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 CEO and President, Lena Tevrel President, Boliden Mines and CFO, Mikael Staffas and myself, Sophie Arnios, Head of Investor Relations. The presentation material is available on Bouleden's website. 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. And this is an opportunity which we haven't seen before. We are paying a price of $712,000,000 financed with bank committed bank facility. And the deal is not done until it's until later, but it's an agreement we have signed this night. And we have the normal approvals to wait for before completion.
Kevitsa is an open pit mine. It's on at early stage. It started production in Q3 in 2012. It's a couple of hours drive from Aitik, another obviously open pit mine in this region. And today or 2015, it is on 6,700,000 ton per year production.
It uses similar equipment as we're used to in Aitik, but of course, the pit is small still, and we are in the early stage of production here. The production in 2015 was 17,000 tonnes of copper and 9,000 tonnes 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.
And again, it's in 1 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 Bolinas profit from Garpenberg right now in Bergslagen. North of that, we see the Schelefter field.
And east of it, it is one of 2 areas in Finland, which we have kept our eyes on for quite a while, the Kyli Lakhti or the Outokompa field where the Kyli Lakhti mine was acquired last year. And then in the north, we have the open pits in Sweden where we have Aitik and on the Finnish side, Kevitsa. And 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 and we have more copper when we're going west with Aitik. So now we have established our footprint in the 2 good geological areas.
And of course, if we are one of the best in the world to build mines, we need a good place to put the mines to. So we think this foot or the strategic fit is nothing else than excellent. If we look at the M and 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. And of course, early stage mines, they are in the area between projects and producing mines.
We have still many, 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, but and nickel, it has issues with high volatility and limited visibility. But we like nickel very, very much and I'm coming back to that since we changed our strategy in the Harjavalta and we have an own book with nickelcon and we're selling the nickel materials. So more on this later. We have synergies.
And if we look at the synergy areas of technology and project and geology and open pit type productivity, everything we're looking at in terms of synergy, we can tick those boxes. But we have also synergies when it comes to the smelters. We add coppercon of various suitable qualities to our smelters and we in Harjavalta, it's a bit of an anomaly before we have a base feed there. But with this acquisition, we put a good level base feed into Harjavalta, which is a very good success. And midsize assets, this is an investment in the area or in the ballpark range of ITIG36 or Gothenburg.
But and as in mine, it's fitting in with the large units of the group. It's not so big that it is going to dominate Bouleydon in any way, and it's not a small one. This is going to be one big units once ramped up. And Mikael, if you can take us through some of the specifics here.
Thank you, Leonard. And just to reiterate on this exhibit, I mean, we have a 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 there is still possibilities to adapt to the mine.
It's not set in stone exactly how this will be mined. We established an in house nickel feed base load and we also increased the copper feed, which is good for us now, as I said. And the timing, I'll get into that, it fits our internal timing relatively well, this opportunity. So 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 very similar set up to Aitik, similar type of equipment. We have logistics benefits with our smelters. This is concentrate that fits very well together with the smelters. The scale is in line with other Burieden mines and Lennart just both in terms of the mining and on the processing side.
And that's where I think it's important. We feel very, very confident about running this kind of equipment. And it strengthens Budin'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 will get back to that more later. There are large reserves that also allows for the alternative production setups. You can motivate doing things differently when you have a long life of mine. And it's 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. So 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 4 times or more than 4 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 feed base feed and 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 Alta 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 5 percentage points or 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 Gartenberg expansion. And then after that, the Culiacte integration. Culiacte, of course, being much smaller and integration being easier than what we envisioned this time. But we feel ready from an engineering point of view and from a managerial point of view to get operating at Kevitsa. And 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.
Then 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. Also 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 and we have used for our valuation the consensus in the market together with a business plan that we have developed during the due diligence phase and 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, and I said, if you look at the short term, this might not look like a very attractive deal. The EBIT was about 0. So if you add that 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%.
But it is, as I said, it is a value accretive investment. It's a long low cost, long reserve life assets. It has lower grades and higher stripping in early years, and it is under ramp up. It has not been fully ramped up to the volume potential that you have. So this is nothing that we are worried about in the short term.
And looking at the cash cost curve for nickel, I mean, Kevitsa is a 1st or second quartile asset depending a little bit on byproduct credits that you have in your calculations and little bit what moves around. But this is a as I said, this is a good asset and that will be a prominent part of the nickel business for years to come. So with that, I'll give it back to you, Lennart, to summarize.
Yes. No, we are very pleased with this. It's nothing else than an excellent operational and geographical fit. If we look at what we our priority listing, what can we add to an acquisition, we tick all the boxes here. And it's I could say no other alternative is as much synergistic as this one.
It's early stage and that's very important because we can do things and we have many, many years to work on those improvements. And we have an in house nickel feed, which we before this acquisition didn't have. So this is also important. Nickel has become a bit of a or a success story in Harjavalta. It's not a very liquid market.
And therefore, to have a base load is more even more important here than for zinc and copper. And Harjavalta is a copper nickel smelter for a border to Russia and into the sort of mining history of Finland is full of copper nickel combination. So it's a very natural step for Bulidin to take. Finally, on timing, of course, what Mikael says about our readiness, we have been doing a lot of big projects. We have a project list which is a little bit dry.
And of course, we want to build more on know how. We can build big value or create big values, but we need good geologists in order to develop. And 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 1st class asset when the nickel and copper prices are both on sort of seen in historic perspective or deep into the cash cost curves is a tough one.
But we think it is the right timing for us to do it. And with that, I think we finish this presentation and we go over to your questions.
Thank you, Lennart and Michael. 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 Alain 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 operation, 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 penny since the inception in 2013?
Thank you.
First of all, we are Itik is 3 hours drive away from Kevitsa and First Quantum is based in Australia. So 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. So I think that we recognize everything. But we're also looking at an opportunity to learn from First Quantum.
It's a large company and 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, but 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.
So I think we have a good grip of what we have. We have a good knowledge of what we're buying. But 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 and synergies are good. And I think from that end, I think we have good chances to do something interesting here.
Thank you, Renee.
Thank you. The next question comes from Daniel Major from UBS. Please go ahead. Your line is open.
Hello. Quick question from me. The press release says that the acquisitions on a debt free basis paid in cash and together with adjustments to working to 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 a specific
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. But that doesn't really mean too much because 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.
So 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 group, but that's going to be released before closure.
Okay. Thanks.
Thank you. The next question comes from Julian Baer from SEB. Please go ahead. Your line is open.
Thanks very much. Good morning and congratulations on your deal. What has been your return hurdle rate for this acquisition? And in that calculation, what are the assumed cash synergies, if any at all?
We are, as you know, calculating with or 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. And with that, we have without synergies factored justified this price. Yes, so that's how our calculation looks.
Okay. So 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. On 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 Rob Clifford from Deutsche Bank. Please go ahead. Your line is open.
Congratulations on a countercyclical deal. It's very nice to see. I'm intrigued enough, you talked about an almost perfect fit. So where you potentially thought it fell short, but the main question is acquisition capacity. Does this now satisfy your acquisition
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.
The next question comes from Jason Werthof from Bank of America Merrill Lynch.
Open. Just a quick question on Slide 9, where you're talking about the nickel feed coming into Harjavalta and into Ronskar. 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 form a 2015, so it's not ramped up. And what we have done there is we have a contract today both on nickel feed and copper feed. And what you have as present, it is the feed rate we have today or we had 2015, if you like. And the other one is potential. And this is on with other contracts.
It's going to be overnight. And also, we are not going to need to sort of 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. So 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.
So just to push here, Leonard, 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 Philippe Nigotter from ABM Ambrose. Please go ahead. Your line is open. 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 6,700,000 tonnes. First Quantum has guided for and we will not change that guidance for 7.5 or so for 2016. Regarding the ramp up beyond that, 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, but there are further ramp up opportunities.
The next question comes from Christoph Sandstrom from Danske Bank.
Congrats on the deal. All my questions have been answered.
The next question comes from Christian Kopfer from Nordea.
Just one follow-up. You mentioned that you have been able to deliver the investment exceeding the order rate or meeting the order rate on 10% WACC, given the consensus on the nickel price assumption? And I could just take a look at the consensus. And obviously, it's some 80% above current spot rates and 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 percent PGMs or copper and PGMs. We have we're playing with different price sets obviously.
Would nickel price stay on this level? Obviously, it's not a good deal if or nickel and copper price whatever. But we are in a cyclical industry and it's hard to estimate exactly where or to adjust or estimate where metal prices are going. So 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.
Thanks.
Thank you. And the next question comes from Luke Best from Exane. Please go ahead.
Most of my questions have been answered, but 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. But if you could help us understand what is seen as a priority of where to invest in
terms of development
plans, exploration, etcetera.
I will answer that one in more general terms as we are as Lena said before, this is going to be a big bite to chew in the next future anyway. But we are working with expansion with greenfield in existing geologies and in geographies, as you 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 Lava and Rock Eden, but that's where we are concentrating.
Thank you.
Thank you. And the next question comes from Johannes Consilius from Handelsbanken. Please go ahead. Your line is open.
Yes. Hello, everyone. This is Johannes Grunselis. A question on how you foresee investments in Kevitsa going forward. I mean, 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 the later ones. We are in position around that. But 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.
So stripping investments are still relatively high as part of the ramp up. But if you look at fixed assets, it is a relatively well invested mine.
But would I be correct to say that the CapEx level we saw in 2015 will I mean, CapEx level will be lower in coming years compared to that?
I will come back to you on that question. Okay.
Okay, thanks. Thank you. The next question comes from Olof Karmarkar from ABG. Please go ahead. Your line is open.
Good morning. Olof Karmarkar, 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, I'd say?
Well, with competition authorities, you can never be exactly sure, but there's a minimum of 25 working days that there is. So May could be possible as an earliest time.
Okay. Thanks.
Thank you. And the next question comes from Ross Gordon from Polygon. Please go ahead. Your line is
I was just looking through the recent 40 three-1 101 for Kevitsa. And 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. And my question is, can we rely on that 40three-1 101 for modeling out the mine plan in terms of grade and strip? Or do you think 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. So I wouldn't want to preclude their information.
Okay. What else? Can you give us any other color on the grade profile? Because you did mention that.
No, but you are right that this is of course something that is it has been put into the public market and it's how should I put it without saying too much. It is not exactly wrong what you just mentioned.
Right. So really then you're relying on the higher copper grade because it looks like the strip picks up a bit, nickel is flat. The other byproducts are sort of flattish. But it's 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.
Yes, longer term. Yes. Okay. All right. Well, I guess we'll wait for the revised polypiano from Transcontinental.
Thanks.
Thank you. The next question comes from Chris Wolf from Clarissa. Please go ahead. Your line is open.
Good 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. I mean, the rest of the T2 market seems to be softening a little bit. Is there any color you can give us maybe in just terms of quantum $1,000,000,000 so to say, your synergies in terms of bringing that nickel feed in house, please?
We are not disclosing the concentrate contract. This is a low liquidity market. What we're saying is that it's 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. But it is a valuable copper contract.
When it comes to nickel, it's also valuable. It's 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. And obviously with the base load, the volatility starts from a high or the uncertainty or the market fluctuations are starting from a high level. So I would say that it's an almost perfect synergy when it comes to the feed mix here, more copper and a baseload of nickel that we didn't have. And both contracts are attractive and logistics advantages are obviously there.
Thank
And we have another question from Jason Berthold 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 Harajahalta, 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 and not necessarily. No, I don't want to comment on that, but not necessarily.
And as there are no 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 16th to 17th March. And you're 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 and we need new geology to put in our technical expertise. And finally, it's a deal done from a position of strength.
And I think that's the 3 most important points from us. We thank you very much for attending this morning and we look forward to see you on the Capital Markets Day next week. Thank you very