Boliden AB

STO:BOL

Earnings Call Transcript 2020-Q1

[Olof Grenmark, Director Investor Relations]

Ladies and gentlemen, I'd like to welcome all of you to Boliden's Q1 2020 Results Presentation. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have a presentation led by our President and CEO, Mikael Staffas, and our CFO Håkan Gabrielsson.Mikael, the stage is yours. Welcome.

[Mikael Staffas, President & CEO]

Thank you, Olof, and also a very warm welcome from me to all of you. It is indeed special times that we're living through these days. I am today talking to you from my conference room here in Stockholm that was absolutely not according to the plans. We were supposed to be in Aitik today, both with the Board meeting and also with the AGM. But the coronavirus has really put changes in place. And we will have, after we're done here, an hour or so or 2 hours ahead a very shortened version of an AGM here in Stockholm in a conference room as opposed to being on site, which is what we like. But enough about that. Let's focus a little bit on Q1 and what has happened here today.Now let's see if I get this one right as well. There we go. Q1 was really 2 parts. It was basically the first half or the first 2 months, which was more or less a normal quarter, and then COVID hit us all as we moved into March in very many different ways, of course. And of course, this management that we had to deal with and also the price fall that we saw on base metals has, of course, put a taint on the total quarter as such. The quarter otherwise was a very good quarter for our Smelters. We have record profit and we have records in production from many parts of the Smelters, and I'll come back to that. It's also been characterized by headwinds in Mines, especially in the Tara mine that had both production issues and then also COVID issues, and I'll come back to that as we talk about the Mines.We also have a free cash flow that is maybe disappoint to you, but it's also to, to some extent or I would say, largely linked to COVID as well. We are building up our working capital, which is quite natural in times like this when the logistics chains don't work as efficiently as they normally do. And when we can't buy exactly the concentrate that you want as you normally can, you have to have slightly larger inventories to manage that you can get as good as feed mix as possible to your smelter, even though you cannot get as good as you want to. And also you need to have or you will be forced to have slightly higher inventories of finished inventory of metals as well as logistic chains are not quite as efficient as they normally would be.If we start talking about the COVID and get a little bit more to detail, we can, of course, see in the whole world that mine production has been negatively affected. Smelter production in the world has been affected in different ways, where you see in early part of the quarter with the China turning down smelter production, them coming back online. And then you've seen some other smelter reductions in the later parts of the quarter. All in all, I think the smelter production has been more putting up to pace than the mine production creating somewhat of a shortage of concentrate on the market.Logistics. Logistics setups gets more volatile. You can argue from some point, it's not a big difference, but we do deal in worlds where supply chains are pretty heavily optimized and just a little bit of a hiccup, just 1 train driver being sick one day, and we're having 1 canceled train that we normally never have or very rarely have. Of course, it creates a little bit of extra stress in the situation, but we're relatively well up to speed on that as well. The effects for us has been an increase in short-term leave.As you know, in our operations, we've been able to continue operating, but we have very strict rules regarding anybody who is anything of the least of any sick should stay home. The same thing goes with their children. As soon as a child is anything close to sick, they should stay home, which means that the parent, at least one parent is staying home with the sick child, and we thus have a larger short-term absenteeism that affects the mines more than the smelters. Smelters have a situation where maybe you can continue to work with 1 less person on the shift and still get the same production out. In the mines where you have much more 1 person on 1 machine. If the person is not there, well, then that machine will not produce during that shift.As I said or I just -- we also had a little bit of a challenge for us as part of our CapEx project into new trucks or into the open pits. We're also supposed to move trucks between Kevitsa and Aitik. That internal move has been slowed down because of the COVID situation. What I meant that we had less trucks available in Aitik than we were planned to have. There are challenges. It's maybe more for Q2 than Q1, but we also saw it at the end of Q1, the challenges of containing the optimal feed mix into the smelters as some concentrates will fall short, and it's not that easy to get some concentrates that are exactly the same quality to replace it with. You get another replacement that is not exactly the same, and thus, the feed mix will look different.Travel restrictions is also hitting us, especially due to maintenance. As we're going to do maintenance starts, we typically need experts to come in. They cannot travel right now. We have, as you see here, postponed 2 big maintenance stops in Q2 up to Q3 regarding this. And also other expert travel is also a challenge in these times and not directly linked to maintenance staffs.I talked before about the maintenance and also the working capital increase that we will see from this and that we have taken decision to work with slightly higher inventories than we would normally do. In the Boliden case, we are always very proud of our decentralized management model. We have units that are very well capable of taking care of themselves, and they're doing so this time as well. These are units that are very used to train on specific situation, how to handle specific situations. And even though maybe none of them have trained exactly on how to handle a pandemic, they have trained on similar things, and they do have local management teams that are used to taking care of this.We also have, generally speaking, very good cooperation with our unions and being able to find local smart solutions and get them okay but unions has been a key in this, and I think we have been quite successful in doing so. We have had a ramp-up, as you've seen, in the open pits in Aitik and Kevitsa being postponed by a quarter or 2 because of the situation with the less availability of staff. That means that we need to push this one a little bit further out. And we have taken some, you can say, premature or precautionary measures in increasing our payment capacity as we have secured long-term financing to the tune of about SEK 3 billion in early Q2. I'll see if this one works. There we go.So if we come in and look at the responses. Well, of course, COVID-19 crisis management and response to that has been key, especially in March. We -- let's see, I should go this way. If you go to copper, you can see here that the prices have come down and so forth, zinc and nickel. You can also see here that the inventories have come up. The official inventories are up quite a bit. The exact total inventory is, of course, very difficult for us or anybody else to know. Our hunch is that also the unofficial inventories are coming up, but we're still not on an alarming level. We'll see how this will play out going forward as we come into the later months of this quarter.Now what is good for us is, of course, at the precious metal, and you can see here, especially gold, that's been going up. You all know that we've had a very clear strategy for many years, not to stream off any of our precious metals. So we have the full impact of that, which is, of course, helping us in this situation with the lower base metal prices. And we can also, as you've seen, those of you who looked into in detail, we've also now started publishing some more precious metals and PGMs sensitivities in our reports. So you can see that especially palladium is actually pretty important to us, and the high palladium prices is also helping the smelters in this situation.If you look at the prices in the world, I've put in the slide, as you've seen before, just to get a sense, zinc prices are now on a level where they, together with the relatively high costs, driven by the high zinc TCs, the zinc prices are on a level where if they go any further south, I think we'll see some closure of zinc mines also for -- on commercial basis and not just on corona basis, whereas the copper price still has somewhat of a headroom until it will be forced to -- there we will see shutdowns. And thus, of course, there's a downside risk on copper. We can argue how big it is, but there is a downside risk on copper.On zinc, I think the downside risk is relatively limited on the price, although it might take some time until we see a higher zinc price again. Nickel, for a long time, has been struggling around the cash cost levels, and we're still struggling around those levels right now. So when you add this up, you also have to think about the currency situation. We are -- now something is happening with my slides here. They're going crazy. See, it's probably going crazy coming out as well.I don't know exactly what to do, but this, I am -- let's see. Now at least I have a good slide here. I'm not sure what happened to you, all of you looking at situations out there. What I was going to say is that not only have we gotten a tailwind from the higher precious metal price, we're also getting tailwind from currencies, which is also not unusual. We've seen that many times historically that there is a negative correlation between metal prices and the currency exposure that we have seen. Now things started moving here again.Okay. Apparently, I was just told that there is somebody playing with some remote control from the outside who's doing similar things. And so -- just getting back to this one, we do see that we are still on a level that is fairly decent in terms of prices and terms, which is, of course, helping us at this time.Next slide, please. So if you go into the Mines and the next slide again, please. The Mines, you might look disappointed. But of course, the lower price and terms hit Mines quite a lot. On top of that, you do -- get the definitive pricing that we have in the Mines with the MAMA effect that hits us pretty hard when you get a lower prices as we have seen this time around. We also had a tough hit on Tara this quarter that first stood for 16 days due to the breakage of the conveyor belt out of #5 crusher, which is basically the main crusher for the whole underground system and the deep part of the mine in Tara. Then we had a planned maintenance stop at 6 days, which you could say we wouldn't have talked about normally, but we had that on top. And then we were shut for 5 days due to the corona situation towards the end of the quarter. And of course, that all hits pretty hard, and Håkan will talk about the financial impact of this as we move forward.Next, please. So when you look here at the total impact of this, you can see that the copper production is actually holding up very well and so as the nickel production, where zinc has gotten a big hit from the reduction that we've seen in Tara.Next, please. We'll move over to the Smelters. And one more, please. If you look at the Smelters on the other hand, we've had a very good situation totally in the quarter. This is due to the fact that sometimes you get quarters when things go really well. We were also spending lots of time and money on maintaining the smelters in '19. And of course, as part of the help that we've gotten. We've seen some improved process stability. We've had production records in both Harjavalta and in Odda. And the projects that we have are moving ahead according to plan. So generally speaking, a very good result.Next, please. And you can also see that here in the production, you can see that the copper production, especially, has come up. This is, of course, partially due to the fact that we've had the maintenance quarters that we are comparing with from last year and also the zinc production is still on very high and very good levels. Now I'm told that I can use this machine again that they've been fixed. I hope this doesn't cost you too much problems following on the other side.Now we're coming into the financials, and I will present you to Håkan Gabrielsson, who will take you through the financials. Please, Håkan.

[Håkan Gabrielsson, Chief Financial Officer]

Thank you, Mikael. Hello, everybody. So financials, we've presented an EBIT number, excluding process inventories of SEK 1.5 billion, which is SEK 500 million lower than last year. Also, free cash flow, that is SEK 500 million lower than last year. We've got investments of SEK 1.8 billion, which is slightly up compared to last year but in line with our plans. And as Mikael mentioned, there has been a quarter with a record result for Smelters with SEK 1.1 billion, but headwinds for Mines.If we then look at the EBIT bridge to see a bit what is driving the changes. As you can see, the main effect here on the EBIT compared to last year is on volumes. We've had lower grades in our open pit mines in Aitik and Kevitsa. And together, that corresponds to a negative impact of SEK 500 million between the quarters. So that's basically the full deviation compared to last year.In addition to that, we've had stronger production in the open pit mines, adding up to a couple of hundred millions, but that has been completely offset by the production disruptions that we've seen in Tara mine during the quarter.Prices. It's actually a small positive impact. There is a time lag between -- until metal prices hits the P&L fully, but we have had lower base metal prices. But that has been more than offset by a strong dollar, higher zinc TCs, but also higher prices on precious metals. And we've -- as you've perhaps seen in the sensitivities that we've published, the combined effect of precious metals at these price levels are now actually bigger or more significant than copper, for example. So it's a significant impact. Costs, 1.8% up. There is some salary inflation in there. There is some increased production and maintenance, but a good cost control in that sense.Moving over to sequential comparison, Q1 to Q4, we're SEK 200 million down. Most of it, as a result from lower prices -- lower metal prices. There is also some pressure on byproducts and premium. Looking at the volumes, there is a slight negative effect, better in Smelters, higher free metals and less maintenance. But on the negative side, we had production disruptions in Tara.If we then move over to cash flow. As I said, we've had a SEK 500 million lower earnings, which translates into SEK 500 million lower cash flow. We have also built some working capital as an effect of the corona pandemic. Finished metals is about SEK 400 million higher than expected as a result of transport issues, transporting finished metals out of the plant. And we've also taken a decision to increase the level of concentrate stock to reduce the risk of disturbances in the smelting side.On the balance sheet, well, still a strong balance sheet. We've got a net payment capacity at the end of the quarter of SEK 6.8 billion and net debt of SEK 6.5 billion. Still a low interest rate at 1.1% average and a duration of the loans of 3.3 years, so a strong balance sheet.After the quarter end, we have strengthened the payment capacity further. We've taken 2 new loans: 1 from the Nordic Investment Bank of EUR 100 million, an 8-year loan; and a second loan from the Swedish Export Credit Corporation of SEK 2.5 billion, a 4-year loan, but that also requires a repayment of SEK 570 million loan that is maturing soon. So a net impact of SEK 3 billion positive on the payment capacity. We've also extended the revolving credit facilities by 1 year. New maturities now are in 2023 and 2025.Altogether, this gives a pro forma net payment capacity of close to SEK 10 billion with these new loans. And that is, of course, prior to any dividend paid. So we feel that we have a strong balance sheet, and we're ready for an extended period of lower prices if that would prove necessary. I'd also like to highlight that we publish the debt structure on a quarterly basis on our web page, so I can recommend to have a look at that to get the latest numbers at all times.With that, I think it's -- hand over to you, again, Mikael.

[Mikael Staffas, President & CEO]

Thank you, Håkan. As you've probably gotten the hint right now, the main focus that we've had so far and continued to have is to do as much business as usual as ever possible. This also meant that in terms of investments, we have not changed a lot. We have slowly postponed a couple of projects more because we had to because of the suppliers not being able to supply rather than us not being able to accept them. But we have slowed something down. We do not plan at this stage to do any drastical cut downs. But of course, that's always a possibility if things were to get even tougher going forward.Regarding changes -- or guidance, you could say, it's not so much change. We have postponed the guidance for the full speed of Aitik and Kevitsa up until Q3. This is mainly due to the fact that we do not have enough people. And to some extent, we don't have enough trucks right now to be able to get up to full speed, but that should be able to sort itself out, hopefully, by Q3.Regarding grades, we do see in Q2, once again, a slightly tougher and great quarter than we -- you maybe have anticipated in Aitik. But looking for the whole year, there should be no difference, i.e., that we will have relatively good headwinds -- tailwinds regarding grades in Aitik in the second half of the year. This is due to the fact that we did lots of snow that we've had, we've not been able to mine the North bottom where we have the highest grades in Aitik, and we have -- we are forced for quite some time now to focus on other parts of the pit where the grades are lower. So therefore, there's no impact in, say, sort of the assessment of the actual grade in the different blocks in the block model.Kevitsa, I think we've said many times that we are in a year of low grades, and that will continue for the rest of the year. We are, of course, seeing some headwind in terms of premium. Hasn't really happened yet, but we're looking forward, of course. We see that in these situations, the premiums will come under pressure. And also the byproduct prices, sulfuric acid prices will come under pressure. Although I should say that, so far, we have not seen any problems of selling off our sulfuric acid. Those of you who were around, when we had the big Lehman situation 12 years ago, at that time, the biggest risk of the Boliden operation was the ability to get rid of sulfuric acid. We do not see that as a major risk right now, although it's, of course, always a risk looming back in the background. But sulfuric acid prices are coming down.Working capital. We will have a somewhat higher level and continue to have a somewhat higher level as long as we are in the corona times, and we are not 100% certain of what's happening around us. We will [ connect ] this as you will figure out internal profit elimination, which is a strange word, but rather put it here, delayed revenue recognition comes with that if you have more inventory. That means also that it will be a little while until we get that profit into the P&L.Regarding maintenance stops, they are much lower this year than last year. The total for this year has not changed. But the weighting between different quarters change as we will now have very -- relatively small maintenance staff or 1 small maintenance staff in Q2, and everything else has been moved to Q3 and into Q4.With those words, we will open up for questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Liam Fitzpatrick from Deutsche Bank.

[Liam Fitzpatrick, Head of European Metals and Mining]

Two or 3 question from me. Firstly on CapEx. Could you perhaps give us some guidance on the moving parts for 2021 in terms of sustaining and growth CapEx? If you don't approve any big projects, can you give us a range of what we're looking at for next year?And then secondly, on the Smelters, clearly a very good result. Just trying to think about how sustainable this will be into Q2 and the rest of the year, just given some of the issues that you flagged. So any kind of commentary you can give around that would be helpful.

[Mikael Staffas, President & CEO]

I can start with your first one on CapEx. I will not give any major guidance on 2021. As you can understand, there are moving parts around this, both moving parts that we can talk about and also maybe some moving parts that we cannot talk about because we have not announced them yet, and therefore, prefer to keep that one until we have a better understanding of it.Smelters, generally, yes, it's a good question, and it's always a good question. If you do a good, good quarter, can you repeat that or can you not? In principle, there is nothing extraordinary in the numbers. We have been -- in theory, we could have the same result next quarter minus the SEK 25 million that we have for the short or the small maintenance that we're doing next quarter. However, we do put up a little bit of warning flag because we will -- as already now and as the quarter progresses, we will not be able to have the ideal feed mix in the smelters, which will do something to yields and will do something to other things and throughput and so on. So yes, this is a good quarter, maybe not possible to repeat at least not every quarter.

[Liam Fitzpatrick, Head of European Metals and Mining]

Could I just briefly follow-up on the Smelters? In terms of the feed mix, do you have any concerns around actual shortages of concentrate? Or is it just the mix that is a concern for Q2 and Q3?

[Mikael Staffas, President & CEO]

For Q2, we don't have any concerns regarding the availability for Q3. I won't say anything because we're not that far ahead. And of course, it depends on what's going to happen around the world. But for Q2, it is the mix issue. We have lost some shipments of some concentrate, and we have replaced that with others with a different quality, and that causes some challenges.

[Operator]

The next question comes from the line of Ioannis Masvoulas from Morgan Stanley.

[Ioannis Masvoulas, Equity Analyst]

Just a couple from my side. In terms of working capital, should we expect a buildup in Q1 to continue into Q2? Or are you more comfortable now in terms of the overall concentrate balance? And we think that -- should we expect a full unwind of the Q1 investment in working capital, should COVID-19 restrictions begin to lift? Or is there a structural element in terms of security or supply going forward? And just second question, just a quick update on Tara. Obviously, pretty challenged in terms of the spot market dynamics. What are your latest thoughts there? And how have things normalized post the recent stoppage?

[Mikael Staffas, President & CEO]

I can start with the second one, and I'll give the first one to Håkan. Regarding Tara, things have normalized relatively well. But you're right, where SEK 1,900 zinc in a Tara situation is, of course, challenging. But we're still moving on, and it is still a valuable -- valid operations at those levels. Tara is basically what we find apart from the fact that Tara is maybe even more than the other units suffering from short-term absenteeism. It's a little bit different in Ireland compared to other parts of -- where we operate in the sense that it's more common that you live with your old parents. And people who live with their old parents tend to put themselves into quarantine to safeguard their parents more than other parts of society where all people live for themselves.

[Håkan Gabrielsson, Chief Financial Officer]

And working capital, before I answer, I should just highlight that there is a lot of uncertainty around this, depending on how things unfold. But our view is that you should be prepared for a further increase in working capital, not to the same extent as we've seen in Q1. Because in Q1, there is also a quite significant seasonal element. We typically have strong cash flows in Q4 and lower cash flows in Q1. Regarding unwinding the excess inventories, once the COVID-19 pandemic is gone and things stabilizes, yes, there will be a return to normal. But again, remember the seasonality.

[Operator]

The next question comes from the line of Jatinder Goel from Exane BNP Paribas.

[Jatinder Goel, Research Analyst]

A couple of questions, please. On metal balance -- sorry, metal inventory that you mentioned, was it purely logistical? Or are you facing any challenges on demand side as well? And related to that, have you seen any changes in your allocation between traders and industrial customers from metal sales? Second question on concentrate. Are you able to indicate the normal level of concentrate inventory number of months or weeks that you carry versus the levels at the end of first quarter?

[Mikael Staffas, President & CEO]

I can say regarding metal sales, as you know, basically, our base model is that we sell 100% to end users. And we've done so in Q1, and we've done so in early Q2. As we look forward into Q2, we will see -- we do see that our normal customers do not take 100% of the production, but we do not see any issues of selling the remaining parts to traders as of right now. And as you know, if that were now to happen, we always have the fallback options of going to LME, although that comes with 0 premium. We like to get premiums for what we sell. So that's a little bit on the market.Regarding concentrate stock, I'll just tell you, just to have a sense of it that basically the SEK 1 billion that we're talking about roughly or SEK 1 billion, SEK 1.5 billion is basically 1 week of operations. You can say that we have 1 week more of stuff in the system. It's lots of moving parts in there because it's inventory, but it's also payment terms that plays into to this mix but a week extra of stuff.

[Operator]

The next question comes from the line of Gustaf Schwerin from Handelsbanken.

[Gustaf Schwerin, Research Analyst]

Two questions from my side. Firstly, on the delayed ramp-up of the open pits. Just to be very clear, do you expect the full run rate now in Q3? Or does this new guidance say that it will be reached at some point during Q3? And then secondly, I didn't really hear what were you saying regarding delaying the maintenance to Q3. Is this mainly a logistical problem, just bringing external workers?

[Mikael Staffas, President & CEO]

To start with the second one, it is mainly an issue of, or you can say, fully an issue of being both able to get the kind of experts that come from around the world as you have in maintenance stops. And also the way you're working because we have, of course, instituted in our operations, the way you're working, where you keep social distancing. But when you -- and that's the one thing when you have an operation that has maybe 50 to 100 people there on a daily basis. During a maintenance stop, you will have 500 to 1,000 people there on a daily basis. And it's a difficulty for us to keep the social distancing. So that's the issue with the maintenance stops, and why they have been postponed.Some of you may ask you, are you going to be able to get them done in Q3? And the answer is that, that is our intent, but who knows what the world will look like in Q3. So that's the answer to that. Regarding the ramp-up, I would say the granularity here, we can get back to. If we were to be coming through the COVID by the end of Q2, i.e. we will have normal staffing levels starting Q3, that is the basis for our planning.Now there's, of course, always a risk that this COVID could drag on even further, and we will continue to have a lack of staff. Also in Q3, we might have to come back to that. But given that we have the people around, we should be able to start early Q3.

[Operator]

[Operator Instructions] The next question comes from the line of Krishan Agarwal from Citibank.

[Krishan M. Agarwal, VP & Analyst]

In the mining business, the operating profit has been lower significantly versus the last quarter. And consequently, the revenue has also been lower. Should we assume that this concept of delayed revenue recognition in mining business this quarter will reverse in the second quarter? And do you see a disproportionately higher increase in the revenues and the operating profit?

[Mikael Staffas, President & CEO]

Unfortunately, you broke up a little bit. So I'm not sure. I'll repeat the question just so I got it right. I think your question was whether the effect that we've seen in terms of -- in a definitive pricing in Q1, if that will reverse in Q2. And the answer to that is that depends what happens to prices. Of course, if the prices remain flat, then we will not see the same effect again, but we will not see the kind of reversal of it. But of course, if prices go up, then we get a tailwind from that. I don't know if I understood your question right. It was breaking up.

[Håkan Gabrielsson, Chief Financial Officer]

And I think the second question was...

[Krishan M. Agarwal, VP & Analyst]

Sorry, my question was more in the delayed revenue recognition you had in the mining business, and consequently, the profit was lower. So do we assume those volumes to get better in Q2?

[Mikael Staffas, President & CEO]

Okay. And that, I think you could say that, we -- you get a one-off effect when you go into such a situation. And then eventually, when you get out of it, you get that back. We're unlikely to get that back in Q2 and also maybe in Q3 because it will be a while until we will declare that we're out of corona, we can start working on lower levels of working capital again.

[Operator]

The next question comes from the line of Luke Nelson from JPMorgan.

[Luke Nelson, Research Analyst]

A couple of questions just on CapEx. Firstly, on 2020 guidance. Just wondering if there's some higher-than-expected inflationary effects coming through here. Just if I think back to the Q4 results, there was some stripping brought forward from Aitik and Kevitsa. So I just would have thought that this may have been reduced, given the delay in those ramp-up projects. And then secondly, just on Liam's early question, it looks like any new CapEx will probably come through in Smelters. So can you maybe give us a sense of what projects are most advanced here, the level of investment and the critical path to approval for some of these projects?

[Mikael Staffas, President & CEO]

I can start -- well, let's start with the stripping. Of course, you're right, in theory, stripping would be less when you're producing less. However, it is not due to lack of stripping that we cannot really get the production up. That has to do with other issues. And therefore, stripping is, to some extent, continuing as normal, although there's some moving parts in that as well.Now the other one is, of course, the interesting question. What are we thinking about doing on potential projects on the smelting side? And the answer is, I will not tell you until I'm ready to tell you down to do it. But as I always said in this situation many times that I think we have 5 smelters that are all quite proud and all of them are looking into expansions in different ways because all of them are making quite good money, and all of them are quite well competitively positioned in their specific fields, and therefore, you could think about that. But we'll get back to that once we have crossed that line and feel that we have a very good project.

[Operator]

The next question comes from the line of Daniel Major from UBS.

[Daniel Edward Major, Director and Analyst]

Dan Major from UBS. A few questions. Firstly, to follow up on Liam's question around the run rate of customer earnings in the smelting business. You highlighted some headwinds from feed stability, et cetera. But as far as I understand, you will also gain tailwinds from FX as well as the full realization of the higher benchmark zinc treatment charge. So on that basis, if we look through those sort of variables, is it still fair to assume a run rate north of SEK 1 billion kind of in the coming quarters and extrapolating that into 2021?

[Mikael Staffas, President & CEO]

I will not really put you up to numbers. But you're right that we could have a currency tailwind. It depends on where currencies go from where we are today. It is right pointing out that the higher zinc TCs going from $240, whatever, up to $300, the benchmark TC, that's only roughly halfway included in the Q1. So yes, there, there is a real tailwind. I don't know if you, Håkan, want to say anything else about that.

[Håkan Gabrielsson, Chief Financial Officer]

No, I think those are correct. I think the only message is that, as you've seen in the package, there are a number of production records and there's some profit records. And I think when we're in that situation, it's going to be a bit prudent because it's not perhaps something that we'll be able to repeat every quarter. But in principle, production has been stable, and there is nothing extraordinary in the results.

[Daniel Edward Major, Director and Analyst]

Great. Second question, which is, again, sort of a follow-up. Can you specify exactly how much the provisional pricing impact was on your mining revenue line this quarter?

[Håkan Gabrielsson, Chief Financial Officer]

The provisional pricing was not extremely big. In fact, this quarter, it was slightly on the negative side. I'm not sure if I can quantify it to 100%, but it was negative, but not huge.

[Mikael Staffas, President & CEO]

It's not triple digits.

[Håkan Gabrielsson, Chief Financial Officer]

It's not triple digits. It's...

[Mikael Staffas, President & CEO]

Double digits.

[Håkan Gabrielsson, Chief Financial Officer]

Double digits, yes.

[Daniel Edward Major, Director and Analyst]

Okay. Got it. That's useful. And then just final question from me. Clearly, we're in a volatile period for asset pricing. You've got a strong balance sheet. And as a company that has been involved in M&A in the not-too-distant future, is your current focus just solely on the assets? Or are you looking at this time in the market as a potential opportunity?

[Mikael Staffas, President & CEO]

How should I answer that? Of course, priority #1, 2 and 3 to take care of what we have, both in terms of the operations of what we have and taking care of the projects that we have. But of course, we've always said that we will always be looking. And as you pointed out, maybe there will be some interesting opportunities coming out of this and then we will be ready to take advantage of those, but then we'll see what comes out.

[Operator]

The next question comes from the line of Olivia Du from Bank of America.

[Xiaofei Du, Analyst]

So I just have 2 on liquidity, please. So previously, I think you've announced that there's currently no plan to get government funding for labor and, et cetera, as your liquidity position stood quite strong before Q1 results. So after assessing the initial impact of COVID towards the end of March, what's the thinking around capital allocation now? What is the initial thought on dividends? And what are the other cash preservation measures that you can potentially share with us at the stage, please?

[Mikael Staffas, President & CEO]

I can start at the dividend and as you can see written all [ this -- in here ], there's nothing written about dividends, i.e., the dividend proposal that we had from the last quarter after Q4 still stands. Those of you who follow Swedish companies know that this is not the rule. Many companies have, for different reasons, changed the dividend and loaded. We have not. We have a dividend policy. We had a dividend policy. It's been in place for many, many years. We're very proud of the dividend policy, and we will continue to follow our dividend policy. And I think that both explains why we're not changing the dividend now. It also sends a signal regarding going forward, where our priorities are -- well, the priority is that we will develop the business and do that as good as possible. And then if we get -- we will continue with the payout ratio. And if the balance sheet gets too strong, well, then we will have extra dividends.

[Håkan Gabrielsson, Chief Financial Officer]

I think the second question was about CapEx plans and capital allocation and so on. And then as Mikael talked about earlier, the main idea is very much business as usual, to carry through the existing projects. We have pushed a few forward in time, but essentially, we're completing the projects we have. Then going forward, if needed, if prices would turn much worse, we're ready to take further actions. But where we stand right now, we're seeing this as much as business as usual.

[Operator]

[Operator Instructions] The next question comes from the line of Christian Kopfer from Nordea.

[Christian Kopfer]

Just a few follow-ups from my side. If I look at Boliden area, firstly, it seems like you have been mining quite below the reserve grade for quite a long time now. Can you just mention approximately when you expect to approach the reserve grade there?

[Mikael Staffas, President & CEO]

That's a good question, Christian. As always, you're onto the details. What I can tell and what I know is that we've been below in gold because we've had a quarter where we have been having a mix between different mines that has been less coming from Kankberg and Renström, and that should be easing out over the year. Apart from gold, I'm actually not on top of the numbers. Are you, Håkan?

[Håkan Gabrielsson, Chief Financial Officer]

I think we are slightly above. And I don't -- I'm not going to guide for a specific time when we'll be back on the reserve grades. But it's -- I think the -- gold is the main difference, and that you have already answered.

[Mikael Staffas, President & CEO]

Okay. Christian, anything else?

[Christian Kopfer]

Yes. On Tara then, is it possible to quantify how much the disturbance, how much that impacted EBIT in Q1?

[Håkan Gabrielsson, Chief Financial Officer]

SEK 200 million approximately. It was about 12,000 tonnes of zinc and SEK 200 million.

[Christian Kopfer]

Great. And also on production in Tara, what you should be able to produce there? If I look at Q4 of last year, then you produced 650,000 tonnes, approximately, milled ore. And is there -- is that a representative figure going forward?

[Mikael Staffas, President & CEO]

That is, I can say, so that the 650,000 per quarter is the clear ambition. As you've seen, if you go further back, we have not really been able to achieve that due to the fact that we, in this old mine, do tend to get some unforeseen things, not every quarter, but it happens more often there than in other places. But 650,000 is a good base.

[Christian Kopfer]

Okay. And then finally from me. If I look at the reclamation reserve, it seems like it has a quite big jump in this quarter. If I look historically, it has increased by approximately SEK 90 million per quarter on average and now it suddenly jumps by SEK 150 million. What was driving that increase?

[Håkan Gabrielsson, Chief Financial Officer]

There is nothing particular this time with the reserve. But since that's valued at end of quarter exchange rates and we have seen a stronger euro, that has a big impact for the non-Swedish side, so to speak.

[Christian Kopfer]

No, it makes sense. So it's primarily FX-driven.

[Håkan Gabrielsson, Chief Financial Officer]

Primarily FX.

[Operator]

The next question comes from the line of Oskar Lindstrom from Danske Bank.

[Oskar Lindstrom, Senior Analyst]

So a couple of questions, and I want you to take us back to the Smelters. You talked a little bit about sort of evaluating different smelter or different CapEx projects. Could you maybe tell us the types of projects that you are seeing that you could possibly do in the Smelter division?

[Mikael Staffas, President & CEO]

Well, without going to any specifics, I can be very general, and I can say that we can consider getting into debottlenecking and getting into getting bigger throughput and expansions in that way. We could also think about potentially going further into refining certain streams that we today do not refine into final metals. So more staff in and potentially a higher value added in terms of getting further refining. I suppose those will be the 2 main aspects.

[Oskar Lindstrom, Senior Analyst]

And do you feel that sort of in terms of the profitability or payback from investments, are they tilting more towards Smelters now versus Mines or, I mean, is there a shift like that?

[Mikael Staffas, President & CEO]

No, no, no. Not because of this quarter or anything else. I mean we are much more long term than that. And you can say that maybe for a long time, we have been more optimistic on smelters than you guys have been, and now the smelters are turned around and we get some positive spin on the smelters and then maybe we are more pessimistic than you guys because we're standing still in the middle of the wind. We've always felt good about smelters. We have smelters, all 5 of them are very well positioned in their respective fields that are all in areas that are growing. They are all in a situation where there's a good demand for their products. And they're well positioned on the cost curve, i.e., they are all kind of in a position for growth. Now having said that, growing a smelter, it's lots of CapEx, and you have to be very prudent, and we will make sure that we know what we're doing before we do it.

[Oskar Lindstrom, Senior Analyst]

And coming to the Laver project or potential project, is there any news from the Swedish government on progress around that?

[Mikael Staffas, President & CEO]

No.

[Oskar Lindstrom, Senior Analyst]

And what do they say when you ask them?

[Håkan Gabrielsson, Chief Financial Officer]

Well, we've had heated discussions, and I think we've gotten all kind of answers to that. But the answer is we have no affirmative news, and I think that COVID has been a very good way for the Swedish government to be able to avoid talking about some difficult topics, including Laver. So that one, I will say right now is a little bit off the table because of this.

[Oskar Lindstrom, Senior Analyst]

All right. Just a final question from me is on the feed mix change, which you highlighted that would impact Smelters negatively in Q2. Has this already happened? And what's the situation now at the end of April? Are you still sort of -- have you -- is that still a problem at the end of April?

[Mikael Staffas, President & CEO]

I can answer it this way that the reason why this happened is that we've gotten cancellations coming out of South America. That should not surprise anybody. South America, especially Peru, has been shut down for a certain time. We've been able to replace that with other deliveries from other places, which means that we don't have a volume issue as such, but we do have a mix issue.That one started hitting us relatively early in this quarter, started hitting us in early April. And we are working all the time to secure that we can get this -- get as good a mix as we ever can. But as I said for -- we don't have an issue with volumes for Q2 as we see them right now. But we don't see a simple way of getting to the ideal feed mix within this quarter.Now what happens into Q3, I mean, if anybody of you will tell me exactly what's going to happen in Peru, then I can tell you much more what we're going to do in Q3, but nobody knows.

[Oskar Lindstrom, Senior Analyst]

And any way you could help us in thinking around the size or potential size of the negative impact from change in feed mix?

[Mikael Staffas, President & CEO]

I don't know if we should say a number on that. I mean it's material, but not lethal.Okay. I think that, that was actually the last question. So therefore, it's goodbye from us here in Stockholm. It's always, always nice talking to you, and I look forward to talking to some of you in the meantime. Otherwise, we're back again in 3 months. Bye.

[Håkan Gabrielsson, Chief Financial Officer]

Thank you. Bye.