you will see the breakdown by business area where you see that mines are impacted in terms of sales and EBIT, of course, of the higher metal prices and the higher volumes in Aitik, to some extent, also coming up now in the Boliden area. And you also see now nicely how CapEx is coming down to more decent levels. Matters, here you have the interesting thing that even though we are running in an environment in a market with lower TCRCs, we are able to improve profitability partly through higher production compared to last year, but also through the feed flexibility that we stress so hard. If we flip to the next page, we have the cash flow. And the free cash flow in the quarter was over slightly over EUR 1,200,000,000 CapEx EUR 566,000,000 and we had working capital coming down and approaching more normal levels in volumes.
You may recall that we came into the year with very low stock levels. We as a consequence of that, stocks came up. We operated our copper smelters in an environment of corn shortage. We focused a lot on securing feed for our smelters and came up in inventory levels a little too high, and that was noted in the first and in the second quarter. And now we are coming down to normalized levels.
And the last slide is just the updated sensitivities where you see how we are impacted by 10% changes in important price parameters for us. As usual, the biggest one is the relation between dollar and krona, almost EUR 1,000,000,000 in EBIT impact. And the second two big ones are, of course, copper and zinc. You do recall that these are unhedged sensitivities. And then the hedges that we have for the Q4 will, of course, impact these sensitivities.
And for 2011 and onwards, we don't have any metal and currency hedges left as you also know. And by that, I hand over to Lennart in the summary.
Thank you. Yes, market improving, strong cash flow in the quarter, high copper production and a somewhat better TC market, which is, of course, one of the big headaches we have. And we are probably believing that this is not a long term trend necessarily. We don't know that, of course. But it is an improvement right now.
We have the fact well known to you that we are starting up Maureliden. We are running full speed in the concentrator at Boliden based on and utilizing the new tailing pond. IT crushers, I think the development there has followed basically what we said after the previous quarter. It is not behind us yet, but on a slightly more positive note than before. And I think that concludes our
And the first question comes from Mr. Salveen from Exane BNP Paribas. Please go ahead, sir.
Yes. Good afternoon, everyone. I have three questions. So first one is on the Aitik mine expansion. So could you give us first the guidance of Q4 production?
And second, what additional costs are you expecting running the 2 crushers in parallel?
I only understood. Two questions there.
This is the first question I have. Next, two questions additional.
Well, I understood. I think expansion and forecast into Q4, we don't do that. And I think in particular now, we gave a presentation a long time ago and were quite explicit on the ramp up plan we had. Now we are in the ramp up itself. And I think we see very much what happens and we are very explicit and we are trying to as good as we can explain the situation.
And we have limitations given the combined production there of 7,500,000 tons in the quarter, we're saying that we're not over the hill or we do not know that we are over the hill. And therefore, you can expect from that if you are prudent in your forecasting, you can say that it's not going to be problem free also in Q4, but there is an uncertainty there. And I think more than that, it's difficult to say.
The additional cost, sorry?
Yes, come on. Additional cost. Yes, the additional cost is was your second question. And you said that on the cost side, it's €50,000,000 But of course, it's also lost production from it, which is the other part of the equation and which is a higher number than the cost itself. And then it's depending on how you look at it and you can calculate it in different fashions.
That ballpark is €50,000,000 in double cost and that is not including the lost production.
Okay. Next question is on the smelting side. So you did a good performance there. As you said, thanks to higher smelting production for copper with Ronskoye getting more ore supply. But you said at the same time in your comments that there could be another, let's say, kind of squeeze to get the ore you need.
So do you expect, let's say, production to come down a bit in Q4 sequentially versus Q3?
If you read the reports we do, we're saying that we had a maintenance shutdown in Harjavalta and that is obviously not going to repeat in Q4. So from that end, it's an improvement. We are saying that the availability of corn is better now. So and when we say that, at the same time, we're saying that it's not necessarily a long term improvement. And I think you have quite a lot of guidance in those statements.
Thank you. And last question is on your revised 2010 guidance for CapEx. What do you expect?
On CapEx what? Well, as unfortunately, normally is the case in many companies, you have a tendency to have plans that as you approach year end, you're not able to, for different reasons, to fulfill. Things are slightly delayed in reality and we've been focusing a lot on getting IT up and running. So I doubt that we will have actually in reality CapEx for the full year above SEK 3,000,000,000.
Yes. This is my estimate as well. So you mean CapEx could be lower because things would be delayed at Eintzig, right?
I think it's a lot of timing in that.
Okay. Thank you very much.
There are big CapEx plan going on and it's of course individual payments could have quite an impact, but the overall story is what Johan said. Okay.
The next question comes from Mr. Julien Baer from SEB's
Ian Hilda. Please go ahead.
Yes, good afternoon to you. Three question areas. The first, in operating profit other items, you've got a negative SEK 87,000,000, which is a bit of a larger number than we have seen in previous quarters. Could you please give some explanation as to what that is?
It's an increased internal profit elimination from the increased prices.
Okay. That's fine. Second question. If metal prices stay where they are at the moment, would you expect the Q4 free cash flow to be similarly strong or stronger than seen in Q3?
There are many ways to ask the question, what do you think about the profit, right?
No. I mean, it's up to you to answer that bit. What I'm asking is, if
the conditions which led to the strong free cash flow in Q3 will persist in Q4 provided metal prices are the same?
I think on working capital, we are not seeing any significant difference. We are saying the cash flow and the depreciation you have and then you have the sensitivity on profit when it comes to the methods. I think we have little to add than the fact that you have in your modeling as far as I can sort of from the top of my head try to guide. Is there anything else
of the forecast
that I noted? I noted a good estimate of CapEx and that means that CapEx in Q4 is likely to be lower than we have indicated in the past, but still somewhat higher than in Q3. And I also said that stocks are normalizing. You have a price effect in the working capital as well, but you have to do your own calculations.
Okay. That sounds like a yes then. And the last question is on the abaktivianic crushers issues. What modifications have you actually made in Q3? And how long has the first crusher that you worked on been operating?
And what's its performance been since you put it back online?
The repairs or changes we have done are basically the
crusher function.
If you take the heart of the crusher, it's crushing the thing that is crushing the ore has been working well. It is the feeding, the internal transportation systems and the level aware of the steel plates and fasteners and many different things that have caused a variety of different problems. It sounds quite basic and in a way it is, but it's huge machines we talk about. It's thousands of tons of steel, welded steel structure, which has impacted or been impacted by the changes. So you can say that we have had a substantial part of the capacity.
I mean, you can say that not probably quite as much that one of the crushers have been on a standstill through the quarter. That is probably an exaggeration, but just to give you a feel, it has been significant sort of disturbances in capacity. And the problem since we still have produced 7,500,000 is that we have to drive the trucks far distances. I mean, basically, you have different kind of parts in the pit that you mine. And the concept is, of course, you drive to the closest crusher.
But when at more or less random one of the crushers have been on sand stales, you have to drive long distances. So suddenly you lose capacity under transportation and the logistics, which is a combined effect of the lost production.
Okay. So if I understand
it correctly, you've been working on the FEED mechanism and the security of the crusher plates. How has the first crusher that you worked on performed since you put it back online?
It has worked well. But that was also the case when we commissioned them in the 1st place, and that's why we're cautious. We do not necessarily draw too many conclusions of it. It's look I think we cannot express it better than I did initially. We have we are on a positive note here, but we are not yet certain.
Okay. That's absolutely fine and that's very clear. Thank you for that. And congratulations on a great result given those headwinds
you were facing at Aitik.
Thank you.
The next question comes from Mr. Ulla Sodermaerg from Swedbank. Please go ahead, sir.
Yes. Hi, good afternoon. I have two questions. One about the Boliden area. I think you, Leonard, said in the beginning of the presentation that the 2nd production line in the Boliden area has been up and running from 2 months.
Do you mean 2 months in Q3 or 2 months from now?
That was not such an issue. We started up, Marillith, and we had the first blast in the middle of August. So I would say it's not the entire month, but we have a capacity number, full capacity in the Ithig Mill is 1.6. And I do not think that we're going to be as high as that in the immediate term. But we are starting we are running on the two lines now.
And I would guess from mid August perhaps, so call it 2 months to or until today probably is the best number.
Okay. Thank you. And regarding the sulfuric acid market, as far as I understand it, it has improved quite significantly the last time. And if one is assuming prices at the current levels when next year's yearly contracts are going to be set, how much higher are they going to be done compared to this year's yearly contracts?
What happens here is that we are on we are not full normal capacity. It's not contracted in contracts, in long term prices, which are or on term prices. And we have a little and some of the volumes which we sell on spot terms. Basically what happens now is that it seems as if there is a very strong demand here and now. Part of this is the summer product and fertilizers and for a number of reasons is probably a little bit over the normalized kind of demand level.
But it's a very strong demand of sulfuric acid at this point. The spot terms are consequently up, but that does not mean that the contracts we are going to sign will be on the very high levels. But it can absolutely be expected that the firm prices will improve from last year's level. And since this is a question of many contracts to be negotiated, It's difficult to be more precise. I'm trying to be as explicit as I can, but high spot prices are absolutely good for the negotiations we are doing or are going to do in the next 3, 6 months.
Okay. Thank you. Just one more quick question about the copper concentrate market, which also has improved here. How long visibility do you have in the copper concentrate market in the how long ahead can you plan for your copper feed copper concentrate feeding?
Good question. I think the spot terms are probably surprising most market analysts. It's a fact there and there are a number of factors behind it. You can all read about Chinese smelters on maintenance shutdowns in the fall, reduced capacity or shutdowns in several and a lot of information flow of short term or longer term adjustments of copper smelting capacity from different sites, which impacts this very, very depressed level we have seen. We are explicit for a change.
We are normally not giving much forecast. But what we are saying is that we as well as most sort of analysts are probably not believing that this is necessarily a trend, but it's a fact right now. We cannot buy huge volumes on the contracts and put it in on stockpiles for a long, long time. And how much volume that is available at the better TCs is also somewhat unclear since this development has been coming very quickly now where it's very recent. So it's a bit of an unclear situation, but it's certainly right now as we speak a positive note.
Okay. Thank you very much.
Thank you.
We have a question from Mr. Olof Siederhorn from UBS. Please go ahead, sir.
Hi. It's Olof from UBS. I have a couple of questions. First, simple one on the CapEx situation. You said there were delays.
Could we then simply expect that there will be more CapEx in 2011? What's the plan there? And also, it would be interesting to hear you talk about the head grades in the mining on the mining side going forward, what you see there, what type of trends? Thanks.
On CapEx, if there is Johan says it's a delay, it does not mean that it's reduced. It means it's a delay. So if maintenance CapEx is sort of a constant and you push forward some payments on some of the investments, yes, it is coming back in that case. The question number 2 on head grades. I think a couple of different things here.
We have said Garpenberg has an average reserve grade and we have been higher than that for a long time. And we have said that it's going to be at the end of the day, we are going to go around the average. And that's, of course, still true. So after a time of high, it's going to be a time of lower. That's true for Tara as well, but they have been here we have been on around the average grade.
In Aitik, where most of the questions are coming, we did some guidance on their grades, as you know, and we are going to see lower grades in the future. But the reduced production now has a degree of pushing sort of the decline a little bit forward. And I think that was probably the question you had.
Many thanks. Thank you.
The next question comes from Mr. Christian Kopse from Nordea Markets. Please go ahead, sir.
Thanks, operator. Good afternoon, gentlemen. Just a quick follow-up on the last question here on the head grades. Just on looking at Aitik, does that mean that you are expecting? I mean, you have earlier guided for head grades in Aitik in 2011 to be slightly below the average head grade of the mine of 0.25, if I remember correctly.
Does this mean that you will see head grades above average in the first half of twenty eleven? Is that reasonable?
I would like to express it like this that the guidance we gave on the previous Capital Markets Day and which I think you referred to is a good guiding. Now we are lower on production this year than we anticipated. And consequently, the whole sequence there can be delayed. But it's not by a lot because if you do the math, but I think it's the best you can do is to use your model and just say that, okay, if we produce somewhat lower volumes on the higher rates, well, something of that high grade is remaining to next quarter or to the next period. So it's a simple math, and I don't think there is anything much different to tell today when we do when we talk about this.
I think you get it there.
Yes, fine. And just one question on that. It reasonable to expect that you will approach the lower grades, I mean, in a linear term? Or will you just move into it quite quickly on from a quarter to another?
It's coming quite. It's coming a decline.
Okay.
And it's depending on where we're doing. But I've also been very explicit and a bit cautious saying that depending on where we are with the crushers, we're going to mine different parts. And therefore, the uncertainty of when we are mining the north and the bottom of the northern part where the grades are the highest and when that is going to be mined, it's depending on when we have the new crusher in the pit, new crusher. When that is up running, we're going to produce a mix of higher grade. So it's complicated to answer, but I think the best guidance is what I said before.
And I also put a bit of cautious remark that it depends on how we use the different pits here. As you know, the shovels here, they have a top speed of 0.7 kilometers an hour, and they have been moved to different places too. And they are not moved very quickly. So how the precise mine plan is, I honestly don't know. But I think the ballpark is going to be as we said.
Thanks. Also on Tara, I think I mean just looking at the last reserve you report that you provided, it seems like the average grade on that one is a little bit above 7%, right, on zinc. And you seem to be quite significantly below that right now. Is it reasonable to expect that you will gradually move towards the average grade there?
I think we are going to be for a period somewhat low, if I remember right.
Okay.
Not dramatic, we haven't been writing on it, so we should be careful, but probably on the lower side.
Okay. That's it for me.
The next question comes from Daniel Lian from Merrill Lynch. Please go ahead, sir.
Could you just confirm exactly what level you're seeing spot copper TCs at the moment? I think one of your competitors was quoted in the press yesterday saying they were seeing spot TCs around $80 a tonne. Just wondering what you guys are seeing? Well, we have everybody is looking at some published numbers, and we have seen that published number, too. So I cannot confirm it, but I can say that we have heard of it and we are similar to those levels we have seen as well.
Okay. Thanks.
The next question comes from Mr. Markus Steynby from ABG. Please go ahead, sir. Yes. Hi, gentlemen.
Just coming back to the discussion here about the Aitik head grades. So did I understand it correctly that the chart that we saw a year ago at the Capital Markets Day, that's essentially still valid given the fact that we are slightly behind on volumes in terms of what you produced this year?
Until we are saying that one we have been publishing on the web and so on. That is the guidance. That is the basis of the guiding we do. And now we have lower production and consequently we delay the richer part of the ores will have a tendency to be delayed there. If you do the math, you will see that it's not going to have a huge impact, but there is an impact.
So what I implicitly would have to say is that, yes, we are probably going to see slightly better grades in the beginning of next year than you probably have in the model if you work it out from that guidance from before.
Sounds good. And then if I may just continue here on the TC and the RCs, there's been a lot of talk about the spot market. Could you perhaps elaborate a little bit how the discussions are going regarding the benchmarks for next year? Is there anything you could add to that?
No, I don't think so. I cannot. The only thing is that TC the long term TC sort of general view is continued difficult or low levels. If you top that with clearly higher spot TCs, you have an interesting start of negotiations. And where that will end, I don't know.
Okay. Thank you. The next question comes from Mr. Graeme Spohr from Deutsche Bank. Please go ahead, sir.
Thank you very much. I just wanted to ask a question sort of moving away slightly from the day to day operational issues. Once you've got the Aitik expansion up and running and your confidence levels have improved, so I guess what I'm saying is I can understand your near term focus is on getting Aitik up and running. What's next for Berlin? Where do you see the company in 2, 3 years down the line?
Right now, of course, the most exciting I can talk about right now is that we have spent in parallel with Aitik. There is basically only one mine investment we have been working on and that is the tailing pond here in Bouludin area. And based on that, we're coming now with Maurylideen first. And then we have the Maurylideen pit itself where we have this pushback, which has been going on for 2 years. So we have a positive development in Boliden.
So that is probably the answer I have on the mine side. And then, of course, the biggest investment we have at all going now is the Bure, the electronic scrap recycling project in at Randschert. And that is going so far according to plan or so far. It's going according to plan and we are seeing a good market for the East Craft and we are excited about that one which is both having an environmental touch, but it's also a profitable and good and much or very future oriented area for Boullid and where we have a lead in the world, where we are almost tripling our capacity. So that's even though if you do the math, it's not going to be a revolution for the earnings next year or the year after, it's certainly a long term exciting area that we're taking a very significant step on right now.
So I think when it comes to growth areas and growth expansions, we are more on that route than we have been for a long time. And we are right now in the final stage of the commissioning of Ithaca, of course.
Just a follow-up question. Thank you for your answer. Just a follow-up question then. In terms of balance sheet management or cash flow management, I would imagine or I glean from your answers that paying down your debt levels to get to a more comfortable gearing ratio is probably your first priority. Correct me if I'm wrong there.
But I guess the follow-up is once you've reached more comfortable gearing levels, should we expect cash returns if we see a strong cycle continuing? Or what is your sort of priority in terms of capital management?
I think the priority one is to invest the first part of the answer you gave yourself, we would like to see in the good economy we are now with high metal prices, we would like to see the gearing coming down and the target level is 20%. When we reach that level, what is the priority 1? Well, it's obviously we would hope that we can generate a CapEx list or a list of investments, which are there with good returns. And we think the best we could do is to reinvest the money in profitable projects. If we are short of that and the cash flow is flowing in, well then we are going to look at that very positive problem and it's not that positive as if we can invest or stage of the commission stage of the commissioning of Antico Ghosn.
Just a follow-up question. Thank you for your answer. Just a follow-up In terms of balance sheet management or cash flow management, I would imagine I glean from your answers that paying down your debt levels to get to a more comfortable gearing ratio is probably your first priority. Correct me if I'm wrong there. But I guess the follow-up is once you've reached more comfortable gearing levels, should we expect cash returns if we see a strong cycle continuing?
Or what is your sort of priority in terms of capital management?
I think the priority one is to invest the first part of the answer you gave yourself, we would like to see in the good economy we are now with high metal prices, we would like to see the gearing coming down. And the target level is 20%. When we reach that level, what is priority 1? Well, it's obviously we would hope that we can generate a CapEx list or a list of investments, which are there with good returns. And we think the best we could do is to reinvest the money in profitable projects.
If we are short of that and the cash flow is flowing in, well then we are going to look at that very positive problem and it's not as positive as if we can invest or invest in profitable products. But if that would happen, well, returns could be an option, whatever could returns to shareholders of some kind. I don't know. We are not speculating on that. We hope that we are going to be in that situation and we'll see when we eventually get there.
And Leonard, may I add that we also as you are aware made our dividend policy more clear and firm in February. So regardless of whether we want to and have an ambition to take down debt, we will pay out 1 third of net profit in ordinary dividend. I have no doubt about that. But if we over and above that in the future pay extra dividends. That's something that, Leonhard, I think you gave a very good answer to.
Thank you very much. Hopefully, we
get this sooner rather than later.
The next question comes from Mr. Joakim Malbeuk, Kepler Cheuvreux. Please go ahead, sir.
Yes, good afternoon. I have one question here regarding the mine side. I think it's very interesting and impressive that you have a quarter on quarter decline here of around 4.4 percent on mine costs despite depreciation going up a little bit. So also then I wonder about this bridge. You talked about SEK 122 1,000,000.
Is that SEK100 1,000,000 from the maintenance and then the SEK22 1,000,000 is from vacation? And in that case, what is the other €40,000,000 cost decline we can see in the mine area? And also if you go further here, is it anything of this ramp up or crusher problem cost booked into the other item?
It's primarily driven by the vacation effect. In addition to that, it's the differences in costs for the 2 maintenance stops we've had. The Reimshire was a huge maintenance stop, a 10 year maintenance stop in Q2 and the Harjavans is less costly. But the main effect is the vacation effect.
Okay. And going into Q4, do you think that depreciation levels are representative that we saw in Q3?
Very much so. Slightly higher, but not much.
Okay. Thank you very much.
We have a follow-up question
from Mr. Daniel Leyan from Merrill Lynch. Please go ahead, sir.
Yes. Hi, there. Just a follow-up question longer term growth. Could you talk about whether you see any expansion potential at the Garfinburg mine? At the Gothenburg mine?
Yes. We have good reserves there. Potentially, it could be expanded. We have no decisions. We have no plans in that direction.
There has been some writing about the permitting. We have been through there. And but we are just saying that once would we come to a decision to go ahead with higher production rate in Gaffney, it would cost quite a lot of investment. It would be a big investment and such a decision has not been taken. And I have no guidance whether it will be or when it will be.
Okay. Thank you.
There are no further questions at this time. Please go ahead, speakers.
We have actually one question that has come in through the mail. And it reads like this. The Aitik ore production was 7,500,000 tons in Q3. How much came from the new process plant? And how much came from the old plant?
It's quite a big part. I don't know exactly, but it's I mean, by far, a lot more than half ish coming from the new mill, of course. But there is a quite significant part from the old one. It is not because of the need of milling or concentrator capacity. It is more the question that the old crusher was needed in order to produce the tonnage and the old crusher can only deliver into the old mill.
So this is a slightly complicated picture, but I think those of you following exactly how it works, we have 3 crushers, 2 new, 1 old. The old one is going to the old mill with the 2 new ones not operating as they should. We need to put some ore in the old crusher and then it's going into the old mill. And consequently, we need the double organization. That is as far as it can be said or I think that explains.
And the other question on that same theme is how stable is the old process plant? Are you comfortable with producing 8,000,000 tonnes per year if you want to?
No. We are not well, it's stable. It's absolutely stable, but we are not comfortable in doing it because it's costing a lot. We are going to close it as soon as we can and cut out that quite big cost to run it in double. And once we are closing it, we have we are rerouting the crusher into the new system and the old plant is basically out of ore.
So once it's happening, it's going to be closed. And it's not an option, and we don't want it to be an option because it's positive.
But yes, so
that's the answer on that one. Okay. If there are no more questions, we from Boliden, we thank you for participating. We are going to join the Board on a study tour to Marliden right now, and we look forward to meeting you soon. Thank you very much from us.
Thank you.