Good morning, and a warm welcome to this call regarding Boliden's announcement today on acquiring the Kevitsa mine in Finland. Present from Boliden on this call is our President and CEO, Lennart Evrell, President Boliden Mines and CFO, Mikael Staffas, and myself, Sophie Arnius, Director Investor Relations. The presentation material is available on boliden.com. After the presentations, there will be an opportunity to ask questions via phone and web. Let me now hand over to Lennart.
Good morning, everybody. This is a very interesting information we're coming with. We have been looking at this mine for quite a long time. It's an almost perfect fit to our strategy. We think that it's consistent with our long-term strategy. We have an opportunity to buy a high-quality asset in our home region. This is an opportunity which we haven't seen before. We are paying a price of $712 million, financed with a committed bank facility. The deal is not done until later, but it's an agreement we have signed this night. We have the normal approvals to wait for before completion. Kevitsa is an open pit mine. It's at early stage. It started production in Q3, 2012. It's a couple of hours drive from Aitik, another obviously open pit mine in this region.
Today or 2015, it is on 6.7 million ton per year production. It uses similar equipment as we're used to in Aitik. Of course, the pit is small still. We are in the early stage of production here. The production 2015 was 17,000 tons of copper and 9,000 tons of nickel in concentrate. The revenue breakdown is about equal size between copper and nickel, so 40% copper, 40% nickel, and 20% platinum group metal, PGMs. It's a high-quality mine with long reserve life. Again, it's in one or if not the most interesting geographical areas. On this slide, which we have in front of us now, we have the interesting geological regions in the Nordics. We have obviously the Garpenberg area where we have just finalized one of the best mining projects seen in recent years.
We are turning in a very big part of Boliden's profit from Garpenberg right now in Bergslagen. North of that, we see there's a Skellefte field . East of it is one of two areas in Finland which we have kept our eyes on for quite a while. The Kylylahti or the Outokumpu field, where the Kylylahti mine was acquired last year. In the north, we have the open pits in Sweden, where we have Aitik. On the Finnish side, Kevitsa. I would say that if you look at the geographical map here, we have the east-westerly bound with Norilsk Nickel, the big, the global leading nickel mines in Russia. We have the Kevitsa. We have more copper when we're going west with Aitik. Now we have established our footprint in the two good geological areas.
Of course, if we're one of the best in the world to build mines, we need a good place to put the mines too. We think the strategic fit is nothing else than excellent. If we look at the M&A strategy that we have been talking about for quite many years now, we have factored in, or we have looked at 4 pillars of the strategy. Number 1 is producing mines and projects. Of course, early stage mines, they are in the area between projects and producing mines. We have still many years to pay off in the case that we can add things to this project and starting up, ramping up mine. copper and zinc with byproducts. We have not been looking primarily for nickel. Nickel, it has issues with high volatility and limited visibility. We like nickel very much.
I'm coming back to that since we changed our strategy in the Harjavalta, we have an own book with nickel con, and we're selling the nickel materials. More on this later. We have synergies. If we look at the synergy areas of technology and project and geology and open pit high productivity, everything we're looking at in terms of synergy, we can tick those both boxes. We have also synergies when it comes to the smelters. We add copper con of very suitable qualities to our smelters, and in Harjavalta, it's a bit of an anomaly before we have a base feed there. With this acquisition, we put a good level base feed into Harjavalta, which is a very good success. Mid-size assets. This is an investment in the area or in the ballpark range of Aitik 36 or Garpenberg.
An asset mine, it's fitting in with the large units of the group. It's not so big that it's going to dominate Boliden in any way, and it's not a small one. This is going to be one of our big units once ramped up. Mikael, if you can take us through some of the specifics here.
Thank you, Lennart. Just to reiterate on this exhibit, we have Kevitsa here, which has an excellent operational geographical fit, and I'll get a little bit more into that in a while. We have an early-stage mine with expansion potential. It is an attractive geological region where we have enough time to be able to develop this further. It's also early stage, which means that there are still possibilities to adapt to the mine. It's not set in stone exactly how this will be mined. We establish an in-house nickel feed base load, and we also increase the copper feed, which is good for our smelters, as was said. The timing, I'll get into that. It fits our internal timing relatively well, this opportunity. Starting with operational and geographical fit, there are synergies in the operation. We can leverage the internal know-how that we have.
There are geological similarities with what we have in Sweden, and you have this Arctic open pit experience. It's a very similar setup to Aitik, similar type of equipment. We have logistics benefits with our smelters. This is a concentrate that fits very well together with the smelters. The scale is in line with other Boliden Mines, and Lennart just mentioned that in terms of the amount of money spent, but I think that's secondary. I think the first and more important part is that we have equipment here which we are quite familiar with, both in terms of the mining and on the processing side. That's where I think it's important. We feel very confident about running this kind of equipment. It strengthens Boliden's presence in Finland.
It's been for quite a while an important area for us to get into, an important geological area where we would like to expand, maybe even further. It's an early-stage mine, and therefore it follows the flexibility to develop the technical and operational setup. It's not all cut in stone. It is a mine that is still under ramp-up, and there are some flexibility about what we can do, and we have some ideas about what we want to do around that, but we'll get back to that more later. There are large reserves that also allows for alternative production setups. You can motivate doing things differently when you have a long life for mine. As I said, it's located in a region with geological potential that we are interested in.
It is compared to Aitik, and those of you who know Aitik better, it's of course a much better grade. The grades, as you can see here, if you turn this around to some kind of copper equivalent, it turns out to be almost 1%, as opposed to the 0.23 that we have in Aitik, so almost four times or more than four times as good grades. Of course, the stripping is also much higher, which is part of this equation. It makes it possible for us to establish a nickel base feed, an attractive copper feed. We have always had a base load internal for our smelters, which is good in terms of getting stability. We have not had really any nickel feed at all internally, and now we will get close to 40% internal feed.
Kevitsa as of today or as of 2015 was supplying about 10% of the needs for the Harjavalta nickel smelter, and taking in the whole amount there will get up to about 40%. On the copper side, we are at roughly 25% or 24% internal feed, and adding Kevitsa to this gets up another five percentage points, so close to 30% internal feed for the smelters. On the timing, I think the important part around the timing is how we are ready as an organization. We have been quite busy for some time with the Aitik expansion, then the Garpenberg expansion, and then after that, the Kylylahti integration. Kylylahti, of course, being much smaller and integration being easier than what we envisioned this time. We feel ready from an engineering point of view and from a managerial point of view to get operating at Kevitsa.
That's been a very important part of our deliberations as we've been contemplating this opportunity that we are ready to work with this one and to make something good out of it. Just a quick point around prices. As you all know, nickel prices are at very low levels compared to the cash cost and have been for the last half year or so. Copper side are quite low. In doing a deal like this, especially with a long mine, you need to look at what you believe on long-term prices and where you can get the money, because in the short term, and I think we're very clear in the short term, this mine is not very attractive. It's not fully ramped up, and the prices are quite low.
On the next slide, you'll see the prices. We have used for our evaluation the consensus in the market together with the business plan that we have developed during the due diligence phase that we feel quite comfortable with, and we feel comfortable that we have a good value in this deal for us. Just looking at the numbers, I said, if you look at the short term, this might not look like a very attractive deal. The EBIT was about zero. If we would have owned this one on January 1, 2015, it wouldn't have added anything to the EBIT. It would have added a little bit of EBITDA during 2015, and it would have had a more heavy balance sheet to us at 45%. As I said, it is a value-accretive investment. It's a low-cost, long reserve life asset.
It has lower grades and higher stripping in early years. It is under ramp-up. It has not been fully ramped up to the volume potential that you have. This is nothing that we are worried about in the short term. Looking at the cash cost curve for nickel, Kevitsa is a first or second quartile asset, depending a little bit on by-product credits that you have in your calculations and a little bit what moves around. As I said, this is a good asset. That will be a prominent part of the nickel business for years to come. With that, I'll give it back to you, Lennart, to summarize.
Yeah. No, we are very pleased with this. It's nothing else than an excellent operational and geographical fit. If we look at our priority listing, what can we add to an acquisition? We tick all the boxes here. I could say no other alternative is as much synergistic as this one. It's early stage. That's very important because we can do things, and we have many years to work on those improvements. We have an in-house nickel feed, which we, before this acquisition, didn't have. This is also important. Nickel has become a bit of a success story in Harjavalta. It's not a very liquid market, and therefore, to have a base load is even more important here than for zinc and copper. Harjavalta is a copper-nickel smelter for a reason.
We are in a regional area of world-class assets over on the other side of the border to Russia, and into the mining history of Finland is full of copper-nickel combinations. It's a very natural step for Boliden to take. Finally, on timing, of course, what Mikael says about our readiness, we have been doing a lot of big projects. Well, we have a project list which is a little bit dry, of course, we want to build more on that know-how. We can build big value or create big values, but we need good geologies in order to develop. We think we have got exactly that. Timing is tough when it comes to metal prices.
It takes guts to pay up or to buy a first-class asset when the nickel and copper prices are both on sort of seen in historic perspective are deep into the cash cost curves. It's a tough one, but we think it is the right timing for us to do it. With that, I think we finish this presentation, and we go over to your questions.
Thank you, Lennart and Mikael. We will now open up for questions, both from our audience via the telephone and also via the audio cast. Can I please ask you to limit yourself to one question at a time? Operator, please go ahead.
Thank you. Our first question comes from Alan Gabriel from Morgan Stanley. Please go ahead. Your line is open.
Yes. Good morning, ladies and gentlemen. Just one question from my end is, what do you think you can do differently than First Quantum on this asset operationally, putting the synergies aside and putting the strategic fit aside at the operation itself? What do you think you can do differently given that the mine hasn't generated a SEK 0.01 since the inception in 2013? Thank you.
First of all, Aitik is three hours drive away from Kevitsa. First Quantum is based in Canada. I think from that end, we have a mine which will have colleagues close by. We are operating the highest productivity mine in the world, very close to this one. I think that we recognize everything. We're also looking at an opportunity to learn from First Quantum. It's a large company. We are going to do as in line with our culture. We're going to sit in with our new colleagues and discuss what we can identify. We have ideas, it's far too early to have opinions about this. We are going to take quite a time now to digest and learn and see what we can do differently. In the due diligence, we had quite big teams of people over.
I think we have a good grip of what we have. We have a good knowledge of what we're buying. I think it would be absolutely premature to have much of opinions about this at this stage. It's long life, it's low cost, it's operational fit. Synergies are good. I think from that end, I think we have good chances to do something interesting here.
Thank you, Lennart.
Thank you. The next question comes from Daniel Major from UBS. Please go ahead. Line is open.
Hello. Quick question from me. The press release says that the acquisition's on a debt-free basis, paid in cash, and together with adjustments for working capital and net debt at closing. Can you provide us any more details on exactly what that means in terms of the potential magnitude of any additional cash or debt that might be associated with the transaction?
It will be very small, but there is a specific amount of working capital that we have based this all on, and if there's more or less working capital on the closing, that will adjust the purchase price. That doesn't really mean too much. If there's less working capital in the company, we will pay less for it, but we're likely to have to put in that working capital if it's below a normalized level.
Sorry, to be clear, the asset doesn't currently hold material amounts of net debt. Is that correct?
Today, it holds internal debt within the First Quantum Minerals, that's going to be released before closure.
Okay, thanks.
Thank you. The next question comes from Julian Beer from SEB. Please go ahead. Your line is open.
Thanks very much. Morning, congratulations on your deal. What has been your return hurdle rate for this acquisition? In that calculation, what are the assumed cash synergies, if any at all?
We are, as you know, we have calculated with 10%, which is an aggressive one, and you can say it's factoring in a risk premium because it's over market normal or average, I would say. With that, we have, without synergies, justified this price. Yeah. That's how our calculation looks.
Okay, if there's no synergies in there, can I just ask, what are the other metal price assumptions apart from nickel required to reach that 10%?
We are looking. When we are doing things like this, we are working with different price decks, of course. To give you some guidance, on consensus prices and 10% discounting factor, we arrive at this. We can justify this price.
Thank you.
Thank you. The next question comes from Robert Clifford from Deutsche Bank. Please go ahead. Your line is open.
Thanks for that. Congratulations on a counter-cyclical deal. It's very nice to see. I'm intrigued, Lennart, you talked about an almost perfect fit, so where you potentially thought it fell short. The main question is acquisition capacities. Does this now satisfy your acquisition hunting, or are you still looking for more after this?
Right now, I think we are a prudent company, and I think it is well known to the market. This is something we like, and we have been looking for quite a while. I think for the time being, we are going to look at this, and that's it for now.
Thank you.
Thank you. The next question comes from Jason Fairclough from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Yep. Good morning, folks. Just a quick question on slide nine, where you're talking about the nickel feed coming into Harjavalta and into Rönnskär. I just want to make sure that I understand. You're talking about Kevitsa today and then Kevitsa potential. If I look at that Kevitsa potential, is there an element in there of growth of Kevitsa, or is it just redirecting feed that at the moment is being placed elsewhere?
The picture is a pro forma 2015, so it's not ramped up. What we have done there is we have a contract today both on nickel feed and copper feed. What you have as present, it is the feed rate we have today, or we had 2015, if you like. The other one is potential. This is with other contracts. It's not going to be overnight. Also, we are not going to need to terminate any other contracts because the phasing, we will see what we do it, but the concentrates are attractive, and the present contracts from Kevitsa will expire in time with other contracts expiring. The timing effect here is nice, and it's not long-term. It's not life of mine. It's short, so it's a few years when we can get this additional synergy.
Just to push here, Lennart, the potential is just based on existing production. It's not assuming a further ramp-up of the mine.
This picture is on the 2015 numbers.
Okay. Thank you very much.
Thank you. The next question comes from Philip Ngotho from ABN AMRO. Please go ahead. Your line is open.
Yeah, good morning. Thanks for taking my question. I have one question on the ramp-up. Could you indicate how far the mine is ramped up, how much further potential you see, or to what level the current ramp-up is?
You know that the production in 2015 was 6.7 million tons. First Quantum has guided for, we will not change that guidance for seven and a half or so for 2016. Regarding the ramp-up beyond there, we will get back to that once we are in the asset and can have more security around that. We will guide you around the further ramp-up opportunity, there are further ramp-up opportunities.
Okay, thank you.
Thank you. The next question comes from Gustav Sundström from Danske Bank. Please go ahead. Your line is open.
Thank you. Congrats on the deal. All my questions have been answered.
Thank you. Next question comes from Christian Kopfer from Nordea. Please go ahead.
Thanks, operator. Good morning. Just one follow-up. You mentioned that you have been able to deliver the investment exceeding the hurdle rate or meeting the hurdle rate on 10% WACC, given the consensus on the nickel price assumption. I could just take a look at the consensus and obviously it's some 80% above the current spot rates. I understand that you previously have been uncertain about the nickel market prospects and so on. Does this mean that you are now more certain or less uncertain about the nickel market prospects, future prices and so on?
No, I wouldn't say that we are more certain. nickel is a difficult one. It's 40% nickel, it's 60% PGMs or copper and PGMs. We're playing with different price sets, obviously. Would nickel price stay on this level? Obviously, it's not a good deal. Or nickel and copper price, whatever. We are in a cyclical industry, and it's hard to estimate exactly where or to adjust or estimate where metal prices are going. What we are saying in terms of giving some comfort or some understanding on the calculation is on consensus and a conservative discounting rate. We are justifying the deal. That's as far as we can say right now.
Right. Thanks. Okay. Perfect, thank you.
Thank you. Just as a reminder, if you do have a question, please press zero one on your telephone keypad. The next question comes from Luke Nelson from Exane. Please go ahead. Your line is open.
Hi, gentlemen. Most of my question have been answered. Maybe if you could elaborate a bit more as to how you would see your expansion opportunities, how you would rank the opportunities going forward. I know it may be a bit early stage with regards to Kevitsa. My understanding is that now you're ranging with a number of options, which is nice, of course. If you could help us understand what is seen as a priority of where to invest in terms of development plans, explorations, et cetera. Thank you.
I will answer that one in more general terms, as Lennart said before, this is going to be a big bite to chew in the next future anyway. We are working with expansion with Greenfield in existing geologies, in geographies, I should say, in Sweden and in Finland and in Ireland. We are looking to find brownfield expansions. We are looking to find greenfield opportunities. Some of them are known to you already, although they might not be very close to being realized, including Laver and Rävliden. That's where we are concentrating.
Thank you.
Thank you. The next question comes from Johannes Grunselius from Handelsbanken. Please go ahead. Your line is open.
Yes, hello, everyone. This is Johannes Grunselius. A question on how you foresee investment in Kevitsa going forward. It's a relatively new mine. I suppose it's extremely well invested, but could you give us some flavor on CapEx for the next years, please?
No, we will come back to that later once we are in position around that. We can say, just as you said, it is a new mine. It is relatively well invested. However, it is in a high stripping phase. Stripping investments are still relatively high as part of the ramp-up. If you look at fixed assets, it is a relatively well invested mine.
Would I be correct to say that the CapEx level we saw in 2015 will be lower in coming years compared to that?
I will come back to you on that question.
Okay.
Yeah.
Okay, thanks.
Thank you. The next question comes from Olof Grenmark from ABG. Please go ahead. Your line is open.
Good morning, Olof Grenmark, ABG Sundal Collier. Once again, if everything goes perfectly according to the plan here, when will this be completed and when will it come into your books, let's say?
Well, with competition authorities, you can never be exactly sure, but there's a minimum of 25 working days that there is. May could be possible as an earliest time.
Okay, thanks.
Thank you. The next question comes from Ross Gordon from Polygon. Please go ahead. Your line is open.
Oh, hi. Good morning. Yeah, I was just looking to the recent 43-101 for Kevitsa. Just coming back to the point you made earlier about the grades improving, it looks like the copper grade does, but the other grades look fairly flat. My question is, can we rely on that 43-101 for modeling out the mine plan in terms of grade and strip, or are you going to come out with an update on that? Thank you.
Actually, First Quantum will come up with an update on that before we will close this one. I wouldn't want to preclude their information.
Okay. What else? Can you give us any other color on the grade profile? You did mention that.
No, you are right that this is, of course, something that it has been put into the public market. How should I put it without saying too much? It is not exactly wrong what you just mentioned.
Right. Okay, really you're relying on the higher copper grade because it looks like the strip picks up a bit, nickel's flat. The other by-products are sort of flattish, really it's coming from the copper by the looks of it.
It's coming from the copper, and then stripping will go down over time.
Yeah, longer term.
Yeah.
Okay. All right. Well, I guess we'll wait for the revised 43-101 from First Quantum. Thanks.
Thank you. The next question comes from Chris Wolfe from Clarus. Please go ahead. Your line is open.
Morning, everybody. Now is a really good time, I think, for you guys to perhaps give us a little bit more color, if you can, on your nickel concentrate purchasing sort of terms. The rest of the CC market seems to be softening a little bit. Is there any color you can give us maybe in just terms of [inaudible ] sort of say, your synergies in terms of bringing that nickel feed in-house, please? Thanks.
We are not disclosing the concentrate contract. This is a low liquidity market. What we are saying is that it is adding an attractive copper contract to us, or we have the contract, but we have the potential of extending and increasing that. We have, obviously, logistics advantages and some very obvious synergies here. It is a valuable copper contract. When it comes to nickel, it is also valuable. It is something we appreciate, but even more so on the risk exposure and the fact that having a base load internal, we have a much better ability to understand other vendors or our other suppliers. Obviously, with the base load, the volatility starts from a high, or the uncertainty or the market fluctuations are starting from a high level. I would say that it is an almost perfect synergy when it comes to the feed mix here.
More copper and a base load of nickel that we didn't have. Both contracts are attractive, and logistics advantages are obviously there.
Right. Thank you.
Thank you. As another reminder, if you do have a question, please press zero one on your telephone keypad now. We have another question from Jason Fairclough from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Just in terms of taking assets that fit perfectly together, I guess, if I look at Harjavalta, is there room in your portfolio for a nickel refinery as well?
No. I think we already said it. For now, we're going to focus on this one. I have no comment on it, not necessarily. No, I don't want to comment on that, not necessarily.
Okay. Thank you.
Thank you. As all of further questions at this time, please go ahead, speakers.
Thank you. Before we sum up, I just want to remind everybody that we have a CMD coming up next week on the 16th to 17th of March. You are very welcome to join us then. Lennart.
Okay. Thank you very much for calling in and share with us information about this project. To conclude, I would say that it's a great fit. The timing is interesting with capacity being released from previous projects. We need new geology to put in our technical expertise. Finally, it's a deal done from a position of strength. I think that's the three most important points from us. We thank you very much for attending this morning. We look forward to see you on the Capital Markets Day next week. Thank you very much.